Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 organizes a business's facts so it can provide official answers to consumer questions starting with the business's own website and then extending across search engines and voice assistants. Our platform lets businesses structure the facts about their brands in a database called the Knowledge Graph. Our platform is built to leverage the structured data stored in the Knowledge Graph to deliver a modern search experience on a business's or organization's own website, as well as across approximately 200 service and application providers, which we refer to as our Knowledge Network and includes Amazon Alexa, Apple Maps, Bing, Cortana, Facebook, Google, Google Assistant, Google Maps, Siri and Yelp. Our platform powers all of our key features, including Listings, Pages, and Answers, along with its other features and capabilities.
We sell our platform throughout the world to customers of all sizes, including our enterprise, mid-size, and third-party reseller customers. 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.
Revenue is a function of the number of customers, the number of licenses with each customer, the package to which each customer subscribes, the price of the package and renewal rates. We offer subscriptions in a discrete range of packages, with pricing based on specified feature sets and the number of licenses managed by the customer as well as on a capacity-basis.
Fiscal Year
Our fiscal year ends on January 31 st . References to fiscal 2021, for example, are to the fiscal year ended January 31, 2021.
COVID-19 Update
In March 2020, the World Health Organization ("WHO") declared the coronavirus disease ("COVID-19") as a pandemic. The COVID-19 pandemic has disrupted business operations for us and our customers, suppliers, and other parties with whom we do business and such disruptions are expected to continue for an indefinite period of time. In an effort to control the spread of COVID-19, governments and municipalities around the world instituted restrictive measures, including orders to shelter-in-place, travel restrictions, and mandated business closures.
As a result of the COVID-19 pandemic, we temporarily closed our offices requiring all of our employees globally to work remotely. We restricted non-essential business travel, and canceled in-person marketing events, including our annual industry and customer event, ONWARD20. We continue to monitor regional developments relating to the COVID-19 pandemic to inform decisions on phased office re-openings and lifting of travel restrictions. The uncertain duration of these measures have had and may continue to have negative effects on our sales efforts and revenue growth rates.
Despite the economic challenges brought on by the COVID-19 pandemic, we are committed to our business, the strength of our platform, and our ability to continue to execute on our strategy. During the fiscal year ended January 31, 2021, some business highlights included our collaborations with the WHO and other government agencies to launch comprehensive information hubs powered by Yext Answers, expanding Yext Answers into additional languages, including French, German, Italian, Spanish, and Japanese, and launching Hitchhikers, a comprehensive training program and community for professionals to develop the skills to build custom search solutions for their business using our platform.
We may continue to see some existing and potential customers, in particular customers in industries highly impacted by the pandemic such as retail and food services as well as certain geographies such as Europe, reduce, suspend or delay technology spending, request to renegotiate contracts to obtain concessions such as, extended billing and payment terms; shorten the duration of contracts; or elect not to renew their subscriptions which could materially adversely impact our business, financial condition and results of operations in future periods. The ultimate extent of the impact of the pandemic will depend on future developments, which continue to be highly uncertain and cannot be predicted, including the severity and duration of the COVID-19 pandemic and the actions taken to contain and address its impact, among others. However, because we generally recognize revenue from our customer contracts ratably over the term of the contract, changes in our contracting activity in the near term may not be fully reflected in our results of operations and overall financial performance until future periods. See Part I Item 1A “Risk Factors” for further discussion of the possible impact of the COVID-19 pandemic on our business.
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Components of Results of Operations
Revenue
We derive our revenue primarily from subscription and associated support to our Yext platform. Our contracts are typically one year in length, but may be up to three years or longer in length. Revenue is a function of the number of customers, the number of licenses or capacity purchased by each customer, the package to which each customer subscribes, the price of the package and renewal rates. Revenue is generally recognized ratably over the contract term beginning on the commencement date of each contract, which is the date our platform is made available to customers. At the beginning of each subscription term we invoice our customers, typically in annual installments, but also monthly, quarterly, and semi-annually. Amounts that have been invoiced for non-cancelable contracts are recorded in accounts receivable and unearned revenue. Unearned revenue is subsequently recognized as revenue when transfer of control to a customer has occurred.
