Yext, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter 2021, the three months ended April 30, 2020. Comparisons are with the three months ended April 30, 2019, unless otherwise noted. Yext provides a subscription-based platform for businesses to manage and publish brand information across its website and a network of about 175 third-party services and applications.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Revenue | $85.4 million | $68.7 million | +24% |
| Gross profit / margin | $64.2 million / 75.2% | $52.2 million / 76.0% | Gross profit +23%; margin down 0.8 percentage points |
| Operating expenses | $93.4 million | $71.5 million | +31% |
| Operating loss | $(29.2) million | $(19.3) million | Loss increased |
| Net loss | $(29.2) million | $(19.0) million | Loss increased |
| Basic and diluted loss per share | $(0.25) | $(0.18) | Loss per share increased |
| Operating cash flow | $(0.7) million | $0.8 million | Turned negative |
| Capital expenditures | $21.3 million | $0.8 million | Increased substantially |
Revenue growth reflected new customers and expanded subscriptions among existing customers. Revenue from enterprise and mid-size customers, including reseller customers, rose 26% to $82.6 million. Professional services represented about 7% of revenue, versus less than 5% a year earlier.
Sales and marketing expense rose 26%, research and development 45%, and general and administrative expense 35%, largely reflecting higher headcount and related costs. Gross margin declined as cost of revenue grew faster than revenue. Stock-based compensation expense was $17.4 million, up from $13.2 million.
Balance sheet, liquidity and obligations
- Cash and cash equivalents were $248.8 million at April 30, 2020, down from $256.1 million at January 31, 2020. The company reported total assets of $536.8 million and total liabilities of $342.9 million.
- Current assets were $341.4 million and current liabilities $217.2 million. Current unearned revenue was $152.6 million, compared with $176.8 million at January 31, 2020.
- Yext said existing cash was expected to fund projected operating requirements for at least 12 months. It had a $50 million secured revolving credit facility, with $30.4 million available and $19.6 million allocated to letters of credit at quarter-end. The filing says it was in compliance with all debt covenants; a drawn loan balance is not clearly stated.
- Operating lease liabilities totaled $131.9 million, including $8.8 million current. Contractual obligations included $199.0 million of operating lease payments and $46.7 million of other payments.
- Remaining performance obligations were $293.8 million, of which $277.8 million was expected to be recognized within 24 months; the total was $328.1 million at January 31, 2020.
Cash flow and material period changes
Operating cash flow was a $0.7 million use of cash despite noncash stock compensation and favorable receivables movements; the company cited a $24.2 million decrease in unearned revenue among the offsetting cash-flow factors. Investing used $21.3 million, primarily for new office construction and build-out. Financing provided $3.0 million, mainly from option exercises and employee stock plan proceeds. Cash, cash equivalents and restricted cash declined by $19.4 million during the quarter. In the prior-year quarter, investing cash flow was positive because of marketable-security maturities, and financing included $147.0 million of net proceeds from a common-stock offering.
Property and equipment, net, increased to $49.0 million from $26.2 million, with construction in progress rising to $37.4 million. The company attributed much of the capital spending to new offices, including its New York headquarters.
Outlook, commentary and risks
- COVID-19: The pandemic disrupted Yext’s and its customers’ operations. Offices were temporarily closed, employees worked remotely, travel was restricted, and in-person events were canceled. Management warned that customers—especially in retail and food services—could delay or reduce technology spending, seek concessions or extended payment terms, shorten contracts, or not renew. Because subscription revenue is recognized over contract terms, the effects of changes in sales and renewals may appear in later periods.
- Actions and outlook: Yext launched pandemic information hubs with public-sector partners and offered Yext Answers as a 90-day free trial. It expected office-related capital spending to continue in fiscal 2021. The filing provides no numerical revenue or earnings guidance; management stated that cash should meet operating needs for at least 12 months.
- Headquarters lease: After quarter-end, Yext agreed to surrender its New York headquarters lease and exit the space on August 31, 2020, subject to possible extension. Related property and equipment had a $1.4 million net book value at April 30. The filing does not quantify the total financial effect of the surrender.
- Credit and covenants: The new three-year, $50 million secured revolving facility carries financial covenants, including a minimum 1.50-to-1 quick ratio and, under specified liquidity conditions, recurring-revenue growth requirements. A breach could constrain liquidity or operations.
- Controls: Management concluded disclosure controls were ineffective at April 30 because of a material weakness in processes for calculating, recording and accounting for sales commissions. Remediation was ongoing; the company did not estimate when it would be complete.
- Other risks and contingencies: Yext continued to report substantial losses and an accumulated deficit. It identified risks from pandemic-related uncertainty, competition, customer renewals and resellers, reliance on Knowledge Network providers, privacy and cybersecurity, and its long-term lease and capital commitments. No material legal proceeding was reported, and management considered the likelihood of a material adverse effect from disclosed ordinary-course claims remote.
Key facts for investors to verify
- Whether pandemic-related customer reductions, delayed sales, renewals and payment-term changes affect bookings, revenue growth, collections or bad-debt expense in subsequent quarters.
- Whether revenue growth can outpace operating-expense growth and improve the operating loss and gross margin.
- Cash burn and capital spending relative to the $248.8 million cash balance, remaining headquarters build-out costs and other contractual obligations.
- Actual borrowing, availability and covenant headroom under the secured revolving facility, including the effect of letters of credit.
- The financial and accounting consequences of the headquarters lease surrender and any related impairment or exit costs.
- Progress in remediating the sales-commission control weakness and whether the weakness leads to reporting adjustments or further control findings.
- Trends in remaining performance obligations, unearned revenue, customer renewals and the substantial unrecognized stock-based compensation burden.