Yext(YEXT) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents Yext's unaudited condensed consolidated financial statements for April 30, 2019, covering balance sheets, operations, equity, cash flows, and detailed notes Condensed Consolidated Balance Sheets (unaudited) Balance sheets show significant increases in cash, total assets, and stockholders' equity from January 31, 2019, to April 30, 2019, due to a stock offering | Metric | April 30, 2019 (in thousands) | January 31, 2019 (in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $257,663 | $91,755 | | Total assets | $433,298 | $267,128 | | Total liabilities | $199,138 | $182,579 | | Total stockholders' equity | $234,160 | $84,549 | Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) Revenue increased 34.7% year-over-year for Q1 2019, but net loss widened due to higher operating expenses | Metric | Three months ended April 30, 2019 (in thousands) | Three months ended April 30, 2018 (in thousands) | | :------------------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Revenue | $68,708 | $50,988 | | Gross profit | $52,235 | $38,188 | | Loss from operations | $(19,260) | $(16,906) | | Net loss | $(18,959) | $(17,041) | | Net loss per share attributable to common stockholders, basic and diluted | $(0.18) | $(0.18) | Condensed Consolidated Statements Stockholders' Equity (unaudited) Stockholders' equity significantly increased from January 31, 2019, to April 30, 2019, driven by a common stock offering and stock-based compensation | Metric | April 30, 2019 (in thousands) | January 31, 2019 (in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Total Stockholders' Equity | $234,160 | $84,549 | | Common stock offering, net | $146,470 | — | | Stock-based compensation | $13,472 | — | Condensed Consolidated Statements of Cash Flows (unaudited) Cash, cash equivalents, and restricted cash increased substantially to $269.8 million as of April 30, 2019, primarily from financing activities | Activity | Three months ended April 30, 2019 (in thousands) | Three months ended April 30, 2018 (in thousands) | | :-------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Net cash provided by operating activities | $819 | $1,409 | | Net cash provided by investing activities | $23,866 | $11,651 | | Net cash provided by financing activities | $153,497 | $6,169 | | Cash, cash equivalents and restricted cash at end of period | $269,763 | $53,403 | Notes to Condensed Consolidated Financial Statements Detailed explanations and disclosures for condensed consolidated financial statements, covering business, accounting policies, and key financial components 1. Organization and Description of Business Yext, Inc. provides a cloud-based platform for businesses to manage and sync digital knowledge across over 150 providers - Yext, Inc. offers a cloud-based platform, the Yext Knowledge Engine, for businesses to control and sync digital knowledge across a network of over 150 service and application providers (e.g., Amazon Alexa, Apple Maps, Google)[28] - The company's fiscal year concludes on January 31st[29] 2. Summary of Significant Accounting Policies Financial statements adhere to GAAP and SEC rules; company operates as a single segment, adopting new standards for leases, stock compensation, and cloud computing - Financial statements are prepared in accordance with GAAP and SEC rules for interim financial reporting[30] - The company operates as one operating segment, with all offerings on a single platform[36] - Adopted ASU 2016-02 (Leases) on February 1, 2019, recording lease liabilities and right-of-use assets, which did not materially affect the statement of operations[46][47] - Prospectively adopted ASU 2018-07 (Stock Compensation) and ASU 2018-15 (Cloud Computing Arrangement Costs) on February 1, 2019, with no material effect on condensed consolidated financial statements[48][49] 3. Revenue Revenue primarily from cloud-based platform subscriptions, recognized ratably over 1-3 year terms; North America dominates, international revenue growing, professional services are small - Revenue is primarily from subscription and associated support to the cloud-based Knowledge Engine platform, recognized ratably over contract terms (typically one to three years)[37][38] | Geographic Region | Three months ended April 30, 2019 (in thousands) | Three months ended April 30, 2018 (in thousands) | | :---------------- | :----------------------------------------------- | :----------------------------------------------- | | North America | $56,512 | $44,867 | | International | $12,196 | $6,121 | | Total revenue | $68,708 | $50,988 | - Professional services revenue accounted for less than 5% of total revenue for the three months ended April 30, 2019, up from 2% in the prior year[55] - As of April 30, 2019, the company has approximately $256.3 million in remaining performance obligations, with $240.2 million expected to be recognized as revenue over the next twenty-four months[59] 4. Investments in Marketable Securities Marketable securities, mainly corporate bonds and U.S. treasury securities, decreased in fair value from $51.0 million to $26.4 million by April 30, 2019 | Metric | April 30, 2019 (in thousands) | January 31, 2019 (in