UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
January 31, 2018
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number: 001-38056
YEXT, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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20-8059722
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1 Madison Ave, 5th Floor
New York, NY 10010
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(Address of principal executive offices, including zip code)
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(212) 994-3900
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(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $0.001 per share
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New York Stock Exchange, Inc.
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Securities registered pursuant to section 12(g) of the Act:
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Not applicable
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of Act. Yes No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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x (Do not check if a smaller reporting company)
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Smaller reporting company
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Emerging growth company
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x
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act). Yes No x
Based on the closing price of the registrant’s common stock on the last business day of the registrant’s most recently completed second fiscal quarter, which was July 31, 2017, the aggregate market value of its shares (based on a closing price of $13.00 per share) held by non-affiliates was approximately $465.1 million. Shares of the registrant’s common stock held by each executive officer and director and by certain entities or persons that owned a certain percentage of the registrant’s outstanding common stock were excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of
February 28, 2018
, the registrant had
94,174,107
shares of common stock, $0.001 par value per share outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its
2018
Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days of the registrant’s fiscal year ended
January 31, 2018
, are incorporated by reference in Part III of this Annual Report on Form 10-K. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part of this Form 10-K.
TABLE OF CONTENTS
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PAGE
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains, and our officers and representatives may from time to time make, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties. All statements contained in this Annual Report on Form 10-K other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "potentially," "estimate," "continue," "anticipate," "plan," "intend," "could," "would," "expect" and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. Forward-looking statements included in this Annual Report on Form 10-K include, but are not limited to, statements regarding:
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our future revenue, cost of revenue, and operating expenses;
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anticipated trends, growth rates and challenges in our business and in the markets in which we operate;
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our beliefs and objectives for future operations, including plans to invest in international expansion, research and development, and our sales and marketing teams, and the impact of such investments on our operations;
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our ability to increase sales of our products;
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maintaining and expanding our end-customer base and our relationships with our PowerListings Network; and
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sufficiency of cash to meet cash needs for at least the next 12 months.
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We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part I, Item 1A. "Risk Factors" in this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and trends discussed in this Annual Report on Form 10-K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, whether written or oral, except as required by law.
In this Annual Report on Form 10-K, the words "we," "us," "our" and "Yext" refer to Yext, Inc. and its wholly owned subsidiaries, unless the context requires otherwise.
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Overview
Yext is a knowledge engine. Our platform lets businesses control their digital knowledge in the cloud and sync it to our PowerListings Network of approximately
150
service and application providers including Apple Maps, Bing, Cortana, Facebook, Google, Google Assistant, Google Maps, Siri and Yelp. Digital knowledge is the structured information that a business wants to make publicly accessible. For example, in food service, the address, phone number or menu details of a restaurant; in healthcare, the health insurances accepted by a physician or the precise drop‑off point of the emergency room at a hospital campus; or in finance, the ATM locations, retail bank holiday hours or insurance agent biographies. We believe a business is the ultimate authority on its own digital knowledge, and it is our mission to put that business in control of it, everywhere.
Intelligent search, which are searches of digital knowledge that combine context and intent, has grown significantly in recent years. Unlike traditional web-based search where many results are displayed as a list requiring further exploration, web and mobile applications and voice and artificial intelligence, or AI, engines are increasingly answering questions directly and in certain cases providing only one answer. As intelligent search grows, and increasingly leverages AI, consumers are more likely to rely on these direct answers, rather than clicking through to a business's website to find information about a company. The source of the results for intelligent searches is not a web page - it is structured data. Businesses and service providers want their digital knowledge to be accurate, compelling and more prominent than that of their competitors when consumers look for them on search platforms, mobile applications, voice assistants, social media, connected devices and other digital sources. Our solution drives commerce by providing updated digital knowledge that allows consumers to find the businesses and service providers that are most relevant to them.
The vast majority of digital knowledge provided by searches currently comes from third‑party sources such as data aggregators, governmental agencies and consumers. The net result of this third‑party sourcing has been to produce “best guess” data that can often miss or misstate the true digital knowledge for businesses worldwide. We pioneered a better way to source critical digital knowledge. We have built our business on the fundamental premise that the best source of accurate and timely digital knowledge about a business is the business itself. We have established direct data integrations with applications in our PowerListings Network that end consumers around the globe use to discover new businesses, read reviews and find accurate answers to their queries. Our platform ensures that our customers’ digital knowledge is available, accurate and consistent across our PowerListings Network. Businesses can directly control their own digital knowledge rather than leaving it in the hands of third parties, thereby making our platform the system of record for such vital knowledge.
We are increasingly using the structured data on our platform to expand or add new integrations with vertically specialized applications, voice‑based search and AI engines. Our provision of structured digital knowledge, directly produced and managed by businesses and professional service providers themselves, helps ensure the accuracy of search results whether they are presented in traditional search results, an information card or an answer from a digital assistant.
The Yext Knowledge Engine is the core of our platform and enables businesses and professional service providers of all sizes to:
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modify, enhance and control digital knowledge attributes for each of their locations, professionals, menus or other entities managed with our platform;
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update once and disseminate changes to their listings across the most widely used third‑party maps, apps, search engines, intelligent GPS systems, digital assistants, vertical directories and social networks that consumers rely upon today;
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create and update search‑optimized local pages;
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encourage consumer reviews for inclusion on their local pages; and
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analyze how listings, pages and reviews are driving consumer engagement.
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We offer our cloud‑based Knowledge Engine platform to customers on a subscription basis in several packages. Each package provides varying levels of access to our key features, including Listings, Pages and Reviews. Our Listings feature provides customers with control over the digital presence of their location and other related attributes published on the most widely used third‑party applications. Our Pages feature gives our customers the ability to create individual web pages for their business, enabling control over the image and efficacy of their digital appearance on their own sites. Our Reviews feature enables customers to encourage and facilitate reviews, thereby increasing the quantity and quality of the reviews available to potential consumers and improving the search relevance for their businesses on our PowerListings Network. Ultimately, these and our other features and solutions help ensure that the critical digital knowledge created by businesses and professional service providers and delivered to the consumer is accurate, consistent, up to date and compelling.
Businesses and professional service providers of nearly all sizes and in a diverse set of industries, such as healthcare, retail and financial services, can benefit from our platform and capabilities. Today, our customers use our platform to control digital knowledge covering approximately
29,137,000
attributes and approximately
1,468,000
licenses. The term licenses includes not only locations, but
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also the number of persons and other entities managed on our platform, such as physicians, wealth advisors and insurance agents, among others. We believe this term reflects the broadening of our business into new services and our current pricing methodology.
We have experienced rapid growth in recent periods. For the
fiscal years ended January 31, 2018
,
2017
and
2016
, our revenue was
$170.2 million
,
$124.3 million
and
$89.7 million
, respectively, our net loss was
$66.6 million
,
$43.2 million
and
$26.5 million
, respectively, and our non‑GAAP net loss was
$44.2 million
,
$33.3 million
and
$22.0 million
, respectively.
Industry Background
Consumer Discovery Has Changed.
Intelligent search has grown significantly in recent years. Businesses are now able to leverage intelligent search to help individuals discover what they need without having to necessarily visit the business’s own website and return digital knowledge directly responsive to a search.
Knowledge Is Fundamental.
Businesses spend significant sums on developing their brands and creating product and market awareness. When potential consumers reached through those efforts want to make a purchase, businesses need their digital knowledge to be widely available and correct so that they can be found efficiently. Inaccurate or incomplete information results in lost sales opportunities, negative brand experiences and organizational inefficiencies.
Intelligent Search Drives Commerce.
When searching for a business, consumers need to know many relevant attributes such as the address, phone number, menu options of a restaurant or operating hours. As a result, businesses and professional service providers must ensure that their digital knowledge is available, accurate and consistent so that they can be found. Moreover, businesses and professional service providers want to make sure that they appear prominently online when nearby consumers search for them.
Managing Digital Knowledge Is Challenging
Many businesses lack the capabilities to effectively control, structure and manage digital knowledge across the digital ecosystem where consumers discover businesses. This lack of management capability is due to several factors:
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Lack of Control of Digital Knowledge.
The vast majority of digital knowledge currently comes from third‑party sources such as data aggregators, governmental agencies and consumers. The net result of this third‑party sourcing has been to produce “best guess” data that can often miss or misstate the true digital knowledge for businesses worldwide.
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Attributes that Comprise Digital Knowledge Are Expanding.
Businesses need to be able to define their digital knowledge using detailed, category-specific attributes about their business ranging from name, address and phone number to more detailed items such as whether a hotel accepts pets, a restaurant has a gluten-free menu or a doctor accepts certain insurance plans.
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Digital Knowledge Is Dynamic.
Digital knowledge increasingly includes dynamic attributes that change frequently, such as opening hours, holiday hours, menus and promotions.
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Digital Knowledge Exists in Many Places.
The number of applications that leverage digital knowledge continues to increase, with the proliferation of vertical search applications and intelligent search using mobile, voice-based and in-app search. Businesses need an efficient way to control their digital knowledge across a multitude of services, such as Google, Facebook and Yelp.
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Businesses Need to Provide Customers with Relevant and Actionable Information.
When consumers search for businesses, they expect to be able to quickly find all of the relevant information they need about those organizations. Furthermore, the increase in the number of mobile users around the world has resulted in the need for business information to be available on the applications where consumers engage and to be presented in a way that is consistent with the language and customs of each geography in which consumers reside.
Existing Alternatives Are Inadequate.
Traditional methods for managing digital knowledge include paper or legacy software‑based solutions, such as word processors or spreadsheets. Simply managing and updating information within the few core search engines, such as Google and Bing, through these traditional methods is already very challenging, and becomes even more so when implementing updates on newer services such as Instagram, Snapchat and Uber.
Customer Reviews Are of Critical and Growing Importance.
Many major applications now include customer review data in their search results and may rank businesses and professional service providers based on the number, quality and recency of reviews. A limited number of reviews or a few poor reviews without offsetting positive reviews may result in businesses being placed further down in the search rankings provided by some applications.
Growth Strategy
Key elements of our strategy include:
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Grow Our Customer Base.
We believe that there is a substantial opportunity to continue to increase the size of our customer base across a broad range of industries and companies, and to include more professional service providers,
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such as individual doctors, insurance agents and financial services professionals, in addition to businesses. We plan to continue to invest in our direct sales force to grow our customer base, both domestically and internationally.
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Continue to Enter Attractive Industry Verticals.
As of January 31, 2018, we have addressed specific industry verticals, such as healthcare, retail and financial services, and we plan to continue this go-to-market strategy. More recently we have introduced Yext for Mortgage for the consumer lending industry and Yext for Food for the food services industry.
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Expand Existing Customer Relationships.
We continue to expand our relationships with existing customers. For example, some businesses may initially purchase our solution only for their stores in a particular country. We also up‑sell additional features, such as Pages and Reviews, to existing customers, who generally start with our entry‑level Listings feature. See "—Sales and Marketing" for a discussion of customer retention and our ability to expand customer relationships.
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Expand Internationally.
We believe that we have a significant opportunity to expand the use of our platform outside the United States. We derived more than
10%
of our revenue from non‑U.S. sales in the
fiscal year ended January 31, 2018
and we believe there are substantial opportunities to increase sales to customers outside of the United States as well as to help our existing U.S.‑based customers manage data for more of their international business. We have an established presence in the United Kingdom, Germany, France, Switzerland, Japan and China and we intend to further expand our footprint to other regions.
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Develop and Market New Products and Features.
We are committed to developing and marketing innovative capabilities for our customers to meet their digital knowledge management needs. We will continue to invest in platform and features development to help our customers better control their digital knowledge. In January 2018, we launched Knowledge Assistant, which allows customers to text or message updates into the Knowledge Engine or respond to reviews using a simple, conversational interface. In November 2017, we introduced Yext for Events, a feature that enables businesses to manage the public knowledge about their events and create event pages and calendars.
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Extend the PowerListings Network.
We plan to continue to expand our PowerListings Network. In the
fiscal year ended January 31, 2018
we expanded our PowerListings Network to approximately
150
applications. We are increasing our focus on adding more industry vertical-specific and international services to our PowerListings Network as well as including new services that may become more commonly used in the future.
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Expand Our Developer Platform.
We opened up our Knowledge Engine to developers with the introduction of our Yext Developer platform. Yext Developer offers our customers the ability to integrate into other systems to give our customers programmatic control of their organization’s digital knowledge. We believe that the introduction of our Yext Developer platform will further expand the ways that our Knowledge Engine can be utilized and increase customer retention.
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Key Benefits of Our Platform
Our global Knowledge Engine provides the following benefits depending on a customer’s subscription level and enabled solutions and features:
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Control over Digital Knowledge.
Our platform is the system of record that enables our customers to control their digital knowledge and be the single source of truth for their information everywhere. Our customers quickly gain control of their digital knowledge, such as their location data, listings and related attributes, resulting in the elimination of inaccurate and duplicate data and the ability to seamlessly update data across our PowerListings Network.
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Flexibility for Optimized Management of Digital Knowledge Attributes.
Our technology enables businesses to develop structured digital knowledge that suits their business needs and is optimized for search and discovery. Our solution gives businesses the ability to organize, edit and update digital knowledge based on numerous standard attribute fields, such as address and hours of operation, and increase the depth of their digital knowledge using our extensible custom fields, such as menu options or accepted insurance plans.
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Direct Integrations with the Most Relevant Services.
Our platform, coupled with our PowerListings Network of approximately
150
maps, apps, search engines, intelligent GPS systems, digital assistants, vertical directories and social networks, provides our customers with the ability to update their digital knowledge and content across this network with a single click.
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Ability to Create Compelling Local Pages for Consumers.
Our Pages feature enables businesses to create a compelling online consumer experience utilizing rich content that accurately represents their brands at a local level and establishes a consumer call to action.
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Ability to Drive More Reviews and Increase Consumer Engagement.
Our Reviews feature helps our customers to gather additional genuine consumer reviews and add those reviews to a customer's website as well as monitor and respond to reviews posted across the PowerListings Network.
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Ability to Perform Advanced Analytics.
Our platform's advanced analytics informs businesses about their digital public presence.
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Global Reach and Local Expertise.
Our platform integrates with both global and country-specific search engines and applications, accepts international address and phone number data, and allows local employees to contribute individual expertise, providing a consumer experience that respects local languages, address formats and customs.
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The Yext Knowledge Engine
The Yext Knowledge Engine is our cloud‑based platform that powers our key capabilities allowing customers to control their digital knowledge and the content of their local landing pages and to manage their consumer reviews, all from a single login. From our Knowledge Engine customers can centralize, control and manage more than
100
standard data fields, including name, address and phone number, map marker, holiday hours, location‑specific promotions, photo and video content and social links, use the data to power and update their local landing pages and make this information available through our PowerListings Network of approximately
150
maps, apps, search engines, intelligent GPS systems, digital assistants, vertical directories and social networks in a complete, up to date and accurate manner.
Our Knowledge Engine powers all of our key features, including Listings, Pages and Reviews.
Listings
Our Listings feature allows our customers to control digital knowledge specific to location data so that updates are controlled through our platform, and then sync and update the content across our PowerListings Network. Listings also enables the suppression of duplicate listings, as well as the implementation of real‑time or near‑real‑time and scheduled updates of our customers’ data.
Our PowerListings Network is comprised of approximately
150
services and applications across the globe, including major search engines, such as Bing and Google; social apps, such as Facebook; local service sites, such as Yelp; and mapping apps, such as Apple Maps and Google Maps. We have direct data integrations with applications in our PowerListings Network. As a result, our customers are able to control and update their business listings across all of these applications through our integrated platform with a single click.
Listings also provides analytics support to keep our customers informed of how their public presence across the PowerListings Network is impacting their business, including visibility into how often their listings are appearing in search results and how many people are clicking from those search results to learn more. Additionally, Listings enables our customers to control their brand content across all of their business listings to ensure a consistent message regardless of city, country or language.
Pages
Our Pages feature allows customers to establish specialized landing pages for their business, such as separate pages for each store, insurance agent or doctor’s office, on their own websites and to manage rich and compelling digital content on those sites, including calls to action. Pages are automatically updated when the customer makes changes to the content linked to our Knowledge Engine, creating a unique, dynamic web presence for every page.
Pages are built with search engine optimization ("SEO"), best practices, structured digital knowledge using standardized schema.org-defined standards, a fully configurable URL scheme and a consistent cross‑device experience to assist our customers’ stores, agents, offices or service centers to increase their websites’ search engine visibility and traffic. Schema.org is an open and collaborative initiative launched by certain large search engines that defines the vocabulary and format for structured markup. Customers can work with Yext to build custom landing pages or can build and manage their own webpages using data stored in the Knowledge Engine and Yext’s platform functionality to add schema.org tagging and page content.
Our Pages feature has the functionality to automatically display our customers’ most convenient location to consumers who are searching, enabling the filtering and refinement of searches on websites by address, zip code, landmark, service and more. Additionally, Pages enhances the visibility of our customers’ websites by categorizing their businesses based on the product lines or services that they offer and supports multi‑lingual content storage, allowing our customers to provide targeted content to their prospective end consumers and to organize digital knowledge so that consumers and search engines are able to more easily locate the information they are searching for.
Reviews
Our Reviews feature enables customers to encourage and facilitate reviews from their end consumer, thereby increasing the quantity and quality of the reviews available to potential consumers, the tools to manage their reviews from multiple sources across our PowerListings Network from a single location.
Our Review Publishing platform utilizes SEO best practices, enhancing the visibility of the customer reviews on our customers' websites. Additionally, our Review Quarantine feature allows our customers to hold their customer reviews for up to seven days before they go live, permitting our customers to address authentic but negative feedback before it becomes public and automatically flags inauthentic or inappropriate reviews for removal.
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Our Reviews feature also leverages our direct integrations across the PowerListings Network to pull all of our customers’ reviews, from every location managed on our platform, into a single dashboard so that our customers can stay informed in an efficient manner. It also has functionality to alert our customers with a notification once new reviews become available and provides a platform for our customer to respond to reviews and engage with their customers directly from the Yext Knowledge Engine. Reviews also allows our customers to view and generate reports that display metrics of their ratings and reviews, based upon location, website or service and other factors.
Key Additional Features of the Yext Knowledge Engine
Although our Knowledge Engine is used most heavily to support our key features, including Listings, Pages and Reviews, the platform also provides our customers with a number of additional key features and benefits including:
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Core Data.
Our platform contains a centralized hub for all our customers' data that defines their stores, offices, physicians, branches, ATMs, agents, dealerships, restaurants or service centers. Purpose‑built for managing attributes related to any entity managed in the platform, it supports more than
100
standard data fields, from address and phone number to payment methods, search categories, holiday hours, product and menu lists and location‑specific offers. Editing data, in bulk or for individual records, is easy.
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Geocoding and Data Cleansing.
Upon implementation, all of our customers benefit from our rigorous data cleansing process to help ensure their data is formatted consistently and completely, regardless of the number of entities managed on our platform and the number of attributes. Our operations team reviews data to detect inconsistencies, discrepancies, and missing fields. We help our customers ensure that their data is correct and complete, and we work with them to find the best way to fill any gaps we find. As part of our rigorous data cleansing process, we verify all customers’ coordinates with some of the largest mapping providers in the PowerListings Network-including Google Maps and Bing-so that customers’ map pins appear correctly to both drivers and pedestrians.
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Bulk Data Management.
In our user‑friendly Partner Portal, customers can take bulk actions as needed, including uploading, editing, exporting and moving managed entities within their account, and to the extent applicable creating social posts.
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Knowledge Tags
. Our Knowledge Tags feature allows customers to add schema mark-up to their websites to make the content on the website easier to find in search results.
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APIs.
Our low‑latency APIs make it easy for customers to ensure that all of their internal systems work consistently when connecting with the Knowledge Engine.
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Custom Fields.
Custom fields make it easy for our customers to extend their existing data model to our Knowledge Engine. We work with our customers to define the custom fields that represent their data management strategy best, like brand, open status or square footage. Customers can add custom fields that support URLs, photos, yes/no answers or 12 additional data validation types to manage information related to their business on their own terms.
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Multilingual Content Support.
Our Multi‑Language Data Storage allows our customers to present a tailored experience to diverse consumers locally and worldwide while maintaining data consistency, avoiding discrepancies and satisfying local customers. Additionally, our industry expertise and direct PowerListings Network relationships support our customers’ global scale and expansion with smart, pre‑formatted addresses, phone numbers and payment options for which we can support approximately
200
countries and
100
languages and dialects.
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Local User Portal.
Our customizable and extensible Local User Portal delivers a branded experience to franchisees, agents or advisors, giving local managers an active role in managing the digital knowledge that consumers seek while maintaining brand compliance.
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User Roles and Approval Workflows.
Our flexible, scalable user roles, workflows and approvals give our customers the option to allow franchisees or local managers to manage data for their business while letting corporate management maintain total brand control. Management can empower franchisees or local managers to contribute key data about their individual properties that give their online presence a personal touch, including hours of operation, photos and local specials. Our flexible workflows support the processes and controls of business so managers can give individuals users, such as their employees, franchisees or local or regional managers, as much or as little responsibility as they would like. Those users can request edits to any data field, while approvers can review requested changes, accept, reject or reassign those changes, and explain their decisions to those who made the request. Our Smart Notifications make it easy to comply and collaborate.
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Knowledge Assistant.
Knowledge Assistant lets businesses text or message updates into the Knowledge Engine or respond to reviews using a simple, conversational interface.
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Scheduled Content and Digital Asset Management.
Changes to digital knowledge, from holiday hours to featured promotions to social posts, can be scheduled to post automatically on the dates desired. Our customers are able to view
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all the locations that leverage a digital asset such as a photo, video or text, in order to keep track of where and when photos and offers appear to consumers.
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Analytics Hub.
Analytics keep our customers informed of how their public presence across services drives business for their brands. For example, customers can view how often their listings appear in search, how many people click from those search results to learn more, the terms for which their individual business locations appear to consumers and favorite Instagram hashtags to post from those locations. Via our direct data integrations with applications in the PowerListings Network, customers control the URL that their listings drive to, so they can tie their listings back to the conversion metric of their choice.
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App Directory.
The App Directory extends the utility of data stored in the Knowledge Engine to many other software systems. These self-serve, pre-built integrations allow a business to connect information from various systems across the company such as workforce management systems and CRM databases to create a single customer-facing view of their public information.
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Our Technology
Our cloud‑based platform is designed to scale as we continue to add customers and allows us to support digital knowledge for the locations, persons and entities managed with our platform and the millions of associated attributes. The platform is built primarily with industry‑standard open source technology. We use a microservices‑based architecture to maximize the manageability, flexibility and scalability of our software as it continues to grow more complex. We also employ a modern continuous delivery approach to building, testing and deploying our software.
Hosting
The majority of our customer‑facing software is run from two co‑location data centers. To provide the highest level of up‑time and lowest latency for our platform capabilities, key high‑volume services are hosted by third‑party hosting services, which allows easier and greater scalability and provides for redundancy.
Data Structure
Our Yext Knowledge Engine allows customers to collect, store and manage structured data, consistent with standards published by schema.org. Schema.org is an open and collaborative initiative launched by certain large search engines that defines the vocabulary and format for structured markup. Search engines like Google and Bing consume local data through structured markup placed in the underlying code of web pages.
We actively monitor and track the schema.org standards so that our Yext Knowledge Engine stores and publishes data in accordance with the most current schema.org specifications.
Interfaces with our PowerListings Network
We rely on integrations with each of the applications in our PowerListings Network that enable us to accomplish some or all of the following key tasks with members of our PowerListings Network:
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search for existing listings and retrieve details about them, in order to match our customers’ digital knowledge to existing listing data;
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claim listings and deliver updated digital knowledge content;
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retrieve or get notified about reviews and allow review response; and
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obtain statistics about traffic on listings to display to our customers in the platform.
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Over the years, we have developed special integrations with a number of the applications in our PowerListings Network. We have also worked with the major application providers in the PowerListings Network to develop trust and strong working relationships, resulting in specific operational workflows, processes for issue resolution, and specialized technology and processes tailored to the nuances of each. For smaller PowerListings Network application providers, we have developed our own API specifications that each provider builds and implements for integration with our Yext Knowledge Engine.
Our Customers
As of
January 31, 2018
, we served businesses with locations in over
100
countries. These include many leading businesses in a diverse set of industries, such as healthcare, retail and financial services. For this purpose, we define a customer as a separate and distinct buying entity, such as a company, a government institution, a franchisor, a service provider or agency or a distinct business unit of a large corporation that has an active contract directly with us.
No
single customer accounted for more than 10% of our revenue for the
fiscal years ended January 31, 2018
and
2017
, respectively.
One
reseller customer, Dex Media, currently known as Dex-YP, accounted for approximately
10%
of our revenue for the fiscal year ended
January 31, 2016
.
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Sales and Marketing
We sell our solution globally to customers of all sizes through direct sales efforts to our customers, including third‑party resellers, and through a self‑service purchase process. Most of our third-party reseller customers serve small businesses or non‑U.S. businesses, while we serve the significant majority of enterprise and mid‑size business customers through our direct sales force. In transactions with resellers, we are only party to the transaction with the reseller and are not a party to the reseller’s transaction with its customer.
Our sales organization varies by market within each country and will change over time as we build critical mass and address various verticals within a market. As of
January 31, 2018
, we had
131
quota-carrying sales representatives compared to
100
as of
January 31, 2017
. We plan to continue to grow our sales and marketing organization as we expand globally.
Through our direct sales efforts, we offer annual and multi-year subscriptions to our platform. Our pricing strategy generally varies based on the number of licenses managed by a customer and the level of service and features that a customer requires. Until October 2015, we generally offered various customized levels of access to some or all of our features in our platform on a subscription basis with pricing based on the number of locations and features used. Beginning in October 2015, we began pricing new subscriptions in a more discrete range of packages, with pricing based on specified feature sets and the number of locations managed by the customer with our platform. More recently, we began pricing subscriptions based not only on the number of physical locations, but also on the number of persons and other entities managed on our platform, such as physicians, wealth advisors and insurance agents, among others. We now refer to these locations, persons and other entities collectively as "licenses," which we believe reflects the broadening of our business into new services and our current pricing methodology.
We categorize our current packages as Base, Starter, Professional and Ultimate, which start with basic access to the Knowledge Engine and successively include access to additional capabilities at a higher cost. Many of our customers initially deploy a Starter or Professional subscription to control and manage their digital knowledge using the Listings feature. Some customers start with the Base subscription if they only need internal data management. As customers realize the benefits of our platform, many have increased or expanded their existing subscription levels to obtain greater access to our key features, such as Pages and Reviews, as they need them.
We believe that our ability to retain our customers and expand the revenue they generate for us over time is an important component of our growth strategy and reflects the long‑term value of our customer relationships. We assess our performance in this respect using a metric we refer to as our dollar‑based net retention rate. Our dollar‑based net retention rate was
109%
,
119%
, and
121%
for the
fiscal years ended January 31, 2018
,
2017
and
2016
, respectively. The overall decline in the rate during the fiscal year ended January 31, 2018 was primarily attributed to mergers, acquisitions and bankruptcies of certain customers; however, the net retention rate with our enterprise customers remained generally consistent with the prior year. We calculate this metric for a particular period by first establishing a cohort of the enterprise, mid‑size and reseller customers who had active contracts at the end of each month of the same period in the prior year. We divide the single month revenue from each of those customer cohorts for the applicable month in the current year by the single month revenue of that same customer cohort for the corresponding month in the prior year. We then determine the dollar‑based weighted average of each of the monthly rates, and this average represents the dollar‑based net retention rate for the period. We only consider revenue from enterprise and mid‑size customers and reseller customers when calculating this metric since small businesses that have limited locations experience inherently high turnover. Our revenue from direct sales to small businesses represented less than
20%
of our total revenue in the
fiscal years ended January 31, 2018
,
2017
and
2016
, and we expect it to decline further as a percentage of total revenue as our other channels increase, although not in absolute dollars.
Customer Support and Professional Services
Our account services team provides customer support for each of our customers. Support begins in the customer acquisition phase and continues throughout the duration of the relationship. Customer support includes working with customers on launch and on‑boarding, ongoing support, assessment of solution and feature mix, analytics and renewal. We also have a dedicated professional services team. This team provides support to customers that require custom development services, may have special operational needs or may require more custom analytics.
Research and Development
As of
January 31, 2018
, our research and development organization had
114
employees. Our global research and development organization uses and shares the same technology, platform development tools and data across various sites. Our research and development expenses were
$25.7 million
,
$19.3 million
and
$16.2 million
for the
fiscal years ended January 31, 2018
,
2017
and
2016
, respectively.
Intellectual Property
Our intellectual property is an essential element of our business. We rely on a combination of patent, trade secret, trademark, copyright and other intellectual property laws, confidentiality agreements and license agreements to protect our intellectual property rights. We also license certain third‑party technology for use in conjunction with our platform.
We believe that our continued success depends on hiring and retaining highly capable and innovative employees, especially as it relates to our engineering base. It is our policy that our employees and independent contractors involved in development are required to sign agreements acknowledging that all inventions, trade secrets, works of authorship, developments and other processes generated
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by them on our behalf are our property and assigning to us any ownership that they may claim in those works. Despite our precautions, it may be possible for third parties to obtain and use without consent intellectual property that we own or license. Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business.
