The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2022 , filed with theSEC onMarch 18, 2022 . As discussed in the section titled "Special Note Regarding Forward Looking Statements," the following discussion and analysis contains forward looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed in the section titled "Risk Factors" under Part II, Item 1A in this Quarterly Report on Form 10-Q.
Overview
Yext organizes a business's facts so it can provide official answers to consumer questions starting with the business's own website and then extending across search engines and voice assistants. Our platform lets businesses structure the facts about their brands in a database called the Knowledge Graph. Our platform is built to leverage the structured data stored in the Knowledge Graph to deliver a modern search experience on a business's or organization's own website, as well as across approximately 200 service and application providers, which we refer to as our Knowledge Network and includes Amazon Alexa, Apple Maps, Bing,Cortana , Facebook,
Fiscal Year
Our fiscal year ends on
are to the fiscal year ending
COVID-19 Update
The COVID-19 pandemic has significantly disrupted business operations for us and our customers, as well as suppliers, and other parties with whom we do business. Such disruptions are expected to continue for an indefinite period of time. We have adopted several measures in response to the COVID-19 pandemic and continue to monitor regional developments to inform our operational decisions. Our offices have been open on a voluntary basis in accordance with guidance provided by government agencies, although currently the majority of our employees are still working remotely. While we continue to hold virtual events, we have also resumed in-person marketing events. The uncertain duration of these measures have had and may continue to have negative effects on our sales efforts and revenue growth rates. We continue to be committed to our business, the strength of our platform, our ability to continue to execute on our strategy, and our efforts to support our customers. We may continue to see some existing and potential customers, in particular customers in industries and geographies that have been highly impacted by the pandemic, may reduce, suspend or delay technology spending, request to renegotiate contracts to obtain concessions such as, extended billing and payment terms; shorten the duration of contracts; or elect not to renew their subscriptions which could materially adversely impact our business, financial condition and results of operations in future periods. The ultimate extent of the impact of the pandemic will depend on future developments, which continue to be highly uncertain and cannot be predicted, including the severity and duration of the COVID-19 pandemic and its variants, vaccination rates and efficacy and the actions taken to contain and address the impact of the pandemic, among others. However, because we generally recognize revenue from our customer contracts ratably over the term of the contract, changes in our contracting activity in the near term may not be fully reflected in our results of operations and overall financial performance until future periods. See Part II Item 1A "Risk Factors" for further discussion of the possible impact of the COVID-19 pandemic on our business.
Components of Results of Operations
Revenue
We derive our revenue primarily from subscription and associated support to ourYext platform. Our contracts are typically one year in length, but may be up to three years or longer in length. Revenue is a function of the number of customers, the number of licenses or capacity purchased by each customer, the package to which each customer subscribes, the price of the package and renewal rates. Revenue is generally recognized ratably over the contract term beginning on the commencement date of each contract, which is the date our platform is made available to customers. At the beginning of each subscription term we invoice our customers, typically in annual installments, but also monthly, quarterly, and semi-annually. Amounts that have been invoiced for non-cancelable contracts 19 -------------------------------------------------------------------------------- are recorded in accounts receivable and unearned revenue. Unearned revenue is subsequently recognized as revenue when transfer of control to a customer has occurred. Cost of Revenue Cost of revenue consists primarily of employee-related costs, including personnel-related costs, which mainly consist of salaries and