thousands) | | :---------------------- | :----------------------------- | :----------------------------- | | Total marketable securities (Fair Value) | $26,442 | $51,021 | - As of April 30, 2019, all marketable securities have a remaining contractual maturity of one year or less[63] 5. Fair Value of Financial Instruments Financial instruments are classified using a three-level fair value hierarchy; all cash equivalents and marketable securities are in Level 1 or Level 2 - The company applies a three-level fair value hierarchy (Level 1: quoted prices in active markets; Level 2: observable inputs other than Level 1; Level 3: unobservable inputs)[65][66][67][68] - All cash equivalents and marketable securities are classified within Level 1 or Level 2[69] | Asset Category | April 30, 2019 (in thousands) | January 31, 2019 (in thousands) | | :------------- | :----------------------------- | :----------------------------- | | Total assets measured at fair value | $248,871 | $93,042 | 6. Goodwill and Intangible Assets Goodwill and intangible assets, net, decreased slightly to $4.6 million and $1.8 million by April 30, 2019, with no impairment identified | Asset Category | April 30, 2019 (in thousands) | January 31, 2019 (in thousands) | | :------------- | :----------------------------- | :----------------------------- | | Goodwill | $4,583 | $4,660 | | Intangible assets, net | $1,788 | $1,960 | - No events or circumstances indicated a reduction in the fair value of the reporting unit or impairment of intangible assets during the three months ended April 30, 2019 and 2018[74][76] - Amortization expense related to intangible assets was $0.1 million for the three months ended April 30, 2019, down from $0.2 million in the prior year period[76] 7. Property and Equipment, net Property and equipment, net, remained stable at $11.1 million by April 30, 2019, while depreciation expense increased to $1.8 million for the quarter | Metric | April 30, 2019 (in thousands) | January 31, 2019 (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total property and equipment, net | $11,093 | $11,077 | - Depreciation expense increased to $1.8 million for the three months ended April 30, 2019, from $1.4 million in the prior year period[77] 8. Accounts Payable, Accrued Expenses and Other Current Liabilities Total current liabilities decreased to $35.7 million by April 30, 2019, from $44.2 million, due to reductions in employee compensation and ESPP liabilities | Metric | April 30, 2019 (in thousands) | January 31, 2019 (in thousands) | | :------------------------------------------------ | :----------------------------- | :----------------------------- | | Total accounts payable, accrued expenses and other current liabilities | $35,671 | $44,236 | - Accrued employee compensation decreased from $19.0 million to $9.3 million[78] - Accrued employee stock purchase plan withholdings liability decreased from $2.6 million to $1.2 million[78] 9. Stock-Based Compensation The 2016 Equity Incentive Plan increased by over 4 million shares; stock-based compensation expense rose to $13.2 million for Q1 2019, with $133.8 million unrecognized cost remaining - The number of shares available for issuance under the 2016 Equity Incentive Plan automatically increased by 4,086,916 shares on February 1, 2019[81] | Metric | April 30, 2019 | January 31, 2019 | | :-------------------------------- | :------------- | :--------------- | | Stock Options Outstanding | 14,759,535 | 15,977,235 | | Restricted Stock and RSUs Outstanding | 7,730,203 | 7,703,705 | | Stock-Based Compensation Expense | Three months ended April 30, 2019 (in thousands) | Three months ended April 30, 2018 (in thousands) | | :------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Total stock-based compensation expense | $13,216 | $7,993 | - As of April 30, 2019, total unrecognized compensation cost related to unvested stock-based awards was approximately $133.8 million, expected to be recognized over an estimated weighted-average vesting period of 3.0 years[96] 10. Equity A common stock offering on March 20, 2019, issued 7 million shares, generating $147.0 million in net proceeds, significantly increasing stockholders' equity - On March 20, 2019, the company closed a common stock offering, issuing 7,000,000 shares and receiving aggregate net proceeds of $147.0 million[97] | Metric | April 30, 2019 (in thousands) | January 31, 2019 (in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Total Stockholders' Equity | $234,160 | $84,549 | - As of April 30, 2019, and January 31, 2019, no shares of preferred stock were issued or outstanding[101] 11. Debt The company maintains a $15.0 million revolving credit line and a $7.0 million Letter of Credit facility, both maturing March 2020, and established a new $12.1 million standby letter of credit - The company has a $15.0 million revolving credit line and a $7.0 million Letter of Credit facility, maturing March 16, 2020[105] - As of April 30, 2019, the company was in compliance with all debt covenants, the $15.0 million Revolving Line was fully available, and $6.8 million of the $7.0 million Letter of Credit facility was allocated as security[109] - In April 2019, a $12.1 million back-to-back standby letter of credit was established, secured by a $12.1 million