Cost of Revenue
Cost of revenue consists primarily of employee-related costs, including personnel-related costs, which mainly consist of salaries and wages, and stock-based compensation expense. Cost of revenue also includes fees associated with our Knowledge Network application provider arrangements, the nature of which may be unpaid, fixed, or variable, and are unpaid with many of our larger providers, as well as the costs associated with our data centers. In addition, cost of revenue includes depreciation expense, including with respect to certain capitalized software development costs incurred in connection with additional functionality to our platform. Cost of revenue also includes operating and short-term lease expenses associated with our office spaces, which are allocated based on employee headcount. In addition, cost of revenue includes software expense, which relates to licenses, professional services, and other costs associated with software for use in the operations of our business, which is also allocated based on employee headcount.
Operating Expenses
Sales and marketing expenses . Sales and marketing expenses consist primarily of employee-related costs which are comprised of personnel-related costs and stock-based compensation expense. Personnel-related costs mainly consist of salaries and wages and costs of obtaining revenue contracts. Sales and marketing expenses also include operating and short-term lease expenses associated with our office spaces, as well as software expense, each of which are allocated based on employee headcount. In addition, sales and marketing expenses include costs related to advertising and conferences and brand awareness events.
Research and development expenses . Research and development expenses consist primarily of employee-related costs which are comprised of personnel-related costs and stock-based compensation expense. Personnel-related costs mainly consist of salaries and wages. Capitalized software development costs related to additional functionality to our platform are excluded from research and development expenses as they are capitalized as a component of property and equipment, net and depreciated to cost of revenue over the term of their useful life. Research and development expenses also include operating and short-term lease expenses associated with our office spaces, as well as software expense, each of which are allocated based on employee headcount.
General and administrative expenses . General and administrative expenses consist primarily of employee-related costs which are comprised of personnel-related costs and stock-based compensation expense for our finance and accounting, human resources, information technology and legal support departments. Personnel-related costs mainly consist of salaries and wages. General and administrative expenses also include operating and short-term lease expenses associated with our office spaces, as well as software expense, each of which are allocated based on employee headcount, and other professional related costs.
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Results of Operations
(in thousands) Fiscal year ended January 31,
Statements of Operations Data:
2021 2020 2019
Revenue $ 354,661 $ 298,829 $ 228,283
Cost of revenue (1)
86,404 77,030 57,413
Gross profit 268,257 221,799 170,870
Operating expenses:
Sales and marketing (1)
228,417 218,076 158,845
Research and development (1)
58,146 49,445 36,098
General and administrative (1)
76,026 77,231 51,572
Total operating expenses 362,589 344,752 246,515
Loss from operations (94,332) (122,953) (75,645)
Interest income 532 4,099 1,711
Interest expense (614) (308) (143)
Other expense, net (181) (1,285) (538)
Loss from operations before income taxes
(94,595) (120,447) (74,615)
(Provision for) benefit from income taxes (97) (1,097) (222)
Net loss
$ (94,692) $ (121,544) $ (74,837)
(1) Amounts include stock-based compensation expense as follows:
Fiscal year ended January 31,
(in thousands) 2021 2020 2019
Cost of revenue
$ 5,724 $ 4,115 $ 2,915
Sales and marketing
32,581 31,421 22,519
Research and development
17,071 13,212 8,475
General and administrative 16,918 19,022 10,324
Total stock-based compensation expense
$ 72,294 $ 67,770 $ 44,233
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,
2021 2020 2019
Revenue 100 % 100 % 100 %
Cost of revenue 24 26 25
