Yext, Inc. — Form 10-Q Summary
Business context and reporting period
Yext provides a cloud-based digital knowledge platform that synchronizes business information across a network of approximately 150 services and applications. This unaudited filing covers the three and six months ended July 31, 2018 (the second quarter and first half of fiscal 2019); comparisons are with the corresponding 2017 periods.
Key financial metrics
| Metric | Three months ended July 31, 2018 | Six months ended July 31, 2018 |
|---|---|---|
| Revenue | $55.1 million; up 35% | $106.2 million; up 36% |
| Gross profit / margin | $41.0 million / 74.4% | $79.3 million / 74.7% |
| Operating expenses | $62.2 million | $118.5 million |
| Operating loss | $21.2 million | $39.2 million |
| Net loss | $21.1 million | $39.2 million |
| Net loss per share, basic and diluted | $0.22 | $0.41 |
| Cash used in operating activities | Not separately stated | $3.0 million |
At July 31, 2018, cash and cash equivalents were $47.2 million and marketable securities were $77.7 million, totaling $124.8 million. Total assets were $197.7 million; total liabilities were $122.1 million; and stockholders’ equity was $75.6 million. Current deferred revenue was $87.5 million. The company had no revolving-line borrowings and $15.0 million available under its credit facility, which matures March 16, 2020. Management said available cash and securities should fund projected operating requirements for at least 12 months.
Changes versus the prior comparable periods
- Revenue increased from $40.8 million to $55.1 million in the quarter and from $77.8 million to $106.2 million in the first half. Management attributed growth primarily to new customers and expanded subscriptions with existing customers.
- Quarterly gross margin edged up to 74.4% from 74.1%; first-half margin rose to 74.7% from 74.0%, as revenue growth outpaced cost-of-revenue growth.
- Quarterly net loss widened to $21.1 million from $16.4 million; first-half net loss widened to $39.2 million from $32.5 million. Sales and marketing, research and development, and general and administrative expenses all increased, reflecting higher personnel costs and stock-based compensation.
- First-half operating cash use improved to $3.0 million from $13.9 million. The filing cites noncash stock compensation and depreciation, plus working-capital movements, as contributors; cash flow remains sensitive to billing and collection timing.
- International revenue rose to $7.2 million for the quarter from $3.0 million and to $13.4 million for the first half from $5.2 million.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is provided. Management plans continued investment in international expansion, research and development, and sales and marketing, and warns that operating expenses are expected to increase.
- The company has a history of losses: first-half accumulated deficit reached $272.7 million. Management says sustained revenue growth is needed to reach profitability; continued losses are possible.
- Stock-based compensation was $11.0 million for the quarter and $19.0 million for the first half, versus $5.0 million and $9.1 million, respectively, in 2017. Unrecognized compensation cost was approximately $137.9 million, expected to be recognized over an estimated 3.4 years.
- The company reported two previously identified material weaknesses in financial reporting controls—revenue-recognition controls and financial-close review—and said remediation efforts continue. Management concluded disclosure controls were effective as of July 31, 2018.
- Yext expects it may cease to qualify as an emerging growth company after fiscal 2019, potentially increasing reporting obligations. It plans to adopt the revenue-recognition standard using the modified retrospective method, currently targeting February 1, 2019 if eligible to use the extended transition period; earlier adoption may be required. It expects more commission costs to be capitalized and amortized over a longer period.
- Contractual commitments at July 31 included $22.3 million of operating lease payments and $11.8 million for application providers and other obligations. The company reported no material legal proceedings and considered the likelihood of material adverse impact from ordinary-course claims remote.
- Key risks include dependence on Knowledge Network providers and resellers, competition, customer renewals and pricing, international expansion and privacy-law compliance, security and service interruptions, and the ability to manage growth and remediate control weaknesses. The credit facility also contains financial and operating covenants; Yext reported covenant compliance.
Important facts for investors to verify
- Whether revenue growth and customer expansion continue, particularly internationally, and how renewal rates, pricing and reseller activity develop.
- Whether expense growth—especially sales and marketing, R&D, and stock-based compensation—moderates enough to improve losses and margins.
- Operating cash flow, collection timing, deferred revenue and the sufficiency of the $124.8 million cash-and-securities balance as investment continues.
- Progress and independent validation of remediation of the two material weaknesses, and any effect of emerging-growth-company status changes on controls and reporting.
- The timing and financial-statement effects of adopting the new revenue-recognition and lease-accounting standards.