restricted cash deposit[108] 12. Income Taxes Provision for income taxes was $(0.3) million for Q1 2019 and 2018; effective tax rate differs from statutory due to a full valuation allowance on U.S. deferred tax assets - Provision for income taxes was $(0.3) million for both the three months ended April 30, 2019, and 2018[110] - The effective tax rate differs from the U.S. federal statutory tax rate primarily due to a full valuation allowance on U.S. deferred tax assets[111] 13. Leases Adopted ASU 2016-02, recognizing $36.6 million in operating lease liabilities and $33.4 million in ROU assets by April 30, 2019; a new $135 million NY office lease commenced May 2019 - Adopted ASU 2016-02 (Leases) on February 1, 2019, using the modified retrospective approach[113] | Metric | April 30, 2019 (in thousands) | | :-------------------------------- | :----------------------------- | | Operating lease liabilities, current | $2,005 | | Operating lease liabilities, non-current | $34,582 | | Operating lease right-of-use assets | $33,424 | - Lease expense for the three months ended April 30, 2019, was $2.6 million, including $0.5 million for short-term leases[115] - A new operating lease for office space in New York, NY, dated April 23, 2019, with approximately $135 million of legally binding minimum lease payments, commenced accounting in May 2019[116] 14. Commitments and Contingencies Non-cancelable contractual obligations total $188.6 million for operating leases and $23.5 million for other commitments by April 30, 2019; legal proceedings are not expected to have a material impact | Fiscal year ending January 31: | Operating Leases (in thousands) | Other (in thousands) | | :----------------------------- | :------------------------------ | :------------------- | | 2020 | $5,899 | $14,961 | | 2021 | $10,637 | $6,553 | | 2022 | $16,691 | $1,865 | | 2023 | $16,762 | $50 | | 2024 and thereafter | $138,614 | $118 | | Total payments | $188,603 | $23,547 | - The company is involved in various legal proceedings but believes the likelihood of any material adverse impact on its financial position or results of operations is remote[120] - The company's arrangements generally include provisions for indemnifying customers against intellectual property infringement and contractual breaches[122] 15. Net Loss Per Share Attributable to Common Stockholders Basic and diluted net loss per share remained $(0.18) for Q1 2019 and 2018; all potential common equivalent shares were anti-dilutive due to net loss | Metric | Three months ended April 30, 2019 | Three months ended April 30, 2018 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss per share attributable to common stockholders, basic and diluted | $(0.18) | $(0.18) | - The company was in a net loss position, making all potential common equivalent shares (options, restricted stock, ESPP shares) anti-dilutive[125] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides an overview of Yext's business, Q1 2019 financial performance, liquidity, capital resources, and critical accounting policies, highlighting revenue growth and increased expenses Overview Yext operates a cloud-based Knowledge Engine platform for businesses to manage digital knowledge across over 150 applications, with international operations contributing over 18% of Q1 2019 revenue - Yext's cloud-based Knowledge Engine platform allows businesses to control and sync digital knowledge to over 150 services and applications in its Knowledge Network[127] - The company offers annual and multi-year subscriptions to its platform, with pricing based on feature sets and the number of licenses[128] - Revenue from non-U.S. operations exceeded 18% of total revenue for the three months ended April 30, 2019, reflecting ongoing international expansion[130] Components of Results of Operations Revenue primarily from cloud-based platform subscriptions; cost of revenue includes network fees, hosting, and support; operating expenses are driven by personnel and stock-based compensation - Revenue is primarily derived from subscription and associated support to the cloud-based Knowledge Engine platform, generally recognized ratably over contract terms (typically one to three years)[132] - Cost of revenue includes fees to Knowledge Network application providers, hosting expenses, and associated support costs (salaries, data center capacity, stock-based compensation)[133] - Operating expenses (Sales and marketing, Research and development, General and administrative) primarily consist of personnel costs, costs to obtain revenue contracts, and stock-based compensation expense[134][135][136] Results of Operations Q1 2019 revenue increased 35% to $68.7 million with a 76.0% gross margin, but operating expenses rose 30% to $71.5 million, resulting in a wider net loss of $(19.0) million | Metric | Three months ended April 30, 2019 (in thousands) | Three months ended April 30, 2018 (in thousands) | Variance ($k) | Variance (%) | | :----------------------- | :----------------------------------------------- | :----------------------------------------------- | :------------ | :----------- | | Revenue | $68,708 | $50,988 | $17,720 | 35% | | Cost of revenue | $16,473 | $12,800 | $3,673 | 29% | | Gross profit | $52,235 | $38,188 | $14,047 | 37% | | Gross margin | 76.0% | 74.9% | | | | Total operating expenses | $71,495 | $55,094 | $16,401 | 30% | | Loss from operations | $(19,260) | $(16,906) | $(2,354) | 14% | | Net loss | $(18,959) | $(17,041) | $(1,918) | 11% | | Operating Expense Category | Three months ended April 30, 2019 (in thousands) | Three months ended April 30, 2018 (in thousands) | Variance ($k) | Variance (%) | | :------------------------- | :----------------------------------------------- | :----------------------------------------------- | :------------ | :----------- | | Sales and marketing | $46,398 | $35,827 | $10,571 | 30% | | Research and development | $9,906 | $7,729 | $2,177 | 28% | | General and administrative | $15,191 | $11,538 | $3,653 | 32% | Liquidity and Capital Resources Yext had $284.1 million in liquidity by April 30, 2019, boosted by a $147.0 million stock offering, and maintains credit facilities, deemed sufficient for 12 months - As of April 30, 2019, principal sources of liquidity were cash, cash equivalents, and marketable securities, totaling $284.1 million[144] - Management believes existing liquidity will be sufficient to meet projected operating requirements for at least the next 12 months[144] - A common stock offering closed on March 20, 2019, generated aggregate net proceeds of $147.0 million[146] - The company has a $15.0 million revolving credit line (fully available) and a $7.0 million Letter of Credit facility ($6.8 million allocated as security) as of April 30, 2019, and established a new $12.1 million standby letter of credit in April 2019[147][149] | Cash Flow Activity | Three months ended April 30, 2019 (in thousands) | Three months ended April 30, 2018 (in thousands) | | :------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Net cash provided by operating activities | $819 | $1,409 | | Net cash provided by investing activities | $23,866 | $11,651 | | Net cash provided by financing activities | $153,497 | $6,169 | | Contractual Obligations (as of April 30, 2019) | Operating Leases (in thousands) | Other (in thousands) | | :--------------------------------------------- | :------------------------------ | :------------------- | | Fiscal year ending January 31, 2020 | $5,899 | $14,961 | | Fiscal year ending January 31, 2021 | $10,637 | $6,553 | | Fiscal year ending January 31, 2022 | $16,691 | $1,865 | | Fiscal year ending January 31, 2023 | $16,762 | $50 | | Fiscal year ending January 31, 2024 and thereafter | $138,614 | $118 | | Total | $188,603 | $23,547 | Off-Balance Sheet Arrangements The company does not engage in off-balance sheet arrangements, thus its financial results are not subject to related risks - The company does not engage in off-balance sheet arrangements with unconsolidated entities or financial partnerships[158] Critical Accounting Policies and Estimates Financial statement preparation requires estimates and assumptions; no material changes to critical accounting policies and estimates since the Annual Report on Form 10-K, except as noted in Note 2 - The preparation of financial statements requires management to make estimates and assumptions affecting reported amounts[159] - No material changes to critical accounting policies and estimates compared to the Annual Report on Form 10-K, except as described in Note 2[160] Recent Accounting Pronouncements Refers to Note 2 for detailed information regarding adopted and pending new accounting standards - Refer to Note 2, 'Summary of Significant Accounting Policies—Recent Accounting Pronouncements,' for details on adopted and pending accounting pronouncements[161] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency, inflation, and interest rates, but a 10% change in any is not expected to materially affect financial results Foreign Currency Risk Exposed to foreign currency fluctuations, but a hypothetical 10% change in the U.S. dollar is not expected to materially affect financial results - The company is exposed to foreign currency exchange rate fluctuations[164] - A hypothetical 10% change in the U.S. dollar's value is not expected to have a material effect on the company's financial position or results of operations[164] Inflation Risk Inflation has not had a material effect on the company's business, financial condition, or results of operations - Inflation has not had a material effect on the company's business, financial condition, or results of operations[165] Interest Rate Risk The company held $284.1 million in liquidity by April 30, 2019, and does not anticipate material interest rate risks, with a hypothetical 10% change having no material impact - As of April 30, 2019, the company had $284.1 million in cash, cash equivalents, and marketable securities[166] - The company does not anticipate material risks due to changes in interest rates; a hypothetical 10% change would not have a material impact on its financial statements[167] Item 4. Controls and Procedures Disclosure controls and procedures were ineffective as of April 30, 2019, due to a material weakness in IT general controls; no material changes in internal control, and remediation efforts are ongoing Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures were ineffective as of April 30, 2019, due to a material weakness in