Gross profit 76 74 75
Operating expenses:
Sales and marketing 65 73 69
Research and development 16 16 16
General and administrative 21 26 23
Total operating expenses 102 115 108
Loss from operations (26) (41) (33)
Interest income — 1 1
Interest expense (1) — —
Other expense, net — — —
Loss from operations before income taxes (27) (40) (32)
(Provision for) benefit from income taxes — (1) —
Net loss (27) % (41) % (32) %
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Fiscal Year Ended January 31, 2021 Compared to Fiscal Year Ended January 31, 2020
Revenue and Cost of Revenue
Fiscal year ended January 31, Variance
(in thousands) 2021 2020 Dollars Percent
Revenue
$ 354,661 $ 298,829 $ 55,832 19 %
Cost of revenue
86,404 77,030 $ 9,374 12 %
Gross profit
$ 268,257 $ 221,799 $ 46,458 21 %
Gross margin
75.6 % 74.2 %
Total revenue was $354.7 million for the fiscal year ended January 31, 2021, compared to $298.8 million for the fiscal year ended January 31, 2020, an increase of $55.8 million or 19%, primarily driven by new customer subscriptions to our platform, and to a lesser extent included expanded subscriptions for existing customers. Our revenue is predominately derived from our enterprise, mid-size, and third-party reseller customers. Revenue from our small business customers represented less than 5% of total revenue for each period. Revenue recognized from subscriptions and associated support to our platform was 93% and 95%, while revenue recognized from professional services was 7% and 5%, for the fiscal years ended January 31, 2021 and 2020, respectively.
Cost of revenue was $86.4 million for the fiscal year ended January 31, 2021, compared to $77.0 million for the fiscal year ended January 31, 2020, an increase of $9.4 million, or 12%. This overall increase primarily reflects the increases in costs associated with our data centers of $3.2 million, personnel-related costs of $1.6 million, stock-based compensation expense of $1.6 million, and software expense of $1.4 million. These increases were partially offset by a decrease in Knowledge Network application provider costs of $1.0 million as a result of more favorable contract terms with certain providers.
Gross margin was 75.6% for the fiscal year ended January 31, 2021, compared to 74.2% for the fiscal year ended January 31, 2020 as reflected in the discussion above.
Operating Expenses
Fiscal year ended January 31, Variance
(in thousands) 2021 2020 Dollars Percent
Sales and marketing
$ 228,417 $ 218,076 $ 10,341 5 %
Research and development
$ 58,146 $ 49,445 $ 8,701 18 %
General and administrative
$ 76,026 $ 77,231 $ (1,205) (2) %
Sales and marketing expense was $228.4 million for the fiscal year ended January 31, 2021, compared to $218.1 million for the fiscal year ended January 31, 2020, an increase of $10.3 million, or 5%. The increase was primarily due to a $23.6 million increase in personnel-related costs, reflecting higher headcount, which mainly consisted of salaries and wages and costs to obtain revenue contracts, a $2.8 million increase in software expense, a $1.4 million increase in operating and short-term lease expenses, a $1.3 million increase in depreciation expense, and a $1.2 million increase in stock-based compensation expense. These increases were partially offset by reductions in light of the COVID-19 pandemic and leveraging costs, including a $10.8 million decrease in employee travel and a $7.6 million decrease in conferences and events.
Research and development expense was $58.1 million for the fiscal year ended January 31, 2021, compared to $49.4 million for the fiscal year ended January 31, 2020, an increase of $8.7 million, or 18%. The increase was primarily due to a $3.9 million increase in stock-based compensation expense, a $3.0 million increase in personnel-related costs, reflecting higher headcount, which mainly consisted of salaries and wages, and a $0.8 million increase in software expense.
General and administrative expense was $76.0 million for the fiscal year ended January 31, 2021, relatively consistent compared to $77.2 million for the fiscal year ended January 31, 2020, as decreases of $2.1 million in stock-based compensation expense and $2.0 million in employee travel, were generally offset by a $1.3 million increase in the allowance for doubtful accounts and a $0.8 million increase in software expense.
