Yext, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended October 31, 2019. Comparisons are with the corresponding 2018 periods. Yext provides a subscription platform for businesses to manage and distribute business information across a network of more than 150 third-party services and applications.
Financial performance
| Metric | Three months ended October 31, 2019 | Three months ended October 31, 2018 | Nine months ended October 31, 2019 | Nine months ended October 31, 2018 |
|---|---|---|---|---|
| Revenue | $76.4 million | $58.6 million | $217.5 million | $164.5 million |
| Gross profit / margin | $56.0 million / 73.3% | $43.7 million / 74.6% | $161.3 million / 74.2% | $122.8 million / 74.6% |
| Operating expenses | $98.8 million | $66.7 million | $253.7 million | $182.2 million |
| Operating loss | $42.8 million | $23.0 million | $92.4 million | $59.4 million |
| Net loss | $42.7 million | $22.9 million | $91.0 million | $59.4 million |
| Net loss per share, basic and diluted | $0.38 | $0.23 | $0.82 | $0.61 |
Revenue grew 30% for the quarter and 32% for the nine-month period, primarily from new customers and expanded subscriptions among existing customers. International revenue was 18% of revenue in the quarter and nine-month period, compared with 15% and 14%, respectively, in 2018.
Operating expenses grew faster than revenue in both periods. Quarterly sales and marketing increased 42%, research and development 42%, and general and administrative 72%. The nine-month increases were 36%, 33%, and 53%, respectively. Management attributed much of the expense growth to higher headcount, compensation, stock-based compensation, and new office leases. Stock-based compensation was $50.9 million for the nine months, versus $31.9 million a year earlier. General and administrative expense included a $3.6 million one-time RSU cancellation-related charge.
Cash, liquidity, debt, and obligations
- At October 31, 2019, cash and cash equivalents were $244.8 million; restricted cash was $12.1 million. The company had no marketable securities at quarter-end. Management stated existing cash and cash equivalents were expected to meet projected operating requirements for at least 12 months.
- Net cash used in operating activities was $42.4 million for the nine months, compared with $25.6 million used in 2018. Capital expenditures were $7.3 million.
- Cash increased by $165.1 million during the nine months, principally reflecting $147.0 million of net proceeds from a March 2019 common-stock offering, plus option exercises and employee stock purchases.
- No revolving-line borrowings were reported; the $15.0 million credit line was fully available. The facility matures March 16, 2020. Yext was in compliance with its debt covenants. A $12.1 million cash deposit secures standby letters of credit connected with office leases.
- Operating lease liabilities totaled $118.5 million, including $8.1 million current and $110.4 million non-current. The weighted-average remaining lease term was 10.2 years. Future minimum payments under operating leases totaled $196.0 million before tenant allowances and discounting; other contractual payments totaled $27.1 million.
- Current assets were $318.1 million and current liabilities were $161.1 million. Unearned revenue, current was $107.5 million, down from $135.5 million at January 31, 2019. Remaining performance obligations were approximately $251.8 million, of which $237.5 million was expected to be recognized over the next 24 months.
Changes and notable items
- Revenue growth remained strong, while net loss widened and gross margin declined 1.3 percentage points in the quarter and 0.4 percentage points for the nine months.
- Yext issued 7.0 million shares in March 2019 at $21.50 per share, generating $147.0 million net of underwriting discounts and commissions, before approximately $0.5 million of offering costs. Shares outstanding increased to 114.4 million at October 31, from 102.2 million at January 31.
- Adoption of the new lease accounting standard resulted in recognition of $110.0 million of operating lease right-of-use assets and related lease liabilities at October 31; it did not materially affect the income statement.
- Yext launched its Answers site-search product in October 2019. The filing describes continued plans to expand internationally and invest in research and development, sales, marketing, and facilities.
Outlook, risks, and contingencies
The filing provides no specific revenue or earnings guidance. Management expects to continue investing in growth and cautions that lease expense and capital expenditures may increase with new and expanded facilities, including the planned New York headquarters. It also notes that additional financing could be needed in the future and may not be available on acceptable terms.
- Yext reported a history of losses, including a $91.0 million net loss for the first nine months of fiscal 2020 and an accumulated deficit of $392.1 million. It said it may continue to incur operating losses.
- Disclosure controls and procedures were concluded to be ineffective as of October 31, 2019 because of a material weakness in information technology general controls identified previously. Remediation was ongoing; management did not estimate how long it would take.
- Key disclosed business risks include competition, customer renewals and sales execution, dependence on third-party Knowledge Network providers and resellers, cybersecurity and service availability, privacy regulation, international expansion, and the ability to manage growth and expenses.
- The company disclosed no material legal proceedings and considered the likelihood of a material adverse impact from ordinary-course claims remote. A potential performance bond related to New York office construction had not been issued and no payments had been made as of October 31.
Important facts for investors to verify
- Whether revenue growth can continue to outpace operating expense growth and whether gross margins stabilize.
- How operating cash use, subscription billing and collections, and the decline in unearned revenue affect liquidity and cash needs.
- Progress and evidence of remediation of the material weakness in information technology general controls.
- The fully available $15.0 million credit line’s March 2020 maturity and any renewal or replacement financing arrangements.
- The financial impact of substantial long-term lease commitments and further office expansion.
- Whether the new Answers product and international expansion generate sufficient customer adoption and revenue relative to investment.