Yext, Inc. — Q2 FY2022 Form 10-Q
Reporting period: Quarter and six months ended July 31, 2021. Yext provides subscription software for managing business information and search experiences across its platform and a network of approximately 200 third-party services.
Financial results
| Metric | Q2 FY2022 | Q2 FY2021 | Six months FY2022 | Six months FY2021 |
|---|---|---|---|---|
| Revenue | $98.1 million | $88.1 million | $190.1 million | $173.4 million |
| Gross margin | 72.9% | 75.0% | 74.5% | 75.1% |
| Operating loss | $(26.4) million | $(24.2) million | $(43.6) million | $(53.4) million |
| Net loss | $(27.6) million | $(25.1) million | $(45.2) million | $(54.3) million |
| Net loss per share, diluted | $(0.22) | $(0.21) | $(0.36) | $(0.46) |
| Operating cash flow | Not separately reported for the quarter | $2.4 million | $(16.3) million |
Quarterly revenue increased 11%, attributed primarily to new customers and expanded subscriptions; six-month revenue rose 10%. Subscription and support represented approximately 92% of revenue. Quarterly gross margin declined as cost of revenue rose 21%, faster than revenue, partly due to personnel, stock compensation, data-center and depreciation costs. For the six-month period, operating expenses were nearly flat overall, while research and development increased.
For the six months, investing cash outflow was $10.6 million, mainly capital expenditures; financing cash inflow was $17.6 million, primarily from stock-option exercises and employee stock purchases. Cash increased by $10.1 million to $240.5 million. Stock-based compensation was $35.0 million for the six months, and the company reported a non-GAAP net loss of $10.2 million after excluding that expense; this non-GAAP measure does not capture the full economic cost of equity compensation.
Financial position and liquidity
- At July 31, 2021, current assets were $349.2 million and current liabilities were $228.9 million; cash and cash equivalents were $240.5 million.
- Total liabilities were $352.2 million, including $131.9 million of operating lease liabilities. The filing does not state a funded borrowing balance. The $50.0 million revolving facility had $35.7 million available, with $14.3 million allocated to letters of credit.
- Unearned revenue, current, was $165.4 million, down from $191.8 million at January 31, 2021. Remaining performance obligations were $341.6 million, versus $351.8 million at January 31; $323.8 million was expected to be recognized over the next 24 months.
- Management said existing cash and cash equivalents were expected to fund projected operating requirements for at least the next 12 months. The company was in compliance with its debt covenants at quarter-end.
Changes, outlook and risks
- Quarterly net loss widened year over year, while the six-month net loss narrowed. Quarterly gross margin fell 2.1 percentage points year over year; six-month gross margin fell 0.6 percentage point.
- Management gave no specific revenue or earnings guidance in the provided filing text. It noted that subscription revenue is recognized over contract terms, so changes in sales and renewals may affect reported results with a delay.
- COVID-19-related uncertainty continued to affect customer spending and sales activity. Customers, especially in retail, food services and some European markets, could reduce or delay technology spending, seek contract concessions, shorten terms or not renew. Yext said its trailing 12-month dollar-based net retention rate continued to decline, but the filing text does not provide a clear value.
- Disclosure controls were concluded to be ineffective as of July 31, 2021 because of an unremediated material weakness in processes for calculating, recording and accounting for sales commissions. Management said remediation efforts were continuing; no material changes to internal control were identified during the quarter.
- Other key risks include continuing losses, competition, customer and reseller retention, dependence on third-party Knowledge Network providers, privacy and cybersecurity obligations, international expansion, and potential cost or covenant effects from the secured credit facility. The company reported no material legal proceedings and considered the likelihood of a material adverse impact from ordinary-course claims remote.
- Operating lease commitments totaled $177.8 million and other contractual obligations totaled $39.2 million as of July 31, 2021. The company also reported $162.8 million of unrecognized compensation cost related to unvested stock awards.
Important facts for investors to verify
- Whether customer retention and renewal trends stabilize, particularly given the disclosed continued decline in dollar-based net retention and COVID-related customer risks.
- Progress and timing of remediation of the sales-commission material weakness, and whether subsequent filings report effective controls.
- Drivers of the gross-margin decline and whether higher personnel, infrastructure and depreciation costs persist.
- Cash generation after changes in billing, collections, unearned revenue and capital spending; management cautions that cash flows may vary significantly by quarter.
- Future use and terms of the revolving credit facility, covenant compliance, and the effect of the LIBOR transition referenced in the filing.
- Share dilution and compensation expense, including outstanding equity awards and the substantial unrecognized stock-based compensation cost.