Yext, Inc. — Q2 FY2021 Form 10-Q
Reporting period: Quarter and six months ended July 31, 2020. Yext provides a subscription-based platform for businesses to manage and publish information across its Knowledge Network and other channels. Comparisons below are with the corresponding 2019 periods unless noted.
Key financial results
| Metric | Three months | Six months |
|---|---|---|
| Revenue | $88.1 million, up 22% | $173.4 million, up 23% |
| Gross profit / margin | $66.1 million / 75.0% (73.4% prior year) | $130.2 million / 75.1% (74.7% prior year) |
| Operating loss | $24.2 million (prior year: $30.3 million) | $53.4 million (prior year: $49.6 million) |
| Net loss | $25.1 million; $0.21 per share | $54.3 million; $0.46 per share |
| Operating cash flow | $16.3 million used in the six months (prior year: $10.6 million used) | |
| Capital expenditures | $40.1 million in the six months (prior year: $4.4 million) |
Cash and cash equivalents were $223.3 million at July 31, down from $256.1 million at January 31, 2020. Working capital was approximately $117.6 million. The company reported $338.1 million of total liabilities, including $131.0 million of operating lease liabilities; these are not presented as funded debt. Its $50 million secured revolving facility had $30.4 million available, with $19.6 million allocated to letters of credit. Yext said it was covenant-compliant and believed cash on hand would fund projected operating requirements for at least 12 months.
Changes and operating trends
- Quarterly revenue growth was attributed primarily to new customers and expanded subscriptions. Enterprise and mid-size customer revenue increased 23% in the quarter and 25% in the six-month period.
- Quarterly operating loss narrowed year over year, but the six-month operating loss widened. Operating expenses grew 8% in the quarter and 19% over six months, reflecting higher headcount and related costs.
- Sales and marketing costs were partly offset by lower travel, conferences, and event spending during the pandemic. Yext canceled its in-person ONWARD20 event.
- Bad-debt expense was $2.3 million for the six months, including higher allowances tied to extended customer payment terms and pandemic-related considerations.
- Unearned revenue was $147.2 million at July 31, versus $176.8 million at January 31. Remaining performance obligations were $294.4 million, down from $328.1 million at January 31; $273.9 million was expected to be recognized over the next 24 months.
Outlook, risks, and unusual items
- No numerical revenue or earnings guidance is provided in the filing. Management warned that COVID-19 could weaken sales activity and growth: customers, especially in retail and food services, may delay or reduce spending, seek concessions or extended payment terms, shorten contracts, or not renew. Because subscription revenue is recognized over contract terms, changes in bookings may affect reported results in later periods.
- Yext expected capital spending on office build-outs to continue during fiscal 2021. Six-month capital expenditures were primarily related to its new New York headquarters and other offices.
- In May 2020, Yext agreed to surrender its former New York headquarters lease and exited the facility in July. The exit led to $0.8 million of additional depreciation in the quarter; lease obligations continued through August 31, 2020.
- The company remained loss-making and cited continued investment, competition, customer renewals, reseller exposure, and pandemic uncertainty as risks. It also disclosed that EU-U.S. Privacy Shield invalidation could increase data-transfer compliance risks and costs.
- Disclosure controls were deemed ineffective as of July 31, 2020 because of an unremediated material weakness in processes for calculating, recording, and accounting for sales commissions. Yext said remediation efforts were ongoing.
- Yext reported no material legal proceedings and no material adverse litigation impact was considered likely.
Important facts for investors to verify
- Whether pandemic-related changes in renewals, contract terms, customer collections, and bookings affect future revenue and cash flow.
- Whether cash use and substantial headquarters-related capital spending remain consistent with management’s stated 12-month liquidity assessment.
- How the decline in unearned revenue and remaining performance obligations develops, and the timing of their conversion to revenue.
- Whether Yext remediates the sales-commission control weakness and restores effective disclosure controls.
- Whether the revolving facility’s covenants, letters of credit, and lease commitments constrain future liquidity or operating flexibility.