information technology general controls identified in the Annual Report on Form 10-K - Disclosure controls and procedures were deemed ineffective as of April 30, 2019[169] - The ineffectiveness is attributed to a material weakness in information technology general controls, as identified in the Annual Report on Form 10-K[169] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during Q1 2019; the company continues efforts to remediate the material weakness identified in its Annual Report on Form 10-K - No material changes in internal control over financial reporting occurred during the three months ended April 30, 2019[170] - The company is continuing to take steps to remediate the material weakness in internal control over financial reporting identified in the Annual Report on Form 10-K[170] Limitations on the Effectiveness of Disclosure Controls and Procedures Management acknowledges that disclosure controls and internal control provide reasonable, not absolute, assurance due to inherent limitations like faulty judgments, circumvention, and management override - Management does not expect that disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud[171] - Control systems provide only reasonable, not absolute, assurance due to inherent limitations, including faulty judgments, circumvention by individual acts or collusion, and management override[171][172] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings, though it may face litigation in the ordinary course of business - The company is not currently a party to any legal proceedings material to its business or financial condition[174] - The company may become involved in various litigation matters and claims arising in the ordinary course of business[174] Item 1A. Risk Factors Yext faces risks including net losses, growth management, international expansion, dependence on network providers, competition, security breaches, control weaknesses, IP disputes, regulatory compliance, stock volatility, and no future dividends - The company has a history of net losses, including $19.0 million for the three months ended April 30, 2019, and an accumulated deficit of $320.1 million, indicating potential for continued operating losses[176] - Rapid growth and significant organizational changes (e.g., headcount increase from 450 to over 900 employees from Jan 2016 to Jan 2019) pose challenges to effective management, maintaining corporate culture, and scaling infrastructure[179][181] - International expansion (non-U.S. operations accounted for over 18% of total revenue in Q1 2019) exposes the company to significant regulatory, economic, and political risks, including compliance with laws like GDPR and currency fluctuations[185][186] - The company's growth depends on maintaining and expanding strategic relationships with over 150 Knowledge Network application providers; loss of access or unfavorable renegotiation of terms could severely impact business[189][190] - The market for the company's features is competitive, rapidly evolving, and fragmented, with risks from new entrants, competitive pricing, and technological advancements[194][195] - A security breach, network attack, or information security incident could lead to service interruptions, data loss, reputational harm, and significant liability[215][216] - The company identified a material weakness in information technology general controls as of January 31, 2019, which could adversely affect financial reporting reliability and investor confidence[221] - Compliance with governmental regulations and legal obligations, particularly those related to privacy, data protection (e.g., GDPR, CCPA), and information security, increases costs and may impair business growth[238][241][242] - The market price of the company's common stock has been and may continue to be volatile due to various factors, including financial performance, competitive dynamics, and general economic conditions[282] - The company does not intend to pay dividends for the foreseeable future, requiring stockholders to rely on stock price appreciation for investment gains[289] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[296] Item 3. Defaults Upon Senior Securities No defaults upon senior securities during the reporting period - No defaults upon senior securities to report[297] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[298] Item 5. Other Information No other information to report for the period - No other information to report[299] Item 6. Exhibits Lists exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, a sublease agreement, and officer certifications - Exhibits include Amended and Restated Certificate of Incorporation (3.1), Amended and Restated Bylaws (3.2), and Form of Common Stock Certificate (4.1)[300] - A Sublease agreement dated April 23, 2019, between Aetna Life Insurance Company and Yext, Inc. is filed as Exhibit 10.1[300] - Certifications of the Principal Executive Officer and Principal Financial Officer are included as Exhibits 31.1, 31.2, 32.1, and 32.2[300] SIGNATURES SIGNATURES The Quarterly Report on Form 10-Q was signed by Steven Cakebread, CFO of Yext, Inc., on May 31, 2019 - The report was signed by Steven Cakebread, Chief Financial Officer, on behalf of Yext, Inc. on May 31, 2019[303]