Patents and Patent Applications
As of
January 31, 2018
, we had
eight
issued U.S. patents,
three
non‑provisional and
one
provisional U.S. patent applications and
four
international Patent Cooperation Treaty patent applications pending, of which we have filed one national stage application in the European Union. The issued patents have expiration dates ranging from
2032
to
2035
. Although we actively attempt to utilize patents to protect our technologies, we believe that none of our patents, individually or in the aggregate, are material to our business. We will continue to file and prosecute patent applications when appropriate to attempt to protect our rights in our proprietary technologies. However, there can be no assurance that our patent applications will be approved, that any patents issued will adequately protect our intellectual property, or that such patents will not be challenged by third parties or found by a judicial authority to be invalid or unenforceable.
Trademarks
We rely on registered and unregistered trademarks to protect our brand. As of
January 31, 2018
, we had
54
trademarks registered globally. “Yext” and “PowerListings” are registered trademarks in the United States and in certain other countries.
Competition
The market for digital knowledge management, particularly for location and location‑related data, is new and rapidly evolving, and we face many competitors with a variety of product offerings. Our primary competition comes from businesses that choose to handle digital knowledge management in‑house using manual, paper and spreadsheet‑based systems that corporate personnel employ in a fragmented manner rather than pay for a third‑party solution. In addition, some small companies may offer products and solutions at lower price points than us or that compete with some but not all of the features present in our platform and solutions. As we introduce new features and our existing platform evolves, or as other companies introduce new products and services, we may become subject to additional competition.
We believe that we generally compete favorably with our competitors because of the size and breadth of our integration and relationships with the applications in our PowerListings Network, the features and performance of our platform and our various solutions, the ease of integration of our solutions with the technological infrastructures of our customers and the incremental marketing benefits and return on investment that our various solutions offer to our customers.
Employees
As of
January 31, 2018
, we had over
800
full‑time employees, the majority of which were located in our New York headquarters. We consider our culture and employees to be vital to our success. None of our domestic employees are represented by a labor union or covered by a collective bargaining agreement, although works councils exist in various foreign jurisdictions where we have employees.
Segment and Geographic Information
Information about segment and geographic revenue is set forth in Note 2 "Summary of Significant Accounting Policies" of the Notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Additional Information
We were incorporated in 2006 as a Delaware corporation. Our headquarters are located at 1 Madison Avenue, 5
th
Floor, New York, NY 10010 and our telephone number is (212) 994-3900. You can access our website at www.yext.com and our investor relations website at http://investors.yext.com.
Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available, free of charge, on our investor relations website as soon as reasonably practicable after we file such material electronically with or furnish it to the Securities and Exchange Commission, or the SEC. The SEC also maintains a website at http://www.sec.gov that contains our SEC filings. Furthermore, you may read and copy any materials we have filed with or furnished to the SEC at the SEC's Public Reference Room at 100 F Street, NE., Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. None of the information contained on, or that can be accessed through, our website, our investor relations website or the SEC's website is part of this Form 10-K nor is such information incorporated by reference herein.
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You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes, before making a decision to invest in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect our business. If any of the following risks occur, our business, financial condition, operating results and prospects could be materially harmed. In that event, the price of our common stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business and Industry
We have a history of losses and may not achieve profitability in the future.
We generated a net loss of
$66.6 million
,
$43.2 million
and
$26.5 million
for the
fiscal years ended January 31, 2018
,
2017
and
2016
, respectively. As of
January 31, 2018
, we had an accumulated deficit of
$233.5 million
, reflecting our losses recognized historically on a GAAP basis. We will need to generate and sustain increased revenue levels in future periods to become profitable, and, even if we do, we may not be able to maintain or increase our level of profitability. As a result, we may continue to experience operating losses for the indefinite future. Further, we expect our operating expenses to increase over the next several years as we hire additional personnel, expand our distribution channels, develop our technology and new features and face increased compliance costs associated with our growth and entry into new markets and geographies and operations as a public company. If our revenue does not increase to offset these and other potential increases in operating expenses, we may not be profitable in future periods. If we are unable to achieve and sustain profitability, the market price of our common stock may significantly decrease.
We have a limited operating history as a digital knowledge software company, which makes it difficult to predict our future operating results.
We were incorporated in 2006 and originally operated as an advertising services company. Our business has evolved several times since then. For example, we sold our advertising business to IAC/InterActiveCorp in 2012 to focus our operations on becoming a leading digital knowledge management company. Many of the most popular features of our platform have only been launched in the past few years.
As a result of our limited operating history and recent changes to our platform and our sales model, our ability to forecast our future operating results is limited and subject to a number of uncertainties, including our ability to plan for and model our future growth. The dynamic nature of our business and our industry may make it difficult to evaluate our current business and future prospects, and as a result our historical performance should not be considered indicative of our future performance. We have encountered and will encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described herein. If our assumptions regarding these risks and uncertainties are incorrect or change due to changes in our industry, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations and our business could suffer.
We have recently experienced rapid growth and significant changes to our organization and structure and may not be able to effectively manage such growth.
Our headcount and operations have grown substantially in recent years. We increased the number of our full-time employees from over 450 as of January 31, 2016 to over
800
as of
January 31, 2018
and have hired several members of our senior management team in recent years.
We believe that our corporate culture has been a critical component of our success. We have invested substantial time and resources in building our team and nurturing our culture. As we expand our business and operate as a public company, we may find it difficult to maintain our corporate culture while managing our personnel growth. Any failure to manage our anticipated growth and organizational changes in a manner that preserves the key aspects of our culture could hurt our chance for future success, including our ability to recruit and retain personnel and effectively focus on and pursue our corporate objectives.
In addition, to manage the expected growth of our headcount, customer-base and operations, we will need to continue to improve our information technology infrastructure and our operational, financial and management systems and procedures. We have implemented many of these systems and procedures only recently, and they may not work as we expect or at all. Our anticipated additional headcount and capital investments will increase our costs, which will make it more difficult for us to address any future revenue shortfalls by reducing expenses in the short term.
Finally, in order to successfully manage our rapid growth, our organizational structure has become more complex. We have added personnel and may need to continue to scale and adapt our operational, financial and management controls, as well as our reporting systems and procedures. The expansion of our systems and infrastructure may require us to commit additional financial, operational and management resources before our revenue increases and without any assurances that our revenue will increase. If we fail to successfully manage our growth, we likely will be unable to successfully execute our business strategy, which could have a negative impact on our business, operating results and financial condition.
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Failure to adequately expand our sales force will impede our growth.
Our revenue growth is substantially reliant on our sales force. Our sales process is relationship-driven, which requires a significant sales force. While we plan to continue to expand our direct sales force, both domestically and internationally, we have historically had difficulty recruiting a sufficient number of sales personnel. If we are unable to adequately scale our sales force, we will not be able to reach our market potential and execute our business plan.
Identifying and recruiting qualified sales personnel and training them on our products requires significant time, expense and attention. Our financial results will suffer if our efforts to expand and train our direct sales force do not generate a corresponding increase in revenue. In particular, if we are unable to hire, develop and retain talented sales personnel or if new direct sales personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the expected benefits of this investment or increase our revenue.
We are in the process of expanding our international operations, which exposes us to significant risks.
In 2014, we opened our first office outside the United States, and we intend to continue to expand our operations abroad. Our revenue from non-U.S. operations has grown from approximately
2%
of our total revenue in the
fiscal year ended January 31,
2016
to more than
10%
of total revenue in the
fiscal year ended January 31,
2018
. Our international expansion has created and will create significant challenges for our management, administrative, operational and financial infrastructure. Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic and political risks in addition to those we already face in the United States. Because of our limited experience with international operations and developing and managing sales in international markets, our international expansion efforts may not be successful.
Some of the specific risks we will face in conducting business internationally that could adversely affect our business include:
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the difficulty of recruiting and managing international operations and the increased operations, travel, infrastructure and legal compliance costs associated with numerous international locations;
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our ability to effectively price our multi-tiered subscriptions in competitive international markets;
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our ability to identify and manage sales partners;
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new and different sources of competition in each country or region;
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potentially greater difficulty collecting accounts receivable and longer payment cycles;
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the need to adapt and localize our products for specific countries, including differences in the location attributes and formats used in each country;
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the need to offer customer support in various languages;
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difficulties in understanding and complying with local laws, regulations and customs in foreign jurisdictions;
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compliance with U.S. laws and regulations for foreign operations, including, without limitation, the Foreign Corrupt Practices Act, or FCPA, the U.K. Bribery Act, import and export control laws, tariffs, trade barriers, economic sanctions and other regulatory or contractual limitations on our ability to sell in certain foreign markets, and the risks and costs of non-compliance;
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expanded demands on, and distraction of, senior management;
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difficulties with differing technical and environmental standards, data privacy and telecommunications regulations and certification requirements outside the United States;
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varying levels of internet technology adoption and infrastructure;
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tariffs and other non-tariff barriers, such as quotas and local content rules;
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more limited protection for intellectual property rights in some countries;
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adverse tax consequences;
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fluctuations in currency exchange rates, which could increase the price of our products outside of the United States, increase the expenses of our international operations and expose us to foreign currency exchange rate risk;
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currency control regulations, which might restrict or prohibit our conversion of other currencies into U.S. dollars;
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restrictions on the transfer of funds;
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deterioration of political relations between the United States and other countries; and
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political or social unrest or economic instability in a specific country or region in which we operate, which could have an adverse impact on our operations in that location.
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Also, our network service provider fees outside of the United States are generally higher than domestic rates, and our gross margin may be affected and may fluctuate as we expand our operations and customer base worldwide.
Our failure to manage any of these risks successfully could harm our international operations, and adversely affect our overall business, operating results and financial condition.
Some of our resellers and PowerListings Network application providers also have international operations and are subject to the risks described above. Even if we are able to successfully manage the risks of international operations, our business may be adversely affected if these resellers and application providers are not able to successfully manage these risks.
Our growth depends in part on the success of our strategic relationships with existing and prospective PowerListings Network application providers.
We have established strategic relationships with approximately
150
third-party service and application providers that comprise our PowerListings Network, including Apple Maps, Bing, Cortana, Facebook, Google, Google Assistant, Google Maps, Siri, Yelp and many others. These application providers provide us with direct access to update content on their websites and applications. This direct access enables us to control our customers' business listings on the PowerListings Network application providers' websites and applications and to push real-time or nearly real-time updates to those business listings. In order to maintain relationships with application providers, we may need to modify our products or strategies in a way that may be adverse to our business and financial results. Furthermore, if we were to lose access to these applications, either in whole or in part, our PowerListings Network would not be as efficient, accurate or competitive.
In order to grow our business, we anticipate that we will need to continue to maintain and potentially expand these relationships. We may be unsuccessful in renegotiating our agreements with these third-party application providers or third-party application providers may insist on fees to access their applications. Additionally, our contracts with these third-party application providers are generally cancelable upon 30 days' notice, and we could lose access to these resources without having sufficient time to replace them. We believe we will also need to establish new relationships with third-party application providers, including third-party application providers in new geographic markets that we enter, and third-party application providers that may emerge in the future as leading sources of digital knowledge for end consumers. Identifying potential third-party application providers, and negotiating and documenting relationships with them, requires significant time and resources. Our competitors may be more effective than we are in providing incentives to application providers to favor their products or services or to prevent or reduce subscriptions to our products. In addition, the acquisition of a competitor by one of our third-party application providers could result in the termination of our relationship with that third-party application provider, which, in turn, could lead to decreased customer subscriptions. If we are unsuccessful in establishing or maintaining our relationships with third-party application providers, our ability to compete in the marketplace or to grow our revenue could be impaired and our operating results could suffer.
We do not have a long history with our subscription or pricing models and changes could adversely affect our operating results.
We have limited experience with respect to determining the optimal prices and contract length for our platform. As the markets for our features grow, as new competitors introduce new products or services that compete with ours or reduce their prices, or as we enter into new international markets, we may be unable to attract new customers or retain existing customers at the same price or continue to migrate customers to our multi-tiered subscription model. Moreover, large customers, which have historically been the focus of our direct sales efforts, may demand greater price discounts.
As we expand internationally, we also must determine the appropriate price to enable us to compete effectively internationally. In addition, if the mix of features we sell changes, then we may need to, or choose to, revise our pricing. As a result, in the future we may be required to reduce our prices or offer shorter contract durations, which could adversely affect our revenue, gross margin, profitability, financial condition and cash flow.
Our success depends on a fragmented internet environment for finding digital knowledge, particularly information about physical business locations, other entities and attributes.
We believe that our Knowledge Engine offers value to our customers in part because of the difficulty for a customer to update digital knowledge, particularly about its physical business locations, other entities and attributes across many websites and apps, many of which are owned or controlled by different entities and receive information from a variety of sources. Industry consolidation or technological advancements could result in a small number of websites or applications emerging as the predominant sources of digital knowledge, including information about physical business locations, thereby creating a less fragmented internet environment for purposes of end consumer searches about physical business locations or digital knowledge generally. Additionally, we may enter new geographies with less fragmented internet environments. If most end consumers relied on a few websites or applications for this information, or if reliably accurate information across the most used websites and applications were generated from a single source, the need for digital business listing synchronization and our platform could decline significantly. In particular, if larger providers of internet services were able to consolidate or control key websites and apps from which end consumers seek digital knowledge, including regarding physical locations, other entities and attributes, our platform may become less necessary or attractive to our customers, and our revenue would suffer accordingly.
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Our platform faces competition in the marketplace. If we are unable to compete effectively, our operating results could be adversely affected.
The market for our features is competitive, rapidly evolving and fragmented, and is subject to changing technology and shifting customer needs. Many vendors develop and market products and services that compete to varying extents with our features, and we expect competition in our market to intensify. Moreover, industry consolidation may increase competition. Additionally, new entrants, specifically application providers, that enter our industry through acquisitions or otherwise, would increase competition in our industry significantly.
We currently face many competitors with a variety of product offerings. These companies have developed, or are developing, products that currently, or in the future are likely to, compete with some or all of our features. Also, a number of potential new competitors, including those with longer operating histories, greater name recognition, more established customer bases or significantly greater financial, technical, marketing and other resources than we do, may decide to enter the digital knowledge management business and create or acquire products that are competitive to our platform. As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. We could lose customers if our competitors introduce new competitive products, add new features to existing competitive products, acquire competitive products, reduce prices, form strategic alliances with other companies or are acquired by third parties with greater available resources. If our competitors' products, services or technologies become more accepted than our features, if they are successful in bringing their products or services to market earlier than we bring our features to market, or if their products or services are more technologically capable than our features, then our revenue growth could be adversely affected. In addition, some of our competitors offer their products and services at a lower price. If we are unable to achieve our target pricing levels, our margins and operating results could be negatively affected.
Business and professional service providers may not widely adopt our platform to manage the important aspects of their digital knowledge, which would limit our ability to grow our business.
Our ability to grow our business and increase revenue depends on our success in educating businesses and professional service providers about the potential benefits of our cloud-based platform. Cloud applications for organizing and managing digital knowledge, particularly for location and location-related data, have not previously been widely adopted. Concerns about cost, security, reliability and other issues may cause businesses and professional service providers not to adopt our platform. Moreover, businesses and professional service providers who have already invested substantial resources in other digital knowledge and data management systems or methods may be reluctant to adopt a new approach like ours to supplement or replace existing systems or methods. If businesses and professional service providers do not widely adopt software such as ours, our ability to grow our business will be limited.
Because we recognize revenue from subscriptions for our platform over the term of the subscription, downturns or upturns in new business may not be immediately reflected in our operating results.
We generally recognize revenue from customers ratably over the terms of their agreements, which are typically one year in length but may be up to three years or longer in length. As a result, most of the revenue we report in each quarter is the result of subscription agreements entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any one quarter may not be reflected in our revenue results for that quarter. Any such decline, however, will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our products, and potential changes in our attrition rate, may not be fully reflected in our results of operations until future periods. Our subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term.
If customers do not renew their subscriptions for our platform or reduce their subscriptions at the time of renewal, our revenue will decline and our business will suffer.
Our customers have no obligation to renew their subscriptions for our platform after the expiration of their subscription periods. In the normal course of business, some customers have elected not to renew their subscriptions with us. However, because our recent growth has resulted in the rapid expansion of our business and we have changed our subscription model in recent years, we do not have a long history upon which to base forecasts of renewal rates with customers or future operating revenue. Our customers may seek to renew their subscriptions for fewer features, at renegotiated rates, or for shorter contract lengths, all of which could reduce the amount of the subscription. Our renewal rates may decline or fluctuate as a result of a number of factors, including limited customer resources, pricing changes, customer satisfaction with our platform, the acquisition of our customers by other companies and deteriorating general economic conditions. If our customers do not renew their subscriptions for our platform or decrease the amounts they spend with us, our revenue will decline and our business will suffer. If our renewal rates fall significantly below the expectations of the public market, equity research analysts or investors, the price of our common stock could also be harmed.
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If we are unable to attract new customers, our revenue growth could be slower than we expect and our business may be harmed.
To increase our revenue, we must add new customers. If competitors introduce lower cost or differentiated products or services that are perceived to compete with our features, our ability to sell our features based on factors such as pricing, technology and functionality could be impaired. As a result, we may be unable to attract new customers at rates or on terms that would be favorable or comparable to prior periods, which could negatively affect the growth of our revenue.
If we fail to integrate our platform with a variety of third-party technologies, our platform may become less marketable and less competitive or obsolete and our operating results would be harmed.
Our platform must integrate with a variety of third-party technologies, and we need to continuously modify and enhance our platform to adapt to changes in cloud-enabled hardware, software, networking, mobile, browser and database technologies. Any failure of our platform to operate effectively with future technologies could reduce the demand for our platform, resulting in customer dissatisfaction and harm to our business. If we are unable to respond to these changes in a cost-effective and timely manner, our platform may become less marketable and less competitive or obsolete and our operating results may be negatively affected. In addition, an increasing number of customers are utilizing mobile devices to access the internet and conduct business. If we cannot continue to effectively make our platform available on these mobile devices and offer the information, services and functionality required by enterprises that widely use mobile devices, we may experience difficulty attracting and retaining customers, which could negatively affect our revenue.
If we are unable to successfully develop and market new features, make enhancements to our existing features, or expand our offerings into new market segments, our business, results of operations and competitive position may suffer.
The software industry is subject to rapid technological change and evolving standards and practices, as well as changing customer needs, requirements and preferences. Our ability to attract new customers and increase revenue from existing customers depends, in part, on our ability to enhance and improve our existing features, increase adoption and usage of our platform and introduce new features. We expend significant resources on research and development to enhance our platform and to incorporate additional features, improve functionality or add other enhancements in order to meet our customers' rapidly evolving demands. The success of any enhancements or new features depends on several factors, including timely completion, adequate quality testing, actual performance quality, market-accepted pricing levels and overall market acceptance. We may not be successful in these efforts, which could result in significant expenditures that could impact our revenue or distract management's attention from current offerings.
Increased emphasis on the sale of new features could distract us from sales of our core platform, negatively affecting our overall sales. We have invested and expect to continue to invest in new businesses, products, features, services, and technologies. Such endeavors may involve significant risks and uncertainties, including insufficient revenue from such investments to offset any new liabilities assumed and expenses associated with these new investments, inadequate return of capital on our investments, distraction of management from current operations, and unidentified issues not discovered in our due diligence of such strategies and offerings that could cause us to fail to realize the anticipated benefits of such investments and incur unanticipated liabilities. Because these new strategies and offerings are inherently risky, no assurance can be given that they will be successful.
Even if we are successful in these endeavors, diversifying our platform offerings will bring us more directly into competition with other providers that may be better established or have greater resources than we have. Our new features or enhancements could fail to attain sufficient market acceptance for many reasons, including:
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delays in introducing new, enhanced or modified features;
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failure to accurately predict market demand or end consumer preferences;
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defects, errors or failures in any of our features or our platform;
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introduction of competing products;
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poor business conditions for our customers or poor general macroeconomic conditions;
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changes in legal or regulatory requirements, or increased legal or regulatory scrutiny, adversely affecting our platform;
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failure of our brand promotion activities or negative publicity about the performance or effectiveness of our existing features; and
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disruptions or delays in the availability and delivery of our platform.
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There is no assurance that we will successfully identify new opportunities or develop and bring new features to market on a timely basis, or that products and technologies developed by others will not render our platform obsolete or noncompetitive, any of which could materially and adversely affect our business and operating results and compromise our ability to generate revenue. If our new features or enhancements do not achieve adequate acceptance in the market, or if our new features do not result in increased sales or subscriptions, our brand and competitive position will be impaired, our anticipated revenue growth may not be achieved and the negative impact on our operating results may be particularly acute because of the upfront technology and development, marketing, advertising and other expenses we may incur in connection with the new feature or enhancement.
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If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and changing customer needs or requirements, our platform may become less competitive.
Our future success depends on our ability to adapt and innovate our platform. To attract new customers and increase revenue from existing customers, we need to continue to enhance and improve our offerings to meet customer needs at prices that our customers are willing to pay. Such efforts will require adding new functionality and responding to technological advancements, which will increase our research and development costs. If we are unable to develop new features that address our customers' needs, or to enhance and improve our platform in a timely manner, we may not be able to maintain or increase market acceptance of our platform. Our ability to grow is also subject to the risk of future disruptive technologies. Access and use of our platform is provided via the cloud, which, itself, was disruptive to the previous enterprise software model. If new technologies emerge that are able to deliver software and related applications at lower prices, more efficiently, more conveniently or more securely, such technologies could adversely affect our ability to compete.
If customers do not expand their use of our platform beyond their current subscriptions and licenses, our ability to grow our business and operating results may be adversely affected.
Most of our customers currently subscribe to packages that do not include all of our features. Our ability to grow our business depends in part on our ability to encourage current and future customers to subscribe to our higher priced packages with more extensive features. If we fail to achieve market acceptance of new features, or if a competitor establishes a more widely adopted platform, our revenue and operating results will be harmed. In addition, customers may initially purchase licenses for only a portion of the locations or entities that comprise their business. If these customers do not expand the number of licenses managed with our platform, our revenue and operating results will be harmed.
Because our platform is sold to enterprises that often have complex operating environments, we may encounter long and unpredictable sales cycles, which could adversely affect our operating results in a given period.
Our ability to increase revenue and achieve profitability depends, in large part, on widespread acceptance of our platform by enterprises. As we target our sales efforts at these customers, we face greater costs, longer sales cycles and less predictability in completing some of our sales. As a result of the variability and length of the sales cycle, we have only a limited ability to forecast the timing of sales. A delay in or failure to complete sales could harm our business and financial results, and could cause our financial results to vary from period to period. Our sales cycle varies widely, reflecting differences in potential customers' decision-making processes, procurement requirements and budget cycles, and is subject to significant risks over which we have little or no control, including:
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customers' budgetary constraints and priorities;
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the timing of customers' budget cycles;
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the need by some customers for lengthy evaluations prior to purchasing products; and
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the length and timing of customers' approval processes.
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Our typical direct sales cycles for more substantial enterprise customers can often be long, and we expect that this lengthy sales cycle may continue or could even increase. In the large enterprise market, the customer’s decision to use our platform may be an enterprise-wide decision or may require the approval of senior management, which may not only lengthen the sales cycle but also reduce the likelihood of completing a sale. Longer sales cycles could cause our operating results and financial condition to suffer in a given period. If we cannot adequately scale our direct sales force, we will experience further delays in signing new customers, which could slow our revenue growth.
A portion of our revenue is dependent on a few customers.
For the
fiscal years ended January 31, 2018
,
2017
and
2016
, our top five customers, which included third-party resellers, accounted for approximately
17%
,
18%
and
22%
, respectively, of our revenue. We anticipate that sales of our platform to a relatively small number of customers will continue to account for a significant portion of our revenue in future periods. If we were to lose any of our significant customers, our revenue could decline and our business and results of operations could be materially and adversely affected. These negative effects could be exacerbated by customer consolidation, changes in technologies or solutions used by customers, changes in demand for our features, selection of suppliers other than us, customer bankruptcies or customer departures from their respective industries, pricing competition or deviation from marketing and sales methods away from physical location retailing, any one of which may result in even fewer customers accounting for a high percentage of our revenue and reduced demand from any single significant customer.
In addition, some of our customers have used, and may in the future use, the size and relative importance of their purchases to our business to require that we enter into agreements with more favorable terms than we would otherwise agree to, to obtain price concessions, or to otherwise restrict our business.
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A significant portion of our revenue is dependent on third-party resellers, the efforts of which we do not control.
We are dependent on the efforts of third parties who resell our packages for a significant portion of our revenue. As of January 31, 2018, we work with more than
3,000
resellers.
No
single customer accounted for more than 10% of our revenue for the
fiscal years ended January 31, 2018
and
2017
, respectively.
One
reseller customer accounted for approximately
10%
of our revenue for the fiscal year ended
January 31, 2016
. We do not control the efforts of these resellers. If they fail to market or sell our platform successfully, merge or consolidate with other businesses, declare bankruptcy or depart from their respective industries, our business could be harmed. In June 2017, Dex Media announced it had acquired and merged with YP Holdings ("Dex-YP Merger"), which is also a reseller customer of ours. In August 2017, we signed a revised agreement with the newly combined company, which governs our continued relationship. Our revenue from the combined company represents less than 10% of our total revenue. While the Dex-YP Merger may have an impact on our revenue, we do not believe that this impact will be material. Also, we may expend significant resources managing these reseller relationships. Further, in some international markets, we grant resellers the exclusive right to sell our features. If resellers to whom we have granted exclusive rights fail to successfully market and sell our platform in their assigned territories, then we may be unable to adequately address sales opportunities in that territory. If we are unable to maintain or replace our contractual relationships with resellers, efficiently manage our relationships with them or establish new contractual relationships with other third parties, we may fail to retain subscribers or acquire potential new subscribers and may experience delays and increased costs in adding or replacing subscribers that were lost, any of which could materially affect our business, operating results and financial condition.
Our revenue growth rate in recent periods may not be indicative of our future performance.
We experienced revenue growth rates of
50%
from the
fiscal year ended January 31,
2015
to the
fiscal year ended January 31,
2016
,
38%
from the
fiscal year ended January 31,
2016
to the
fiscal year ended January 31,
2017
, and
37%
from the
fiscal year ended January 31,
2017
to the
fiscal year ended January 31,
2018
. Our historical revenue growth rates are not indicative of future growth, and we may not achieve similar revenue growth rates in future periods. You should not rely on our revenue for any prior quarterly or annual periods as an indication of our future revenue or revenue growth. Our operating results may vary as a result of a number of factors, including our ability to execute on our business strategy and compete effectively for customers and business partners and other factors that are outside of our control. If we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile, and it could be difficult to achieve or maintain profitability.
A security breach, network attack or information security incident could delay or interrupt service to our customers, result in the unauthorized access to, or use, modification or publishing of customer content or other information, harm our reputation or subject us to significant liability.
We are vulnerable to computer viruses, break-ins, phishing attacks, attempts to overload our servers with denial-of-service or other attacks and similar disruptions from unauthorized use of our computer systems. Any such attack, or any information security incident from any other source affecting us or our services providers, including through employee error or misconduct, could lead to interruptions, delays, website or application shutdowns, loss of data or unauthorized access to, or use or acquisition of, personal information, confidential information or other data that we or our services providers process or maintain.
For example, in December 2015, we suffered a denial-of-service attack, which resulted in the inability for some of our customers to access our platform for several hours. If we experience additional compromises to our security that result in performance or availability problems, the complete shutdown of our platform or the loss of, or unauthorized access to, personal information or other types of confidential information, our customers or application providers may assert claims against us for credits, refunds or other damages, and may lose trust and confidence in our platform. Additionally, security breaches or other unauthorized access to, or use or acquisition of, personal information or other types of confidential information that we or our services providers maintain, could result in claims against us for identity theft or other similar fraud claims, breach of contract or indemnity, governmental enforcement actions, litigation, fines and penalties or adverse publicity, and could cause our customers and partners to lose trust in us, any of which could have an adverse effect on our business, reputation, operating results and financial condition. Our existing insurance coverage may not continue to be available on acceptable terms or may not be available in sufficient amounts to cover one or more large claims related to a security breach. An insurer may also deny coverage as to a future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies could have a material adverse effect on our business. We could also be required to incur significant costs for remediation or expend significant capital and other resources to address a security breach. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, often are not recognized until launched against a target and may originate from less regulated countries, we may be unable to proactively address these techniques or to implement adequate preventative measures.
In addition, customers' and application providers' accounts and listing pages hosted on our platform could be accessed by unauthorized persons for the purpose of placing illegal, abusive or otherwise unauthorized content on their respective websites and applications. If an unauthorized person obtained access to a customer's account or our platform, such person could update the customer's business information with abusive content or create and disseminate false responses to reviews. This type of unauthorized activity could negatively affect our ability to attract new customers and application providers, deter current customers and application providers from using our platform, subject us to third-party lawsuits, regulatory fines, indemnification requests or additional liability
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under customer contracts, or other action or liability, any of which could materially harm our business, operating results and financial condition.