wages, and stock-based compensation expense. Cost of revenue also includes fees associated with our Knowledge Network application provider arrangements, the nature of which may be unpaid, fixed, or variable, and are unpaid with many of our larger providers, as well as the costs associated with our data centers. In addition, cost of revenue includes depreciation expense, including with respect to certain capitalized software development costs incurred in connection with additional functionality to our platform. Cost of revenue also includes lease expenses associated with our office spaces, which are allocated based on employee headcount. In addition, cost of revenue includes software expense, which relates to licenses, professional services, and other costs associated with software for use in the operations of our business, which is also allocated based on employee headcount. Operating Expenses Sales and marketing expenses. Sales and marketing expenses consist primarily of employee-related costs which are comprised of personnel-related costs and stock-based compensation expense. Personnel-related costs mainly consist of salaries and wages and costs of obtaining revenue contracts. Sales and marketing expenses also include lease expenses associated with our office spaces, as well as software expense, each of which are allocated based on employee headcount. In addition, sales and marketing expenses include costs related to advertising and conferences and brand awareness events. Research and development expenses. Research and development expenses consist primarily of employee-related costs which are comprised of personnel-related costs and stock-based compensation expense. Personnel-related costs mainly consist of salaries and wages. Capitalized software development costs related to additional functionality to our platform are excluded from research and development expenses as they are capitalized as a component of property and equipment, net and depreciated to cost of revenue over the term of their useful life. Research and development expenses also include lease expenses associated with our office spaces, as well as software expense, each of which are allocated based on employee headcount. General and administrative expenses. General and administrative expenses consist primarily of employee-related costs which are comprised of personnel-related costs and stock-based compensation expense for our finance and accounting, human resources, information technology and legal support departments. Personnel-related costs mainly consist of salaries and wages. General and administrative expenses also include lease expenses associated with our office spaces, as well as software expense, each of which are allocated based on employee headcount, and other professional related costs. 20 --------------------------------------------------------------------------------
Results of Operations
The following table sets forth selected condensed consolidated statement of
operations data for each of the periods indicated:
Three months ended April 30, (in thousands) 2022 2021 Revenue$ 98,802 $ 91,992 Cost of revenue(1) 24,728 21,854 Gross profit 74,074 70,138 Operating expenses: Sales and marketing(1) 60,779 55,166 Research and development(1) 17,302 13,857 General and administrative(1) 21,495 18,347 Total operating expenses 99,576 87,370 Loss from operations (25,502) (17,232) Interest income 25 6 Interest expense (143) (132) Other expense, net 129 (86) Loss from operations before income taxes (25,491) (17,444) (Provision for) benefit from income taxes (348) (187) Net loss$ (25,839) $ (17,631)
(1)Amounts include stock-based compensation expense as follows:
Three months ended April 30, (in thousands) 2022 2021 Cost of revenue$ 1,382 $ 1,445 Sales and marketing 6,376 5,501 Research and development 4,520 3,988 General and administrative 5,808 3,664 Total stock-based compensation expense
The following table sets forth selected condensed consolidated statements of
operations data for each of the periods indicated as a percentage of total
revenue:
Three months ended April 30,
2022 2021
Revenue 100 % 100 %
Cost of revenue 25 24
Gross profit 75.0 76.2
Operating expenses:
Sales and marketing 62 60
Research and development 17 15
General and administrative 22 20
Total operating expenses 101 95
Loss from operations (26) (19)
Interest income - -
Interest expense - -
Other expense, net - -
Loss from operations before income taxes (26) (19)
(Provision for) benefit from income taxes - -
Net loss (26) % (19) %
Note: Numbers rounded for presentation purposes and may not sum.
