Yext, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended July 31, 2019. Yext provides a subscription-based platform for businesses to manage and distribute business information through a network of more than 150 third-party services and applications. Fiscal 2020 ends January 31, 2020.
Financial performance
| Metric | Three months ended July 31, 2019 | Six months ended July 31, 2019 |
|---|---|---|
| Revenue | $72.4 million; up 32% year over year | $141.1 million; up 33% |
| Gross profit / margin | $53.1 million / 73.4% | $105.3 million / 74.7% |
| Operating loss | $30.3 million | $49.6 million |
| Net loss | $29.3 million; $0.26 per share | $48.3 million; $0.44 per share |
| Cash used in operating activities | $10.6 million for the six months, versus $3.0 million in the prior-year period |
- Revenue growth reflected new customers and expanded subscriptions from existing customers. International revenue was $12.4 million for the quarter, approximately 17% of revenue, versus $6.9 million a year earlier.
- Quarterly gross margin declined from 74.4% to 73.4%; six-month gross margin was broadly stable versus 74.6% in 2018. Operating expenses rose faster than quarterly revenue: sales and marketing increased 37%, research and development 27%, and general and administrative 52%.
- At July 31, cash and cash equivalents were $268.8 million, marketable securities $5.4 million, and restricted cash $12.1 million. Management described cash, cash equivalents and marketable securities of $274.2 million as sufficient for projected operating requirements for at least 12 months. Total cash, cash equivalents and restricted cash was $280.9 million.
- Yext reported no borrowings under its $15.0 million revolving credit line, which was fully available; $6.9 million of its $7.0 million letter-of-credit facility was allocated. The company was in compliance with covenants.
- Total assets were $508.2 million and total liabilities $283.0 million. Current assets were $345.2 million against current liabilities of $172.7 million. The balance sheet included $115.6 million of operating lease liabilities, including $108.7 million non-current.
Changes versus prior comparable periods
- For the quarter, net loss widened from $19.4 million to $29.3 million, and operating loss from $19.5 million to $30.3 million. Six-month net loss widened from $36.4 million to $48.3 million.
- Operating cash use increased to $10.6 million from $3.0 million for the first half. Management cited the net loss and decreases in unearned revenue as major uses, partly offset by noncash expenses and timing-related collections.
- In March 2019, Yext issued 7.0 million shares at $21.50 per share, raising $147.0 million net of underwriting discounts and commissions, before approximately $0.5 million of offering costs. Shares outstanding increased to 112.7 million at July 31 from 102.2 million at January 31.
- Adoption of lease accounting in February 2019 brought operating lease right-of-use assets and liabilities onto the balance sheet. Management said adoption did not materially affect the income statement.
Outlook, risks and unusual items
- No specific revenue, earnings or cash-flow guidance is provided in the filing. Management expects existing cash, cash equivalents and marketable securities to cover projected operating needs for at least 12 months, while noting cash flows can vary with billing, collections, leases and capital spending.
- Management expects to continue investing in international expansion, research and development, and sales and marketing. It also expects lease costs and related capital expenditures to increase as it enters new or expanded facilities, including a new New York headquarters.
- Remaining performance obligations were approximately $259.0 million at July 31; $241.7 million was expected to be recognized over the next 24 months. This is contracted future revenue, not a guarantee of collection or recognition on a specific schedule.
- The company continues to report substantial losses and an accumulated deficit of $349.4 million. Stock-based compensation was $29.8 million for the first half, and unrecognized compensation cost was approximately $186.6 million, indicating potential future expense and dilution.
- Disclosure controls and procedures were deemed ineffective at July 31 because of a material weakness in information technology general controls identified previously. Management said remediation efforts were continuing; timing and successful remediation were not assured.
- Key disclosed risks include customer retention and sales execution, competition and reliance on third-party Knowledge Network providers and resellers, international and privacy regulation, cybersecurity and service interruptions, and the ability to achieve profitability. New York office lease commitments are substantial: future minimum operating lease payments were reported at $187.6 million before tenant allowances and imputed interest.
- Management considered the likelihood of a material adverse impact from current ordinary-course litigation remote; the filing states no legal proceedings were material to the business or financial condition.
Important facts for investors to verify
- Whether revenue growth and customer expansions continue, and whether renewals and remaining performance obligations convert into recognized revenue and cash collections.
- Whether operating expense growth moderates and gross margins hold up as headcount, sales investment, provider fees and facility costs rise.
- Cash burn and liquidity, including the distinction between $274.2 million of cash, cash equivalents and marketable securities and $280.9 million including restricted cash.
- Progress and independent evidence of remediation of the material weakness in IT general controls and the effectiveness of financial reporting controls.
- Future dilution from equity compensation and share issuance, alongside the cost and duration of lease commitments and the status of the credit facility.