In connection with the preparation of our consolidated financial statements in recent years, we and our independent registered public accounting firm identified material weaknesses in our internal control over financial reporting. If we are not able to remediate the material weaknesses and otherwise maintain an effective system of internal control over financial reporting, the reliability of our financial reporting, investor confidence in us and the value of our common stock could be materially and adversely affected.
As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, requires that we evaluate and determine the effectiveness of our internal control over financial reporting and, beginning with our second annual report following our initial public offering, which will cover our fiscal year ending January 31, 2019, provide a management report on internal control over financial reporting. Under standards established by the United States Public Company Accounting Oversight Board, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely basis.
In connection with the audits of the fiscal year 2016, 2017 and 2018 consolidated financial statements, we and our independent registered public accounting firm identified two material weaknesses in our controls. The first material weakness pertained to controls over the revenue recognition process resulting from a lack of logical access controls over our revenue system and the lack of review controls with regard to manual revenue adjustments. Specifically, we did not have adequate:
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policies and controls to restrict access to customer accounts and accounting records;
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policies to amend customer agreements; and
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controls around determining service start dates.
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We also identified a significant reliance on manual processes in our customer order entry procedures. We are working to remediate the material weakness and have taken steps to improve our internal control environment, including implementing procedures and controls designed to improve our revenue recognition process. Specifically, we are:
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implementing IT controls to prevent unauthorized access or changes to our business applications;
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implementing additional preventative controls around the contracting and provisioning processes;
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implementing additional detective controls around the revenue recognition process, including analytical reviews to assess completeness and accuracy of revenue; and
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documenting, assessing and testing our internal control over financial reporting as part of our efforts to comply with Section 404.
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Also in connection with our audits of the fiscal year 2016, 2017 and 2018 consolidated financial statements, we and our independent registered public accounting firm identified a second material weakness, primarily related to the lack of review and oversight over the financial close. We determined that we had insufficient financial statement close processes and procedures, including the classification and presentation of expenses. We are taking steps to remediate this weakness, including having hired senior accounting personnel in our internal audit group and chief accounting officer's group with a focus on SEC reporting and technical accounting.
We cannot at this time estimate how long it will take to remediate these material weaknesses, and we may not ever be able to remediate the material weaknesses. If we are unable to successfully remediate the material weaknesses and otherwise to establish and maintain an effective system of internal control over financial reporting, the reliability of our financial reporting, investor confidence in us and the value of our common stock could be materially and adversely affected. Additionally, the process of designing and implementing internal control over financial reporting required to comply with Section 404 is time consuming, costly and complicated. In addition, we may discover other control deficiencies in the future, and we cannot assure you that we will not have a material weakness in future periods.
Effective internal control over financial reporting is necessary for us to provide reliable and timely financial reports and, together with adequate disclosure controls and procedures, are designed to reasonably detect and prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. For as long as we are an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404. So long as we meet certain requirements, we could be an "emerging growth company" until January 31, 2023. See "We are an emerging growth company, and we cannot be certain if the reduced disclosure and governance requirements applicable to emerging growth companies will make our common stock less attractive to investors" for the requirements to maintain emerging growth company status. An independent assessment of the effectiveness of our internal control over financial reporting could detect problems that our management's assessment might not. Undetected material weaknesses in our
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internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation. Deficiencies in our internal control over financial reporting that are identified in such assessments may be deemed to be material weaknesses or may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement.
We may acquire other companies or technologies, which could divert our management's attention, result in additional dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results.
We have in the past acquired and may in the future seek to acquire or invest in businesses, features or technologies that we believe could complement or expand our platform, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.
Although we have previously acquired businesses, we have limited acquisition experience. If we acquire additional businesses, we may not be able to integrate the acquired personnel, operations and technologies successfully or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including:
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unanticipated liabilities associated with the acquisition;
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difficulty incorporating acquired technology and rights into our platform and of maintaining quality and security standards consistent with our brand;
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inability to generate sufficient revenue to offset acquisition or investment costs;
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incurrence of acquisition-related costs;
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difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business;
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difficulty converting the customers of the acquired business into our customers;
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diversion of our management's attention from other business concerns;
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adverse effects to our existing business relationships as a result of the acquisition;
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potential loss of key employees;
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use of resources that are needed in other parts of our business; and
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use of substantial portions of our available cash to consummate the acquisition.
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In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations.
Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. If an acquired business fails to meet our expectations, our business, operating results and financial condition may suffer.
Assertions by third parties of infringement or other violations by us of their intellectual property rights could result in significant costs and harm our business and operating results.
Patent and other intellectual property disputes are common in our industry. Some companies, including some of our competitors, own large numbers of patents, copyrights and trademarks, which they may use to assert claims against us. In addition, because patent applications can take years to issue and are often afforded confidentiality for some period of time, there may currently be pending applications, unknown to us, that later result in issued patents that could cover one or more of our features.
Third parties may in the future assert claims of infringement, misappropriation or other violations of intellectual property rights against us. If asserted, we cannot assure you that an infringement claim will be successfully defended. Certain third parties have substantially greater resources than we have and may be able to sustain the costs of intellectual property litigation for longer periods of time than we can. A successful claim against us could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our platform, or require that we comply with other unfavorable terms. We may also be obligated to indemnify our customers or business partners or pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, modify applications or refund fees, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations.
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We could incur substantial costs in protecting or defending our intellectual property rights, and any failure to protect our intellectual property could adversely affect our business, results of operations and financial condition.
Our success depends, in part, on our ability to protect our proprietary methods and technologies. There can be no assurance that the particular forms of intellectual property protection that we seek, including business decisions about when to file trademark applications and patent applications, will be adequate to protect our business. We intend to continue to file and prosecute patent applications when appropriate to attempt to protect our rights in our proprietary technologies. However, there can be no assurance that our patent applications will be approved, that any patents issued will adequately protect our intellectual property, that the scope of the claims in our issued patents will be sufficient or have the coverage originally sought, that our issued patents will provide us with any competitive advantages, or that such patents will not be challenged by third parties or found by a judicial authority to be invalid or unenforceable.
We could be required to spend significant resources to monitor and protect our intellectual property rights. Litigation may be necessary in the future to enforce our intellectual property rights, determine the validity and scope of our proprietary rights or those of others, or defend against claims of infringement or invalidity. Such litigation may fail, and even if successful, could be costly, time-consuming and distracting to management and could result in a diversion of significant resources. Our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights or alleging that we infringe the counterclaimant's own intellectual property. An adverse determination of any litigation or defense proceedings could put our intellectual property at risk of being invalidated or interpreted narrowly and could put our related pending patent applications at risk of not being issued. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential or sensitive information could be compromised by disclosure in the event of litigation. During the course of litigation there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
Any of our patents, copyrights, trademarks or other intellectual property rights could be challenged by others or invalidated through administrative processes or litigation. Furthermore, there can be no guarantee that others will not independently develop similar products, duplicate any of our products or design around our patents.
We also rely, in part, on confidentiality agreements with our employees, consultants, advisors, customers and others in our efforts to protect our proprietary technology, processes and methods. These agreements may not effectively prevent disclosure of our confidential information, and it may be possible for unauthorized parties to copy our software or other proprietary technology or information, or to develop similar software independently without our having an adequate remedy for unauthorized use or disclosure of our confidential information. In addition, others may independently discover our trade secrets and proprietary information, and in these cases, we would not be able to assert any trade secret rights against those parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
In addition, the laws of some countries do not protect intellectual property and other proprietary rights to the same extent as the laws of the United States. To the extent we expand our international activities, our exposure to unauthorized copying, transfer and use of our proprietary technology or information may increase. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property.
We cannot be certain that our means of protecting our intellectual property and proprietary rights will be adequate or that our competitors will not independently develop similar technology. If we fail to meaningfully protect our intellectual property and proprietary rights, our business, operating results and financial condition could be adversely affected.
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Our platform utilizes open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.
Our platform utilizes software governed by open source licenses. The terms of various open source licenses have not been interpreted by United States courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our platform. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software, and to make our proprietary software available under open source licenses, if we combine our proprietary software with open source software in a specified manner. In the event that portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, or to re-engineer all or a portion of software, each of which could reduce or eliminate the value of our platform. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with usage of open source software cannot be eliminated and could negatively affect our business.
We employ third-party licensed software for use in or with our platform, and the inability to maintain these licenses or errors in the software we license could result in increased costs, or reduced service levels, which could adversely affect our business.
Our platform incorporates certain third-party software obtained under licenses from other companies. We anticipate that we will continue to rely on such third-party software and development tools in the future. Although we believe that there are commercially reasonable alternatives to the third-party software we currently license, this may not always be the case, or the software we currently license may be difficult or costly to replace. In addition, integration of the software used in our platform with new third-party software may require significant work and require substantial investment of our time and resources. Also, to the extent that our platform depends upon the successful operation of third-party software in conjunction with our software, any undetected errors or defects in this third-party software could prevent the deployment or impair the functionality of our platform, delay new feature introductions, result in a failure of our platform and injure our reputation. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties.
We are subject to general litigation that may materially adversely affect us.
From time to time, we may be involved in disputes or regulatory inquiries that arise in the ordinary course of business. We expect that the number and significance of potential disputes may increase as our business expands and our company grows larger. While our agreements with customers limit our liability for damages arising from our platform, we cannot assure you that these contractual provisions will protect us from liability for damages in the event we are sued. Although we carry general liability insurance coverage, our insurance may not cover all potential claims to which we are exposed or may not be adequate to indemnify us for all liability that may be imposed. Any claims against us, whether meritorious or not, could be time-consuming, result in costly litigation, require significant amounts of management time, and result in the diversion of significant operational resources. Because litigation is inherently unpredictable, we cannot assure you that the results of any of these actions will not have a material adverse effect on our business, operating results or financial condition.
We are subject to governmental regulation and other legal obligations, including those related to privacy, data protection and information security, and our actual or perceived failure to comply with such obligations could harm our business. Compliance with such laws could also impair our efforts to maintain and expand our customer base, and thereby decrease our revenue.
We receive, store and process personal information and other data from and about customers, including resellers, partners and, in limited instances, end users of our services, in addition to our employees and services providers. Also, in connection with future feature offerings, we may receive, store and process additional types of data, including personally identifiable information, related to end consumers. Our handling of data is subject to a variety of laws and regulations, including regulation by various government agencies, such as the U.S. Federal Trade Commission, or FTC, and various state, local and foreign agencies. Our data handling also is subject to contractual obligations and industry standards.
The U.S. federal and various state and foreign governments have adopted or proposed limitations on the collection, distribution, use and storage of data relating to individuals, including the use of contact information and other data for marketing, advertising and other communications with individuals and businesses. In the United States, various laws and regulations apply to the collection, processing, disclosure, and security of certain types of data. Additionally, the FTC and many state attorneys general are interpreting federal and state consumer protection laws as imposing standards for the online collection, use, dissemination and security of data. The laws and regulations relating to privacy and data security are evolving, can be subject to significant change and may result in ever-increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.
In addition, several foreign countries and governmental bodies, including the European Union, have laws and regulations dealing with the handling and processing of personal information obtained from their residents, which in certain cases are more restrictive than those in the United States. Laws and regulations in these jurisdictions apply broadly to the collection, use, storage, disclosure and security of various types of data, including data that identifies or may be used to identify an individual, such as names, email addresses and in some jurisdictions, Internet Protocol, or IP, addresses. Such laws and regulations may be modified or subject to new or different interpretations, and new laws and regulations may be enacted in the future. Within the European Union, legislators have adopted the
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General Data Protection Regulation, or GDPR, which, when effective in May 2018, will replace the 1995 European Union Data Protection Directive and supersede applicable EU member state legislation. The GDPR includes more stringent operational requirements for processors and controllers of personal data and imposes significant penalties for non-compliance. We have certified under the U.S.-European Union Privacy Shield with respect to our transfer of certain personal data from the European Union to the United States.
We also handle credit card and other personal information. Due to the sensitive nature of such information, we have implemented policies and procedures to preserve and protect our data and our customers' data against loss, misuse, corruption, misappropriation caused by systems failures, unauthorized access or misuse. Notwithstanding these policies, we could be subject to liability claims by individuals and customers whose data resides in our databases for the misuse of that information. If we fail to meet appropriate compliance levels, this could negatively impact our ability to utilize credit cards as a method of payment, and/or collect and store credit card information, which could disrupt our business.
We may be subject to rules of the FTC, the Federal Communications Commission, or FCC, and potentially other federal agencies and state laws related to commercial electronic mail messages, which specify penalties for the transmission of commercial electronic mail messages that follow a recipient’s opt-out request. Compliance with these provisions may limit our ability to send certain types of electronic mail messages. If we were found to have violated such rules and regulations, we may face enforcement actions by the FTC or FCC or face civil penalties, either of which could adversely affect our business.
Any failure or perceived failure by us to comply with laws, regulations, policies, legal or contractual obligations, industry standards, or regulatory guidance relating to privacy or data security, may result in governmental investigations and enforcement actions, litigation, fines and penalties or adverse publicity, and could cause our customers and partners to lose trust in us, which could have an adverse effect on our reputation and business. We expect that there will continue to be new proposed laws, regulations and industry standards relating to privacy, data protection, marketing, consumer communications and information security in the United States, the European Union and other jurisdictions, and we cannot determine the impact such future laws, regulations and standards may have on our business. Future laws, regulations, standards and other obligations or any changed interpretation of existing laws or regulations could impair our ability to develop and market new features and maintain and grow our customer base and increase revenue. Future restrictions on the collection, use, sharing or disclosure of data or additional requirements for express or implied consent of our customers, partners or end consumers for the use and disclosure of such information could require us to incur additional costs or modify our platform, possibly in a material manner, and could limit our ability to develop new features. If our policies, procedures, or measures relating to privacy, data protection, marketing, or customer communications fail to comply with laws, regulations, policies, legal obligations or industry standards, we may be subject to governmental enforcement actions, litigation, regulatory investigations, fines, penalties and negative publicity and could cause our application providers, customers and partners to lose trust in us, which could materially affect our business, operating results and financial condition.
The reliability of our network and support infrastructure will be critical to our success. Sustained failures or outages could lead to significant costs and service disruptions, which could negatively affect our business, financial results and reputation.
Our reputation and ability to attract, retain, and serve our customers and application providers are dependent upon the reliable performance of our platform and our underlying technical and network infrastructure. Our customers access our platform through our website and related technologies. We rely on internal systems and third-party vendors, including data center, bandwidth and telecommunications equipment providers, to maintain the availability of our platform. Our primary data center is in New Jersey, and our backup data center is in Texas. If these data centers become unavailable to us without sufficient advance notice, if we are unable to renew our agreements with the data center provider or if the data center provider is acquired or ceases business, we would likely experience delays in delivering our platform until we could migrate to an alternate data center provider. Our disaster recovery program contemplates transitioning our platform to our backup center in the event of a catastrophe and our platform may be unavailable, in whole or in part, during any transition procedure.
We have experienced, and will in the future experience, interruptions, outages and other performance problems. Such disruptions may be due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of customers and partners accessing our platform simultaneously and inadequate design. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time.
If we do not accurately predict our infrastructure requirements, our existing customers may experience performance degradation or service outages, which may subject us to financial penalties, financial liabilities and customer losses. For example, to support the international growth of our business, we may need to expand data center capacity outside the United States but may not be able to find a cost effective provider in a timely manner, if at all. When we add data centers and capacity, we may move or transfer our data and our customers’ data. Despite precautions taken during this process, any unsuccessful data transfers may impair the delivery of our services, which may damage our business.
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Natural disasters and other events beyond our control could adversely affect us.
Natural disasters or other catastrophic events may cause damage or disruption to our operations and the global economy, and thus could have a strong negative effect on us. Our business operations are subject to interruption by natural disasters, fire, power shortages, pandemics, acts of terrorism and other events beyond our control. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to continue operations, and could decrease demand for our platform. Our data centers are located in New Jersey and Texas, making our business particularly susceptible to natural disasters in those areas. Any natural disaster affecting our data centers could have an adverse effect on our financial condition and operating results.
Real or perceived errors, failures or bugs in our software, or in the software or systems of our third-party application providers and partners, could materially and adversely affect our operating results and growth prospects.
Our features are highly technical and complex. Our software has previously contained, and may now or in the future contain, undetected errors, bugs, or vulnerabilities. Some errors in our software may only be discovered after the software has been deployed. Any errors, bugs, or vulnerabilities discovered in our software after it has been deployed could result in damage to our reputation, loss of customers, partners or application providers, loss of revenue or liability for damages.
In addition, the proper functioning of our platform is dependent on the ability of our PowerListings Network application providers and partners to maintain the availability and proper functioning of their software integrations with our systems and also is dependent on the ability of our third-party application providers to maintain the availability and proper functioning of their websites and applications on which business listing information is published for customers. For example, a number of our PowerListings Network application providers provide us with an Application Program Interface, or API, on which our ability to interface with that provider is based. If our PowerListings Network application providers do not maintain the availability and proper functioning of their software, APIs, websites and applications, our business, operating results and financial condition could be materially affected.
We depend on our senior management team and the loss of our chief executive officer, president or one or more key employees could adversely affect our business.
Our success depends largely upon the continued services of our key executive officers. In particular, two of our co-founders, Howard Lerman and Brian Distelburger, who serve as our Chief Executive Officer and President, respectively, are critical to our vision, strategic direction, feature innovation, culture and overall business success. We also rely on our leadership team in the areas of research and development, marketing, sales, services and general and administrative functions. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. We do not have employment agreements with our executive officers or other key personnel that require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. The loss of one or more of our executive officers or key employees could have a serious adverse effect on our business.
The failure to attract and retain additional qualified personnel could prevent us from executing our business strategy.
To execute our business strategy, we must attract and retain highly qualified personnel. In particular, we compete with many other companies for software developers with high levels of experience in designing, developing and managing cloud-based software, as well as for skilled information technology, sales, marketing, legal and accounting professionals, and we may not be successful in attracting and retaining the professionals we need. In the future, we may experience difficulty in hiring and difficulty in retaining highly skilled employees with appropriate qualifications. We face intense competition for qualified individuals from numerous software and other technology companies. Competition for qualified personnel is particularly intense in the New York area. We may incur significant costs to attract and retain qualified personnel, and we may lose new employees to our competitors or other technology companies before we capitalize the benefit of our investment in recruiting and training them. We also employ a number of foreign nationals on work visas, primarily under the H-1B visa. Current and future restrictions on the availability of visas or delays in the issuance of visas could impair our ability to employ skilled professionals, which could have an adverse effect on our business.
In addition, in making employment decisions, particularly in the software industry, job candidates often consider the value of the stock options or other equity incentives they are to receive in connection with their employment. If the price of our stock declines, or experiences significant volatility, our ability to attract or retain key employees will be adversely affected. Also, as employee options vest and lock-ups expire, we may have difficulty retaining key employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our growth prospects could be severely harmed.
If we fail to offer high-quality customer support, our business and reputation may suffer.
High-quality education, training and customer support is important for the successful retention of existing customers. Providing this education, training and support requires that our support personnel have specific knowledge and expertise of our platform, making it more difficult for us to hire qualified personnel and to scale up our support operations. The importance of high-quality customer support will increase as we expand our business and pursue new customers. If we do not provide effective and timely ongoing support, our ability to sell additional features to, or to retain, existing customers may suffer, and our reputation with existing or potential customers may be harmed.
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If we fail to continue to develop our brand, our business may suffer.
We believe that continuing to develop and maintain awareness of our brand is critical to achieving widespread acceptance of our platform and is an important element in attracting and retaining customers. Efforts to build our brand may involve significant expense and may not generate customer awareness or increase revenue at all, or in an amount sufficient to offset expenses we incur in building our brand. In addition, we sell our features to companies in a number of industries, including healthcare, retail and financial services. If we are not successful in building our brand, we may become identified with a single industry, which could make it more difficult for us to penetrate other industries.
Promotion and enhancement of our brand will depend largely on our success in being able to provide high quality, reliable and cost-effective features. If customers do not perceive our platform as meeting their needs, or if we fail to market our platform effectively, we will likely be unsuccessful in creating the brand awareness that is critical for broad customer adoption of our platform.
Adverse economic conditions or reduced technology spending may adversely impact our business.
Our business depends on the overall demand for technology and on the economic performance of our current and prospective customers. In general, worldwide economic conditions may remain unstable, and these conditions would make it difficult for our customers, prospective customers and us to forecast and plan future business activities accurately, and they could cause our customers or prospective customers to reevaluate their decision to purchase our features. Weak global economic conditions, or a reduction in technology spending even if economic conditions stabilize, could adversely impact our business and results of operations in a number of ways, including longer sales cycles, lower prices for our platform, fewer subscriptions and lower or no growth.
Unanticipated changes in our effective tax rate may impact our financial results.
We are subject to income taxes in the United States and various jurisdictions outside of the United States, and we are in the process of expanding our international operations. Our effective tax rate could fluctuate due to changes in the mix of earnings and losses in countries with differing statutory tax rates. Our tax expense could also be impacted by changes in non-deductible expenses, changes in accounting principles, expiration or non-utilization of net operating losses, changes in excess tax benefits related to exercises and vesting of stock-based expense, changes in the valuation of deferred tax assets and liabilities and our ability to utilize them and the applicability of withholding taxes. While we regularly evaluate new information that may change our judgment resulting in recognition, derecognition or change in measurement of a tax position taken, there can be no assurance that the final determination of any examinations will not have an adverse effect on our business, operating results or financial condition.
We may have additional tax liabilities, which could harm our business, results of operations or financial condition.
Significant judgments and estimates are required in determining the
(provision for)
benefit from
income taxes and other tax liabilities. We generally conduct our international operations through wholly-owned subsidiaries and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. The amount of taxes we pay may depend on the application of the tax laws of various jurisdictions, including the United States, to our international business activities, changes in tax rates, new or revised tax laws or interpretations of existing tax laws and policies and our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. Our tax expense may be impacted if our intercompany transactions, which are required to be computed on an arm's-length basis, are challenged and successfully disputed by the tax authorities. In determining the adequacy of income taxes, we assess the likelihood of adverse outcomes that could result if our tax positions were challenged by the Internal Revenue Service, or IRS, and other tax authorities. The tax authorities in the United States and other countries where we do business regularly examine our income and other tax returns. The ultimate outcome of these examinations cannot be predicted with certainty. Should the IRS or other tax authorities assess additional taxes as a result of examinations, we may be required to record charges that would adversely affect our results of operations and financial condition.
Adverse tax laws or regulations could be enacted or existing laws could be applied to us or our customers, which could increase our costs and adversely affect our business.
The application of federal, state, local and international tax laws to services provided electronically is evolving. New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, possibly with retroactive effect, and could be applied solely or disproportionately to services provided over the internet. These enactments could adversely affect our sales activity due to the inherent cost increase the taxes would represent and ultimately result in a negative impact on our operating results and cash flows.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Reform Act") was enacted. The Tax Reform Act significantly revised the U.S. corporate income tax laws. We continue to evaluate the impacts of the Tax Reform Act and consider certain amounts recorded in our consolidated financial statements as of January 31, 2018 to be provisional. As additional regulatory guidance is issued, as accounting treatment is clarified and as we perform additional analysis on the application of the law, our final analysis, which will be recorded in the period completed, may be different from our current provisional amounts. See Note 11 "Income Taxes" to our consolidated financial statements for additional information regarding the impact of the Tax Reform Act on our financial results.
In addition, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us, possibly with retroactive effect, which could require us or our customers to pay additional tax amounts, as well as
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require us or our customers to pay fines or penalties and interest for past amounts. If we are unsuccessful in collecting such taxes from our customers, we could be held liable for such costs.
Certain jurisdictions in which we do not collect sales and use, value added or similar taxes may assert that such taxes are applicable, which has resulted or could result in tax assessments, penalties and interest, to us or our customers for past amounts, and we may be required to collect such taxes in the future. Such tax assessments, penalties and interest, or future requirements may adversely affect our operating results and financial condition.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
As of
January 31, 2018
, we had gross U.S. federal and tax-effected state net operating loss carryforwards, or NOLs, of
$187.0 million
and
$7.3 million
, respectively, due to prior period losses. In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an ownership change, which is generally defined as a greater than 50-percentage-point cumulative change by value in the equity ownership of certain stockholders over a rolling three-year period, is subject to limitations on its ability to utilize its pre-change NOLs to offset post-change taxable income. Our existing NOLs may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change our ability to utilize NOLs could be further limited by Section 382 of the Code and similar state provisions. Future changes in our stock ownership, some of which may be outside of our control, could result in an ownership change under Section 382 of the Code. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire, decrease in value or otherwise be unavailable to offset future income tax liabilities. For example, due to the Tax Reform Act, during the fiscal year ended
January 31, 2018
, we remeasured our deferred tax assets and liabilities based on the new enacted tax rate. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs, even if we attain profitability.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.
Generally accepted accounting principles in the United States, or U.S. GAAP, are subject to interpretation by the Financial Accounting Standards Board, or FASB, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change.
In particular, in May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As an "emerging growth company" the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to use this extended transition period under the JOBS Act, including with respect to ASU 2014-09. As a result, we will not be required to apply ASU 2014-09 until February 1, 2019.
Our estimates of market opportunity, market size and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves our forecasted growth, our business could fail to grow at similar rates, if at all.
Market opportunity and size estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. We historically have analyzed the size of our estimated total addressable market, solely with respect to locations, using data published by third parties as well as internally generated data and assumptions regarding our ability to generate revenue from those locations. We have not independently verified the estimate of locations published by third parties and cannot assure you of its accuracy or completeness. In addition, our estimated market size for location-related data is based on an assumed annual revenue per location, which may not be comparable to and differs from annual revenue per license. In addition, as we enter a new geographic market, we may initially provide discounts to customers to gain market traction, and the amount and effect of these discounts may vary greatly by geography and size of market and may cause our average revenue per location to be lower than historical averages. Finally, we are evaluating our total addressable market with respect to new product offerings and new markets. These estimates of total addressable market and growth forecasts are subject to significant uncertainty, are based on assumptions and estimates that may not prove to be accurate and are based on data published by third parties that we have not independently verified. Even if the market in which we compete meets the size estimates and growth we forecast, our business could fail to grow at similar rates, if at all.
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Our management team has limited experience managing a public company.
Our chief executive officer has limited experience managing a public company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. While our chief financial officer and certain other executives have such experience, our management team, as a whole, may not successfully or efficiently manage the ongoing transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management, particularly from our chief executive officer, and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, operating results and financial condition.
We are subject to anti-corruption, anti-bribery, anti-money laundering and similar laws, and non-compliance with such laws can subject us to criminal penalties or significant fines and harm our business and reputation.
We are subject to anti-corruption and anti-bribery and similar laws, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the U.K. Bribery Act 2010, the Proceeds of Crime Act 2002 and possibly other anti-corruption, anti-bribery and anti-money laundering laws in countries in which we conduct activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years, are interpreted broadly and prohibit companies and their employees and agents from promising, authorizing, making, offering, soliciting or accepting improper payments or other benefits to or from government officials and others in the private sector. As we increase our international sales and business, particularly in countries with a low score on the Corruptions Perceptions Index by Transparency International, and increase our use of third-party business partners such as sales agents, distributors, resellers, or consultants, our risks under these laws may increase. We can be held liable for the corrupt or other illegal activities of our employees, representatives, contractors, business partners and agents, even if we do not explicitly authorize or have actual knowledge of such activities. While we have policies and procedures in this area, we cannot guarantee that improprieties committed by our employees or third parties will not occur. Noncompliance with these laws could subject us to investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension or debarment from contracting with certain persons, the loss of export privileges, whistleblower complaints, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations and financial condition could be materially harmed. In addition, responding to any action will likely result in a materially significant diversion of management's attention and resources and significant defense and compliance costs and other professional fees. In certain cases, enforcement authorities may even require us to appoint an independent compliance monitor, which can result in added costs and administrative burdens. Any investigations, actions or sanctions or other previously mentioned harm could have a material negative effect on our business, operating results and financial condition.
We are subject to governmental export and import controls and economic sanctions laws that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.
Our business activities are subject to various restrictions under U.S. export and import controls and trade and economic sanctions laws, including U.S. customs regulations, the U.S. Commerce Department's Export Administration Regulations and economic and trade sanctions regulations maintained by the U.S. Treasury Department's Office of Foreign Assets Control. The U.S. export control laws and U.S. economic sanctions laws include prohibitions on the sale or supply of certain products and services to U.S. embargoed or sanctioned countries, governments, persons and entities and also require authorization for the export of certain encryption items. In addition, various countries regulate the import of certain encryption technology, including through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our services or could limit our customers' ability to implement our services in those countries. Although we take precautions to prevent our platform from being provided in violation of such laws, our platform may have been in the past, and could in the future be, provided inadvertently in violation of such laws, despite the precautions we take. If we fail to comply with these laws and regulations, we and certain of our employees could be subject to civil or criminal penalties, including the possible loss of export or import privileges, monetary penalties, and, in extreme cases, imprisonment of responsible employees for knowing and willful violations of these laws. Obtaining the necessary authorizations, including any required license, for a particular transaction may be time-consuming, is not guaranteed, and may result in the delay or loss of sales opportunities. In addition, changes in our platform or changes in applicable export or import regulations may create delays in the introduction and sale of our products in international markets, prevent our customers with international operations from deploying our products or, in some cases, prevent the export or import of our products to certain countries, governments or persons altogether. Any change in export or import regulations, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could also result in decreased use of our products or in our decreased ability to export or sell our products to existing or potential customers with international operations. Any decreased use of our products or limitation on our ability to export or sell our products would likely adversely affect our business. Although we take precautions to prevent transactions with U.S. sanction targets, we could inadvertently provide our platform to persons prohibited by U.S. sanctions. Violations of export and import regulations and economic sanctions could result in negative consequences to us, including government investigations, penalties and reputational harm.
