Yext, Inc. — Form 10-Q Summary
Reporting period: Three months ended April 30, 2017 (fiscal 2018 first quarter); unaudited. Yext provides subscription software for managing and distributing businesses’ digital information across more than 100 services.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $37.1 million | $27.1 million |
| Gross profit / margin | $27.4 million / 73.9% | $18.3 million / 67.4% |
| Operating loss | $15.4 million | $9.3 million |
| Net loss | $16.1 million | $9.3 million |
| Basic and diluted loss per share | $0.40 | $0.30 |
| Operating cash flow | $(8.3) million | $7.5 million |
| Capital expenditures | $1.1 million | $0.8 million |
- Revenue increased 37%, mainly from customer-base growth and expanded subscriptions with existing customers. North American revenue was $34.9 million and European revenue was $2.2 million.
- Gross margin improved as revenue grew faster than cost of revenue. Sales and marketing expense rose 69% to $28.5 million; research and development rose 5% to $5.0 million; and general and administrative expense rose 56% to $9.3 million. Stock-based compensation increased to $4.1 million from $1.6 million.
- At April 30, cash and cash equivalents were $133.7 million, restricted cash was $0.5 million, and deferred revenue was $57.4 million. Total liabilities were $83.0 million and stockholders’ equity was $103.7 million. Cash flow from operations deteriorated to an outflow, reflecting the net loss and payment timing for accrued expenses, partly offset by accounts-receivable collections and noncash stock compensation.
- Cash increased by $109.3 million, primarily due to the April IPO. The company received approximately $123.5 million after underwriting discounts and commissions, before offering costs of approximately $4.4 million. It repaid its $5.0 million revolving-line balance; no debt remained at quarter-end.
Material changes, outlook and risks
- All outstanding convertible preferred stock converted into common stock upon the IPO. The offering also increased the company’s cash and equity; shares outstanding were 89,995,441 at April 30 and 90,041,408 at May 30.
- Management stated existing cash and cash equivalents should fund projected operating requirements for at least 12 months. The filing provides no specific revenue or earnings guidance; management expects continued investment in growth, including international expansion, research and development, and sales and marketing.
- The company continued to incur substantial losses and warned that expenses may rise as it scales. Key disclosed risks include customer renewal and acquisition performance, competition, reliance on third-party network integrations and resellers, international expansion, and security or service disruptions.
- Management reported two previously identified material weaknesses in financial reporting controls: revenue-recognition controls and financial-close review and oversight. Remediation is ongoing, and timing is uncertain. Management nevertheless concluded disclosure controls were effective as of April 30.
- A lawsuit alleging violations related to sales practices was settled in April 2017 and dismissed with prejudice. The company said it was not then party to any legal proceeding material to its business or financial condition.
- Non-cancelable commitments totaled $30.4 million for operating leases and $17.3 million for application providers and other obligations. Management said it did not expect a hypothetical 10% currency or interest-rate change to have a material effect.
Investor verification priorities
- Track whether 37% revenue growth translates into improving operating leverage, given the larger operating loss and rapid sales and marketing expense growth.
- Assess cash burn excluding IPO proceeds and monitor operating cash flow, deferred revenue, and working-capital movements.
- Verify progress in remediating the two material weaknesses, especially revenue recognition and financial-close controls.
- Monitor customer retention and expansion, reseller dependence, and the durability and terms of PowerListings Network provider relationships.
- Review the IPO’s net proceeds and resulting dilution, including outstanding options and other equity awards.