21 --------------------------------------------------------------------------------
Three Months Ended
Revenue and Cost of Revenue
Three months ended April 30, Variance (in thousands) 2022 2021 Dollars Percent Revenue$ 98,802 $ 91,992 $ 6,810 7 % Cost of revenue 24,728 21,854$ 2,874 13 % Gross profit$ 74,074 $ 70,138 $ 3,936 6 % Gross margin 75.0 % 76.2 % Total revenue was$98.8 million for the three months endedApril 30, 2022 , compared to$92.0 million for the three months endedApril 30, 2021 , an increase of$6.8 million or 7%, primarily driven by new customer subscriptions to our platform, as well as expanded subscriptions for existing customers. For the three months endedApril 30, 2022 and 2021, revenue recognized from subscriptions and associated support to our platform was 91% and revenue recognized from professional services was 9%, compared to 92% and 8%, respectively. Cost of revenue was$24.7 million for the three months endedApril 30, 2022 , compared to$21.9 million for the three months endedApril 30, 2021 , an increase of$2.9 million or 13%. The increase was driven by a$2.0 million increase in personnel-related costs, reflecting higher headcount, and a$0.8 million increase in depreciation expense. Gross margin was 75.0% for the three months endedApril 30, 2022 , compared to 76.2% for the three months endedApril 30, 2021 as reflected in the discussion above. Operating Expenses Three months ended April 30, Variance (in thousands) 2022 2021 Dollars Percent Sales and marketing$ 60,779 $ 55,166 $ 5,613 10 % Research and development$ 17,302 $ 13,857 $ 3,445 25 % General and administrative$ 21,495 $ 18,347 $ 3,148 17 % Sales and marketing expense was$60.8 million for the three months endedApril 30, 2022 , compared to$55.2 million for the three months endedApril 30, 2021 , an increase of$5.6 million or 10%. The increase was primarily due to employee-related costs, including a$2.7 million increase in personnel-related costs and a$0.9 million increase stock-based compensation expense. In addition, conferences and events increased$1.9 million and employee travel increased$1.6 million due to increased in-person events compared to the prior period. These increases were partially offset by a$0.8 million decrease in advertising costs due to certain brand media campaigns in the prior period. Research and development expense was$17.3 million for the three months endedApril 30, 2022 , compared to$13.9 million for the three months endedApril 30, 2021 , an increase of$3.4 million or 25%. The increase was primarily due to by employee-related costs, including a$2.3 million increase in personnel-related costs and a$0.5 million increase in stock-based compensation expense. General and administrative expense was$21.5 million for the three months endedApril 30, 2022 , compared to$18.3 million for the three months endedApril 30, 2021 , an increase of$3.1 million or 17%. The increase was primarily due to employee-related costs, including a$2.1 million increase in stock-based compensation expense, as well as a$1.5 million increase in personnel-related costs which reflected higher headcount. This was partially offset by a$0.8 million decrease in bad debt expense, which reflects a lower allowance for doubtful accounts in comparison to the prior period, which had been more strongly impacted by COVID-19.
Net Loss
Net loss was
30, 2022
Non-GAAP Net Loss
In addition to our financial results determined in accordance with GAAP, we
believe that non-GAAP net loss is useful in evaluating our operating performance
and our business.
Non-GAAP net loss is a financial measure that is not calculated in accordance
with GAAP. We define non-GAAP net loss as our GAAP net loss as adjusted to
exclude the effects of stock-based compensation expense. We believe non-GAAP net
loss provides investors and other users of our financial information consistency
and comparability with our past financial performance and facilitates
period-to-period comparisons of our results of operations. We also believe
non-GAAP net loss is useful in evaluating our operating performance compared to
that of other companies in our industry, as it eliminates the effects of
stock-based compensation, which may vary for reasons unrelated to overall
operating performance.
22
--------------------------------------------------------------------------------
We use non-GAAP net loss in conjunction with traditional GAAP net loss as part
of our overall assessment of our performance, including the preparation of our
annual operating budget and quarterly forecasts, and to evaluate the
effectiveness of our business strategies. Our definition may differ from the
definitions used by other companies and therefore comparability may be limited.
In addition, other companies may not publish this or similar metrics. Thus, our
non-GAAP net loss should be considered in addition to, not as a substitute for,
nor superior to or in isolation from, measures prepared in accordance with GAAP.
Non-GAAP net loss may be limited in its usefulness because it does not present
the full economic effect of our use of stock-based compensation expense. We
compensate for these limitations by providing a reconciliation of non-GAAP net
loss to the most closely related GAAP financial measure. We encourage investors
and others to review our financial information in its entirety, not to rely on
any single financial measure and to view non-GAAP net loss in conjunction with
GAAP net loss.
