Yext(YEXT) - 2019 Q4 - Annual Report

Part I Business Overview Yext offers a cloud platform for businesses to manage public digital information across 150+ services, achieving $228.3 million revenue but a $74.8 million net loss in FY2019 - Yext's platform enables businesses to control and synchronize digital knowledge across a Knowledge Network of over 150 services, including Amazon Alexa, Apple Maps, Google, and Facebook[23] - The company's growth strategy focuses on expanding its customer base, increasing sales to existing customers, international expansion (over 14% of FY2019 revenue), developing new products, and extending its Knowledge Network[34][37] - As of January 31, 2019, Yext had over 900 full-time employees and served businesses in over 100 countries, with no single customer accounting for more than 10% of fiscal 2019 revenue[49][64] Financial Performance (Fiscal Years 2017-2019) | Fiscal Year Ended Jan 31 | Revenue (in millions) | Net Loss (in millions) | | :--- | :--- | :--- | | 2019 | $228.3 | $(74.8) | | 2018 | $170.2 | $(66.6) | | 2017 | $124.3 | $(43.2) | Overview Yext positions itself as a knowledge engine, providing a cloud platform to manage public digital information across a vast network of services, reporting $228.3 million revenue and a $74.8 million net loss in fiscal 2019 - Yext's platform serves as a system of record for digital knowledge, ensuring accuracy across its Knowledge Network including Amazon Alexa, Apple Maps, Google, and Yelp[23][25] Key Financials (FY2017-FY2019) | Fiscal Year Ended | Revenue (in millions) | Net Loss (in millions) | | :--- | :--- | :--- | | Jan 31, 2019 | $228.3 | $(74.8) | | Jan 31, 2018 | $170.2 | $(66.6) | | Jan 31, 2017 | $124.3 | $(43.2) | Growth Strategy Yext's growth strategy focuses on expanding its customer base, deepening existing customer relationships, developing new products, and extending its global Knowledge Network - Key growth strategies include expanding the customer base, up-selling to existing customers, and international expansion[34][37] - International revenue comprised over 14% of total revenue in fiscal 2019, with established presence in the UK, Germany, France, Italy, Switzerland, Japan, and China[37] - The company plans to expand its Knowledge Network, which included over 150 applications in FY2019, focusing on industry-specific and international services like Amazon Alexa integration[37] The Yext Knowledge Engine The Yext Knowledge Engine is a cloud-based platform enabling customers to manage digital knowledge through subscription packages for Listings, Pages, and Reviews - The platform's core features, Listings, Pages, and Reviews, are offered via subscription packages[40] - The technology features a cloud-based, microservices architecture built with open-source technology, hosted in co-location data centers for scalability and redundancy[42][43] - Data is structured using schema.org standards, ensuring compatibility with search engines such as Google and Bing[44] Sales and Marketing Yext sells solutions globally via direct sales, resellers, and self-service, focusing on enterprise and mid-size businesses with a dollar-based net retention rate of 110% in fiscal 2019 - The quota-carrying sales force grew from 131 to 173 representatives in the year ended January 31, 2019[51] - Revenue from direct sales to small businesses was less than 10% of total revenue in fiscal 2019, reflecting a shift towards larger customers[54] Dollar-Based Net Retention Rate | Fiscal Year Ended | Rate | | :--- | :--- | | Jan 31, 2019 | 110% | | Jan 31, 2018 | 109% | | Jan 31, 2017 | 119% | Competition Yext operates in an evolving digital knowledge management market, primarily competing with in-house manual processes and smaller firms offering limited features - Primary competition stems from businesses managing digital knowledge in-house via manual processes[62] - Yext also competes with smaller firms offering lower-priced products or a subset of its features[62] - Competitive strengths include the breadth of its Knowledge Network, platform features, ease of integration, and customer ROI[63] Risk Factors Yext faces significant risks including persistent net losses, rapid growth management, reliance on key partners, security breaches, and material weaknesses in internal controls - The company has a history of losses, with a net loss of $74.8 million in fiscal 2019 and an accumulated deficit of $301.1 million as of January 31, 2019[68] - Growth is highly dependent on expanding the direct sales force and successfully managing international operations, which expose the company to regulatory, economic, and political risks[75][77] - The business relies on strategic relationships with over 150 third-party application providers in its Knowledge Network, where the loss of a key partner like Google could significantly impact customer retention[81] - A material weakness in internal control over financial reporting related to information technology general controls was identified as of