Fiscal Year Ended January 31, 2020 Compared to Fiscal Year Ended January 31, 2019
Revenue and Cost of Revenue
Fiscal year ended January 31, Variance
(in thousands) 2020 2019 Dollars Percent
Revenue
$ 298,829 $ 228,283 $ 70,546 31 %
Cost of revenue
77,030 57,413 $ 19,617 34 %
Gross profit
$ 221,799 $ 170,870 $ 50,929 30 %
Gross margin
74.2 % 74.9 %
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Total revenue was $298.8 million for the fiscal year ended January 31, 2020, compared to $228.3 million for the fiscal year ended January 31, 2019, an increase of $70.5 million or 31%. This increase was primarily due to new customers and expanded subscriptions sold to existing customers. Revenue from our enterprise and mid-size customers, which include third-party reseller customers, grew 34% from approximately $213 million to $286 million, and excludes revenue from small business customers, which by their nature have inherently high turnover.
Cost of revenue was $77.0 million for the fiscal year ended January 31, 2020, compared to $57.4 million for the fiscal year ended January 31, 2019, an increase of $19.6 million or 34%. This increase was primarily due to employee-related costs reflecting higher headcount, including a $9.0 million increase in personnel-related costs, which mainly consisted of salaries and wages, and a $1.2 million increase stock-based compensation expense. In addition, there was a $2.7 million increase in operating and short-term lease expenses, mainly as a result of our new operating lease arrangements for office space, including in New York, NY, as well as a $2.1 million increase in costs associated with our data centers, and a $1.2 million increase in depreciation expense.
Gross margin was 74.2% for the fiscal year ended January 31, 2020, compared to 74.9% for the fiscal year ended January 31, 2019, a decrease of 70 basis points.
Operating Expenses
Fiscal year ended January 31, Variance
(in thousands) 2020 2019 Dollars Percent
Sales and marketing
$ 218,076 $ 158,845 $ 59,231 37 %
Research and development
$ 49,445 $ 36,098 $ 13,347 37 %
General and administrative
$ 77,231 $ 51,572 $ 25,659 50 %
Sales and marketing expense was $218.1 million for the fiscal year ended January 31, 2020, compared to $158.8 million for the fiscal year ended January 31, 2019, an increase of $59.2 million, or 37%. The increase was primarily due to employee-related costs reflecting higher headcount, including a $30.7 million increase in personnel-related costs, which mainly consisted of salaries and wages and costs to obtain revenue contracts, and a $8.9 million increase in stock-based compensation expense. In addition, there was a $5.7 million increase in operating and short-term lease expenses, mainly as a result of our new operating lease arrangements for office space, including in New York, NY.
Research and development expense was $49.4 million for the fiscal year ended January 31, 2020, compared to $36.1 million for the fiscal year ended January 31, 2019, an increase of $13.3 million, or 37%. The increase was primarily due to employee-related costs reflecting higher headcount, including a $5.8 million increase in personnel-related costs, which mainly consisted of salaries and wages, and a $4.7 million increase in stock-based compensation expense. In addition, there was a $1.5 million increase in operating and short-term lease expenses, mainly as a result of our new operating lease arrangements for office space, including in New York, NY.
General and administrative expense was $77.2 million for the fiscal year ended January 31, 2020, compared to $51.6 million for the fiscal year ended January 31, 2019, an increase of $25.7 million, or 50%. The increase was primarily due to employee-related costs reflecting higher headcount, including a $9.5 million increase in personnel-related costs, which mainly consisted of salaries and wages, and a $8.7 million increase in stock-based compensation expense, which included a $3.6 million one-time RSU cancellation-related expense. In addition, there was a $1.9 million increase in operating and short-term lease expenses, mainly as a result of our new operating lease arrangements for office space, including in New York, NY.
Net Loss
Net loss was $94.7 million, $121.5 million, and $74.8 million for the fiscal years ended January 31, 2021, 2020, and 2019.
Non-GAAP Net Loss
In addition to our financial results determined in accordance with GAAP, we believe that non-GAAP net loss is useful in evaluating our operating performance and our business.