The following table provides a reconciliation of GAAP net loss to non-GAAP net
loss:
Three months ended April 30,
(in thousands) 2022 2021
Net loss $ (25,839) $ (17,631)
Plus: Stock-based compensation expense 18,086 14,598
Non-GAAP net loss $ (7,753) $ (3,033)
Liquidity and Capital Resources
As ofApril 30, 2022 , our principal sources of liquidity were cash and cash equivalents of$247.8 million . We believe our existing cash and cash equivalents will be sufficient to meet our projected operating requirements for at least the next 12 months. Our cash flows, including net cash used in or provided by operating activities, may vary significantly from quarter to quarter, due to the timing of billings, cash collections and lease payments, significant marketing events and related expenses, and the potential effects of the COVID-19 pandemic, among other factors. Our future capital requirements will depend on many factors, including those set forth under "Risk Factors." We may in the future enter into arrangements to acquire or invest in complementary businesses, services, technologies, and intellectual property rights. In addition, we may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition would be adversely affected.
Credit Arrangements
OnMarch 11, 2020 , we entered into a credit agreement withSilicon Valley Bank (the "Credit Agreement"). No significant debt issuance costs were incurred in association with the Credit Agreement. InJanuary 2021 , we amended the Credit Agreement which modified the conditions pursuant to which subsidiaries are required to become guarantors. The Credit Agreement provides for a senior secured revolving loan facility of up to$50.0 million that matures three years after the effective date, with the right subject to certain conditions to add an incremental revolving loan facility of up to$50.0 million in the aggregate. The three-year revolving loan facility provides for borrowings up to the amount of the facility with sub-limits of up to (i)$30.0 million to be available for the issuance of letters of credit and (ii)$10.0 million to be available for swingline loans. Under the Credit Agreement, loans bear interest, at our option, at an annual rate based on LIBOR or a base rate. Loans based on LIBOR shall bear interest at a rate between LIBOR plus 2.50% and LIBOR plus 3.00%, depending on our average daily usage of the revolving loan facility. Loans based on the base rate shall bear interest at a rate between the base rate minus 0.50% and the base rate plus 0.00%, depending on our average daily usage of the revolving loan facility. See Part II Item 1A "Risk Factors - Our credit facility contains restrictive covenants that may limit our operating flexibility" for discussion of LIBOR being phased out. The obligations under the Credit Agreement are secured by a lien on substantially all of our tangible and intangible property and by a pledge of all of our equity interests of material direct and indirect domestic subsidiaries and 66% of each class of capital stock of any material first-tier foreign subsidiaries, subject to limited exceptions. The Credit Agreement contains customary affirmative and negative covenants and restrictions, as well as financial covenants that require us to maintain the year-over-year growth rate of its ordinary course recurring revenue for a trailing four fiscal quarter period above specified rates when certain liquidity thresholds are not met and to maintain a consolidated quick ratio of at least 1.50 to 1.00 tested on a monthly basis. As ofApril 30, 2022 , we were in compliance with all debt covenants. As of such date, the$50.0 million revolving loan facility had$35.7 million available and$14.3 million in letters of credit allocated as security in connection with office space. 23 --------------------------------------------------------------------------------
Share Repurchase Program
InMarch 2022 , our Board of Directors authorized a$100.0 million share repurchase program of our common stock. As ofApril 30, 2022 , a total of 4,838,184 shares have been purchased at an average price of$6.32 per share for a total cost of$30.6 million since the commencement of the share repurchase program. As ofApril 30, 2022 , there was approximately$69.4 million that remained available to be purchased under this share repurchase program. Subsequent toApril 30, 2022 , an additional approximately$24 million has been repurchased, bringing the total amount repurchased under the program to approximately$55 million , and therefore, as ofJune 9, 2022 , approximately$45 million remains available to be purchased under the program.