January 31, 2019, potentially affecting investor confidence[112][114] - The company is subject to evolving data privacy laws such as GDPR and the California Consumer Privacy Act (CCPA), potentially increasing compliance costs and liability[132][134] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[192] Properties Yext's corporate headquarters are in New York, NY, occupying 95,000 sq ft of leased space, with other domestic and international leased offices deemed adequate - Corporate headquarters are in New York, NY, with approximately 95,000 sq. ft. of leased space[193] - All facilities are leased, and the company believes existing space is adequate for current needs[193] Legal Proceedings The company is not currently a party to any legal proceedings material to its business or financial condition - The company is not currently a party to any material legal proceedings[194] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[195] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Yext's common stock trades on the NYSE since April 2017, with no dividends paid, and details on equity compensation plans are provided - Common stock trades on the NYSE under the symbol "YEXT" since April 13, 2017[198] - The company has never paid dividends and does not anticipate paying them in the foreseeable future[199] Equity Compensation Plan Information (as of Jan 31, 2019) | Plan Category | Securities to be issued upon exercise/vesting | Weighted-average exercise price of outstanding options | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 23,680,940 | $6.54 | 2,966,657 | Selected Financial Data Selected financial data shows consistent revenue growth from $60.0 million in FY2015 to $228.3 million in FY2019, alongside widening net losses and increased operating expenses Selected Consolidated Statements of Operations Data (in thousands) | Fiscal year ended January 31, | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $228,283 | $170,201 | $124,261 | $89,724 | $60,002 | | Gross profit | $170,870 | $126,106 | $87,311 | $58,691 | $35,170 | | Loss from operations | $(75,645) | $(66,640) | $(42,700) | $(26,138) | $(17,351) | | Net loss | $(74,837) | $(66,565) | $(43,150) | $(26,495) | $(17,273) | Selected Consolidated Balance Sheet Data (in thousands) | As of January 31, | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $91,755 | $34,367 | $24,420 | $30,028 | | Total assets | $267,128 | $203,489 | $86,465 | $85,497 | | Total liabilities | $182,579 | $122,036 | $93,605 | $60,118 | | Total stockholders' equity (deficit) | $84,549 | $81,453 | $(127,755) | $(95,236) | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses FY2019 financial performance, noting a 34% revenue increase to $228.3 million, a $74.8 million net loss due to rising expenses, and $142.8 million in liquidity - Revenue for fiscal 2019 was $228.3 million, a 34% increase from $170.2 million in fiscal 2018, driven by new customers and expanded subscriptions[222][232] - Net loss increased to $74.8 million in fiscal 2019 from $66.6 million in fiscal 2018, driven by higher operating expenses across sales & marketing, R&D, and G&A to support growth[229] - The company adopted the new revenue recognition standard ASU 2014-09 on a modified retrospective basis effective February 1, 2018, resulting in increased capitalization and longer amortization of contract acquisition costs[236][302] - As of January 31, 2019, the company held $142.8 million in cash, cash equivalents, and marketable securities, deemed sufficient for at least the next 12 months of operating requirements[255] Results of Operations Fiscal 2019 revenue grew 34% to $228.3 million with improved gross margin, while operating expenses rose 28% due to increased personnel costs across departments Comparison of Fiscal Years 2019 and 2018 (in thousands) | | FY 2019 | FY 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $228,283 | $170,201 | $58,082 | 34% | | Gross Profit | $170,870 | $126,106 | $44,764 | 35% | | Sales and marketing | $158,845 | $126,980 | $31,865 | 25% | | Research and development | $36,098 | $25,687 | $10,411 | 41% | | General and administrative | $51,572 | $40,079 | $11,493 | 29% | Comparison of Fiscal Years 2018 and 2017 (in thousands) | | FY 2018 | FY 2017 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $170,201 | $124,261 | $45,940 | 37% | | Gross Profit | $126,106 | $87,311 | $38,795 | 44% | | Sales and marketing | $126,980 | $81,529 | $45,451 | 56% | | Research and development | $25,687 | $19,316 | $6,371 | 33% | | General and administrative | $40,079 | $29,166 | $10,913 | 37% | Liquidity and Capital Resources As of January 31, 2019, Yext had $142.8 million in liquidity, deemed sufficient for the next 12 months, and a credit facility with Silicon Valley Bank - Principal sources of liquidity as of January 31, 2019, were cash, cash equivalents, and marketable securities totaling $142.8 million[255] - The company maintains a credit agreement with Silicon Valley Bank including a $15.0 million revolving