Non-GAAP net loss is a financial measure that is not calculated in accordance with GAAP. We define non-GAAP net loss as our GAAP net loss as adjusted to exclude the effects of stock-based compensation expense. We believe non-GAAP net loss provides investors and other users of our financial information consistency and comparability with our past financial performance and facilitates period-to-period comparisons of our results of operations. We also believe non-GAAP net loss is useful in evaluating our operating performance compared to that of other companies in our industry, as it eliminates the effects of stock-based compensation, which may vary for reasons unrelated to overall operating performance.
We use non-GAAP net loss in conjunction with traditional GAAP net loss as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, and to evaluate the effectiveness of our business strategies. Our definition may differ from the definitions used by other companies and therefore comparability may be limited. In
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addition, other companies may not publish this or similar metrics. Thus, our non-GAAP net loss should be considered in addition to, not as a substitute for, nor superior to or in isolation from, measures prepared in accordance with GAAP.
Non-GAAP net loss may be limited in its usefulness because it does not present the full economic effect of our use of stock-based compensation. We compensate for these limitations by providing a reconciliation of non-GAAP net loss to the most closely related GAAP financial measure. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view non-GAAP net loss in conjunction with GAAP net loss.
The following table provides a reconciliation of GAAP net loss to non-GAAP net loss:
Fiscal year ended January 31,
(in thousands) 2021 2020 2019
GAAP net loss $ (94,692) $ (121,544) $ (74,837)
Plus: Stock-based compensation expense 72,294 67,770 44,233
Non-GAAP net loss $ (22,398) $ (53,774) $ (30,604)
Dollar-Based Net Retention Rate
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 102%, 106%, and 110% for the fiscal years ended January 31, 2021, 2020 and 2019, respectively. The decline in the net retention rate in the fiscal year ended January 31, 2021 reflects challenges in expanding our relationships with existing customers and to a lesser extent customer retention. We believe our ability to retain and expand relationships with existing customers, and consequently improve our net retention rate, has been and may continue to be negatively impacted by the effects of COVID-19 on our customers. See "—Overview — COVID-19 Update" and "Risk Factors" for the impact of COVID-19 on our business.
We calculate this metric for a particular period by first establishing a cohort of the enterprise, mid-size, and third-party 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. As a result, if a customer, in particular an enterprise customer, elects to upgrade, downgrade or cancel its subscription, the full impact on dollar-based net retention rate is realized over the subsequent twelve months, thereby mitigating the immediate effect in the quarter when such election was made. We only consider revenue from our enterprise, mid-size, and third-party reseller customers when calculating this metric since small business customers have limited licenses, experience inherently high turnover, and continue to decline as a percentage of total revenue.
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Quarterly Results of Operations
The following tables set forth our unaudited quarterly statements of operations data for each of the eight quarters in the periods ended January 31, 2021 and 2020, respectively. The information for each of these quarters has been prepared on the same basis as the audited 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, 2021
Oct. 31, 2020
Jul. 31, 2020
Apr. 30, 2020
Jan. 31, 2020
Oct. 31, 2019
Jul. 31, 2019
Apr. 30, 2019
Revenue $ 92,194 $ 89,061 $ 88,055 $ 85,351 $ 81,378 $ 76,370 $ 72,373 $ 68,708
Cost of revenue $ 21,597 $ 21,639 $ 21,984 $ 21,184 $ 20,922 $ 20,366 $ 19,269 $ 16,473
Gross profit $ 70,597 $ 67,422 $ 66,071 $ 64,167 $ 60,456 $ 56,004 $ 53,104 $ 52,235
Gross margin 77 % 76 % 75 % 75 % 74 % 73 % 73 % 76 %
Sales and marketing $ 57,202 $ 56,646 $ 56,049 $ 58,520 $ 57,338 $ 61,969 $ 52,371 $ 46,398
Research and development $ 14,505 $ 14,475 $ 14,788 $ 14,378 $ 13,842 $ 13,011 $ 12,686 $ 9,906
General and administrative $ 18,033 $ 18,061 $ 19,474 $ 20,458 $ 19,839 $ 23,857 $ 18,344 $ 15,191
Total operating expenses $ 89,740 $ 89,182 $ 90,311 $ 93,356 $ 91,019 $ 98,837 $ 83,401 $ 71,495
Total operating expenses as a percentage of revenue 97 % 100 % 103 % 109 % 112 % 129 % 115 % 104 %
Loss from operations $ (19,143) $ (21,760) $ (24,240) $ (29,189) $ (30,563) $ (42,833) $ (30,297) $ (19,260)
Net loss $ (18,311) $ (22,041) $ (25,116) $ (29,224) $ (30,577) $ (42,717) $ (29,291) $ (18,959)
