Yext, Inc. — Q3 FY2022 Form 10-Q
Reporting period: Three and nine months ended October 31, 2021. Yext provides a subscription platform for managing business information and search across its own products and approximately 200 third-party services.
Financial performance
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Revenue | $99.5 million | $89.1 million | $289.6 million | $262.5 million |
| Gross margin | 74.6% | 75.7% | 74.5% | 75.3% |
| Operating loss | $24.4 million | $21.8 million | $68.0 million | $75.2 million |
| Net loss | $24.9 million | $22.0 million | $70.1 million | $76.4 million |
| Net loss per share | $0.19 | $0.18 | $0.55 | $0.64 |
| Operating cash flow | Not separately presented for the quarter | $(7.3) million | $(23.7) million |
Q3 revenue increased 12%, primarily from new customers and subscription expansions; nine-month revenue increased 10%. Subscription and related support represented 92% of revenue in both periods, with the balance primarily professional services. Q3 gross margin declined 1.1 percentage points year over year as cost of revenue grew faster than sales. For the nine months, lower operating cash use reflected working-capital movements and non-cash expenses; cash flow remained negative.
Financial position and liquidity
- Cash and cash equivalents were $229.5 million at October 31, 2021, versus $230.4 million at January 31, 2021. Management said existing cash was expected to meet projected operating requirements for at least 12 months.
- Total assets were $556.2 million; total liabilities were $341.2 million. No borrowings were reported on the balance sheet. The $50 million secured revolving facility had $35.7 million available, with $14.3 million allocated to letters of credit. Yext reported covenant compliance.
- Operating lease liabilities totaled $133.0 million, current and non-current combined. Contractual obligations included $172.6 million of operating lease payments and $43.6 million of other obligations.
- Current unearned revenue was $151.5 million, down from $191.8 million at January 31, 2021. Remaining performance obligations were $337.2 million, of which $315.0 million was expected to be recognized over the next 24 months; the comparable January 31, 2021 balance was $351.8 million.
Material changes, outlook and risks
- Q3 operating expenses rose 11% year over year. Research and development increased 24% and general and administrative increased 22%; sales and marketing rose 3%. Higher personnel costs, stock-based compensation and depreciation were key drivers. Nine-month sales and marketing expense was nearly flat, partly reflecting lower stock compensation after prior-period senior-management departures.
- Stock-based compensation was $19.5 million in Q3 and $54.5 million for the nine months. Yext reported $153.2 million of unrecognized compensation cost for unvested awards, expected to be recognized over a weighted-average 2.73 years.
- The filing provides no specific revenue or earnings guidance. Management cited COVID-19-related uncertainty, including possible delayed or reduced customer spending, contract concessions, shorter terms and non-renewals, particularly in affected industries and geographies. Because subscription revenue is recognized over contract terms, changes in sales may affect reported results with a lag.
- Disclosure controls were deemed ineffective as of October 31, 2021 because of an unremediated material weakness in processes for calculating, recording and accounting for sales commissions. Management said remediation efforts were continuing.
- Other cited risks include continued losses, competition, customer and reseller renewals, reliance on third-party Knowledge Network providers, international operations, data security and privacy regulation, and possible financing needs. Yext reported no material legal proceedings and considered the likelihood of material adverse impact from ordinary-course claims remote.
Important facts for investors to verify
- Whether revenue growth and remaining performance obligations translate into renewed subscriptions and stronger cash generation, given the decline in unearned revenue from fiscal year-end.
- Whether gross-margin pressure and increased research and development and administrative costs persist, and how stock-based compensation affects reported losses and dilution.
- Progress and evidence of remediation of the sales-commission control weakness.
- Liquidity and covenant headroom, including the facility’s letters of credit, substantial lease commitments and management’s 12-month cash assessment.
- The effect of COVID-19, customer renewal behavior, reseller demand and international conditions on future bookings and revenue.
- Share-count movement: 129.7 million common shares were outstanding at October 31, 2021; the cover page reports 129.7 million as of November 23, 2021.