line (fully available as of January 31, 2019) and a $7.0 million Letter of Credit facility[257][260] Cash Flow Summary (in thousands) | Fiscal year ended January 31, | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $5,240 | $(32,409) | $(13,532) | | Net cash provided by (used in) investing activities | $28,134 | $(88,123) | $(3,803) | | Net cash provided by financing activities | $24,384 | $129,604 | $5,968 | Critical Accounting Policies and Estimates The company's critical accounting policies involve significant judgment in revenue recognition, capitalizing contract costs, stock-based compensation, and income taxes - Revenue Recognition: The company adopted ASC 606, recognizing revenue as services are transferred, requiring judgment in identifying performance obligations and allocating transaction prices[276][277] - Costs Capitalized to Obtain Revenue Contracts: Incremental costs like sales commissions are capitalized and amortized straight-line over an estimated three-year benefit period for new contracts[279] - Stock-Based Compensation: Fair value of awards is measured at grant date and recognized over the service period, requiring significant judgment for forfeiture rates, volatility, and expected life[281][282] - Income Taxes: The company provides for deferred income taxes and establishes a valuation allowance against deferred tax assets if their realization is not probable[285][286] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to foreign currency, inflation, and interest rate risks, though a 10% change in these factors is not expected to materially impact financials - The company is exposed to foreign currency, inflation, and interest rate risks[290] - A hypothetical 10% change in foreign exchange rates or interest rates is not expected to materially affect the company's financial position or results[291][294] - The investment portfolio of $142.8 million as of January 31, 2019, is primarily for capital preservation and not held for trading or speculative purposes[293] Consolidated Financial Statements and Supplementary Data This section presents audited consolidated financial statements with an unqualified opinion, but an adverse opinion on internal controls due to a material weakness - Includes audited Consolidated Balance Sheets, Statements of Operations and Comprehensive Loss, Statements of Stockholders' Equity, Statements of Cash Flows, and related notes[297] - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements[300] - The independent auditor issued an adverse opinion on the effectiveness of internal control over financial reporting as of January 31, 2019, due to a material weakness in information technology general controls[301][308][309] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting or financial disclosure matters - None[461] Controls and Procedures Management concluded disclosure controls were ineffective due to a material weakness in IT general controls, leading to an adverse auditor opinion, with remediation underway - Management concluded that disclosure controls and procedures were ineffective as of January 31, 2019[463] - A material weakness was identified in information technology general controls (ITGC), impacting controls related to revenue recognition and financial close processes[465][468] - The auditor issued an adverse opinion on the effectiveness of internal control over financial reporting[467] - Remediation activities are underway, focusing on improving logical security, program change management, computer operations controls, and IT training[471][473] Other Information The company reports no other information to disclose under this item - None[472] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2019 Proxy Statement - Information regarding directors, executive officers, corporate governance, and the audit committee is incorporated by reference from the 2019 Proxy Statement[475][479] Executive Compensation Information on executive and director compensation is incorporated by reference from the 2019 Proxy Statement - Information on executive and director compensation is incorporated by reference from the 2019 Proxy Statement[480] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the 2019 Proxy Statement - Information on security ownership is incorporated by reference from the 2019 Proxy Statement[482] Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2019 Proxy Statement - Information on related transactions and director independence is incorporated by reference from the 2019 Proxy Statement[483] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2019 Proxy Statement - Information on principal accountant fees and services is incorporated by reference from the 2019 Proxy Statement[484] Part IV Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and a comprehensive index of exhibits filed as part of the Form 10-K - This item lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K[485][486] Form 10-K Summary The company reports no Form 10-K summary provided - None[491]