Net loss per share attributable to common stockholders, basic and diluted $ (0.15) $ (0.18) $ (0.21) $ (0.25) $ (0.27) $ (0.38) $ (0.26) $ (0.18)
Quarterly Trends
Historically, a higher proportion of new subscription and renewal agreements have occurred within the fourth quarter of the fiscal year, which contributes to driving our revenue recognized for the following fiscal year. We believe that this results from the procurement, budgeting, and deployment cycles of many of our customers, particularly our enterprise customers. At the beginning of each subscription term we invoice our customers, typically in annual installments, but also monthly, quarterly, and semi-annually. Amounts that have been invoiced for non-cancelable contracts are recorded in accounts receivable and unearned revenue. As a result, accounts receivable and unearned revenue are seasonally stronger in the fourth quarter of the fiscal year. However, the nature of our subscription agreements generally results in revenue recognition ratably over the contract term, thereby mitigating the effect of potential seasonality in our revenue. Our quarterly revenue has increased sequentially for all periods presented.
Cost of revenue has generally increased over the periods presented, and in recent quarters has stabilized. However, our data center costs have increased and we expect that to continue as we expand our capacity. Our employee-related costs have generally increased, as have our operating and short-term lease expenses as we entered into new arrangements for office space including our transition to our new corporate headquarters in New York, NY. We expect our Knowledge Network application provider costs to generally stabilize, although costs may increase at times as we enter new international markets, or introduce new products and features.
Gross margin has stabilized in recent periods, and may decrease at times as we enter new international markets, or introduce new products and features.
Operating expenses have fluctuated as a result of increased employee-related costs, increased operating and short-term lease expenses as we entered into new arrangements for office space including our transition to our new corporate headquarters in New York, NY, and in more recent quarters increased costs associated with software for use in the operations of our business. Employee travel and conferences and events have decreased in recent quarters in light of the COVID-19 pandemic. Operating expenses as a percentage of revenue have decreased in recent quarters, reflecting impacts of the COVID-19 pandemic, as well as strategically leveraging costs.
Our quarterly results may fluctuate due to various factors affecting our performance including impacts of the COVID-19 pandemic. The ultimate extent of the impact of the pandemic on our business, financial condition and results of operations will depend on future developments, which continue to be highly uncertain and cannot be predicted, including the severity and duration of the COVID-19 pandemic and the actions taken to contain and address its impact, among others. However, because we generally recognize revenue from our customer contracts ratably over the term of the contract, changes in our contracting activity in the near term may not
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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.
Liquidity and Capital Resources
As of January 31, 2021, our principal sources of liquidity were cash and cash equivalents of $230.4 million. We believe our existing cash and cash equivalents will be sufficient to meet our projected operating requirements for at least the next 12 months. Our cash flows, including net cash used in or provided by operating activities, may vary significantly from quarter to quarter, due to the timing of billings, cash collections, lease payments and capital expenditures, significant marketing events and related expenses, the potential effects of the COVID-19 pandemic, among other factors.
Our future capital requirements will depend on many factors, including those set forth under "Risk Factors." We may in the future enter into arrangements to acquire or invest in complementary businesses, services, technologies, and intellectual property rights. In addition, we may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results and financial condition would be adversely affected.
Common Stock Offering
On March 20, 2019, we closed a common stock offering, in which we issued and sold 7,000,000 shares of common stock, inclusive of the fully exercised underwriters’ option to purchase additional shares. The price per share to the public was $21.50. We received aggregate proceeds of $147.0 million from this offering, net of underwriters’ discounts and commissions, before deducting offering costs of approximately $0.5 million, which were recognized through additional paid in capital.