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Changes in laws and regulations related to the internet or changes in internet infrastructure itself may diminish the demand for our platform and could adversely affect our business and results of operations.
The future success of our business depends upon the continued use of the internet. Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the use of the internet as a commercial medium. In addition, government agencies or private organizations have imposed and may impose additional taxes, fees or other charges for accessing the internet, generally. These laws or charges could limit the use of the internet or decrease the demand for internet-based solutions. In addition, the use of the internet as a business tool could be adversely affected due to delays in the development or adoption of new standards and protocols to handle increased demands of internet activity, security, reliability, cost, ease-of-use, accessibility and quality of service. The performance of the internet and its acceptance as a business tool has been adversely affected by "viruses", "worms" and similar malicious programs. If the use of the internet is reduced as a result of these or other issues, then demand for our platform could decline, which could adversely affect our business, operating results and financial condition.
We are exposed to fluctuations in currency exchange rates.
We face exposure to movements in currency exchange rates, which may cause our revenue and operating results to differ materially from expectations. Our operating results could be negatively affected depending on the amount of expense denominated in foreign currencies. As exchange rates vary, revenue, cost of revenue, operating expenses and other operating results, when re-measured, may differ materially from expectations. In addition, our operating results are subject to fluctuation if our mix of U.S. and foreign currency denominated transactions and expenses changes in the future. Although we may apply certain strategies to mitigate foreign currency risk, these strategies might not eliminate our exposure to foreign exchange rate fluctuations and would involve costs and risks of their own, such as ongoing management time and expertise, external costs to implement the strategies and potential accounting implications. Additionally, as we anticipate growing our business further outside of the United States, the effects of movements in currency exchange rates will increase as our transaction volume outside of the United States increases.
Our credit facility contains restrictive covenants that may limit our operating flexibility.
Our credit facility contains restrictive covenants that limit our ability to transfer or dispose of assets, merge with other companies or consummate certain changes of control, acquire other companies, open new offices that contain a material amount of assets, pay dividends, incur additional indebtedness and liens and enter into new businesses. We therefore may not be able to engage in any of the foregoing transactions unless we obtain the consent of the lender or terminate the credit facility, which may limit our operating flexibility. In addition, our credit facility is secured by all of our assets, other than our intellectual property, and requires us to satisfy certain financial covenants. There is no guarantee that we will be able to generate sufficient cash flow or sales to meet these financial covenants or pay the principal and interest on any such debt. Furthermore, there is no guarantee that future working capital, borrowings or equity financing will be available to repay or refinance any such debt. Any inability to make scheduled payments or meet the financial covenants on our credit facility would adversely affect our business.
We may require additional capital to support our business, and this capital might not be available on acceptable terms, if at all.
We intend to continue to make investments to support our business and may require additional funds. In particular, we may seek additional funds to develop new features and enhance our existing features, expand our operations, including our sales and marketing organizations and our presence outside of the United States, improve our infrastructure or acquire complementary businesses, technologies, services, features and other assets. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing that we may secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth, scale our infrastructure, develop feature enhancements and respond to business challenges could be significantly impaired, and our business, operating results and financial condition may be adversely affected.
Risks Related to Ownership of Our Common Stock and Our Status as a Public Company
Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our quarterly results of operations, including the levels of our revenue, gross margin and profitability, as well as our cash flows and deferred revenue balances, may vary significantly in the future, and period-to-period comparisons of our operating results and key metrics may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Although we have not historically experienced meaningful seasonality, our quarterly financial results and metrics may fluctuate as a result of a variety of factors, many of which are outside of our control and, as a result, may not fully reflect the underlying performance of our business. These fluctuations may negatively affect the value of our common stock. Factors that may cause fluctuations in our quarterly results include:
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the addition or loss of large customers, including resellers, including through acquisitions or consolidations;
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the timing of recognition of revenue;
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the amount and timing of operating expenses;
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changes in our pricing policies or those of our competitors;
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the timing and success of new feature introductions by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers or application providers;
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the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies; and
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unforeseen litigation.
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If securities or industry analysts do not initiate, publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, or if our actual results differ significantly from our guidance, our stock price and trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our common stock would be negatively affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, the price of our common stock would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline.
In addition, from time to time, we may release earnings guidance or other forward-looking statements in our earnings releases, earnings conference calls or otherwise regarding our future performance that represent our management's estimates as of the date of release. Some or all of the assumptions of any future guidance that we furnish may not materialize or may vary significantly from actual future results. Any failure to meet guidance or analysts' expectations could have a material adverse effect on the trading price or trading volume of our common stock.
The market price of our common stock has been and may continue to be volatile and may decline. Market volatility may affect the value of an investment in our common stock and could subject us to litigation.
Technology stocks have historically experienced high levels of volatility. The market price of our common stock has been and may continue to be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:
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Furthermore, in recent years, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies, and technology companies in particular. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our common stock. If the market price of our common stock declines, you may not realize any return on your investment in us and may lose some or all of your investment.
In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's attention from other business concerns, which could also harm our business.
Future sales and issuances of our capital stock or rights to purchase capital stock could result in dilution of the percentage ownership of our stockholders and could cause our stock price to decline.
We may issue additional securities. Our certificate of incorporation authorizes us to issue up to
500,000,000
shares of common stock and up to
50,000,000
shares of preferred stock. Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders. We may sell common stock, convertible securities and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, the ownership of existing stockholders will be diluted, possibly materially. New investors in subsequent transactions could also gain rights, preferences and privileges senior to those of existing holders of our common stock. In addition, substantial blocks of our total outstanding shares are eligible to be sold into the market, although shares held by directors, executive officers and other affiliates are subject to volume limitations under Rule 144 under the Securities Act
The price of our common stock could decline if there are substantial sales of our common stock, particularly sales by our directors, executive officers and significant stockholders, or if there is a large number of shares of our common stock available for sale and the market perceives that sales will occur. We have
93,976,930
shares of our common stock outstanding as of
January 31, 2018
.
In addition, we have and may in the future file registration statements registering the issuance of shares of common stock subject to outstanding options under our equity incentive plans and the shares reserved for future issuance under our equity incentive plans. Shares registered on the Form S-8 registration statement would be eligible for sale to the public, subject to certain legal and contractual limitations. The market price of the shares of our common stock could decline as a result of the sale of a substantial number of our shares of common stock in the public market or the perception in the market that the holders of a large number of shares intend to sell their shares.
Additionally, certain existing holders of our common stock and outstanding warrants, or their transferees, will have rights, subject to specified conditions, to require us to file one or more registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. If we were to register the resale of these shares, they could be freely sold in the public market. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could be adversely affected.
We do not intend to pay dividends for the foreseeable future.
We may not declare or pay cash dividends on our capital stock in the near future. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. Consequently, stockholders must rely on sales of their common stock after price appreciation as the only way to realize any future gains on their investment.
The concentration of our stock ownership will likely limit your ability to influence corporate matters, including the ability to influence the outcome of director elections and other matters requiring stockholder approval.
As of December 31, 2017, our executive officers, directors and the holders of more than 5% of our outstanding common stock in the aggregate beneficially owned approximately
45%
of our common stock. As a result, these stockholders, acting together, will have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate actions might be taken even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.
31
Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.
Our status as a Delaware corporation may discourage, delay or prevent a change in control, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of our company more difficult, including the following:
|
•
|
a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our Board of Directors;
|
|
•
|
a prohibition on cumulative voting in the election of our directors;
|
|
•
|
the requirement that our directors may only be removed for cause;
|
|
•
|
the ability of our Board of Directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;
|
|
•
|
the right of our Board of Directors to elect a director to fill a vacancy created by the expansion of our Board of Directors or the resignation, death or removal of a director;
|
|
•
|
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
|
|
•
|
the requirement that a special meeting of stockholders may be called only by a majority vote of our entire Board of Directors, the chairman of our Board of Directors or our chief executive officer, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;
|
|
•
|
the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of our voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the management of our business or our amended and restated bylaws, which may inhibit the ability of an acquirer to affect such amendments to facilitate an unsolicited takeover attempt; and
|
|
•
|
advance notice procedures with which stockholders must comply to nominate candidates to our Board of Directors or to propose matters to be acted upon at a stockholders' meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of us.
|
In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. The provisions of Section 203 may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for three years after achieving that ownership threshold. A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of this provision.
These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our Board of Directors or initiate actions that are opposed by our then-current Board of Directors, including delaying or impeding a merger, tender offer, or proxy contest involving our company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction.
We are incurring significantly increased costs and devoting substantial management time to operate as a public company.
As a public company, we are incurring significant legal, accounting and other expenses that we did not incur as a private company. For example, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and are required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC and the New York Stock Exchange, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Compliance with these requirements has increased our legal and financial compliance costs and has made some activities more time consuming and costly. In addition, our management and other personnel devote substantial time to our public company requirements, which diverts attention from operational and other business matters. We have and will continue to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and maintain an internal audit function. We cannot predict or estimate the amount of additional costs we may incur as a result of operating as a public company or the timing of such costs.
If we no longer qualify as an emerging growth company, as defined by the JOBS Act and as certain extended transition periods available to emerging growth companies expire, we will become subject to additional reporting requirements and standards. For example, we have incurred significant expenses and devoted substantial management effort toward ensuring compliance with the
32
requirements of Section 404 of the Sarbanes-Oxley Act. We will become subject to additional requirements when we are no longer an emerging growth company. In addition, as an emerging growth company, we have delayed adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606); however, we will be required to apply the standard on February 1, 2019. While we are taking steps to implement the systems and processes required to comply with these additional requirements, we cannot assure you that the measures we have taken to date, and are continuing to implement, will enable us to comply fully and in a timely manner.
We are an emerging growth company, and we cannot be certain if the reduced disclosure and governance requirements applicable to emerging growth companies will make our common stock less attractive to investors.
For as long as we continue to be an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We will remain an emerging growth company and may take advantage of these reporting exemptions until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of the preceding July 31, which is the end of our second fiscal quarter, (ii) the end of the fiscal year in which we have total annual gross revenue of $1.07 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or (iv) January 31, 2023.
We are an emerging growth company, and we have elected to use the extended transition period for complying with new or revised accounting standards otherwise applicable to public companies, which may make our common stock less attractive to investors.
As an emerging growth company, the JOBS Act allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to use this extended transition period under the JOBS Act. As a result, our consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make our common stock less attractive to investors.
None.
Our worldwide corporate headquarters and executive offices are located in New York, New York, where we occupy approximately
95,000
square feet of office space under a lease and a sublease that expire in
December 2020
. In addition to serving as our corporate headquarters, our New York offices also support our sales, marketing, research and development and other general and administrative functions. We also have domestic offices including an office in Tysons Corner, Virginia and international offices including an office in London, United Kingdom. All of our facilities are leased. We believe that our existing facilities are adequate for our current needs and that suitable additional or alternative space will be available on commercially reasonable terms if and when it becomes needed.
Item 3.
Legal Proceedings
We are not currently a party to any legal proceedings that are material to our business or financial condition. From time to time we may become party to various litigation matters and subject to claims that arise in the ordinary course of business.
Not applicable.
33
Market Information for Common Stock
Our common stock began trading on the New York Stock Exchange under the symbol “YEXT” on April 13, 2017. Prior to that date, there was no public trading market for our common stock.
The following table sets forth for the indicated periods the high and low sales prices of our common stock as reported by the New York Stock Exchange.
|
High
|
Low
|
||||||
|
Fiscal year ended January 31, 2018
|
|||||||
|
First Quarter (Beginning April 13, 2017)
|
$
|
15.10
|
|
$
|
13.19
|
|
|
|
Second Quarter
|
$
|
15.11
|
|
$
|
12.05
|
|
|
|
Third Quarter
|
$
|
14.63
|
|
$
|
11.12
|
|
|
|
Fourth Quarter
|
$
|
14.78
|
|
$
|
11.03
|
|
|
Dividend Policy
We have never declared or paid any dividends on our capital stock. We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Accordingly, we do not expect to pay cash dividends on our common stock in the foreseeable future. In addition, our revolving credit facility agreement contains customary covenants restricting our ability to pay dividends.
Stockholders
As of
February 28, 2018
, there were
113
registered stockholders of record of our common stock. The number of registered stockholders of record does not include beneficial holders whose shares are held by banks, brokers and other institutions.
Use of Proceeds from Public Offering of Common Stock
On April 12, 2017, our Registration Statement on Form S-1, as amended (Reg. No. 333-216642), was declared effective in connection with the initial public offering of our common stock. We registered an aggregate of
12,075,000
shares of our common stock, all of which were sold by us, including the underwriters’ over-allotment, at a price to the public of
$11.00
per share. The offering closed on April 19, 2017. There has been no material change in the planned use of proceeds from our initial public offering as described in the final prospectus relating to that offering dated April 12, 2017.
Sales of Unregistered Equity Securities
From February 1, 2017 to April 12, 2017, we issued and sold to our employees an aggregate of 2,695,118 unregistered shares of common stock upon the exercise of options for an aggregate exercise price of $2.1 million. During this period, 60,000 restricted stock units vested, and we also awarded options for the purchase of 799,250 shares of common stock at exercise prices ranging from $8.59 to $9.00 per share. These issuances were undertaken in reliance upon the exemption from registration requirements of Rule 701 of the Securities Act of 1933, as amended ("Securities Act"), because the transactions were pursuant to compensatory benefit plans or contracts relating to compensation as provided under such rule.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
34
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth information regarding our equity compensation plans as of January 31, 2018.
|
Plan category
|
(a) Number of securities to be issued upon exercise of outstanding options, and vesting of restricted stock and restricted stock units
|
(b) Weighted-average exercise price of outstanding options (1)
|
(c) Number of securities remaining available for future issuance under equity compensation plans (excludes securities reflected in column (a))
|
||||||||
|
Equity compensation plans approved by security holders (2)
|
26,970,441
|
|
(3)
|
$
|
5.65
|
|
3,170,872
|
|
(4)
|
||
|
Equity compensation plans not approved by security holders
|
—
|
|
$
|
—
|
|
—
|
|
||||
|
Total
|
26,970,441
|
|
$
|
5.65
|
|
3,170,872
|
|
||||
(1) The weighted-average exercise price is calculated based solely on the exercise prices of the outstanding options to purchase shares of our common stock. It does not reflect the shares of our common stock that will be issued upon the vesting of outstanding restricted stock and restricted stock units.
(2) These plans consist of our 2008 Equity Incentive Plan, 2016 Equity Incentive Plan and 2017 Employee Stock Purchase Plan. The 2008 Equity Incentive Plan was terminated in connection with the adoption of the 2016 Equity Incentive Plan and we will not grant any additional awards under the 2008 Equity Incentive Plan. However, the 2008 Equity Incentive Plan will continue to govern the terms and conditions of the outstanding awards previously granted thereunder.
(3) This amount includes 22,512,856 shares subject to outstanding options and 4,457,585 shares subject to outstanding restricted stock and restricted stock units granted under our 2008 Equity Incentive Plan and 2016 Equity Incentive Plan.
(4) This amount includes shares of our common stock available for issuance under our 2016 Equity Incentive Plan and 2017 Employee Stock Purchase Plan. The number of shares available for issuance under these plans automatically increase each February 1
st
subject to the terms of the respective plans. Such increases are not reflected in the table above.
35
Performance Graph
The following shall not be deemed soliciting material or to be filed with the SEC, nor shall such information be incorporated by reference into any of our other filings under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended.
The graph below compares the cumulative total stockholder return on our common stock with the cumulative total return on the Standard & Poor’s 500 Index and the Nasdaq Computer Index. The graph assumes an initial investment of $100 in our common stock at the market close on April 13, 2017, which was our initial trading day. Data for the Standard & Poor’s 500 Index and the Nasdaq Computer Index assume reinvestment of dividends.
The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.
36
The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included within this Annual Report on Form 10-K. The consolidated statements of operations data for the fiscal years ended January 31,
2018
,
2017
and
2016
, and the consolidated balance sheet data as of
January 31, 2018
and
2017
are derived from our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The consolidated statement of operations data for the fiscal year ended January 31, 2015 and the consolidated balance sheet data as of
January 31, 2016
are derived from audited consolidated financial statements which are not included in this Form 10-K. Our historical results are not necessarily indicative of our future results. The selected consolidated financial data in this section are not intended to replace our consolidated financial statements and the related notes, and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.
|
Fiscal year ended January 31,
|
|||||||||||||||
|
(in thousands, except share and per share data)
|
2018
|
2017
|
2016
|
2015
|
|||||||||||
|
Consolidated Statements of Operations Data:
|
|||||||||||||||
|
Revenue
|
$
|
170,201
|
|
$
|
124,261
|
|
$
|
89,724
|
|
$
|
60,002
|
|
|||
|
Cost of revenue
(1)
|
44,095
|
|
36,950
|
|
31,033
|
|
24,832
|
|
|||||||
|
Gross profit
|
126,106
|
|
87,311
|
|
58,691
|
|
35,170
|
|
|||||||
|
Operating expenses:
|
|||||||||||||||
|
Sales and marketing
(1)
|
126,980
|
|
81,529
|
|
49,822
|
|
31,588
|
|
|||||||
|
Research and development
(1)
|
25,687
|
|
19,316
|
|
16,201
|
|
11,945
|
|
|||||||
|
General and administrative
(1)
|
40,079
|
|
29,166
|
|
18,806
|
|
8,988
|
|
|||||||
|
Total operating expenses
|
192,746
|
|
130,011
|
|
84,829
|
|
52,521
|
|
|||||||
|
Loss from operations
|
(66,640
|
)
|
(42,700
|
)
|
(26,138
|
)
|
(17,351
|
)
|
|||||||
|
Investment income
|
1,135
|
|
34
|
|
6
|
|
5
|
|
|||||||
|
Interest expense
|
(359
|
)
|
(150
|
)
|
—
|
|
—
|
|
|||||||
|
Other (expense) income, net
|
(539
|
)
|
(266
|
)
|
(418
|
)
|
73
|
|
|||||||
|
Loss from operations before income taxes
|
(66,403
|
)
|
(43,082
|
)
|
(26,550
|
)
|
(17,273
|
)
|
|||||||
|
(Provision for) benefit from income taxes
|
(162
|
)
|
(68
|
)
|
55
|
|
—
|
|
|||||||
|
Net loss
|
$
|
(66,565
|
)
|
$
|
(43,150
|
)
|
$
|
(26,495
|
)
|
$
|
(17,273
|
)
|
|||
|
Net loss per share attributable to common stockholders, basic and diluted
(2)
|
$
|
(0.85
|
)
|
$
|
(1.39
|
)
|
$
|
(0.89
|
)
|
$
|
(0.61
|
)
|
|||
|
Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted
(2)
|
78,632,448
|
|
31,069,695
|
|
29,917,814
|
|
28,519,917
|
|
|||||||
(1) Amounts include stock-based compensation expense as follows:
|
Fiscal year ended January 31,
|
|||||||||||||||
|
(in thousands)
|
2018
|
2017
|
2016
|
2015
|
|||||||||||
|
Cost of revenue
|
$
|
1,459
|
|
$
|
590
|
|
$
|
533
|
|
$
|
399
|
|
|||
|
Sales and marketing
|
11,121
|
|
4,359
|
|
1,559
|
|
920
|
|
|||||||
|
Research and development
|
3,756
|
|
1,954
|
|
1,300
|
|
1,104
|
|
|||||||
|
General and administrative
|
6,024
|
|
2,948
|
|
1,115
|
|
480
|
|
|||||||
|
Total stock-based compensation expense
|
$
|
22,360
|
|
$
|
9,851
|
|
$
|
4,507
|
|
$
|
2,903
|
|
|||
(2) See Note 13 "Net Loss Per Share Attributable to Common Stockholders" to our consolidated financial statements for an explanation of the method used to calculate basic and diluted net loss per share attributable to common stockholders.
37
|
Fiscal year ended January 31,
|
|||||||||||
|
(in thousands)
|
2018
|
2017
|
2016
|
||||||||
|
Consolidated Balance Sheet Data:
|
|||||||||||
|
Cash and cash equivalents
|
$
|
34,367
|
|
$
|
24,420
|
|
$
|
30,028
|
|
||
|
Marketable securities
|
$
|
83,974
|
|
$
|
—
|
|
$
|
—
|
|
||
|
Total current assets
|
$
|
180,042
|
|
$
|
61,829
|
|
$
|
58,156
|
|
||
|
Total assets
|
$
|
203,489
|
|
$
|
86,465
|
|
$
|
85,497
|
|
||
|
Deferred revenue, current
|
$
|
89,474
|
|
$
|
57,112
|
|
$
|
35,954
|
|
||
|
Total liabilities
|
$
|
122,036
|
|
$
|
93,605
|
|
$
|
60,118
|
|
||
|
Accumulated deficit
|
$
|
(233,450
|
)
|
$
|
(166,885
|
)
|
$
|
(123,735
|
)
|
||
|
Total stockholders' equity (deficit)
|
$
|
81,453
|
|
$
|
(127,755
|
)
|
$
|
(95,236
|
)
|
||
38
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. 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 I, Item 1A in this Annual Report on Form 10-K.
Overview
Yext is a knowledge engine. Our platform lets businesses control their digital knowledge in the cloud and sync it to approximately
150
services and applications, which we refer to as our PowerListings Network and includes Apple Maps, Bing, Cortana, Facebook, Google, Google Assistant, Google Maps, Siri and Yelp. We have established direct data integrations with applications in our PowerListings Network that end consumers around the globe use to discover new businesses, read reviews and find accurate answers to their queries.
Our cloud-based platform, the Yext Knowledge Engine, powers all of our key features, including Listings, Pages and Reviews, along with our other features and capabilities. We offer annual and multi-year subscriptions to our platform. We had historically priced our subscriptions based on custom combinations of the features that the customer wished to access and the number of locations that the customer managed with our platform. Beginning in October 2015, we began pricing new subscriptions in a more discrete range of packages, with pricing based on specified feature sets and the number of locations managed by the customer with our platform. More recently, we are pricing subscriptions based not only on the number of physical locations, but also on the number of persons and other entities managed with our platform, such as physicians, wealth advisors and insurance agents, among others. We now refer to these locations, persons and other entities collectively as "licenses," which we believe reflects the broadening of our business into new services and our current pricing methodology.
We sell our solution globally to customers of all sizes, through direct sales efforts to our customers, including third-party resellers, and through a self-service purchase process. In transactions with resellers, we are only party to the transaction with the reseller and are not a party to the reseller's transaction with its customer.
While our revenue is predominantly based in the U.S., we have continued to grow internationally in recent years. We offer the same services internationally as we do in the United States, and we intend to continue to pursue a strategy of expanding our international operations. Our revenue from non-U.S. operations has grown from approximately
2%
of our total revenue in the
fiscal year ended January 31,
2016
to more than
10%
of total revenue in the
fiscal year ended January 31,
2018
. Our non-U.S. revenue is defined as revenue derived from contracts that are originally entered into with our non-U.S. offices, regardless of the location of the customer. We generally direct non-U.S. customer sales to our non-U.S. offices.
Our business has evolved in recent years. For example:
|
•
|
in 2015, we continued to expand our PowerListings Network to include over 100 global applications;
|
|
•
|
in 2016, we launched specialized integrations to our platform with applications like Uber and Snapchat, added our Reviews feature to our platform and held our inaugural industry and customer event in New York City; and
|
|
•
|
in 2017, we introduced the Yext App Directory, which enables businesses to connect information from systems across the business, such as workforce management systems and customer relationship management databases and held our second annual industry and customer event, ONWARD 2017 (formerly called "LocationWorld"), in November 2017, in New York City.
|
We have experienced rapid growth in recent periods, nearly all of which has been organic growth as we have not historically conducted many acquisitions. Evidencing our strengthening market position in recent years, we have grown the number of licenses listed in our Knowledge Engine platform from approximately
345,000
as of
January 31, 2015
to approximately
1,468,000
as of
January 31, 2018
. Our revenue was
$170.2 million
,
$124.3 million
and
$89.7 million
for the
fiscal years ended January 31, 2018
,
2017
and
2016
, respectively.
In April 2017, we closed our initial public offering ("IPO"), in which we issued and sold
12,075,000
shares of common stock inclusive of the underwriters’ option shares that were exercised in full. The price per share to the public was
$11.00
. We received aggregate proceeds of
$123.5 million
from the IPO, net of underwriters’ discounts and commissions, before deducting offering costs of
$4.4 million
. Upon the closing of the IPO, all shares of our outstanding preferred stock automatically converted into
43,594,753
shares of common stock.
Fiscal Year
Our fiscal year ends on
January 31
. References to fiscal
2018
, for example, are to the fiscal year ended
January 31, 2018
.
39
Components of Results of Operations
Revenue
We derive our revenue primarily from subscription services. We sell subscriptions to our cloud-based platform through contracts that 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 at each customer, the package, or for older contracts, number of features, to which each customer subscribes, the price of the package or the feature set and renewal rates. Revenue is recognized ratably over the contract term beginning on the commencement date of each contract, at which time the customers are granted access to the platform, the appropriate package or feature set and associated support. We typically invoice our customers in monthly, semi-annual or annual installments at the beginning of each subscription period. Amounts that have been invoiced are initially recorded as deferred revenue and are recognized ratably over the subscription period.
Cost of Revenue
Cost of revenue includes fees we pay for our PowerListings Network application integrations. Our arrangements with PowerListings Network providers follow one of three mechanisms: unpaid, fixed, or variable fee based on licenses served or revenue. The arrangements with many of our larger providers are unpaid. As the value of our customers' digital knowledge increases over time to our PowerListings Network providers, we expect that we will be able to negotiate lower or no fee contracts and, therefore, our provider fees as a percentage of total revenue will generally decline. Cost of revenue also includes expenses related to hosting our platform and providing support services. These expenses are primarily comprised of personnel and related costs directly associated with our cloud infrastructure and customer support, including salaries, data center capacity costs, stock-based compensation expense, benefits, and other allocated overhead costs.
Operating Expenses
Sales and marketing expenses
. Sales and marketing expenses are our largest cost and consist primarily of salaries and related costs, including commissions and stock-based compensation expense, as well as costs related to advertising, marketing, brand awareness activities and lead generation.
Research and development expenses
. Research and development expenses consist primarily of salaries and related costs, including stock-based compensation expense and costs to develop new products and features. Research and development expenses are partially offset by capitalized software development costs, which we expect to grow as we continue to invest in research and development activities.
General and administrative expenses
. General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation expense, for our finance and accounting, human resources, information technology and legal support departments, as well as professional and consulting fees in connection with these departments.