Cash Flows
The following table summarizes our cash flows:
Three months ended April 30, (in thousands) 2022 2021 Net cash provided by operating activities $
17,861
Net cash used in investing activities $
(1,644)
Net cash (used in) provided by financing activities $
(26,293)
Operating Activities
Net cash provided by operating activities of$17.9 million for the three months endedApril 30, 2022 was primarily due to positive adjustments in reconciling our net loss of$25.8 million to net cash provided by operating activities, including changes in accounts receivable of$42.7 million , mainly due to timing of billing and cash collections during the period, as well as changes in accounts payable, accrued expenses and other current liabilities of$5.0 million and changes in costs to obtain revenue contracts of$4.4 million . In addition, there were positive non-cash adjustments related to stock-based compensation expense of$18.1 million , depreciation and amortization expense of$4.4 million , and amortization of operating lease right-of-use assets of$2.4 million . These increases were partially offset by changes in unearned revenue of$24.5 million , prepaid expenses and other current assets of$5.7 million , and operating lease liabilities of$3.2 million . Net cash provided by operating activities of$35.1 million for the three months endedApril 30, 2021 was primarily due to positive adjustments in reconciling our net loss of$17.6 million to net cash provided by operating activities, including changes in accounts receivable of$41.9 million , mainly due to timing of billing and cash collections during the period, stock-based compensation expense of$14.6 million , depreciation and amortization expense of$3.7 million , and amortization of operating lease right-of-use assets of$2.3 million . These increases were partially offset by changes in costs to obtain revenue contracts of$5.5 million and unearned revenue of$5.2 million .
Investing Activities
Net cash used in investing activities of
Net cash used in investing activities of$7.5 million for the three months endedApril 30, 2021 reflected capital expenditures associated with our new office spaces, primarily our new corporate headquarters inNew York, NY , among others.
Financing Activities
Net cash used in financing activities of$26.3 million for the three months endedApril 30, 2022 was primarily related to$27.1 million in cash outflows associated with repurchases of common stock as part of our share repurchase program. This was partially offset by net proceeds from employee stock purchase plan withholdings of$0.6 million and proceeds from exercise of stock options of$0.3 million . Net cash provided by financing activities of$13.6 million for the three months endedApril 30, 2021 was primarily related to proceeds from exercise of stock options of$12.2 million and net proceeds from employee stock purchase plan withholdings of$1.5 million . 24 --------------------------------------------------------------------------------
Contractual Obligations
We are obligated to make payments under certain non-cancelable contractual
obligations in the normal course of business. Our contractual obligations
primarily relate to our operating lease arrangements for office space. Our other
contractual obligations include contracts with our Knowledge Network application
providers, which generally have a term of one year, although some have a term of
several years, as well as contracts with our software vendors, among others.
These obligations represent minimum contractual payments, or our best estimate
for variable elements based on historical payments. Our contractual obligations
have various expiry dates between fiscal years 2023 and 2035.
As of April 30, 2022 , future minimum payments under these contractual
obligations are as follows (in thousands):
Fiscal year ending January 31: Operating Leases Other
2023 (remainder of fiscal year) $ 14,248 $ 27,556
2024 18,788 17,161
2025 18,324 9,186
2026 19,177 1,834
2027 19,273 1,538
2028 and thereafter 75,160 394
Total $ 164,970 $ 57,669
See Note 13 “Commitments and Contingencies”, to our condensed consolidated
financial statements for further discussion on contractual obligations.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about items that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There have been no material changes to our critical accounting policies and
estimates as compared to those disclosed in our Annual Report on Form 10-K.
Recent Accounting Pronouncements
See Note 2 “Summary of Significant Accounting Policies- Recent Accounting
Pronouncements”, to the condensed consolidated financial statements for our
discussion about adopted and pending recent accounting pronouncements.
25
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