Yext, Inc. — Q1 Fiscal 2023 Form 10-Q
Reporting period: Three months ended April 30, 2022. Yext provides a cloud platform for managing business information and publishing it across its Knowledge Network. Fiscal 2023 ends January 31, 2023.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Revenue | $98.8 million | $92.0 million | +7% |
| Gross profit / margin | $74.1 million / 75.0% | $70.1 million / 76.2% | Gross margin down 1.2 percentage points |
| Operating expenses | $99.6 million | $87.4 million | +14% |
| Operating loss | $25.5 million | $17.2 million | Loss increased |
| Net loss | $25.8 million | $17.6 million | Loss increased |
| Net loss per share | $0.20 | $0.14 | Loss per share increased |
| Operating cash flow | $17.9 million | $35.1 million | Down $17.2 million |
| Capital expenditures | $1.6 million | $7.5 million | Down $5.8 million |
Subscription and related support generated 91% of revenue; professional services generated 9%. North America revenue was $78.7 million and international revenue was $20.1 million. Operating expenses rose across sales and marketing, research and development, and general and administrative functions. Stock-based compensation was $18.1 million, versus $14.6 million a year earlier.
Financial position and liquidity
- Cash and cash equivalents were $247.8 million at April 30, 2022, down from $261.2 million at January 31, 2022. Total assets were $555.4 million; total liabilities were $382.5 million.
- Unearned revenue, current, was $196.4 million, down from $223.4 million at January 31. Remaining performance obligations were $360.6 million, of which $341.1 million was expected to be recognized over the next 24 months.
- Yext reported no borrowings under its $50 million revolving facility; $35.7 million remained available, with $14.3 million allocated to letters of credit. The company was in compliance with its debt covenants.
- Management said existing cash was expected to fund projected operating requirements for at least the next 12 months.
- Operating cash flow was positive, but lower year over year, partly reflecting a $24.5 million decrease in unearned revenue. Financing cash outflow included $27.1 million of share repurchases.
Material changes and notable items
- Revenue growth was 7%, compared with 10% growth for fiscal 2022; the filing says management expects growth in the coming year to be slower.
- Cost of revenue grew 13%, faster than revenue, contributing to lower gross margin. Management attributed the increase mainly to higher personnel costs and depreciation.
- In March 2022, CEO Howard Lerman and CFO Steven Cakebread resigned. Chairman Michael Walrath became CEO, and Chief Accounting Officer Darryl Bond became CFO. The filing cautions that leadership changes may disrupt near-term business execution.
- A $100 million repurchase program was authorized in March. By April 30, Yext had repurchased 4.84 million shares for $30.6 million at an average $6.32 per share. The filing reports an additional approximately $24 million of repurchases after quarter-end through June 9.
- Yext granted an executive 2 million performance-based restricted stock units outside its equity incentive plan. The award is tied to stock-price targets.
Outlook, risks, and contingencies
The filing provides no numerical revenue or earnings guidance. Management cited COVID-19-related uncertainty and risks to customer spending, renewals, sales cycles, and growth. The risk factors also highlight macroeconomic weakness, including potential effects from Russia’s invasion of Ukraine; competition; customer and reseller retention; reliance on third-party Knowledge Network providers; security and privacy obligations; and the impact of leadership and organizational changes. Subscription revenue is recognized over contract terms, so changes in bookings may affect reported results with a delay.
Yext disclosed no material legal proceedings and considered the likelihood of a material adverse impact from ordinary-course claims remote. It reported no material effect from inflation to date, but warned that higher personnel costs could be difficult to offset. The company’s secured credit facility has financial covenants and restrictive terms; LIBOR transition could affect borrowing costs.
Investor verification points
- Check subsequent revenue growth, renewals, customer expansion, and remaining performance obligations against the disclosed slowdown outlook.
- Monitor operating expense growth, gross margin, cash-flow conversion, and the effect of deferred revenue movements.
- Track leadership transition and execution of any near-term expense reductions or strategic changes.
- Verify the pace and funding impact of share repurchases, alongside stock-based compensation and share dilution.
- Review liquidity and covenant compliance, including revolver availability and any changes to facility terms or benchmark rates.