Yext, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended January 31, 2019. The filing also reports the quarter ended January 31, 2019 (FY2019 Q4). Yext provides subscription-based software for managing business information across its network of more than 150 digital services and applications.
Financial results and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $228.3 million | $170.2 million |
| Gross profit / margin | $170.9 million / 74.9% | $126.1 million / 74.1% |
| Operating loss | $75.6 million | $66.6 million |
| Net loss | $74.8 million | $66.6 million |
| Operating cash flow | $5.2 million | $(32.4) million |
- Revenue grew 34%, primarily from new customers and expanded subscriptions. International revenue increased to $31.0 million from $14.2 million; it represented more than 14% of FY2019 revenue.
- Operating expenses increased 28% to $246.5 million. Sales and marketing was $158.8 million, research and development $36.1 million, and general and administrative $51.6 million. Stock-based compensation totaled $44.2 million, up from $22.4 million.
- FY2019 Q4 revenue was $63.8 million versus $48.0 million a year earlier; quarterly net loss was $15.5 million versus $17.0 million.
- At year-end, cash and cash equivalents were $91.8 million and marketable securities were $51.0 million, totaling $142.8 million. Current assets were $230.1 million and current liabilities $179.8 million.
- Operating cash flow turned positive, primarily reflecting a $47.0 million increase in unearned revenue and $44.2 million of non-cash stock compensation; the net loss and growth in receivables and capitalized contract costs were offsets.
- No revolving-line borrowings were outstanding; the $15.0 million line was fully available and Yext reported compliance with its covenants. The separate $7.0 million letter-of-credit facility had $5.3 million allocated at year-end; an additional $1.4 million was allocated in February 2019.
Changes, accounting, and management commentary
- Gross margin improved from 74.1% to 74.9% as revenue grew faster than cost of revenue. Management said provider costs declined as a share of revenue, while noting margins could fall with international expansion or new products.
- The net loss increased despite higher revenue, as operating expenses continued to rise. Management cited investment in personnel, sales capacity, product development, and growth.
- Yext adopted ASC 606 using the modified retrospective method effective February 1, 2018; prior-year results were not restated. Adoption reduced FY2019 reported revenue by $0.5 million and reduced operating expenses by $9.5 million, improving reported operating results by $9.1 million. It also resulted in $36.2 million of capitalized contract-acquisition costs at year-end.
- Management stated existing cash, cash equivalents, and marketable securities should fund projected operating requirements for at least 12 months. No numeric revenue or profitability guidance is provided in the supplied filing text.
- Remaining performance obligations were approximately $262.0 million, of which $242.9 million was expected to be recognized over the next 24 months. This is contracted future revenue, not a guarantee of realization.
Risks, contingencies, and unusual items
- Yext remained unprofitable, with an accumulated deficit of $301.1 million, and warned it may continue to incur losses as expenses rise.
- Management and the auditor identified a material weakness in information technology general controls. The auditor issued an adverse opinion on internal control over financial reporting, and management also deemed disclosure controls ineffective. The filing says no current-period misstatements or prior-period restatements were identified; remediation was underway, with no assurance of success or timeline.
- Post-year-end leases for offices in Virginia and London carry approximately $41 million of aggregate contractual obligations, with expirations after FY2024.
- Key business risks include dependence on third-party Knowledge Network integrations and resellers, customer renewals and sales execution, competition, international expansion, privacy and data-security regulation, service outages, and foreign exchange exposure. The top five customers, including resellers, represented approximately 14% of FY2019 revenue; no single customer exceeded 10%.
- The filing reports no material legal proceedings and no material off-balance-sheet arrangements. It cautions that ordinary-course claims and indemnification obligations could still create costs.
Important facts for investors to verify
- Progress and independent validation of remediation of the material weakness, including whether the previously identified revenue and financial-close control issues are resolved.
- Revenue growth, renewal and expansion performance, and whether the 110% dollar-based net retention rate can be sustained.
- Cash generation excluding the effects of increasing unearned revenue and non-cash stock-based compensation; track capitalized contract costs and receivables.
- Impact of ASC 606 and the three-year amortization period for new-contract acquisition costs when comparing reported results across periods.
- Execution and cash commitments related to international growth, new office leases, and continuing operating losses.