Yext, Inc. — Form 10-Q summary
Business and period: Yext provides a subscription-based platform for managing business information and search experiences across its Knowledge Network. This report covers the fiscal third quarter and first nine months ended October 31, 2020, compared with the corresponding 2019 periods.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $89.1 million | $76.4 million | $262.5 million | $217.5 million |
| Gross profit / margin | $67.4 million / 75.7% | $56.0 million / 73.3% | $197.7 million / 75.3% | $161.3 million / 74.2% |
| Operating loss | $(21.8) million | $(42.8) million | $(75.2) million | $(92.4) million |
| Net loss | $(22.0) million | $(42.7) million | $(76.4) million | $(91.0) million |
| Net loss per share | $(0.18) | $(0.38) | $(0.64) | $(0.82) |
- Revenue and margins: Q3 revenue rose 17%; nine-month revenue rose 21%. Management attributed growth mainly to new subscriptions, with nine-month growth also reflecting expansions by existing customers. Enterprise and mid-size customer revenue grew 18% in Q3 and 22% year to date. Gross margin improved in both comparisons.
- Expenses: Q3 operating expenses fell 10% year over year, contributing to a narrower operating loss. Sales and marketing declined 9% in Q3, largely due to fewer events and lower travel during the pandemic; R&D rose 11%. G&A fell 24%, partly because the prior-year quarter included a $3.6 million one-time RSU cancellation expense. For the nine months, operating expenses rose 8%, including higher sales and R&D investment.
- Cash flow: Nine-month operating cash use was $23.7 million, versus $42.4 million a year earlier. Investing cash use was $53.9 million, mainly capital expenditures for office build-outs; the prior-year period included $51.2 million of marketable-security maturities. Financing provided $17.1 million, mainly from option exercises and employee stock purchases; the prior-year period included $147.0 million of net common-stock-offering proceeds.
- Cash and liquidity: Cash and cash equivalents were $209.0 million at October 31, down from $256.1 million at January 31. Management said existing cash should cover projected operating requirements for at least 12 months. The $50 million revolving credit facility had $35.7 million available and $14.3 million allocated to letters of credit; Yext reported covenant compliance. The filing does not disclose a funded borrowing balance.
- Debt, leases, and commitments: The secured revolving facility matures in March 2023 and is subject to financial and other covenants. Operating lease liabilities totaled $130.5 million, including current and non-current amounts. Future minimum operating lease payments were $190.5 million, with additional other contractual obligations of $36.7 million.
Material changes and outlook
- Remaining performance obligations were $285.4 million at October 31, down from $328.1 million at January 31; $265.3 million was expected to be recognized over the next 24 months. Revenue of $157.9 million recognized in the first nine months had been included in beginning unearned revenue.
- Capital expenditures reached $53.9 million, up from $7.3 million in the prior-year period, principally for the new New York headquarters and other office projects. Management expected office build-out spending to continue through fiscal year-end.
- COVID-19 disrupted Yext’s and its customers’ operations. The company cited risks of delayed or reduced technology spending, subscription reductions or nonrenewals, contract concessions, longer sales cycles, and weaker sales activity, particularly in affected industries and Europe. Ratable subscription revenue recognition may delay the effect of changes in bookings on reported revenue.
- Yext canceled its ONWARD20 in-person event and continued remote work and restrictions on nonessential travel. It described product and partnership initiatives, including Answers trials, an Adobe partnership, expanded language support, and information hubs developed with the WHO and government agencies.
- The filing provides no specific revenue or earnings guidance. Management’s stated liquidity outlook was that cash would be sufficient for at least the next 12 months; future results remain subject to substantial uncertainty.
- Controls: Disclosure controls were deemed ineffective as of October 31, 2020 because of a material weakness in processes for calculating, recording, and accounting for sales commissions. Management said remediation was ongoing and did not estimate when it would be complete.
- Other risks and contingencies: Yext reported no material legal proceedings and assessed the likelihood of a material adverse effect from ordinary-course claims as remote. Key disclosed risks include continued losses, pandemic-related demand and collection risks, customer and reseller retention, competition, reliance on Knowledge Network partners, data privacy and security, and covenant restrictions. The company reported no impairment-triggering events for goodwill or finite-lived intangible assets during the period.
Important facts for investors to verify
- Whether the sales-commission control weakness is remediated and whether it affects the reliability of future reporting.
- Whether revenue growth, renewals, and the remaining-performance-obligation balance remain resilient as pandemic-related contract concessions and customer spending pressures develop.
- Whether collections and the allowance for doubtful accounts reflect customer credit risk; nine-month bad-debt expense was $2.4 million, compared with $0.3 million a year earlier.
- How continued capital spending, operating cash use, and substantial lease commitments affect cash balances and liquidity.
- Whether Yext continues to comply with the credit facility’s financial covenants and whether any borrowing is outstanding; the supplied filing text does not state a funded balance.
- How much of reported operating performance is affected by stock-based compensation, which was $53.9 million for the first nine months.