40
Results of Operations
The following table sets forth selected consolidated statement of operations data for each of the periods indicated:
|
Fiscal year ended January 31,
|
|||||||||||
|
(in thousands)
|
2018
|
2017
|
2016
|
||||||||
|
Revenue
|
$
|
170,201
|
|
$
|
124,261
|
|
$
|
89,724
|
|
||
|
Cost of revenue
(1)
|
44,095
|
|
36,950
|
|
31,033
|
|
|||||
|
Gross profit
|
126,106
|
|
87,311
|
|
58,691
|
|
|||||
|
Operating expenses:
|
|||||||||||
|
Sales and marketing
(1)
|
126,980
|
|
81,529
|
|
49,822
|
|
|||||
|
Research and development
(1)
|
25,687
|
|
19,316
|
|
16,201
|
|
|||||
|
General and administrative
(1)
|
40,079
|
|
29,166
|
|
18,806
|
|
|||||
|
Total operating expenses
|
192,746
|
|
130,011
|
|
84,829
|
|
|||||
|
Loss from operations
|
(66,640
|
)
|
(42,700
|
)
|
(26,138
|
)
|
|||||
|
Investment income
|
1,135
|
|
34
|
|
6
|
|
|||||
|
Interest expense
|
(359
|
)
|
(150
|
)
|
—
|
|
|||||
|
Other expense, net
|
(539
|
)
|
(266
|
)
|
(418
|
)
|
|||||
|
Loss from operations before income taxes
|
(66,403
|
)
|
(43,082
|
)
|
(26,550
|
)
|
|||||
|
(Provision for) benefit from income taxes
|
(162
|
)
|
(68
|
)
|
55
|
|
|||||
|
Net loss
|
$
|
(66,565
|
)
|
$
|
(43,150
|
)
|
$
|
(26,495
|
)
|
||
|
(1)
|
Amounts include stock-based compensation expense as follows:
|
|
Fiscal year ended January 31,
|
|||||||||||
|
(in thousands)
|
2018
|
2017
|
2016
|
||||||||
|
Cost of revenue
|
$
|
1,459
|
|
$
|
590
|
|
$
|
533
|
|
||
|
Sales and marketing
|
11,121
|
|
4,359
|
|
1,559
|
|
|||||
|
Research and development
|
3,756
|
|
1,954
|
|
1,300
|
|
|||||
|
General and administrative
|
6,024
|
|
2,948
|
|
1,115
|
|
|||||
|
Total stock-based compensation expense
|
$
|
22,360
|
|
$
|
9,851
|
|
$
|
4,507
|
|
||
The following table sets forth selected consolidated statements of operations data for each of the periods indicated as a percentage of total revenue:
|
Fiscal year ended January 31,
|
||||||||
|
2018
|
2017
|
2016
|
||||||
|
Revenue
|
100
|
%
|
100
|
%
|
100
|
%
|
||
|
Cost of revenue
|
26
|
|
30
|
|
35
|
|
||
|
Gross profit
|
74
|
|
70
|
|
65
|
|
||
|
Operating expenses:
|
—
|
|
||||||
|
Sales and marketing
|
74
|
|
66
|
|
56
|
|
||
|
Research and development
|
15
|
|
16
|
|
18
|
|
||
|
General and administrative
|
24
|
|
23
|
|
21
|
|
||
|
Total operating expenses
|
113
|
|
105
|
|
95
|
|
||
|
Loss from operations
|
(39
|
)
|
(35
|
)
|
(30
|
)
|
||
|
Investment income
|
—
|
|
—
|
|
—
|
|
||
|
Interest expense
|
—
|
|
—
|
|
—
|
|
||
|
Other expense, net
|
—
|
|
—
|
|
—
|
|
||
|
Loss from operations before income taxes
|
(39
|
)
|
(35
|
)
|
(30
|
)
|
||
|
(Provision for) benefit from income taxes
|
—
|
|
—
|
|
—
|
|
||
|
Net loss
|
(39
|
)%
|
(35
|
)%
|
(30
|
)%
|
||
41
Fiscal Year Ended January 31, 2018
Compared to
Fiscal Year Ended January 31, 2017
Revenue and Cost of Revenue
|
Fiscal year ended
January 31, |
Variance
|
|||||||||||||
|
(in thousands)
|
2018
|
2017
|
Dollars
|
Percent
|
||||||||||
|
Revenue
|
$
|
170,201
|
|
$
|
124,261
|
|
$
|
45,940
|
|
37
|
%
|
|||
|
Cost of revenue
|
44,095
|
|
36,950
|
|
$
|
7,145
|
|
19
|
%
|
|||||
|
Gross profit
|
$
|
126,106
|
|
$
|
87,311
|
|
$
|
38,795
|
|
44
|
%
|
|||
|
Gross margin
|
74.1
|
%
|
70.3
|
%
|
||||||||||
Total revenue was
$170.2 million
for the
fiscal year ended January 31, 2018
, compared to
$124.3 million
for the
fiscal year ended January 31, 2017
,
an increase
of
$45.9 million
or
37%
. This
increase
was primarily due to new customer acquisitions and expanded subscriptions sold to existing customers. Revenue from our enterprise and mid-size customers, which include third-party reseller customers, increased
43%
, growing from approximately
$106.6 million
to
$152.7 million
, and excludes revenue from small business customers, which by their nature have limited licenses and inherently high turnover.
Cost of revenue was
$44.1 million
for the
fiscal year ended January 31, 2018
, compared to
$37.0 million
for the
fiscal year ended January 31, 2017
,
an increase
of
$7.1 million
or
19%
. This
increase
was primarily due to an increase of
$4.0 million
in personnel‑related costs, which mainly consisted of salaries and wages, reflecting higher headcount, and an increase of
$0.9 million
in depreciation expense. Stock-based compensation expense increased
$0.9 million
due to a combination of the increased fair value of our underlying common stock and additional stock-based awards granted.
Gross margin
improved
to
74.1%
from
70.3%
, as revenue growth outpaced the increase in cost of revenue.
Operating Expenses
|
Fiscal year ended
January 31, |
Variance
|
|||||||||||||
|
(in thousands)
|
2018
|
2017
|
Dollars
|
Percent
|
||||||||||
|
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
|
%
|
|||
Sales and marketing expenses were
$127.0 million
for the
fiscal year ended January 31, 2018
, compared to
$81.5 million
for the
fiscal year ended January 31, 2017
,
an increase
of
$45.5 million
, or
56%
. The
increase
was primarily due to an increase of
$27.4 million
in personnel‑related costs, which mainly consisted of salaries and wages, as well as commissions, as we continued to expand our sales force to invest in our overall growth. Stock-based compensation expense increased
$6.8 million
due to a combination of the increased fair value of our underlying common stock and additional stock-based awards granted.
Research and development expenses were
$25.7 million
for the
fiscal year ended January 31, 2018
, compared to
$19.3 million
for the
fiscal year ended January 31, 2017
,
an increase
of
$6.4 million
, or
33%
. The
increase
was primarily due to an increase of
$3.1 million
in personnel-related costs, which mainly consisted of salaries and wages, reflecting higher headcount. Stock-based compensation expense increased
$1.8 million
due to a combination of the increased fair value of our underlying common stock and additional stock-based awards granted.
General and administrative expenses were
$40.1 million
for the
fiscal year ended January 31, 2018
, compared to
$29.2 million
for the
fiscal year ended January 31, 2017
,
an increase
of
$10.9 million
, or
37%
. The
increase
was primarily due to an increase of
$4.6 million
in personnel‑related costs, which mainly consisted of salaries and wages, reflecting higher headcount. Stock-based compensation expense increased
$3.1 million
due to a combination of the increased fair value of our underlying common stock and additional stock-based awards granted.
42
Fiscal Year Ended January 31, 2017
Compared to
Fiscal Year Ended January 31, 2016
Revenue and Cost of Revenue
|
Fiscal year ended
January 31, |
Variance
|
|||||||||||||
|
(in thousands)
|
2017
|
2016
|
Dollars
|
Percent
|
||||||||||
|
Revenue
|
$
|
124,261
|
|
$
|
89,724
|
|
$
|
34,537
|
|
38
|
%
|
|||
|
Cost of revenue
|
36,950
|
|
31,033
|
|
$
|
5,917
|
|
19
|
%
|
|||||
|
Gross profit
|
$
|
87,311
|
|
$
|
58,691
|
|
$
|
28,620
|
|
49
|
%
|
|||
|
Gross margin
|
70.3
|
%
|
65.4
|
%
|
||||||||||
Revenue increased primarily due to the continued growth of our customer base and expanded subscriptions sold to existing customers. Approximately $13.2 million of this increase was attributable to new customers during the period. Growth was even greater for revenue from our enterprise and mid-size business and reseller customers, which represent the substantial majority of our revenue, and not including direct sales to small business customers, which by their nature have limited licenses and experience inherently high turnover. Our revenue from those enterprise and mid-size customers grew by 46% from $73.1 million to $106.6 million.
Cost of revenue increased primarily due to an increase in PowerListings Network application provider fees of $2.8 million, which grew from $16.3 million to $19.1 million, as some of our PowerListings Network application provider costs are variable and increase with increased sales volume. Of the increase in provider costs during the fiscal year ended January 31, 2017, $1.9 million was attributable to increases in variable costs from certain PowerListings Network provider arrangements that required us to pay increased fees based on the number of active licenses on our platform or as a percentage of our revenue. In addition, personnel-related costs, which mainly consisted of salaries and wages, increased $1.6 million from $8.9 million to $10.5 million, driven by increased headcount.
Gross margin
improved
to
70.3%
from
65.4%
, as revenue growth outpaced the increase in cost of revenue.
Operating Expenses
|
Fiscal year ended
January 31, |
Variance
|
|||||||||||||
|
(in thousands)
|
2017
|
2016
|
Dollars
|
Percent
|
||||||||||
|
Sales and marketing
|
$
|
81,529
|
|
$
|
49,822
|
|
$
|
31,707
|
|
64
|
%
|
|||
|
Research and development
|
$
|
19,316
|
|
$
|
16,201
|
|
$
|
3,115
|
|
19
|
%
|
|||
|
General and administrative
|
$
|
29,166
|
|
$
|
18,806
|
|
$
|
10,360
|
|
55
|
%
|
|||
The increase in sales and marketing expenses was primarily driven by personnel-related costs, which increased $21.4 million, from $27.3 million to $48.7 million, and mainly consisted of salaries and wages, commissions and bonuses. The increase in personnel-related costs was primarily due to an increased headcount, which grew from 249 to 372 employees in the sales and marketing function year over year, as we continued to expand our sales force to invest in our overall growth. Stock-based compensation expense increased $2.8 million from $1.6 million to $4.4 million, due to a combination of additional stock-based awards to new hires and the increasing valuation of our underlying common stock. In addition, in November 2016, we held our inaugural LocationWorld industry and customer event, which accounted for $1.6 million in sales and marketing expense.
Research and development expenses increased primarily due to increases in personnel-related costs, which increased $2.8 million due to increased headcount and mainly consisted of salaries and wages. Stock-based compensation increased $0.7 million, from $1.3 million to $2.0 million, due to a combination of additional stock-based awards to new hires and the increasing valuation of our underlying common stock. The overall increase reflects our continued investment in our overall growth.
General and administrative expenses increased primarily due to increases in personnel-related costs, which increased $4.8 million and mainly consisted of salaries and wages, in line with our increase in headcount, which grew from 55 to 82 employees in general and administrative functions year over year. Recruiting and professional fees increased $1.4 million from $6.5 million to $7.9 million to support our overall growth and scale our operations. Stock-based compensation increased $1.8 million, from $1.1 million to $2.9 million, due to a combination of additional stock-based awards to new hires and the increasing valuation of our underlying common stock.
Quarterly Results of Operations
The following tables set forth our unaudited quarterly consolidated statements of operations data for each of the eight quarters in the period ended
January 31, 2018
. The information for each of these quarters has been prepared on the same basis as the audited
43
annual consolidated financial statements included elsewhere in this Annual Report on Form 10-K and, in the opinion of management, includes all adjustments, which consist only of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods in accordance with GAAP. This data should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. These quarterly operating results are not necessarily indicative of our operating results for a full year or any future period.
|
|
Three months ended
|
||||||||||||||||||||||||||||||
|
(in thousands)
|
Jan. 31,
2018
|
Oct. 31,
2017
|
Jul. 31,
2017
|
Apr. 30,
2017
|
Jan. 31,
2017
|
Oct. 31,
2016
|
Jul. 31,
2016
|
Apr. 30,
2016
|
|||||||||||||||||||||||
|
Revenue
|
$
|
48,020
|
|
$
|
44,332
|
|
$
|
40,769
|
|
$
|
37,080
|
|
$
|
35,671
|
|
$
|
31,909
|
|
$
|
29,556
|
|
$
|
27,125
|
|
|||||||
|
Cost of revenue
|
12,208
|
|
11,658
|
|
10,541
|
|
9,688
|
|
9,724
|
|
9,324
|
|
9,067
|
|
8,835
|
|
|||||||||||||||
|
Gross profit
|
35,812
|
|
32,674
|
|
30,228
|
|
27,392
|
|
25,947
|
|
22,585
|
|
20,489
|
|
18,290
|
|
|||||||||||||||
|
Operating expenses:
|
|
|
|||||||||||||||||||||||||||||
|
Sales and marketing
|
35,089
|
|
32,756
|
|
30,673
|
|
28,462
|
|
26,161
|
|
20,393
|
|
18,132
|
|
16,843
|
|
|||||||||||||||
|
Research and development
|
7,250
|
|
6,958
|
|
6,493
|
|
4,986
|
|
5,108
|
|
4,764
|
|
4,673
|
|
4,771
|
|
|||||||||||||||
|
General and administrative
|
10,976
|
|
10,196
|
|
9,569
|
|
9,338
|
|
8,944
|
|
7,548
|
|
6,691
|
|
5,983
|
|
|||||||||||||||
|
Total operating expenses
|
53,315
|
|
49,910
|
|
46,735
|
|
42,786
|
|
40,213
|
|
32,705
|
|
29,496
|
|
27,597
|
|
|||||||||||||||
|
Loss from operations
|
(17,503
|
)
|
(17,236
|
)
|
(16,507
|
)
|
(15,394
|
)
|
(14,266
|
)
|
(10,120
|
)
|
(9,007
|
)
|
(9,307
|
)
|
|||||||||||||||
|
Investment income
|
394
|
|
419
|
|
322
|
|
—
|
|
—
|
|
8
|
|
14
|
|
12
|
|
|||||||||||||||
|
Interest expense
|
(85
|
)
|
(104
|
)
|
(82
|
)
|
(88
|
)
|
(78
|
)
|
(37
|
)
|
(30
|
)
|
(5
|
)
|
|||||||||||||||
|
Other income (expense), net
|
128
|
|
(132
|
)
|
57
|
|
(592
|
)
|
(165
|
)
|
(70
|
)
|
11
|
|
(42
|
)
|
|||||||||||||||
|
Loss from operations before income taxes
|
(17,066
|
)
|
(17,053
|
)
|
(16,210
|
)
|
(16,074
|
)
|
(14,509
|
)
|
(10,219
|
)
|
(9,012
|
)
|
(9,342
|
)
|
|||||||||||||||
|
Benefit from (provision for) income taxes
|
68
|
|
(9
|
)
|
(189
|
)
|
(32
|
)
|
(64
|
)
|
(3
|
)
|
—
|
|
(1
|
)
|
|||||||||||||||
|
Net loss
|
$
|
(16,998
|
)
|
$
|
(17,062
|
)
|
$
|
(16,399
|
)
|
$
|
(16,106
|
)
|
$
|
(14,573
|
)
|
$
|
(10,222
|
)
|
$
|
(9,012
|
)
|
$
|
(9,343
|
)
|
|||||||
|
Net loss per share attributable to common stockholders, basic and diluted
|
$
|
(0.18
|
)
|
$
|
(0.19
|
)
|
$
|
(0.18
|
)
|
$
|
(0.40
|
)
|
$
|
(0.47
|
)
|
$
|
(0.33
|
)
|
$
|
(0.29
|
)
|
$
|
(0.30
|
)
|
|||||||
Quarterly Trends
Our quarterly revenue has increased sequentially for all periods presented, primarily due to new customer acquisitions and expanded subscriptions sold to existing customers. We expect both upselling to our existing customer base and new customer acquisitions to continue to be significant drivers of our revenue growth. We have not historically experienced meaningful seasonality in our revenue, although our recent growth and the nature of our subscription agreements, generally resulting in revenue recognition ratably over the contract term, may have the effect of mitigating potential seasonality.
Total cost of revenue has generally increased over the periods, primarily due to increased personnel-related costs, coinciding with an increase in the number of employees required to run our growing business.
Gross margin has generally improved over the periods, as revenue growth outpaced the increase in cost of revenue, and in more recent quarters has begun to stabilize. We have seen our PowerListings Network application provider costs decline as a percentage of revenue as our data set becomes more important to those providers such that we are able to negotiate more favorable terms with them. Gross margin may decrease at times as we enter new international markets in which we have yet to achieve efficiencies of scale, or introduce new features and products.
Sales and marketing expenses generally increased over the periods, primarily due to an expanding sales and marketing team and related expenses. Research and development expenses have generally increased over the periods, primarily due to an increase in personnel-related costs associated with developing new products and features for our platform. General and administrative expenses have grown sequentially for all periods presented, primarily due to an increase in costs required to support our growing business.
Our quarterly results may fluctuate due to various factors affecting our performance. Because we recognize revenue from subscription and support fees ratably over the term of the contract, changes in our contracting activity in the near term may not be apparent as a change to our reported revenue until future periods. Most of our expenses are recorded as period costs and thus factors affecting our cost structure may be reflected in our financial results sooner than changes to our revenue.
44
Liquidity and Capital Resources
As of
January 31, 2018
, our principal sources of liquidity were cash, cash equivalents and marketable securities totaling
$118.3 million
. Our cash, cash equivalents and marketable securities are comprised primarily of bank deposits, money market funds, commercial paper, corporate bonds and U.S. treasury securities. We believe our existing cash, cash equivalents and marketable securities will be sufficient to meet our projected operating requirements for at least the next 12 months.
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 and technologies, and intellectual property rights. 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 Facility
On March 16, 2016, we entered into a Loan and Security agreement with Silicon Valley Bank that provides for a
$15.0 million
revolving credit line ("Revolving Line") and a
$7.0 million
Letter of Credit facility (together with the Revolving Line, the "Credit Agreement"). The original Credit Agreement had a maturity date of
March 16, 2018
. Subsequent to the fiscal year ended January 31, 2018, in March 2018, the Credit Agreement was amended to extend the maturity date to March 16, 2020. We are obligated to pay ongoing commitment fees at a rate equal to
0.25%
for the Revolving Line and
1.75%
for any issued letters of credit.
Subject to certain terms of the Credit Agreement, we may borrow, prepay and reborrow amounts under the Revolving Line at any time during the agreement and amounts repaid or prepaid may be reborrowed. Interest rates on borrowings under the Revolving Line will be based on one-half of one percent (
0.50%
) above the prime rate. The prime rate is defined as the rate of interest per annum from time to time published in the money rate section of the Wall Street Journal.
The Credit Agreement contains certain customary affirmative and negative covenants, including an adjusted quick ratio of at least 1.25 to 1.00, minimum revenue, a limit on our ability to incur additional indebtedness, dispose of assets, make certain acquisition transactions, pay dividends or make distributions, and certain other restrictions on our activities.
On November 18, 2016, we drew
$5.0 million
on our Revolving Line for operating purposes. On April 28, 2017, we repaid the
$5.0 million
on our Revolving Line. As of
January 31, 2018
, we had
no
debt outstanding and availability under our Revolving Line was
$15.0 million
.
Cash Flows
The following table summarizes our cash flows:
|
Fiscal year ended January 31,
|
|||||||||||
|
(in thousands)
|
2018
|
2017
|
2016
|
||||||||
|
Cash flows used in operating activities
|
$
|
(31,909
|
)
|
$
|
(7,743
|
)
|
$
|
(10,525
|
)
|
||
|
Cash flows used in investing activities
|
$
|
(88,123
|
)
|
$
|
(3,803
|
)
|
$
|
(10,005
|
)
|
||
|
Cash flows provided by financing activities
|
$
|
129,604
|
|
$
|
5,968
|
|
$
|
1,647
|
|
||
Operating Activities
Cash
used in
operating activities of
$31.9 million
for the
fiscal year ended January 31, 2018
was primarily due to the net loss of
$66.6 million
, a change in accounts receivable of
$17.0 million
, mainly due to timing of billing and cash collections during the period, a change in deferred commissions of
$4.4 million
and a change in prepaid expenses and other current assets of
$4.0 million
. These decreases were partially offset by a change in deferred revenue of
$31.8 million
, stock‑based compensation expense of
$22.4 million
, depreciation and amortization of
$5.1 million
and a change in deferred rent of
$0.8 million
.
Cash used in operating activities of $7.7 million for the fiscal year ended January 31, 2017 was primarily due to a net loss of $43.2 million, partially offset by stock-based compensation expense of $9.9 million, the release of $5.8 million of restricted cash primarily associated with amounts previously held as collateral against our office leases, and depreciation and amortization of $4.1 million. The net change in operating assets and liabilities was primarily due to a change in the deferred revenue balance of $20.9 million and accounts receivable balance of $4.1 million, mainly due to timing of billing and cash collections during the period. The increase in accounts payable, accrued expenses and other current liabilities of $6.0 million was offset by increases in prepaid expenses and other current assets of $1.6 million and deferred commissions of $5.6 million. The increase in deferred commissions reflected the growth in headcount and sales resulting in increased compensation and sales commissions.
Cash used in operating activities of $10.5 million for the fiscal year ended January 31, 2016 was primarily due to a net loss of $26.5 million, partially offset by stock-based compensation expense of $4.5 million and depreciation and amortization of $3.1 million. The net change in operating assets and liabilities was primarily due to a change in the deferred revenue balance of $12.9 million, partially offset by an increase in accounts receivable of $12.1 million, mainly due to timing of billing and cash collections during the period. The
45
change in accounts payable, accrued expenses and other current liabilities of $8.3 million was attributable to an increase in compensation cost due to headcount growth, as well as future payments for sales tax due to customer billing. The change in deferred rent of $2.1 million was related to a tenant improvement allowance received for the leasehold improvements in our New York headquarters. These changes were offset by changes in prepaid expenses and other current assets of $0.2 million. The changes were attributable to increased spending related to operational growth of our business.
Investing Activities
Cash
used in
investing activities of
$88.1 million
for the
fiscal year ended January 31, 2018
was related to purchases of marketable securities of
$110.6 million
and capital expenditures of
$3.7 million
, offset by maturities and sales associated with marketable securities of
$26.2 million
.
Cash used in investing activities for the fiscal year ended January 31, 2017 was $3.8 million and primarily related to capital expenditures of $3.5 million.
Cash used in investing activities for the fiscal year ended January 31, 2016 was $10.0 million and primarily related to capital expenditures, largely associated with leasehold improvements in our New York headquarters.
Financing Activities
Cash
provided by
financing activities of
$129.6 million
for the
fiscal year ended January 31, 2018
was primarily related to proceeds from our IPO of
$123.5 million
, net of underwriting discounts and commissions, as well as proceeds from exercises of stock options of
$11.6 million
, and proceeds from employee stock purchase plan withholdings of
$3.8 million
. These amounts were partially offset by the
$5.0 million
repayment on our Revolving Line and
$4.3 million
of payments related to deferred offering costs.
Cash provided by financing activities for the fiscal year ended January 31, 2017 was $6.0 million and primarily related to $5.0 million drawn on our revolving credit line, as well as $1.3 million of proceeds from the exercise of stock options, partially offset by payments of deferred offering costs and deferred financing costs.
Cash provided by financing activities for the fiscal year ended January 31, 2016 was $1.6 million, which consisted primarily of $28.3 million used for share repurchases pursuant to a tender offer and stock option settlements in connection with the tender offer, offset by $29.5 million in proceeds from the contemporaneous sale of common stock to existing investors and $0.4 million in proceeds from the exercise of stock options.
Contractual Obligations
We are obligated under certain non-cancelable operating leases for office space, the agreements for which expire at various dates between fiscal years
2019
and
2028
, including a long term operating lease for our primary facility in New York, which expires in
December 2020
. We are a party to various agreements with PowerListings Network application providers, the agreements for which expire at various dates between fiscal years
2019
and
2035
.
The following table summarizes our non-cancelable contractual obligations as of
January 31, 2018
(in thousands):
|
Fiscal year ending January 31:
|
Operating Leases
|
Application Providers and Other
(1)
|
||||||
|
2019
|
$
|
7,787
|
|
$
|
14,389
|
|
||
|
2020
|
7,962
|
|
1,222
|
|
||||
|
2021
|
7,275
|
|
32
|
|
||||
|
2022
|
770
|
|
7
|
|
||||
|
2023 and thereafter
|
2,298
|
|
29
|
|
||||
|
Total
|
$
|
26,092
|
|
$
|
15,679
|
|
||
(1) Includes the minimum contractual commitment levels of any variable payments to PowerListings Network application providers. We have minimum contractual commitments with certain of our PowerListings Network application providers. Also includes other contractual obligations in the normal course of business.
Off-Balance Sheet Arrangements
We do not engage in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, as part of our ongoing business. Accordingly, our operating results, financial condition and cash flows are not subject to off-balance sheet risks.
46
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 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.
Refer to Note 2 "Summary of Significant Accounting Policies" to our consolidated financial statements for further discussion on our accounting policies. Our most critical accounting policies and estimates, based on the degree of judgment and complexity, are discussed below.
Revenue Recognition
We derive our revenue primarily from subscription services. We sell subscriptions to our platform through contracts that are typically one year in length, but may be up to three years or longer in length. Our subscription contracts do not provide customers with the right to take possession of the software supporting the applications and, as a result, are accounted for as service contracts.
We sell our products through our direct sales force to our customers, including third‑party resellers. We recognize revenue when four basic criteria are met: (1) persuasive evidence exists of an arrangement with the customer reflecting the terms and conditions under which the services will be provided; (2) services have been provided or delivery has occurred; (3) the fee is fixed or determinable; and (4) collection is reasonably assured. Collectability is assessed based on a number of factors, including the creditworthiness of a customer and transaction history.
We recognize revenue based on the amount billed to our customers. Our revenue consists of contractual fees for subscription and support services charged to our customers on a per‑license basis. In transactions with resellers, we contract only with the reseller, in which pricing and length of subscription and support services are agreed upon. The reseller negotiates the price charged and length of subscription and support service directly with its customer. We do not pay separate fees to third‑party resellers and do not have direct interactions with the reseller’s customer.
Subscription Revenue.
Subscription revenue recognition commences on the date that our platform is made available to the customer, which is the subscription start date, provided all of the other criteria described above are met. Revenue is recognized based on the terms of the customer contracts, which include a fixed fee based upon the actual or contractual number of licenses, and is recognized on a straight‑line basis over the contractual term of the arrangement.
Multiple Deliverable Arrangements.
Certain of our arrangements include both a subscription to our platform and support services. We evaluate each element in an arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when the delivered item has standalone value and delivery of the undelivered element is probable and within our control. Our support services are not sold separately from the subscription and there is no alternative use for them. Further, no other vendor provides similar support services. Based on these factors, the support services do not have standalone value. Accordingly, subscription and support revenue is combined and recognized as a single unit of accounting.
Stock‑Based Compensation
Stock-based compensation for all stock‑based awards, including options to purchase common stock, restricted stock and restricted stock units, is measured at fair value on the date of grant and recognized over the service period. The fair value of stock options is estimated on the date of grant using a Black‑Scholes model. The fair value of restricted stock and restricted stock units are estimated on the date of grant based on the fair value of our common stock.
Stock-based compensation expense is recognized over the requisite service periods of awards, which is typically
four years
for options and
one
to
four
years for restricted stock and restricted stock units, and includes an estimated forfeiture rate. The estimated forfeiture rate applied is based on historical forfeiture rates. We plan to elect to continue to estimate a forfeiture rate upon adoption of ASU No. 2016-09, "Improvements to Employee Share-Based Payments Accounting," effective February 1, 2018. The estimated number of stock-based awards that will ultimately vest requires judgment, and to the extent actual results, or updated estimates, differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. A higher forfeiture rate will result in an adjustment that will decrease stock-based compensation expense, whereas a lower forfeiture rate will result in an adjustment that will increase stock-based compensation expense.
Our assumptions about stock price volatility are based on the average of the historical volatility for a sample of comparable companies. The expected life assumptions for employee grants are based upon the simplified method, as we do not yet have sufficient historical exercise data to provide a reasonable basis upon which to estimate our expected term, due to the limited period of time our equity shares have been publicly traded. The expected life assumptions for non-employees are based upon the remaining contractual term of the option. The dividend yield assumption is zero, because we have not historically paid any dividends and do not expect to
47
declare or pay any dividends in the foreseeable future. The risk-free interest rate is based on the U.S. treasury yield curve in effect at the time of grant.
We will continue to use judgment in evaluating the assumptions related to our stock-based compensation. As we continue to accumulate additional data related to our common stock, we may refine our estimates. If factors change and different assumptions are used, the impact to our stock-based compensation expense could be material.
Income Taxes
We account for income taxes in accordance with ASC Topic 740, “Income Taxes”. Under this method, deferred income taxes are provided for temporary differences between the financial reporting and tax basis of our assets and liabilities. We classify all deferred tax assets and liabilities as non-current on the consolidated balance sheet. The effect of a change in tax rates on deferred tax assets and liabilities is recognized within the
(provision for)
benefit from
income taxes on the consolidated statement of operations and comprehensive loss in the period that includes the enactment date.
We reduce deferred tax assets, if necessary, by a valuation allowance if it is more likely than not that we will not realize some or all of our deferred tax assets. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax‑planning strategies, and results of recent operations. Refer to Note 11 "Income Taxes" to our consolidated financial statements for additional information on the composition of these valuation allowances and for information on the impact of U.S. tax reform legislation.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. We recognize interest and penalties related to uncertain tax positions within the
(provision for)
benefit from
income taxes on our consolidated statement of operations and comprehensive loss.
Recent Accounting Pronouncements
See Note 2 "Summary of Significant Accounting Policies" to the consolidated financial statements for our discussion about adopted and pending recent accounting pronouncements.
Market risk represents the risk of loss that may affect our financial position due to adverse changes in financial market prices and rates. We are exposed to market risks related to foreign currency exchange rates, inflation and interest rates.
Foreign Currency Risk
Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where the local currency is the functional currency, are translated from foreign currencies into U.S. dollars using month-end rates of exchange for assets and liabilities, and average rates for the period derived from month-end spot rates for revenue, costs and expenses. We record translation gains and losses in accumulated other comprehensive income (loss) as a component of stockholders' equity (deficit). We reflect net foreign exchange transaction gains and losses resulting from the conversion of the transaction currency to functional currency as a component of foreign currency exchange losses in other income (expense), net. Based on the size of our international operations and the amount of our expenses denominated in foreign currencies, we would not expect a 10% change in the value of the U.S. dollar from rates on
January 31, 2018
to have a material effect on our financial position or results of operations.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations, other than its impact on the general economy. Nonetheless, if our costs were to become subject to inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.
