Yext, Inc. — Form 10-Q Summary
Business context and reporting period
Yext provides a cloud-based platform for managing and distributing businesses’ digital information across a network of more than 150 services and applications. This unaudited filing covers the three months ended April 30, 2019, Yext’s first quarter of fiscal 2020, and compares results with the three months ended April 30, 2018. Revenue is primarily subscription and associated support, generally recognized over contract terms.
Financial performance and liquidity
- Revenue: $68.7 million, up 35% from $51.0 million. North America revenue was $56.5 million; international revenue was $12.2 million, or about 18% of total revenue.
- Gross profit and margin: $52.2 million and 76.0%, versus $38.2 million and 74.9% a year earlier.
- Operating expenses: $71.5 million, up 30%; sales and marketing was $46.4 million, research and development $9.9 million, and general and administrative $15.2 million.
- Losses: Operating loss was $19.3 million versus $16.9 million; net loss was $19.0 million versus $17.0 million. Basic and diluted loss per share was $0.18 in both periods.
- Cash flow: Operating activities provided $0.8 million, compared with $1.4 million. Investing activities provided $23.9 million, primarily from $24.7 million of marketable-security maturities, offset by $0.8 million of capital expenditures. Financing activities provided $153.5 million, chiefly from the stock offering.
- Cash and liquidity: Cash and cash equivalents were $257.7 million and marketable securities $26.4 million at April 30, totaling $284.1 million. An additional $12.1 million was restricted as collateral for a letter of credit. Current assets were $349.6 million and current liabilities $163.0 million. Management said available cash, cash equivalents and marketable securities were expected to fund projected requirements for at least 12 months.
- Debt and leases: The $15.0 million revolving credit line was fully available, with no borrowing reported; Yext was in compliance with its covenants. Operating lease liabilities were $36.6 million at quarter-end. The filing also identifies approximately $135 million of legally binding minimum payments under a New York office lease, which met accounting commencement criteria in May 2019.
- Other metrics: Unearned revenue was $125.4 million current, with $53.6 million recognized from the opening balance during the quarter. Remaining performance obligations were approximately $256.3 million, of which $240.2 million was expected to be recognized over the next 24 months. Stock-based compensation was $13.2 million, up from $8.0 million.
Material changes versus the prior comparable period
- Revenue growth outpaced cost-of-revenue growth, increasing gross margin by 1.1 percentage points. Management attributed revenue growth mainly to new customers and expanded subscriptions among existing customers.
- Operating expenses rose across all major categories, partly reflecting increased personnel-related costs and stock-based compensation. Despite stronger gross profit, operating and net losses increased.
- On March 20, 2019, Yext issued 7.0 million shares at $21.50 per share, receiving $147.0 million net of underwriting discounts and commissions, before approximately $0.5 million of offering costs. The offering materially increased cash and stockholders’ equity.
- Yext adopted the new lease accounting standard on February 1, 2019, recording operating lease right-of-use assets and liabilities. The filing says adoption did not materially affect the income statement.
Outlook, commentary, risks and unusual items
- Outlook: No specific revenue or earnings guidance is stated in the supplied filing text. Management plans to continue investing in international expansion, research and development, and sales and marketing, and expects lease expenses and related capital expenditures to increase. Management cautions that quarterly cash flows may vary with billing and collection timing and other factors.
- Profitability and execution: Yext reported a history of losses and an accumulated deficit of $320.1 million. It warned that expenses may continue to rise and that profitability is not assured.
- Lease commitments: The New York office lease’s approximately $135 million of minimum payments is a substantial long-term commitment. Total future minimum operating lease payments shown in contractual obligations were $188.6 million; that table includes the New York lease even though accounting for it commenced in May.
- Controls: Management concluded disclosure controls and procedures were ineffective as of April 30, 2019, due to a material weakness in information technology general controls identified previously. Remediation was ongoing, and the filing states that timing of remediation could not be estimated.
- Other risks and contingencies: The filing highlights dependence on third-party Knowledge Network providers and resellers, competition, customer renewals and sales execution, international expansion, privacy and cybersecurity, and foreign-exchange exposure. Yext said material adverse effects from current legal proceedings were considered remote and reported no material legal proceeding. No material off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether revenue growth and remaining performance obligations translate into sustained renewals, collections, and improved operating leverage.
- The timing, cash impact, and accounting treatment of the New York headquarters lease and other facility commitments.
- Progress in remediating the material weakness in information technology controls and whether controls become effective.
- The effect of the stock offering and ongoing equity compensation on share dilution; weighted-average shares rose to 106.5 million from 94.9 million.
- Whether operating cash flow remains positive without relying on quarter-specific billing and collection timing or noncash compensation adjustments.
- Availability and terms of the credit facility as it approaches its March 2020 maturity, and ongoing compliance with its covenants.