Interest Rate Risk
We had cash, cash equivalents and marketable securities totaling
$118.3 million
as of
January 31, 2018
. Our cash, cash equivalents and marketable securities are comprised primarily of bank deposits, money market funds, commercial paper and corporate bonds. The primary objective of our investments is the preservation of capital to fulfill liquidity needs. We do not enter into investments for trading or speculative purposes.
We do not believe our cash equivalents and our portfolio of marketable securities have significant risk of default or illiquidity. While we believe our cash equivalents and our portfolio of marketable securities do not contain excessive risk, we cannot assure you that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits and are exposed to counterparty risk. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our financial statements.
48
Index to Consolidated Financial Statements
|
PAGE
|
|
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Yext, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Yext, Inc. (the Company) as of January 31, 2018 and 2017, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended January 31, 2018, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2018, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion of the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditors since 2014.
New York, New York
March 16, 2018
50
YEXT, INC.
(In thousands, except share and per share data)
|
January 31,
2018 |
January 31,
2017 |
||||||
|
Assets
|
|||||||
|
Current assets:
|
|||||||
|
Cash and cash equivalents
|
$
|
34,367
|
|
$
|
24,420
|
|
|
|
Marketable securities
|
83,974
|
|
—
|
|
|||
|
Accounts receivable, net of allowances of $231 and $189, respectively
|
44,656
|
|
27,646
|
|
|||
|
Prepaid expenses and other current assets
|
7,703
|
|
3,511
|
|
|||
|
Deferred commissions, current
|
9,342
|
|
6,252
|
|
|||
|
Total current assets
|
180,042
|
|
61,829
|
|
|||
|
Restricted cash
|
—
|
|
500
|
|
|||
|
Property and equipment, net
|
11,438
|
|
11,613
|
|
|||
|
Goodwill
|
4,924
|
|
4,444
|
|
|||
|
Intangible assets, net
|
2,761
|
|
3,128
|
|
|||
|
Other long term assets
|
4,324
|
|
4,951
|
|
|||
|
Total assets
|
$
|
203,489
|
|
$
|
86,465
|
|
|
|
Liabilities, convertible preferred stock and stockholders’ equity (deficit)
|
|||||||
|
Current liabilities:
|
|||||||
|
Accounts payable, accrued expenses and other current liabilities
|
$
|
27,416
|
|
$
|
25,633
|
|
|
|
Deferred revenue, current
|
89,474
|
|
57,112
|
|
|||
|
Deferred rent
|
1,288
|
|
936
|
|
|||
|
Total current liabilities
|
118,178
|
|
83,681
|
|
|||
|
Deferred rent, non-current
|
3,213
|
|
4,348
|
|
|||
|
Long term debt
|
—
|
|
5,000
|
|
|||
|
Other long term liabilities
|
645
|
|
576
|
|
|||
|
Total liabilities
|
122,036
|
|
93,605
|
|
|||
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|||
|
Convertible preferred stock:
|
|||||||
|
Convertible preferred stock, $0.001 par value per share; zero and 43,705,690 shares authorized at January 31, 2018 and 2017, respectively; zero and 43,594,753 shares issued and outstanding at January 31, 2018 and 2017, respectively
|
—
|
|
120,615
|
|
|||
|
Stockholders’ equity (deficit):
|
|||||||
|
Preferred stock, $0.001 par value per share; 50,000,000 and zero shares authorized at January 31, 2018 and 2017, respectively; zero shares issued and outstanding at January 31, 2018 and 2017
|
—
|
|
—
|
|
|||
|
Common stock, $0.001 par value per share; 500,000,000 and 200,000,000 shares authorized at January 31, 2018 and 2017, respectively; 100,482,264 and 37,900,051 shares issued at January 31, 2018 and 2017, respectively; 93,976,930 and 31,394,717 shares outstanding at January 31, 2018 and 2017, respectively
|
100
|
|
38
|
|
|||
|
Additional paid-in capital
|
328,344
|
|
52,805
|
|
|||
|
Accumulated other comprehensive loss
|
(1,636
|
)
|
(1,808
|
)
|
|||
|
Accumulated deficit
|
(233,450
|
)
|
(166,885
|
)
|
|||
|
Treasury stock, at cost
|
(11,905
|
)
|
(11,905
|
)
|
|||
|
Total stockholders’ equity (deficit)
|
81,453
|
|
(127,755
|
)
|
|||
|
Total liabilities, convertible preferred stock and stockholders’ equity (deficit)
|
$
|
203,489
|
|
$
|
86,465
|
|
|
See the accompanying notes to the consolidated financial statements.
51
YEXT, INC.
(In thousands, except share and per share data)
|
Fiscal year ended January 31,
|
|||||||||||
|
2018
|
2017
|
2016
|
|||||||||
|
Revenue
|
$
|
170,201
|
|
$
|
124,261
|
|
$
|
89,724
|
|
||
|
Cost of revenue
|
44,095
|
|
36,950
|
|
31,033
|
|
|||||
|
Gross profit
|
126,106
|
|
87,311
|
|
58,691
|
|
|||||
|
Operating expenses:
|
|||||||||||
|
Sales and marketing
|
126,980
|
|
81,529
|
|
49,822
|
|
|||||
|
Research and development
|
25,687
|
|
19,316
|
|
16,201
|
|
|||||
|
General and administrative
|
40,079
|
|
29,166
|
|
18,806
|
|
|||||
|
Total operating expenses
|
192,746
|
|
130,011
|
|
84,829
|
|
|||||
|
Loss from operations
|
(66,640
|
)
|
(42,700
|
)
|
(26,138
|
)
|
|||||
|
Investment income
|
1,135
|
|
34
|
|
6
|
|
|||||
|
Interest expense
|
(359
|
)
|
(150
|
)
|
—
|
|
|||||
|
Other expense, net
|
(539
|
)
|
(266
|
)
|
(418
|
)
|
|||||
|
Loss from operations before income taxes
|
(66,403
|
)
|
(43,082
|
)
|
(26,550
|
)
|
|||||
|
(Provision for) benefit from income taxes
|
(162
|
)
|
(68
|
)
|
55
|
|
|||||
|
Net loss
|
$
|
(66,565
|
)
|
$
|
(43,150
|
)
|
$
|
(26,495
|
)
|
||
|
Net loss per share attributable to common stockholders, basic and diluted
|
$
|
(0.85
|
)
|
$
|
(1.39
|
)
|
$
|
(0.89
|
)
|
||
|
Weighted-average number of shares used in computing net loss per share
attributable to common stockholders, basic and diluted |
78,632,448
|
|
31,069,695
|
|
29,917,814
|
|
|||||
|
Other comprehensive income (loss):
|
|||||||||||
|
Foreign currency translation adjustment
|
$
|
492
|
|
$
|
(541
|
)
|
$
|
(460
|
)
|
||
|
Unrealized loss on marketable securities
|
(320
|
)
|
—
|
|
—
|
|
|||||
|
Total comprehensive loss
|
$
|
(66,393
|
)
|
$
|
(43,691
|
)
|
$
|
(26,955
|
)
|
||
See the accompanying notes to the consolidated financial statements.
52
YEXT, INC.
Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)
(In thousands)
|
Accumulated
|
Total
|
||||||||||||||||||||||||
|
Convertible Preferred Stock
|
Common Stock
|
Additional
Paid-In
|
Other
Comprehensive
|
Accumulated
|
Treasury
|
Stockholders’ Equity
|
|||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Loss
|
Deficit
|
Stock
|
(Deficit)
|
|||||||||||||||||
|
Balance, January 31, 2015
|
43,594
|
|
$
|
120,615
|
|
29,243
|
|
$
|
36
|
|
$
|
11,959
|
|
$
|
(807
|
)
|
$
|
(73,718
|
)
|
$
|
(11,905
|
)
|
$
|
(74,435
|
)
|
|
Issuance of common stock for acquisitions
|
—
|
|
—
|
|
81
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Exercise of stock options
|
—
|
|
—
|
|
263
|
|
—
|
|
449
|
|
—
|
|
—
|
|
—
|
|
449
|
|
|||||||
|
Stock repurchase and stock option settlement
|
—
|
|
—
|
|
(4,705
|
)
|
(5
|
)
|
(4,756
|
)
|
—
|
|
(23,522
|
)
|
—
|
|
(28,283
|
)
|
|||||||
|
Proceeds from the sale of common stock
|
—
|
|
—
|
|
5,895
|
|
6
|
|
29,475
|
|
—
|
|
—
|
|
—
|
|
29,481
|
|
|||||||
|
Stock-based compensation
|
—
|
|
—
|
|
—
|
|
—
|
|
4,507
|
|
—
|
|
—
|
|
—
|
|
4,507
|
|
|||||||
|
Other comprehensive loss
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(460
|
)
|
—
|
|
—
|
|
(460
|
)
|
|||||||
|
Net loss
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(26,495
|
)
|
—
|
|
(26,495
|
)
|
|||||||
|
Balance, January 31, 2016
|
43,594
|
|
120,615
|
|
30,777
|
|
37
|
|
41,634
|
|
(1,267
|
)
|
(123,735
|
)
|
(11,905
|
)
|
(95,236
|
)
|
|||||||
|
Exercise of stock options
|
—
|
|
—
|
|
618
|
|
1
|
|
1,320
|
|
—
|
|
—
|
|
—
|
|
1,321
|
|
|||||||
|
Stock-based compensation
|
—
|
|
—
|
|
—
|
|
—
|
|
9,851
|
|
—
|
|
—
|
|
—
|
|
9,851
|
|
|||||||
|
Other comprehensive loss
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(541
|
)
|
—
|
|
—
|
|
(541
|
)
|
|||||||
|
Net loss
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(43,150
|
)
|
—
|
|
(43,150
|
)
|
|||||||
|
Balance, January 31, 2017
|
43,594
|
|
120,615
|
|
31,395
|
|
38
|
|
52,805
|
|
(1,808
|
)
|
(166,885
|
)
|
(11,905
|
)
|
(127,755
|
)
|
|||||||
|
Initial public offering, net of issuance costs of $4,433
|
—
|
|
—
|
|
12,075
|
|
12
|
|
119,082
|
|
—
|
|
—
|
|
—
|
|
119,094
|
|
|||||||
|
Conversion of preferred stock
|
(43,594
|
)
|
(120,615
|
)
|
43,594
|
|
44
|
|
120,571
|
|
—
|
|
—
|
|
—
|
|
120,615
|
|
|||||||
|
Conversion of preferred stock warrant
|
—
|
|
—
|
|
—
|
|
—
|
|
1,435
|
|
—
|
|
—
|
|
—
|
|
1,435
|
|
|||||||
|
Exercise of stock options
|
—
|
|
—
|
|
6,517
|
|
6
|
|
11,604
|
|
—
|
|
—
|
|
—
|
|
11,610
|
|
|||||||
|
Exercise of common stock warrants
|
—
|
|
—
|
|
179
|
|
—
|
|
79
|
|
—
|
|
—
|
|
—
|
|
79
|
|
|||||||
|
Vested restricted stock units converted to common shares
|
—
|
|
—
|
|
204
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Issuance of restricted stock
|
—
|
|
—
|
|
13
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||
|
Stock-based compensation
|
—
|
|
—
|
|
—
|
|
—
|
|
22,768
|
|
—
|
|
—
|
|
—
|
|
22,768
|
|
|||||||
|
Other comprehensive income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
172
|
|
—
|
|
—
|
|
172
|
|
|||||||
|
Net loss
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(66,565
|
)
|
—
|
|
(66,565
|
)
|
|||||||
|
Balance, January 31, 2018
|
—
|
|
$
|
—
|
|
93,977
|
|
$
|
100
|
|
$
|
328,344
|
|
$
|
(1,636
|
)
|
$
|
(233,450
|
)
|
$
|
(11,905
|
)
|
$
|
81,453
|
|
See the accompanying notes to the consolidated financial statements.
53
YEXT, INC.
(In thousands)
|
Fiscal year ended January 31,
|
|||||||||||
|
2018
|
2017
|
2016
|
|||||||||
|
Cash flows from operating activities:
|
|||||||||||
|
Net loss
|
$
|
(66,565
|
)
|
$
|
(43,150
|
)
|
$
|
(26,495
|
)
|
||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|||||||||||
|
Depreciation and amortization
|
5,123
|
|
4,082
|
|
3,106
|
|
|||||
|
Provision for bad debts
|
478
|
|
653
|
|
582
|
|
|||||
|
Stock-based compensation expense
|
22,360
|
|
9,851
|
|
4,507
|
|
|||||
|
Change in fair value of convertible preferred stock warrant liability
|
491
|
|
253
|
|
387
|
|
|||||
|
Deferred income taxes
|
(129
|
)
|
31
|
|
(1,057
|
)
|
|||||
|
Amortization of deferred financing costs
|
140
|
|
104
|
|
—
|
|
|||||
|
Amortization of premium on marketable securities
|
156
|
|
—
|
|
—
|
|
|||||
|
Gain on sale of marketable securities
|
(1
|
)
|
—
|
|
—
|
|
|||||
|
Changes in operating assets and liabilities:
|
|||||||||||
|
Restricted cash
|
500
|
|
5,789
|
|
(1,002
|
)
|
|||||
|
Accounts receivable
|
(17,036
|
)
|
(4,117
|
)
|
(12,144
|
)
|
|||||
|
Prepaid expenses and other current assets
|
(4,043
|
)
|
(1,642
|
)
|
(231
|
)
|
|||||
|
Deferred commissions
|
(4,420
|
)
|
(5,573
|
)
|
(1,531
|
)
|
|||||
|
Other long term assets
|
(358
|
)
|
(430
|
)
|
(150
|
)
|
|||||
|
Accounts payable, accrued expenses and other current liabilities
|
350
|
|
6,037
|
|
8,269
|
|
|||||
|
Deferred revenue
|
31,753
|
|
20,942
|
|
12,856
|
|
|||||
|
Deferred rent
|
(807
|
)
|
(590
|
)
|
2,145
|
|
|||||
|
Other long term liabilities
|
99
|
|
17
|
|
233
|
|
|||||
|
Net cash used in operating activities
|
(31,909
|
)
|
(7,743
|
)
|
(10,525
|
)
|
|||||
|
Cash flows from investing activities:
|
|||||||||||
|
Purchases of marketable securities
|
(110,644
|
)
|
—
|
|
—
|
|
|||||
|
Maturities of marketable securities
|
20,154
|
|
—
|
|
—
|
|
|||||
|
Sales of marketable securities
|
6,041
|
|
—
|
|
—
|
|
|||||
|
Capital expenditures
|
(3,674
|
)
|
(3,505
|
)
|
(9,759
|
)
|
|||||
|
Acquisitions, net of cash acquired
|
—
|
|
—
|
|
(150
|
)
|
|||||
|
Purchases of intangible assets
|
—
|
|
(298
|
)
|
(96
|
)
|
|||||
|
Net cash used in investing activities
|
(88,123
|
)
|
(3,803
|
)
|
(10,005
|
)
|
|||||
|
Cash flows from financing activities:
|
|||||||||||
|
Proceeds from initial public offering, net of underwriting discounts and commissions
|
123,527
|
|
—
|
|
—
|
|
|||||
|
Payments of deferred offering costs
|
(4,263
|
)
|
(170
|
)
|
—
|
|
|||||
|
Proceeds from exercise of stock options
|
11,610
|
|
1,321
|
|
449
|
|
|||||
|
Proceeds from exercise of warrants
|
79
|
|
—
|
|
—
|
|
|||||
|
Proceeds from sale of common stock
|
—
|
|
—
|
|
29,481
|
|
|||||
|
Share repurchase and stock option settlement
|
—
|
|
—
|
|
(28,283
|
)
|
|||||
|
Proceeds from borrowings on Revolving Line
|
—
|
|
5,000
|
|
—
|
|
|||||
|
Repayments on Revolving Line
|
(5,000
|
)
|
—
|
|
—
|
|
|||||
|
Payments of deferred financing costs
|
(99
|
)
|
(183
|
)
|
—
|
|
|||||
|
Proceeds from employee stock purchase plan withholdings
|
3,750
|
|
—
|
|
—
|
|
|||||
|
Net cash provided by financing activities
|
129,604
|
|
5,968
|
|
1,647
|
|
|||||
|
Effect of exchange rate changes on cash and cash equivalents
|
375
|
|
(30
|
)
|
(41
|
)
|
|||||
|
Net increase (decrease) in cash and cash equivalents
|
9,947
|
|
(5,608
|
)
|
(18,924
|
)
|
|||||
|
Cash and cash equivalents at beginning of period
|
24,420
|
|
30,028
|
|
48,952
|
|
|||||
|
Cash and cash equivalents at end of period
|
$
|
34,367
|
|
$
|
24,420
|
|
$
|
30,028
|
|
||
|
Supplemental disclosures of non-cash investing and financing information:
|
|||||||||||
|
Non-cash capital expenditures, including capitalized stock-based compensation, and items in accounts payable, accrued expenses and other current liabilities
|
$
|
617
|
|
$
|
112
|
|
$
|
664
|
|
||
|
Deferred offering costs in accounts payable, accrued expenses and other current liabilities
|
$
|
—
|
|
$
|
2,349
|
|
$
|
—
|
|
||
|
Conversion of convertible preferred stock to common stock
|
$
|
120,615
|
|
$
|
—
|
|
$
|
—
|
|
||
|
Conversion of convertible preferred stock warrants to common stock warrants
|
$
|
1,435
|
|
$
|
—
|
|
$
|
—
|
|
||
|
Common stock issued for the acquisition of Inner Balloons
|
$
|
—
|
|
$
|
—
|
|
$
|
81
|
|
||
|
Cash paid on interest
|
$
|
74
|
|
$
|
3
|
|
$
|
—
|
|
||
|
Cash paid on income taxes
|
$
|
994
|
|
$
|
19
|
|
$
|
—
|
|
||
See the accompanying notes to the consolidated financial statements.
54
YEXT, INC.
Notes to Consolidated Financial Statements
Yext, Inc. (the "Company") provides a knowledge engine platform that lets businesses control their digital knowledge in the cloud and sync it to the Company's PowerListings Network of approximately
150
service and application providers, including Apple Maps, Bing, Cortana, Facebook, Google, Google Assistant, Google Maps, Siri and Yelp. The Company's cloud-based platform, the Yext Knowledge Engine, is used by end consumers around the globe to discover new businesses, read reviews, and find accurate answers to their queries. The Yext Knowledge Engine powers all of the Company's key features, including Listings, Pages and Reviews, along with its other features and capabilities.
Fiscal Year
The Company's fiscal year ends on
January 31
. References to fiscal
2018
, for example, are to the fiscal year ended
January 31, 2018
.
Initial Public Offering
In April 2017, the Company closed its initial public offering ("IPO"), in which it issued and sold
12,075,000
shares of common stock inclusive of the underwriters’ option shares that were exercised in full. The price per share to the public was
$11.00
. The Company received aggregate proceeds of
$123.5 million
from the IPO, net of underwriters’ discounts and commissions, before deducting offering costs of
$4.4 million
. Upon the closing of the IPO, all shares of the Company’s outstanding preferred stock automatically converted into
43,594,753
shares of common stock.
2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding financial reporting. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current presentation.
In the opinion of management, the accompanying consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss and cash flows for the interim periods.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates and such differences could be material to the financial position and results of operations.
Segment Information
The Company operates as
one
operating segment providing a knowledge engine platform. An operating segment is defined as a component of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker ("CODM"). The Company defines its CODM as its executive officers, and their role is to make decisions about allocating resources and assessing performance. The Company's business operates in
one
operating segment as all of the Company's offerings operate on a single platform and are deployed in an identical way, with its CODM evaluating the Company's financial information, resources and performance of these resources on a consolidated basis. Since the Company operates in
one
operating segment, all required financial segment information can be found in the consolidated financial statements.
Revenue Recognition
The Company derives its revenue primarily from subscription services. The Company sells subscriptions to its platform through contracts that are typically one year in length, but may be up to three years or longer in length. The subscription contracts do not provide customers with the right to take possession of the software supporting the applications and, as a result, are accounted for as service contracts.
55
The Company sells its products through its direct sales force to its customers, including third‑party resellers. The Company recognizes revenue when four basic criteria are met: (1) persuasive evidence exists of an arrangement with the customer reflecting the terms and conditions under which the services will be provided; (2) services have been provided or delivery has occurred; (3) the fee is fixed or determinable; and (4) collection is reasonably assured. Collectability is assessed based on a number of factors, including the creditworthiness of a customer and transaction history.
The Company recognizes revenue based on the amount billed to its customers, net of sales taxes. The Company’s revenue consists of contractual fees for subscription and support services charged to its customers on a per‑license basis. In transactions with resellers, the Company contracts only with the reseller, in which pricing and length of subscription and support services are agreed upon. The reseller negotiates the price charged and length of subscription and support service directly with its customer. The Company does not pay separate fees to third‑party resellers and does not have direct interactions with the reseller’s customer.
Subscription Revenue.
Subscription revenue recognition commences on the date that the Company’s platform is made available to the customer, which is the subscription start date, provided all of the other criteria described above are met. Revenue is recognized based on the terms of the customer contracts, which include a fixed fee based upon the actual or contractual number of licenses, and is recognized on a straight‑line basis over the contractual term of the arrangement.
Multiple Deliverable Arrangements.
Certain of the Company’s arrangements include both a subscription to the Company’s platform and support services. The Company evaluates each element in an arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when the delivered item has standalone value and delivery of the undelivered element is probable and within the Company’s control. The Company’s support services are not sold separately from the subscription and there is no alternative use for them. Further, no other vendor provides similar support services. Based on these factors, the support services do not have standalone value. Accordingly, subscription and support revenue is combined and recognized as a single unit of accounting.
The Company recognizes the fixed portion of subscription and support services fees ratably over the contract term. Recognition begins when the customer has access to the Company’s platform and the support services have commenced.
Geographic Locations
Revenue by geographic region consisted of the following:
|
Fiscal year ended January 31,
|
||||||||||||
|
(in thousands)
|
2018
|
2017
|
2016
|
|||||||||
|
North America
|
$
|
155,966
|
|
$
|
118,754
|
|
$
|
87,979
|
|
|||
|
International
|
14,235
|
|
5,507
|
|
1,745
|
|
||||||
|
Total revenue
|
$
|
170,201
|
|
$
|
124,261
|
|
$
|
89,724
|
|
|||
North America revenue is predominantly attributable to the United States but also includes Canada. International revenue is predominantly attributable to Europe.
Deferred Revenue
Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from subscription services described above and is reduced as the revenue recognition criteria are met. The deferred revenue balance is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration, invoice timing and size.
Deferred revenue that will be recognized during the succeeding twelve‑month period is recorded as current deferred revenue within current liabilities. Typically, invoices are issued for a period of 12 months or less. In those instances when invoicing is for a period greater than 12 months, the portion of the invoice that is for the period past 12 months is recorded as long term deferred revenue within other long term liabilities in the Company’s consolidated balance sheets.
Cost of Revenue
Cost of revenue includes fees the Company pays for its PowerListings Network application integrations. The arrangements with PowerListings Network providers follow one of three mechanisms: unpaid, fixed, or variable fee based on licenses served or revenue. Cost of revenue also includes expenses related to hosting the Company's platform and providing support services. These expenses are primarily comprised of personnel and related costs directly associated with the Company's cloud infrastructure and customer support, including salaries, data center capacity costs, stock-based compensation expense, benefits, and other allocated overhead costs. Included in cost of revenue is depreciation and amortization of
$1.9 million
,
$1.1 million
and
$0.7 million
for the
fiscal years ended January 31, 2018
,
2017
and
2016
, respectively.
Deferred Commissions
The Company capitalizes commissions costs that are incremental and directly related to selling subscription contracts to customers and consist of sales commissions paid to the Company’s direct sales force. The Company’s subscription contracts are
56
predominantly non‑cancelable in nature. Commissions are earned by sales personnel upon the execution of the sales contracts, and commission payments are made shortly after they are earned.
Commission costs that are direct and incremental to selling revenue‑generating customer contracts are deferred and amortized to sales and marketing expense over the terms of the related subscription contracts, which are typically one year in length but may be up to three years or longer in length. The deferred commission amounts are recoverable through the future revenue streams under the customer contracts.
The Company capitalized commission costs of
$14.3 million
and
$10.3 million
during the
fiscal years ended January 31, 2018
and
2017
, respectively. Capitalized commission costs are included in deferred commissions and other long term assets on the Company’s consolidated balance sheets.
Amortization of deferred commissions of
$9.8 million
,
$4.7 million
and
$2.3 million
was included in sales and marketing expense in the accompanying consolidated statements of operations and comprehensive loss for the
fiscal years ended January 31, 2018
,
2017
and
2016
, respectively.
Deferred Offering Costs
Deferred offering costs consisted primarily of direct and incremental legal and accounting fees related to the IPO. As of
January 31, 2017
,
$2.5 million
of deferred offering costs were capitalized within other long term assets on the consolidated balance sheet. In April 2017, upon consummation of the offering, all deferred offering costs were offset against IPO proceeds within stockholders' equity (deficit).
Stock‑Based Compensation
Stock-based compensation for all stock‑based awards, including options to purchase common stock, restricted stock and restricted stock units, is measured at fair value on the date of grant and recognized over the service period. Prior to the Company's IPO, the fair value of the Company’s common stock was determined by the Company’s Board of Directors.
The fair value of stock options is estimated on the date of grant using a Black‑Scholes model. The fair value of restricted stock and restricted stock units are estimated on the date of grant based on the fair value of the Company’s common stock.
Stock-based compensation expense is recognized over the requisite service periods of awards, which is typically
four years
for options and
one
to
four
years for restricted stock and restricted stock units. The estimated forfeiture rate applied is based on historical forfeiture rates. The estimated number of stock-based awards that will ultimately vest requires judgment, and to the extent actual results, or updated estimates, differ from the Company’s current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised.
Advertising and Other Promotional Costs
Advertising and other promotional costs are expensed as incurred. Advertising expenses were
$7.3 million
,
$4.7 million
and
$5.1 million
for the
fiscal years ended January 31, 2018
,
2017
and
2016
, respectively.
Research and Development
Research and development costs are expensed as incurred. Research and development expenses consist primarily of salaries and related costs, including stock-based compensation expense and costs to develop new products and features. Research and development expenses are partially offset by capitalized software development costs, which the Company expects to grow as it continues to invest in research and development activities. Research and development expenses were
$25.7 million
,
$19.3 million
and
$16.2 million
for the
fiscal years ended January 31, 2018
,
2017
and
2016
, respectively.
Capitalized Software Development Costs
The Company capitalizes software development costs in accordance with Accounting Standards Codification ("ASC") 350, and recognizes them on a straight-line basis over an estimated useful life of
two
to
three
years. The Company capitalizes certain software development costs, including elements of stock-based compensation, incurred in connection with its cloud‑based platform, as well as its internal-use projects during the application development stage. Capitalized software development costs of
$1.2 million
,
$0.4 million
and
$0.1 million
were recognized in the consolidated statement of operations and comprehensive loss during the
fiscal years ended January 31, 2018
,
2017
and
2016
, respectively. Capitalized software development costs, net included in property and equipment, net, were
$2.9 million
and
$1.2 million
as of
January 31, 2018
and
2017
, respectively. Software development costs incurred in the maintenance and minor upgrade and enhancement of software without adding additional functionality are expensed as incurred. The Company evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
57
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes”. Under this method, deferred income taxes are provided for temporary differences between the financial reporting and tax basis of the Company’s assets and liabilities. The Company classifies all deferred tax assets and liabilities as non-current on the consolidated balance sheet. The effect of a change in tax rates on deferred tax assets and liabilities is recognized within the
(provision for)
benefit from
income taxes on the consolidated statement of operations and comprehensive loss in the period that includes the enactment date.
The Company reduces deferred tax assets, if necessary, by a valuation allowance if it is more likely than not that the Company will not realize some or all of the deferred tax assets. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax‑planning strategies, and results of recent operations. Refer to Note 11 "Income Taxes" to the Company's consolidated financial statements for additional information on the composition of these valuation allowances and for information on the impact of U.S. tax reform legislation.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The Company recognizes interest and penalties related to uncertain tax positions within the
(provision for)
benefit from
income taxes on the consolidated statement of operations and comprehensive loss.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Reform Act") was enacted. The Tax Reform Act significantly revised the U.S. corporate income tax laws, including, but not limited to, lowering the top bracket of the federal statutory corporate tax rate from 35% to a flat rate of 21%, and allowing net operating losses generated after December 31, 2017, to be carried forward indefinitely
. The Tax Reform Act also imposed a one-time transition tax on accumulated earnings of foreign subsidiaries, eliminated certain deductions, introduced new tax regimes, and changed how foreign earnings are subject to U.S. tax, among other provisions.
The Company continues to evaluate the impacts of the Tax Reform Act and considers the amounts recorded as of January 31, 2018, to be provisional and based on reasonable estimates, except for the remeasurement of its deferred taxes based on the new enacted rate, for which the accounting is complete. Any adjustments to the provisional amounts arising from continued analysis of the Tax Reform Act or upon completion of its U.S. income tax return, will be recognized in accordance with Staff Accounting Bulletin No. 118 ("SAB 118") measurement period guidance.
Convertible Preferred Stock Warrant Liability
The Company’s freestanding warrants to purchase the Company’s convertible preferred stock were classified as liabilities on the consolidated balance sheets and recorded at fair value because these warrants would have obligated the Company to transfer assets to the warrant holders at a future date under certain circumstances. The warrants were subject to fair value remeasurement at each balance sheet date and changes were recognized in other income (expense), net within the consolidated statements of operations and comprehensive loss as other income (expense), net. In April 2017, upon the closing of the Company’s IPO, all outstanding warrants exercisable for shares of convertible preferred stock automatically converted into warrants exercisable for
110,937
shares of common stock; a final fair value adjustment of
$0.5 million
was recorded to other income (expense), net, and the remaining preferred stock warrant liability of
$1.4 million
was reclassified to stockholders' equity (deficit).
Net Loss Per Share
Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Unvested restricted stock and restricted stock units are excluded from the denominator of basic net loss per share. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares plus the common equivalent shares for the period, including any dilutive effect from such shares. Refer to Note 13 "Net Loss Per Share Attributable to Common Stockholders" for further discussion.
Foreign Currency
The functional currency of the Company’s international subsidiaries is generally the local currency. The Company translates the financial statements of its international subsidiaries to U.S. dollars using month‑end exchange rates for assets and liabilities, and average exchange rates for revenue, costs and expenses. The Company records translation gains and losses in accumulated other comprehensive loss as a component of stockholders’ equity (deficit). Foreign currency transaction gains and losses are included within other income (expense), net in the consolidated statements of operations and comprehensive loss.
58
Concentration of Credit Risk
The Company's financial instruments that are exposed to a concentration of credit risk consist primarily of cash and cash equivalents, marketable securities and accounts receivable. Although the Company deposits its cash with multiple financial institutions, its deposits, at times, may exceed federally insured limits. Collateral is not required for accounts receivable. At
January 31, 2018
,
one
customer accounted for approximately
12%
of the Company's accounts receivable. At
January 31, 2017
,
no
single customer accounted for more than 10% of accounts receivable.
No
single customer accounted for more than 10% of the Company's revenue for the
fiscal years ended January 31, 2018
and
2017
, respectively.
One
reseller customer accounted for approximately
10%
of the Company's revenue for the fiscal year ended
January 31, 2016
.
Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments purchased with original maturities of less than three months from the date of purchase to be cash equivalents. Investments in marketable securities are classified as available for sale and are carried at fair value, with the change in unrealized gains and losses, net of tax, reported as a separate component on the consolidated statements of comprehensive income (loss). Declines in fair value judged to be other-than-temporary on securities available for sale are included as a component of investment income. In order to determine whether a decline in value is other-than-temporary, the Company evaluates, among other factors, the length of time and extent to which the fair value has been less than the carrying value and its intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value. The cost of securities sold is based on the specific-identification method. Interest on securities classified as available for sale is also included as a component of investment income.
Restricted Cash
As of
January 31, 2018
, the Company had
no
restricted cash. As of
January 31, 2017
, the Company had
$0.5 million
of restricted cash related to its credit card program.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are carried at the original invoiced amount less an allowance for doubtful accounts based on the probability of future collection. The Company estimates its allowance for doubtful accounts based on historical loss patterns and the number of days that billings are past due. Accounts receivable are written off when deemed uncollectible and collection of the receivable is no longer being actively pursued. The following table summarizes the allowance for doubtful accounts activity:
|
(in thousands)
|
Fair Value
|
||
|
Allowance for doubtful accounts as of January 31, 2016
|
$
|
516
|
|
|
Additions
|
653
|
|
|
|
Deductions - write offs
|
(980
|
)
|
|
|
Allowance for doubtful accounts as of January 31, 2017
|
189
|
|
|
|
Additions
|
478
|
|
|
|
Deductions - write offs
|
(436
|
)
|
|
|
Allowance for doubtful accounts as of January 31, 2018
|
$
|
231
|
|
Deferred Financing Costs
Financing costs incurred with securing a revolving line of credit are deferred and amortized to interest expense over the term of the agreement. Financing costs associated with revolving credit arrangements are deferred, regardless of whether a balance is outstanding. The Company includes deferred financing costs in prepaid and other assets or other long term assets on the consolidated balance sheet.
Property and Equipment, Net
Property and equipment are recorded at cost and depreciated or amortized on a straight‑line basis over their estimated useful lives. Furniture and fixtures have an estimated useful life of five years, while office and computer equipment and internal-use software have an estimated useful life of two to three years. Leasehold improvements and assets held under operating leases are depreciated over the shorter of the term of the lease or their useful life. Upon retirement or sale of assets, the cost and related accumulated depreciation or amortization are removed from the consolidated balance sheet and the resulting gain or loss is reflected in the consolidated statement of operations and comprehensive loss. Maintenance and repair costs are expensed as incurred.
Goodwill and Intangible Assets
Goodwill represents the excess of cost over the fair value of the net tangible and identifiable intangible assets acquired in a business combination.
59
The Company has no other intangible assets with indefinite useful lives. Goodwill is not amortized but is subject to periodic testing for impairment in accordance with ASC Topic 350, “Intangibles‑Goodwill and Other.” The Company’s goodwill is evaluated at the entity level as it is determined there is
one
reporting unit. The Company performs its annual impairment test on November 1
st
of each year, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company considers the following potential indicators of impairment: significant underperformance relative to historical or projected future operating results, significant changes in the Company’s use of acquired assets or the strategy of the Company’s overall business, significant negative industry or economic trends and a significant decline in the value of the Company’s enterprise value for a sustained period.
The Company’s intangible assets with definite lives include customer relationships, website development, trade names and trademarks, acquired technology and domains. These intangible assets are amortized on a straight‑line basis over their estimated useful lives, which range from
3
to
15
years. Long‑lived assets, including intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable in accordance with ASC Topic 360, “Property, Plant, and Equipment.” The Company assesses the impairment of long‑lived intangible assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company has not recorded impairment charges on intangible assets for the periods presented in these consolidated financial statements.
Legal and Other Contingencies
From time to time, the Company may be a party to litigation and subject to claims incident to the ordinary course of business, including intellectual property claims, labor and employment claims, breach of contract claims and other asserted and unasserted claims. The Company investigates these claims as they arise and accrues estimates for resolution of legal and other contingencies when losses are probable and estimable.
Recent Accounting Pronouncements
Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company currently qualifies as an emerging growth company and has elected to avail itself of this extended transition period. As a result, the Company will not adopt new or revised accounting standards on the relevant dates on which adoption is required for other public companies until required by private company accounting standards.
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update, ("ASU"), No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09"). ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. ASU 2014-09 is effective for public entities for annual reporting periods, and interim periods within those annual reporting periods, beginning after December 15, 2017. For all other entities, including emerging growth companies, the standard is effective for annual reporting periods beginning after December 15, 2018, and interim periods within annual reporting periods, beginning after December 15, 2019. Early adoption of this standard is permitted for all entities. The guidance allows for the amendment to be applied either retrospectively to each prior reporting period presented (full retrospective approach) or retrospectively as a cumulative effect adjustment as of the date of adoption (modified retrospective approach).
The Company plans to adopt the standard on February 1, 2019, utilizing the modified retrospective approach, which would result in a cumulative effect adjustment as of the date of adoption. The Company has an implementation plan in place guiding its transition that includes implementing control activities related to the new standard, evaluating the impact of the standard on the Company’s revenue recognition policies, its accounting for deferred commissions, including the incremental costs that qualify for capitalization, the related amortization period and the determination of average customer life, and the new disclosure requirements. The Company continues to assess the new standard with consideration to industry trends and additional interpretive guidance, and therefore may adjust its implementation plan accordingly. The Company is still evaluating the standard for other potential impacts to its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases," which will require lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, on its balance sheet for operating leases. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. The standard is effective for public entities for annual reporting periods, and interim periods within those annual reporting periods, beginning after December 15, 2018. For all other entities, including emerging growth companies, the standard is effective for annual reporting periods beginning after December 15, 2019, and interim periods within annual reporting periods beginning after December 15, 2020. The Company is evaluating the potential impact of adopting this new accounting guidance.
In March 2016, the FASB issued ASU No. 2016-09, "Improvements to Employee Share-Based Payments Accounting" ("ASU 2016-09") to simplify existing guidance on various aspects of the accounting and presentation of employee share-based payments in financial statements, including the accounting for income taxes, forfeitures and statutory tax withholding requirements and statement of cash flows classification. The standard is effective for public entities for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2016. For all other entities, including emerging growth companies, the standard is
60
effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018.
The Company will adopt ASU 2016-09 effective February 1, 2018. Upon adoption, the Company plans to elect to continue to estimate its forfeiture rate, consistent with prior periods. With respect to statement of cash flows classification, all tax-related cash flows resulting from stock-based payments will prospectively be presented as operating activities, while all cash payments to taxing authorities on behalf of employees will retrospectively be presented as financing activities. The Company does not expect the adoption of this standard to have a material effect on its statement of cash flows.
The Company will prospectively record excess tax benefits and deficiencies that result when stock-based awards vest or are settled within the
(provision for)
benefit from
incomes taxes in the consolidated statement of operations and comprehensive loss. For previously unrecognized windfall income tax benefits that existed as of
January 31, 2018
, the Company will use a modified retrospective approach that will result in a
$30.2 million
decrease in accumulated deficit and increase in deferred tax assets; these amounts will be fully offset by a valuation allowance, as the Company anticipates that the realization of such deferred tax assets is not more likely than not to be realized.
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment," to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The new standard requires goodwill impairment to be based upon the results of Step 1 of the goodwill impairment test, which evaluates the extent, if any, by which the carrying value of a reporting unit exceeds its fair value, with any resulting impairment not exceeding the carrying amount of goodwill. The Company early adopted ASU 2017-04 on a prospective basis on January 31, 2018. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, "Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting," to provide clarity and reduce both diversity in practice and cost complexity when applying the guidance in Topic 718 to a change to the terms and conditions of a stock-based payment award. ASU 2017-09 also provides guidance about the types of changes to the terms or conditions of a share-based payment award that require an entity to apply modification accounting in accordance with Topic 718. The Company early adopted ASU 2017-09 on January 31, 2018. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
3. Investments in Marketable Securities
The Company considers all of its investments in marketable securities as available for use in current operations, including those with maturity dates beyond one year, and therefore classifies these securities within current assets on the consolidated balance sheets. Marketable securities are carried at fair value, with the unrealized gains and losses, net of income taxes, reflected in accumulated other comprehensive income (loss) until realized. For the purposes of computing realized and unrealized gains and losses, cost is determined on a specific identification basis.
As of
January 31, 2018
, investments in marketable securities consisted of the following:
|
(in thousands)
|
Amortized Cost
|
Gross Unrealized Gains
|
Gross Unrealized Losses
|
Fair Value
|
|||||||||||
|
Commercial paper
|
$
|
10,972
|
|
$
|
—
|
|
$
|
(7
|
)
|
$
|
10,965
|
|
|||
|
Corporate bonds
|
57,172
|
|
—
|
|
(243
|
)
|
56,929
|
|
|||||||
|
U.S. treasury securities
|
16,150
|
|
—
|
|
(70
|
)
|
16,080
|
|
|||||||
|
Total marketable securities
|
$
|
84,294
|
|
$
|
—
|
|
$
|
(320
|
)
|
$
|
83,974
|
|
|||
As of
January 31, 2018
, the Company does not believe the unrealized losses represent other-than-temporary impairments based on its evaluation of available evidence, and
no
marketable securities have been in a continuous unrealized loss position for more than 12 months. As of
January 31, 2017
, the Company had
no
investments in marketable securities.
The Company's marketable securities have a contractual maturity of
two
years or less. As of
January 31, 2018
, the fair value of marketable securities by remaining contractual maturity consisted of the following:
|
(in thousands)
|
Fair Value
|
||
|
Due within 1 year
|
$
|
65,132
|
|
|
Due in 1 to 2 years
|
18,842
|
|
|
|
Total marketable securities
|
$
|
83,974
|
|
61
Interest income, realized gains, realized losses and other-than-temporary declines in fair value on securities available for sale are components of investment income. Investment income for the periods presented is as follows:
|
Fiscal year ended January 31,
|
|||||||||||
|
(in thousands)
|
2018
|
2017
|
2016
|
||||||||
|
Interest income
|
$
|
1,134
|
|
$
|
34
|
|
$
|
6
|
|
||
|
Realized gains
|
1
|
|
—
|
|
—
|
|
|||||
|
Total investment income
|
$
|
1,135
|
|
$
|
34
|
|
$
|
6
|
|
||
The Company had no realized losses or material reclassification adjustments out of accumulated other comprehensive loss into net loss in any of the periods presented.
4. Fair Value of Financial Instruments
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Subsequent changes in fair value of these financial assets and liabilities are recognized in earnings or other comprehensive income when they occur. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurement or assumptions that market participants would use in pricing the assets or liabilities, such as inherent risk, transfer restrictions, and credit risk.
The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 inputs are based on quoted prices in active markets for identical assets or liabilities.
Level 2 inputs are based on observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 inputs are based on unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities, and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability.
All of the Company’s cash equivalents and marketable securities are classified within Level 1 or Level 2 because the Company’s cash equivalents and marketable securities are valued using quoted market prices or alternative pricing sources and models utilizing observable market inputs.
62
The following table summarizes the Company's assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy:
|
January 31, 2018
|
||||||||||||||||
|
(in thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
|
Cash equivalents:
|
||||||||||||||||
|
Money market funds
(1)
|
$
|
16,846
|
|
$
|
—
|
|
$
|
—
|
|
$
|
16,846
|
|
||||
|
Marketable securities:
|
||||||||||||||||
|
Commercial paper
|
—
|
|
10,965
|
|
—
|
|
10,965
|
|
||||||||
|
Corporate bonds
|
—
|
|
56,929
|
|
—
|
|
56,929
|
|
||||||||
|
U.S. treasury securities
|
—
|
|
16,080
|
|
—
|
|
16,080
|
|
||||||||
|
Total assets
|
$
|
16,846
|
|
$
|
83,974
|
|
$
|
—
|
|
$
|
100,820
|
|
||||
|
January 31, 2017
|
||||||||||||||||
|
(in thousands)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
|
Assets
|
||||||||||||||||
|
Cash equivalents - money market funds
(1)
|
$
|
9,785
|
|
$
|
—
|
|
$
|
—
|
|
$
|
9,785
|
|
||||
|
Liabilities
|
||||||||||||||||
|
Preferred stock warrant liability
(2)
|
$
|
—
|
|
$
|
—
|
|
$
|
944
|
|
$
|
944
|
|
||||
(1) Included in cash and cash equivalents.
(2) Included in accounts payable, accrued expenses and other current liabilities.
On April 19, 2017, upon the closing of the Company’s IPO, all outstanding warrants exercisable for shares of convertible preferred stock automatically converted into warrants exercisable for
110,937
shares of common stock; a final fair value adjustment of
$0.5 million
was recorded to other income (expense), net, and the remaining preferred stock warrant liability of
$1.4 million
was reclassified to stockholders' equity (deficit). Subsequently, in April 2017, the warrants exercisable for
110,937
shares of common stock were exercised.
63
5. Goodwill and Intangible Assets
Goodwill
The following table summarizes the changes in goodwill:
|
(in thousands)
|
Fair Value
|
||
|
Goodwill as of January 31, 2016
|
$
|
4,479
|
|
|
Foreign currency translation
|
(35
|
)
|
|
|
Goodwill as of January 31, 2017
|
4,444
|
|
|
|
Foreign currency translation
|
480
|
|
|
|
Goodwill as of January 31, 2018
|
$
|
4,924
|
|
Goodwill represents the excess of cost over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. The Company has no other intangible assets with indefinite lives.
Goodwill is not amortized but is subject to periodic testing for impairment at the reporting unit level, which is at or one level below the operating segment level. The Company operates as
one
operating segment. The test for impairment is conducted annually each November 1
st
, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
For the
fiscal years ended January 31, 2018
and
2017
the Company performed its annual test for goodwill impairment and determined that goodwill was not impaired. In addition, the Company determined that no events occurred or circumstances changed subsequent to the Company’s annual assessment that would more likely than not reduce the fair value of the Company's reporting unit below its carrying amount. However, if market conditions deteriorate, it may be necessary to record impairment charges in the future.
Intangible Assets
The following table summarizes the intangible asset balances:
|
(in thousands)
|
Gross Fair
Value |
Accumulated
Amortization |
Foreign
Currency Impact |
Net Book
Value |
Weighted
Average Remaining Useful Life |
||||||||||||
|
Website development
|
$
|
904
|
|
$
|
(826
|
)
|
$
|
—
|
|
$
|
78
|
|
0.8
|
||||
|
Domains
|
365
|
|
(26
|
)
|
—
|
|
339
|
|
14.0
|
||||||||
|
Customer relationships
|
5,256
|
|
(1,158
|
)
|
(1,442
|
)
|
2,656
|
|
4.9
|
||||||||
|
Trade names and trademarks
|
112
|
|
(40
|
)
|
(17
|
)
|
55
|
|
2.9
|
||||||||
|
January 31, 2017
|
$
|
6,637
|
|
$
|
(2,050
|
)
|
$
|
(1,459
|
)
|
$
|
3,128
|
|
5.7
|
||||
|
Website development
|
904
|
|
(901
|
)
|
—
|
|
3
|
|
0.2
|
||||||||
|
Domains
|
365
|
|
(51
|
)
|
—
|
|
314
|
|
13.0
|
||||||||
|
Customer relationships
|
5,256
|
|
(1,937
|
)
|
(917
|
)
|
2,402
|
|
3.9
|
||||||||
|
Trade names and trademarks
|
112
|
|
(69
|
)
|
(1
|
)
|
42
|
|
1.9
|
||||||||
|
January 31, 2018
|
$
|
6,637
|
|
$
|
(2,958
|
)
|
$
|
(918
|
)
|
$
|
2,761
|
|
5.3
|
||||
The Company's intangible assets include customer relationships, website development, trade names and trademarks, acquired technology and domains. These intangible assets are amortized using the straight-line method over their estimated economic lives, which range from
3
to
15
years. Intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.
The Company determined that no events occurred or circumstances changed during the
fiscal years ended January 31, 2018
and
2017
that would indicate that its intangible assets with finite lives may not be recoverable. However, if market conditions deteriorate, it may be necessary to record impairment charges in the future.
Amortization expense related to intangible assets totaled
$0.7 million
,
$0.8 million
and
$0.8 million
for the
fiscal years ended January 31, 2018
,
2017
and
2016
, respectively.
64
As of
January 31, 2018
, the future amortization expense of intangible assets was as follows (in thousands):
|
Fiscal year ending January 31,
|
|||
|
2019
|
$
|
662
|
|
|
2020
|
657
|
|
|
|
2021
|
637
|
|
|
|
2022
|
586
|
|
|
|
2023 and thereafter
|
219
|
|
|
|
Total
|
$
|
2,761
|
|
6. Property and Equipment, net
Property and equipment, net consisted of the following:
|
(in thousands)
|
January 31, 2018
|
January 31, 2017
|
|||||
|
Furniture and fixtures
|
$
|
719
|
|
$
|
625
|
|
|
|
Office equipment
|
4,636
|
|
3,383
|
|
|||
|
Leasehold improvements
|
12,928
|
|
12,695
|
|
|||
|
Computer software
|
4,563
|
|
1,740
|
|
|||
|
Construction in progress
|
124
|
|
284
|
|
|||
|
Total property and equipment
|
22,970
|
|
18,727
|
|
|||
|
Less: accumulated depreciation
|
(11,532
|
)
|
(7,114
|
)
|
|||
|
Total property and equipment, net
|
$
|
11,438
|
|
$
|
11,613
|
|
|
Depreciation expense was
$4.4 million
,
$3.3 million
and
$2.3 million
for the
fiscal years ended January 31, 2018
,
2017
and
2016
, respectively.
7. Accounts Payable, Accrued Expenses and Other Current Liabilities
Accounts payable, accrued expenses and other current liabilities consisted of the following:
|
(in thousands)
|
January 31, 2018
|
January 31, 2017
|
|||||
|
Accounts payable
|
$
|
4,253
|
|
$
|
5,303
|
|
|
|
Accrued employee compensation
|
11,341
|
|
10,607
|
|
|||
|
Accrued offering costs
|
—
|
|
2,349
|
|
|||
|
Accrued PowerListings Network application provider fees
|
2,096
|
|
1,602
|
|
|||
|
Accrued professional fees
|
1,277
|
|
809
|
|
|||
|
Accrued sales tax
|
1,846
|
|
1,213
|
|
|||
|
Accrued preferred stock warrant liability
|
—
|
|
944
|
|
|||
|
Accrued employee stock purchase plan withholdings liability
|
3,750
|
|
—
|
|
|||
|
Accrued other liabilities
|
2,853
|
|
2,806
|
|
|||
|
Total accounts payable, accrued expenses and other current liabilities
|
$
|
27,416
|
|
$
|
25,633
|
|
|
8. Stock-Based Compensation
2008 Equity Incentive Plan
The Company's 2008 Equity Incentive Plan (the "2008 Plan"), as amended on March 10, 2016, allowed for the issuance of up to
25,912,531
shares of common stock. Awards granted under the 2008 Plan may be incentive stock options ("ISOs"), nonqualified stock options ("NQSOs"), restricted stock and restricted stock units. The 2008 Plan is administered by the Company's Board of Directors, which determines the terms of the options granted, the exercise price, the number of shares subject to option and the option vesting period. No ISO or NQSO is exercisable after
10 years
from the date of grant, and option awards will typically vest over a
four
-year period.
The 2008 Plan was terminated in connection with the adoption of the Company's 2016 Equity Incentive Plan (the "2016 Plan") in December 2016, and the Company will not grant any additional awards under the 2008 Plan. However, the 2008 Plan will continue to govern the terms and conditions of the outstanding awards previously granted thereunder.
65
2016 Equity Incentive Plan
In December 2016, the Company's Board of Directors adopted, and its stockholders approved, the 2016 Plan, which allows for the issuance of up to
10,000,000
shares of common stock. In addition, the shares reserved for issuance under the 2016 Plan also include shares returned to the 2008 Plan as the result of expiration or termination of options or other awards. As of
January 31, 2018
, the number of shares available for future award under the 2016 Plan is
1,670,872
.
Stock Options
The following table summarizes stock option activity during the
fiscal year ended January 31, 2018
:
|
Options Outstanding
|
||||||||||||
|
Outstanding Stock Options
|
Weighted-Average Exercise Price
|
Weighted-Average Remaining Contractual Life (in years)
|
Aggregate Intrinsic Value
(in thousands)
|
|||||||||
|
Balance, January 31, 2017
|
27,420,108
|
|
$
|
4.24
|
|
6.87
|
$
|
122,803
|
|
|||
|
Options granted
|
2,672,750
|
|
$
|
11.29
|
|
|||||||
|
Options exercised
|
(6,517,265
|
)
|
$
|
1.78
|
|
|||||||
|
Options forfeited
|
(1,062,737
|
)
|
$
|
7.38
|
|
|||||||
|
Balance, January 31, 2018
|
22,512,856
|
|
$
|
5.65
|
|
6.91
|
$
|
146,471
|
|
|||
|
Vested and expected to vest at January 31, 2018
|
22,340,290
|
|
$
|
5.64
|
|
6.90
|
$
|
145,525
|
|
|||
|
Exercisable at January 31, 2018
|
13,270,903
|
|
$
|
4.28
|
|
5.69
|
$
|
104,555
|
|
|||
Nonvested option activity is as follows:
|
Options
|
Weighted-Average Grant Date Fair Value
|
||
|
Nonvested as of January 31, 2017
|
12,865,845
|
3.18
|
|
|
Options granted
|
2,672,750
|
5.79
|
|
|
Options vested
|
(5,233,905)
|
2.86
|
|
|
Options forfeited
|
(1,062,737)
|
3.71
|
|
|
Balance as of January 31, 2018
|
9,241,953
|
4.06
|
|
The aggregate intrinsic value of options vested and expected to vest and exercisable is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of
January 31, 2018
. Prior to the IPO, the fair value of the Company’s common stock was determined by the Company’s Board of Directors. After the IPO, the fair value of the common stock is the Company’s closing stock price as reported on the New York Stock Exchange.
The aggregate intrinsic value of exercised options was
$60.3 million
,
$2.8 million
and
$0.9 million
for the
fiscal years ended January 31, 2018
,
2017
and
2016
, respectively, and is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of the exercise date.
The weighted-average grant date fair value of options granted during the
fiscal years ended January 31, 2018
,
2017
and
2016
was
$5.79
,
$3.57
and
$2.87
per share, respectively.
Restricted Stock and Restricted Stock Units
The following table summarizes the activity related to the Company's restricted stock and restricted stock units:
|
Outstanding
|
Weighted-Average Grant Date Fair Value
|
|||||
|
Balance as of January 31, 2017
|
330,000
|
|
$
|
6.61
|
|
|
|
Granted - restricted stock and restricted stock units
|
4,448,512
|
|
$
|
12.53
|
|
|
|
Vested and converted to shares
|
(204,047
|
)
|
$
|
8.73
|
|
|
|
Canceled
|
(116,880
|
)
|
$
|
12.45
|
|
|
|
Balance as of January 31, 2018
|
4,457,585
|
|
$
|
12.26
|
|
|
66
Employee Stock Purchase Plan
In March 2017, the Company's Board of Directors adopted, and its stockholders approved, the 2017 Employee Stock Purchase Plan ("ESPP"), which became effective on the date it was adopted. A total of
1,500,000
shares of the Company's common stock are available for sale to employees under the ESPP. The number of shares of the Company's common stock that will be available for sale to employees under the ESPP also includes an annual increase on the first day of each fiscal year beginning on February 1, 2018, equal to the lesser of: (i)
2,500,000
shares; (ii)
1%
of the outstanding shares of the Company's common stock as of the last day of the immediately preceding fiscal year; or (iii) such other amount as the administrator may determine.
The initial offering period of the ESPP commenced on the effective date of the IPO, April 13, 2017, and will end on March 15, 2018. A new offering period will commence on the first trading day on or after March 15
th
and September 15
th
each year, or on such other date as the administrator will determine and will end on the first trading day, approximately six months later, on or after September 15
th
and March 15
th
, respectively. Participants may purchase the Company’s common stock through payroll deductions, up to a maximum of
15%
of their eligible compensation. Participants may withdraw from the ESPP and receive a refund of their accumulated payroll contributions at any time prior to a purchase date. The number of shares participants may purchase is variable, as participants may purchase as many shares as the full amount of their withholdings will permit, based on the purchase price. Unless changed by the administrator, the purchase price for each share of common stock purchased under the ESPP will be
85%
of the lower of the fair market value per share on the first trading day of the applicable offering period (or, in the case of the initial offering period, the price at which one share of common stock was offered to the public in its IPO) or the fair market value per share on the last trading day of the applicable offering period.
As of
January 31, 2018
,
$3.8 million
has been withheld on behalf of employees for future purchases under the ESPP and is included in accounts payable, accrued expenses and other current liabilities.
No
shares of common stock were purchased under the ESPP as of
January 31, 2018
and
482,988
shares are estimated to be purchased at the end of the initial offering period. The Company selected the Black-Scholes option-pricing model as the method for determining the estimated fair value for the ESPP. During the
fiscal year ended January 31, 2018
, the Company recorded
$1.3 million
of stock-based compensation expense associated with the ESPP. As of
January 31, 2018
, total unrecognized compensation cost related to ESPP was
$0.3 million
, net of estimated forfeitures, which will be amortized over a weighted-average period of
0.13 years
.
Stock-Based Compensation Expense
Stock-based compensation represents the cost related to stock-based awards granted to employees and non-employees in lieu of monetary payment. The Company measures stock-based compensation at the grant date, based on the estimated fair value of the award, and recognizes the expense on a straight-line basis (net of estimated forfeitures) over the requisite service period in the consolidated statements of operations and comprehensive loss. Stock-based compensation expense associated with stock-based awards granted to non-employees is re-measured each period until fully vested.
The Company's stock-based compensation expense was as follows:
|
Fiscal year ended January 31,
|
|||||||||||
|
(in thousands)
|
2018
|
2017
|
2016
|
||||||||
|
Cost of revenue
|
$
|
1,459
|
|
$
|
590
|
|
$
|
533
|
|
||
|
Sales and marketing
|
11,121
|
|
4,359
|
|
1,559
|
|
|||||
|
Research and development
|
3,756
|
|
1,954
|
|
1,300
|
|
|||||
|
General and administrative
|
6,024
|
|
2,948
|
|
1,115
|
|
|||||
|
Total stock-based compensation expense
|
$
|
22,360
|
|
$
|
9,851
|
|
$
|
4,507
|
|
||
As of
January 31, 2018
, there was approximately
$83.9 million
of total unrecognized compensation cost related to unvested stock-based awards. This unrecognized compensation cost is expected to be recognized over an estimated weighted-average vesting period of approximately
3.14 years
. During the
fiscal years ended January 31, 2018
and
2017
, the Company capitalized
$0.4 million
and
$0.1 million
, respectively, of stock-based compensation related to development of its cloud-based platform.
67
The fair values of the Company’s stock options granted and shares estimated to be purchased under the ESPP during the
fiscal years ended January 31, 2018
,
2017
and
2016
were estimated using the Black-Scholes option-pricing model with the following assumptions:
|
Fiscal year ended January 31,
|
|||||
|
2018
|
2017
|
2016
|
|||
|
Employee Stock Options
|
|||||
|
Expected life (years)
|
6.08
|
6.25
|
6.25
|
||
|
Expected volatility
|
46.39% - 48.77%
|
52.00%
|
52.54%
|
||
|
Dividend yield
|
0.00%
|
0.00%
|
0.00%
|
||
|
Risk-free rate
|
1.87% - 2.70%
|
1.66%
|
1.79%
|
||
|
Employee Stock Purchase Plan
|
|||||
|
Expected life (years)
|
0.92
|
—
|
—
|
||
|
Expected volatility
|
38.30%
|
—
|
—
|
||
|
Dividend yield
|
0.00%
|
—
|
—
|
||
|
Risk-free rate
|
1.02%
|
—
|
—
|
||
The Company's assumptions about stock price volatility were based on the average of the historical volatility for a sample of comparable companies. The expected life assumptions for employee grants were based upon the simplified method, as the Company does not yet have sufficient historical exercise data to provide a reasonable basis upon which to estimate its expected term, due to the limited period of time its equity shares have been publicly traded. The expected life assumptions for non-employees were based upon the remaining contractual term of the option. The dividend yield assumption is zero, because the Company has not historically paid any dividends and does not expect to declare or pay any dividends in the foreseeable future. The risk-free interest rate was based on the U.S. treasury yield curve in effect at the time of grant.
9. Equity
Convertible Preferred Stock
In April 2017, upon the closing of the Company's IPO, all outstanding shares of convertible preferred stock were automatically converted into an aggregate of
43,594,753
shares of common stock.
Preferred Stock
Effective April 2017, the Company’s Board of Directors is authorized to issue up to
50,000,000
shares of preferred stock,
$0.001
par value, in one or more series without stockholder approval. The Company's Board of Directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock. The issuance of preferred stock could have the effect of restricting dividends on the Company’s common stock, diluting the voting power of its common stock, impairing the liquidation rights of its common stock, or delaying or preventing changes in control or management of the Company. As of
January 31, 2018
,
no
shares of preferred stock were issued or outstanding.
Common Stock
As of
January 31, 2018
and
2017
, the Company had authorized
500,000,000
and
200,000,000
shares, respectively, of voting
$0.001
par value common stock. Each holder of the Company's common stock is entitled to
one
vote for each share on all matters to be voted upon by the stockholders and there are no cumulative rights. Subject to any preferential rights of any outstanding preferred stock, holders of the Company's common stock are entitled to receive ratably the dividends, if any, as may be declared from time to time by the Company's Board of Directors out of legally available funds. If there is a liquidation, dissolution or winding up of the Company, holders of the Company's common stock would be entitled to share in the Company's assets remaining after the payment of liabilities and any preferential rights of any outstanding preferred stock.
Holders of the Company's common stock have no preemptive or conversion rights or other subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of the Company's common stock will be fully paid and non-assessable. The rights, preferences and privileges of the holders of the Company's common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which the Company may designate and issue in the future.
Treasury Stock
The Company has
6,505,334
shares of treasury stock which are carried at its cost basis of
$11.9 million
on the Company's consolidated balance sheets.
68
On March 16, 2016, the Company entered into a Loan and Security agreement with Silicon Valley Bank that provides for a
$15.0 million
revolving credit line ("Revolving Line") and a
$7.0 million
Letter of Credit facility (together with the Revolving Line, the "Credit Agreement").
No
significant debt issuance costs were incurred in association with the original Credit Agreement, which had a maturity date of
March 16, 2018
. Subsequent to the fiscal year ended January 31, 2018, in March 2018, the Credit Agreement was amended to extend the maturity date to March 16, 2020. The Company is obligated to pay ongoing commitment fees at a rate equal to
0.25%
for the Revolving Line and
1.75%
for any issued letters of credit.
Subject to certain terms of the loan agreement, the Company may borrow, prepay and reborrow amounts under the Revolving Line at any time during the agreement and amounts repaid or prepaid may be reborrowed. Interest rates on borrowings under the Revolving Line will be based on one-half of one percent (
0.50%
) above the prime rate. The prime rate is defined as the rate of interest per annum from time to time published in the money rate section of the Wall Street Journal.
The Credit Agreement contains certain customary affirmative and negative covenants, including an adjusted quick ratio of at least
1.25
to 1.00, minimum revenue, a limit on the Company's ability to incur additional indebtedness, dispose of assets, make certain acquisition transactions, pay dividends or make distributions, and certain other restrictions on the Company's activities each defined specifically in the agreement.
As of
January 31, 2017
, the Company had
$5.0 million
outstanding on its Revolving Line classified as long term debt, and its book value approximated its fair value. On April 28, 2017, the Company repaid the
$5.0 million
on its Revolving Line. As of
January 31, 2018
, the Company had
no
debt outstanding and was in compliance with all debt covenants. Availability under the Revolving Line was
$15.0 million
as of
January 31, 2018
.
11. Income Taxes
The domestic and international components of the Company's loss from operations before income taxes are as follows:
|
Fiscal year ended January 31,
|
|||||||||||
|
(in thousands)
|
2018
|
2017
|
2016
|
||||||||
|
Domestic
|
$
|
(58,875
|
)
|
$
|
(41,621
|
)
|
$
|
(24,546
|
)
|
||
|
International
|
(7,528
|
)
|
(1,461
|
)
|
(2,004
|
)
|
|||||
|
Loss from operations before income taxes
|
$
|
(66,403
|
)
|
$
|
(43,082
|
)
|
$
|
(26,550
|
)
|
||
The Company's
(provision for)
benefit from
income taxes is comprised of the following:
|
Fiscal year ended January 31,
|
|||||||||||
|
(in thousands)
|
2018
|
2017
|
2016
|
||||||||
|
Current:
|
|||||||||||
|
Federal
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||
|
State
|
—
|
|
—
|
|
—
|
|
|||||
|
International
|
(291
|
)
|
(37
|
)
|
(1,002
|
)
|
|||||
|
Total current
|
(291
|
)
|
(37
|
)
|
(1,002
|
)
|
|||||
|
Deferred:
|
|||||||||||
|
Federal
|
100
|
|
—
|
|
—
|
|
|||||
|
State
|
—
|
|
—
|
|
—
|
|
|||||
|
International
|
29
|
|
(31
|
)
|
1,057
|
|
|||||
|
Total deferred
|
129
|
|
(31
|
)
|
1,057
|
|
|||||
|
Total (provision for) benefit from income taxes
|
$
|
(162
|
)
|
$
|
(68
|
)
|
$
|
55
|
|
||
69
The Company reconciled its income taxes at the federal statutory income tax rate to the
(provision for)
benefit from
income taxes included within its consolidated statements of operations and comprehensive loss. The reconciliation is as follows:
|
Fiscal year ended January 31,
|
|||||||||||
|
(in thousands)
|
2018
|
2017
|
2016
|
||||||||
|
U.S. federal tax benefit at statutory rate
|
$
|
21,849
|
|
$
|
14,648
|
|
$
|
9,027
|
|
||
|
State taxes, net of federal benefit
|
1,766
|
|
990
|
|
493
|
|
|||||
|
Foreign tax rate differential
|
(637
|
)
|
(253
|
)
|
(249
|
)
|
|||||
|
Non-deductible expenses
|
(3,503
|
)
|
(1,549
|
)
|
(2,004
|
)
|
|||||
|
Changes in valuation allowance
|
1,599
|
|
(13,805
|
)
|
(6,317
|
)
|
|||||
|
Rate change
|
(21,580
|
)
|
(52
|
)
|
(694
|
)
|
|||||
|
Other, net
|
344
|
|
(47
|
)
|
(201
|
)
|
|||||
|
Total (provision for) benefit from income taxes
|
$
|
(162
|
)
|
$
|
(68
|
)
|
$
|
55
|
|
||
On December 22, 2017,
the Tax Reform Act was enacted.
The Tax Reform Act significantly revised the U.S. corporate income tax
laws, including, but not limited to, lowering the top bracket of the federal statutory corporate tax rate from 35% to a flat rate of 21%, and allowing net operating losses generated after December 31, 2017, to be carried forward indefinitely
. The Tax Reform Act also imposed a one-time transition tax on accumulated earnings of foreign subsidiaries, eliminated certain deductions, introduced new tax regimes, and changed how foreign earnings are subject to U.S. tax, among other provisions. In accordance with Section 15 of the Internal Revenue Code, the Company utilized a blended rate of
32.9%
for its fiscal 2018 tax year
, consisting of a
34%
statutory tax rate based on its tax bracket from February 1, 2017 to December 31, 2017, and a flat 21% statutory tax rate effective January 1, 2018
. T
he Company's
(provision for)
benefit from
income taxes included a benefit of
$21.6 million
as a result of remeasuring the Company's deferred taxes based on the new enacted tax rate of 21%.
70
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss carryforwards. In conjunction with the enactment of the Tax Reform Act in December 2017, the Company remeasured its deferred tax assets and liabilities based on the new enacted tax rate of 21%. The components of the Company's deferred income taxes were as follows:
|
Fiscal year ended January 31,
|
|||||||
|
(in thousands)
|
2018
|
2017
|
|||||
|
Deferred tax assets:
|
|||||||
|
Net operating loss carryforwards
|
$
|
39,653
|
|
$
|
42,421
|
|
|
|
Stock-based compensation
|
4,937
|
|
3,794
|
|
|||
|
Allowance for doubtful accounts
|
58
|
|
74
|
|
|||
|
Deferred rent
|
1,066
|
|
1,948
|
|
|||
|
Accrued expenses
|
233
|
|
312
|
|
|||
|
Intangible assets
|
330
|
|
149
|
|
|||
|
Deferred revenue
|
62
|
|
62
|
|
|||
|
Other
|
57
|
|
58
|
|
|||
|
Total deferred tax assets
|
46,396
|
|
48,818
|
|
|||
|
Less: valuation allowance
|
(43,071
|
)
|
(44,549
|
)
|
|||
|
Deferred tax assets, net of valuation allowance
|
3,325
|
|
4,269
|
|
|||
|
Deferred tax liabilities:
|
|||||||
|
Prepaid expenses
|
(86
|
)
|
(40
|
)
|
|||
|
Property and equipment
|
(406
|
)
|
(1,319
|
)
|
|||
|
Deferred commissions
|
(2,763
|
)
|
(2,952
|
)
|
|||
|
Intangible assets
|
(103
|
)
|
(126
|
)
|
|||
|
Other
|
(12
|
)
|
—
|
|
|||
|
Total deferred tax liabilities
|
(3,370
|
)
|
(4,437
|
)
|
|||
|
Net deferred tax liability
|
$
|
(45
|
)
|
$
|
(168
|
)
|
|
As of
January 31, 2018
, for federal income tax purposes, the Company had
$187.0 million
of gross U.S. federal NOL carryforwards. This amount includes
$30.2 million
of excess tax benefits not reflected in deferred tax assets, as amounts associated with vesting or settlement of stock-based awards are recorded directly to additional paid‑in‑capital and deferred tax assets only when such benefits are realized. The Company's U.S. federal NOL carryforwards expire starting in fiscal
2028
through fiscal
2037
for NOL carryforwards established on or prior to December 31, 2017. In conjunction with the enactment of the Tax Reform Act, U.S. federal NOL carryforwards generated by the Company in tax years beginning after January 31, 2017 can be carried forward indefinitely.
As of
January 31, 2018
, for state income tax purposes, the Company had
$7.3 million
of post‑apportioned, tax‑effected NOL carryforwards, which expire in fiscal
2025
through fiscal
2037
. As of
January 31, 2018
, the Company had
$1.9 million
of tax‑effected foreign NOL carryforwards, of which
$1.7 million
expire in fiscal
2023
through fiscal
2026
; the remaining do not expire.
Utilization of the Company’s NOL carryforwards in the future will be dependent upon its ability to generate taxable income and could be limited due to ownership changes, as defined under the provisions of Section 382 of the Code and similar state provisions. Utilization of the Company’s foreign NOL carryforwards in the future will be dependent upon the local tax law and regulation.
The Company regularly evaluates the realizability of its deferred tax assets and establishes a valuation allowance if it is more likely than not that some or all the deferred tax assets will not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, loss carryback and tax-planning strategies. Generally, more weight is given to objectively verifiable evidence, such as the cumulative loss in recent years, as a significant piece of negative evidence to overcome. During the
fiscal year ended January 31, 2018
, the valuation allowance
decreased
$1.5 million
from approximately
$44.5 million
to
$43.1 million
, primarily due to the impact of the remeasurement of the NOL carryforwards and other U.S. deferred tax assets in conjunction with the Tax Reform Act, largely offset by NOL carryforwards established this period and other increases in U.S. deferred tax assets. During the
fiscal year ended January 31, 2017
, the valuation allowance
increased
$13.8 million
from approximately
$30.7 million
to
$44.5 million
, primarily due to increases in NOL carryforwards and other U.S. deferred tax assets. The Company will continue to assess the realizability of the deferred tax assets in each applicable jurisdiction going forward.
71
Other Considerations
The Company has not recorded deferred income taxes and withholding taxes with respect to the undistributed earnings of its foreign subsidiaries as such earnings are determined to be reinvested indefinitely. Upon distribution of those earnings in the form of dividends or otherwise, the Company may be subject to U.S. state income taxes and withholding taxes, the determination of which is not practical as it is dependent on the amount of U.S. tax losses or other tax attributes available at the time of repatriation. The Company's aggregate undistributed earnings of its foreign subsidiaries is in a loss position. As of
January 31, 2018
and
2017
, gross undistributed earnings of the Company’s foreign subsidiaries amounted to
$0.5 million
and
$0.1 million
, respectively. The Company did not record any amounts due to the effect of the one-time transition tax under the Tax Reform Act based on reasonable estimates.
The Company continues to evaluate the impacts of the Tax Reform Act and considers the amounts recorded to be provisional and based on reasonable estimates, except for the remeasurement of its deferred taxes based on the new enacted rate, for which the accounting is complete. The Company continues to evaluate other elements of the Tax Reform Act, including the one-time transition tax, and the Global Intangible Low-Tax Income ("GILTI") provision, for which the Company has not yet elected an accounting policy. As the Company continues to assess its
(provision for)
benefit from
income taxes, any adjustments to the provisional amounts arising from continued analysis of the Tax Reform Act or upon completion of its U.S. income tax return, will be recognized in accordance with SAB 118 measurement period guidance.
For the
fiscal years ended January 31, 2018
and
2017
, the Company did not take any uncertain tax positions, and recognized less than
$0.1 million
in each of the periods presented for interest and penalties related to accrued unrecognized tax benefits. As of
January 31, 2018
and
2017
,
$0.2 million
of accrued unrecognized tax benefits, associated with an uncertain tax position taken on an intercompany transfer of certain intangible assets in the fiscal year ended January 31, 2016, were included within other long term liabilities on the consolidated balance sheets. The Company does not expect any significant change in its unrecognized tax benefits during the next twelve months.
The Company is subject to taxation in the United States and various state and foreign jurisdictions. The Company’s most significant operations are in the United States and the earliest open tax year subject to potential examination in the United States is
2008
.
12. Commitments and Contingencies
Leases, PowerListings Network Application Provider Agreements and Other
The Company is obligated under certain non-cancelable operating leases for office space, the agreements for which expire at various dates between fiscal years
2019
and
2028
, including a long term operating lease for the Company's primary facility in New York, which expires in
December 2020
. The Company is a party to various agreements with PowerListings Network application providers, the agreements for which expire at various dates between fiscal years
2019
and
2035
.
Future minimum annual payments for non-cancelable leases, PowerListings Network application provider agreements and other contractual obligations in the normal course of business as of
January 31, 2018
are as follows (in thousands):
|
Fiscal year ending January 31:
|
Operating Leases
|
Application Providers and Other
|
||||||
|
2019
|
$
|
7,787
|
|
$
|
14,389
|
|
||
|
2020
|
7,962
|
|
1,222
|
|
||||
|
2021
|
7,275
|
|
32
|
|
||||
|
2022
|
770
|
|
7
|
|
||||
|
2023 and thereafter
|
2,298
|
|
29
|
|
||||
|
Total
|
$
|
26,092
|
|
$
|
15,679
|
|
||
Rent expense was
$6.3 million
,
$5.8 million
and
$5.5 million
for the
fiscal years ended January 31, 2018
,
2017
and
2016
, respectively.
Legal Proceedings
The Company was a defendant in a case pending in the United States District Court for the Southern District of New York, captioned
Tropical Sails Corp. v. Yext, Inc.,
civil action no. 14-cv-7582. The plaintiffs alleged various violations of New York law related to certain of the Company's sales practices. In May 2015, the Court dismissed
two
of the
four
counts alleged by plaintiffs. In March 2016, the plaintiffs filed a Motion for Class Certification, and the Company filed a Motion for Summary Judgment as to the remaining counts. In March 2017, the Court denied the plaintiffs' Motion for Class Certification and the Company's Motion for Summary Judgment. In April 2017, the Company entered into a settlement agreement pursuant to which the case was dismissed with prejudice.
72
In addition, the Company is and may be involved in various legal proceedings arising in the normal course of business. Although the results of litigation and claims cannot be predicted with certainty, currently, in the opinion of the Company, the likelihood of any material adverse impact on the Company's results of operations, cash flows or the Company's financial position for any such litigation or claims is deemed to be remote. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense costs, diversion of management resources and other factors.
Warranties and Indemnifications
The Company's platform is in some cases warranted to perform in a manner consistent with general industry standards that are reasonably applicable and materially in accordance with the Company's product specifications.
The Company's arrangements generally include certain provisions for indemnifying customers against liabilities if its products or services infringe a third-party's intellectual property rights and/or if the Company breaches its contractual agreements with a customer or in instances of negligence, fraud or willful misconduct by the Company. To date, the Company has not incurred any material costs as a result of such obligations and has not accrued any liabilities related to such obligations in the accompanying consolidated financial statements.
The Company has also agreed to indemnify certain of its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person's service as a director or officer, including any action by the Company, arising out of that person's services as the Company's director or officer or that person's services provided to any other company or enterprise at the Company's request. The Company maintains director and officer insurance coverage that would generally enable the Company to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.
13. Net Loss Per Share Attributable to Common Stockholders
The following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders:
|
Fiscal year ended January 31,
|
|||||||||||
|
(in thousands, except share and per share data)
|
2018
|
2017
|
2016
|
||||||||
|
Numerator:
|
|||||||||||
|
Net loss attributable to common stockholders
|
$
|
(66,565
|
)
|
$
|
(43,150
|
)
|
$
|
(26,495
|
)
|
||
|
Denominator:
|
|||||||||||
|
Weighted-average common shares outstanding
|
78,632,448
|
|
31,069,695
|
|
29,917,814
|
|
|||||
|
Net loss per share attributable to common stockholders, basic and diluted
|
$
|
(0.85
|
)
|
$
|
(1.39
|
)
|
$
|
(0.89
|
)
|
||
Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Unvested restricted stock and restricted stock units are excluded from the denominator of basic net loss per share. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares plus common equivalent shares for the period, including any dilutive effect from such shares.
Since the Company was in a loss position for all periods presented, basic net loss per share attributable to common stockholders is the same as diluted net loss per share attributable to common stockholders, as the inclusion of all potential common shares outstanding would have been anti-dilutive. Anti-dilutive common equivalent shares were as follows:
|
As of January 31,
|
|||||||||
|
2018
|
2017
|
2016
|
|||||||
|
Convertible preferred stock as converted
|
—
|
|
43,594,753
|
|
43,594,753
|
|
|||
|
Series B warrants as converted
|
—
|
|
67,568
|
|
67,568
|
|
|||
|
Series C warrants as converted
|
—
|
|
43,369
|
|
43,369
|
|
|||
|
Common stock warrants
|
—
|
|
85,000
|
|
85,000
|
|
|||
|
Options to purchase common stock
|
22,512,856
|
|
27,420,108
|
|
19,839,669
|
|
|||
|
Restricted stock and restricted stock units
|
4,457,585
|
|
330,000
|
|
40,000
|
|
|||
|
Shares committed under 2017 ESPP
|
482,988
|
|
—
|
|
—
|
|
|||
|
Total anti-dilutive common equivalent shares
|
27,453,429
|
|
71,540,798
|
|
63,670,359
|
|
|||
73
14. Selected Quarterly Financial Data (Unaudited)
Selected summarized quarterly financial information for the fiscal years ended
January 31, 2018
and
2017
is as follows:
|
|
Three months ended
|
||||||||||||||
|
(in thousands, except per share data)
|
Jan. 31, 2018
|
Oct. 31, 2017
|
Jul. 31, 2017
|
Apr. 30, 2017
|
|||||||||||
|
Revenue
|
$
|
48,020
|
|
$
|
44,332
|
|
$
|
40,769
|
|
$
|
37,080
|
|
|||
|
Gross profit
|
$
|
35,812
|
|
$
|
32,674
|
|
$
|
30,228
|
|
$
|
27,392
|
|
|||
|
Loss from operations
|
$
|
(17,503
|
)
|
$
|
(17,236
|
)
|
$
|
(16,507
|
)
|
$
|
(15,394
|
)
|
|||
|
Net loss
|
$
|
(16,998
|
)
|
$
|
(17,062
|
)
|
$
|
(16,399
|
)
|
$
|
(16,106
|
)
|
|||
|
Net loss per share attributable to common stockholders, basic and diluted
|
$
|
(0.18
|
)
|
$
|
(0.19
|
)
|
$
|
(0.18
|
)
|
$
|
(0.40
|
)
|
|||
|
Three months ended
|
|||||||||||||||
|
(in thousands, except per share data)
|
Jan. 31, 2017
|
Oct. 31, 2016
|
Jul. 31, 2016
|
Apr. 30, 2016
|
|||||||||||
|
Revenue
|
$
|
35,671
|
|
$
|
31,909
|
|
$
|
29,556
|
|
$
|
27,125
|
|
|||
|
Gross profit
|
$
|
25,947
|
|
$
|
22,585
|
|
$
|
20,489
|
|
$
|
18,290
|
|
|||
|
Loss from operations
|
$
|
(14,266
|
)
|
$
|
(10,120
|
)
|
$
|
(9,007
|
)
|
$
|
(9,307
|
)
|
|||
|
Net loss
|
$
|
(14,573
|
)
|
$
|
(10,222
|
)
|
$
|
(9,012
|
)
|
$
|
(9,343
|
)
|
|||
|
Net loss per share attributable to common stockholders, basic and diluted
|
$
|
(0.47
|
)
|
$
|
(0.33
|
)
|
$
|
(0.29
|
)
|
$
|
(0.30
|
)
|
|||
74
None.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of
January 31, 2018
.
Management's Report on Internal Control over Financial Reporting
This Annual Report on Form 10-K does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by the rules of the SEC for newly public companies.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the
three months ended January 31, 2018
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We are continuing to take steps to remediate the material weaknesses in our internal control over financial reporting as identified in this Annual Report.
Limitations on the Effectiveness of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within a company are detected. The inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
None.
75
The information called for by this item will be set forth in our Proxy Statement for the
2018
Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended
January 31, 2018
("Proxy Statement") and is incorporated herein by reference.
The information called for by this item will be set forth in our Proxy Statement and is incorporated herein by reference.
The information called for by this item will be set forth in our Proxy Statement and is incorporated herein by reference.
The information called for by this item will be set forth in our Proxy Statement and is incorporated herein by reference.
The information called for by this item will be set forth in our Proxy Statement and is incorporated herein by reference.
76
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
1.
Financial Statements
: The information concerning our financial statements, and Report of Independent Registered Public Accounting Firm required by this Item is incorporated by reference herein to the section of this Annual Report on Form 10-K in Item 8, entitled “Consolidated Financial Statements and Supplementary Data.”
2.
Financial Statement Schedules
: Schedule II Valuation and Qualifying Accounts is filed as part of this Annual Report on Form 10-K and should be read in conjunction with the Consolidated Financial Statements and Notes thereto. The Financial Statement Schedules not listed have been omitted because they are not applicable or are not required or the information required to be set forth herein is included in the Consolidated Financial Statements or Notes thereto.
3.
Exhibits
: The documents listed in the accompanying exhibit index are filed or incorporated by reference as part of this Annual Report on Form 10-K.
Exhibit Index
|
Incorporated by Reference
|
||||||
|
Number
|
Exhibit Title
|
Form
|
File No.
|
Exhibit
|
Filing
Date
|
Filed
Herewith
|
|
S-1/A
|
333-216642
|
1.1
|
3/28/2017
|
|||
|
S-1/A
|
333-216642
|
3.2
|
3/17/2017
|
|||
|
S-1/A
|
333-216642
|
3.4
|
3/17/2017
|
|||
|
S-1/A
|
333-216642
|
4.1
|
3/28/2017
|
|||
|
S-1
|
333-216642
|
4.2
|
3/13/2017
|
|||
|
4.
3
|
S-1
|
333-216642
|
4.5
|
3/13/2017
|
||
|
4.
4
|
S-1
|
333-216642
|
4.6
|
3/13/2017
|
||
|
4.
5
|
S-1
|
333-216642
|
4.7
|
3/13/2017
|
||
|
4.
6
|
S-1
|
333-216642
|
4.8
|
3/13/2017
|
||
|
S-1/A
|
333-216642
|
10.1
|
3/17/2017
|
|||
|
S-1
|
333-216642
|
10.2
|
3/13/2017
|
|||
|
S-1/A
|
333-216642
|
10.3
|
3/17/2017
|
|||
|
S-1/A
|
333-216642
|
10.4
|
3/17/2017
|
|||
|
S-1/A
|
333-216642
|
10.5
|
3/17/2017
|
|||
|
S-1/A
|
333-216642
|
10.6
|
3/17/2017
|
|||
|
S-1
|
333-216642
|
10.7
|
3/13/2017
|
|||
|
S-1
|
333-216642
|
10.8
|
3/13/2017
|
|||
|
S-1
|
333-216642
|
10.9
|
3/13/2017
|
|||
|
S-1
|
333-216642
|
10.10
|
3/13/2017
|
|||
77
|
S-1
|
333-216642
|
10.11
|
3/13/2017
|
|||
|
S-1
|
333-216642
|
10.12
|
3/13/2017
|
|||
|
S-1/A
|
333-216642
|
10.13
|
3/17/2017
|
|||
|
S-1
|
333-216642
|
10.14
|
3/13/2017
|
|||
|
S-1/A
|
333-216642
|
10.15
|
3/17/2017
|
|||
|
x
|
||||||
|
x
|
||||||
|
x
|
||||||
|
x
|
||||||
|
x
|
||||||
|
x
|
||||||
|
x
|
||||||
|
101
|
Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of January 31, 2018 and 2017, (ii) Consolidated Statements of Operations and Comprehensive Loss for the fiscal years ended January 31, 2018, 2017 and 2016, (iii) Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) as of January 31, 2018 and 2017, (iv) Consolidated Statements of Cash Flows for the fiscal years ended January 31, 2018, 2017 and 2016 and (v) Notes to Consolidated Financial Statements XBRL Exhibits
|
|||||
|
*
|
These exhibits are furnished with this Annual Report on Form 10-K and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing of Yext, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filings.
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None.
78
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Date: March 16, 2018
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Yext, Inc.
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By:
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/s/ Steven Cakebread
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Steven Cakebread
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Chief Financial Officer
(Principal Financial Officer)
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POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Howard Lerman and Steven Cakebread, and each of them, as his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/ Howard Lerman
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Chief Executive Officer and Director
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March 16, 2018
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Howard Lerman
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(Principal Executive Officer)
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/s/ Steven Cakebread
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Chief Financial Officer
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March 16, 2018
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Steven Cakebread
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(Principal Financial Officer)
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/s/ Darryl Bond
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Chief Accounting Officer
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March 16, 2018
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Darryl Bond
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(Principal Accounting Officer)
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/s/ Brian Distelburger
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President and Director
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March 16, 2018
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Brian Distelburger
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/s/ Phillip Fernandez
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Director
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March 16, 2018
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Phillip Fernandez
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||||
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/s/ Jesse Lipson
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Director
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March 16, 2018
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Jesse Lipson
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/s/ Julie Richardson
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Director
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March 16, 2018
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Julie Richardson
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||||
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/s/ Andrew Sheehan
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Director
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March 16, 2018
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Andrew Sheehan
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||||
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/s/ Michael Walrath
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Director
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March 16, 2018
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Michael Walrath
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||||
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/s/ Tamar Yehoshua
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Director
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March 16, 2018
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Tamar Yehoshua
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||||
79
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Consolidated Financial Statements and Supplementary DataNote 1. Organization and Description Of BusinessItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement SchedulesItem 16. Form 10-k Summary