Credit Arrangements
On March 11, 2020, we entered into a new credit agreement with Silicon Valley Bank (the “Credit Agreement”). No significant debt issuance costs were incurred in association with the Credit Agreement. In January 2021, we amended the Credit Agreement which modified the conditions pursuant to which subsidiaries are required to become guarantors.
The Credit Agreement provides for a senior secured revolving loan facility of up to $50.0 million that matures three years after the effective date, with the right subject to certain conditions to add an incremental revolving loan facility of up to $50.0 million in the aggregate. The three-year revolving loan facility provides for borrowings up to the amount of the facility with sub-limits of up to (i) $30.0 million to be available for the issuance of letters of credit and (ii) $10.0 million to be available for swingline loans.
Under the Credit Agreement, loans bear interest, at our option, at an annual rate based on LIBOR or a base rate. Loans based on LIBOR shall bear interest at a rate between LIBOR plus 2.50% and LIBOR plus 3.00%, depending on our average daily usage of the revolving loan facility. Loans based on the base rate shall bear interest at a rate between the base rate minus 0.50% and the base rate plus 0.00%, depending on our average daily usage of the revolving loan facility. See Part I Item 1A “Risk Factors - Our new credit facility contains restrictive covenants that may limit our operating flexibility" for discussion of LIBOR being phased out.
The obligations under the Credit Agreement are secured by a lien on substantially all of our tangible and intangible property and by a pledge of all of our equity interests of material direct and indirect domestic subsidiaries and 66% of each class of capital stock of any material first-tier foreign subsidiaries, subject to limited exceptions.
The Credit Agreement contains customary affirmative and negative covenants and restrictions, as well as financial covenants that require us to maintain the year-over-year growth rate of its ordinary course recurring revenue for a trailing four fiscal quarter period above specified rates when certain liquidity thresholds are not met and to maintain a consolidated quick ratio of at least 1.50 to 1.00 tested on a monthly basis.
As of January 31, 2020, we had back-to-back standby letters of credit for $12.1 million, which were fully secured by a $12.1 million cash deposit. The $12.1 million was classified as restricted cash on our consolidated balance sheet. In connection with the Credit Agreement, the $12.1 million cash deposit was released and is no longer classified as restricted cash on our consolidated balance sheet as of January 31, 2021.
As of January 31, 2021, we were in compliance with all debt covenants. As of such date, the $50.0 million revolving loan facility had $35.7 million available and $14.3 million in letters of credit allocated as security in connection with office space.
Cash Flows
The following table summarizes our cash flows:
Fiscal year ended January 31,
(in thousands) 2021 2020 2019
Net cash provided by (used in) operating activities
$ 1,204 $ (30,768) $ 5,240
Net cash (used in) provided by investing activities
$ (65,111) $ 39,308 $ 28,134
Net cash provided by financing activities
$ 22,548 $ 168,373 $ 24,384
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Operating Activities
Net cash provided by operating activities of $1.2 million for the fiscal year ended January 31, 2021 was primarily due to positive adjustments in reconciling our net loss of $94.7 million to net cash provided by operating activities. These adjustments included stock-based compensation expense of $72.3 million, amortization of operating lease right-of-use assets of $12.2 million, depreciation and amortization expense of $10.6 million, and bad debt expense of $2.5 million, reflecting an increase in the allowance for doubtful accounts in light of impacts from the COVID-19 pandemic. In addition, there were changes in unearned revenue of $12.7 million, operating lease liabilities of $8.9 million, and costs to obtain revenue contracts of $2.4 million. These increases were partially offset by changes in accounts receivable of $18.0 million, mainly due to timing of billing and cash collections during the period, changes in prepaid expenses and other current assets of $5.5 million, and changes in accounts payable, accrued expenses and other current liabilities of $2.0 million.
Net cash used in operating activities of $30.8 million for the fiscal year ended January 31, 2020 was primarily due to the net loss of $121.5 million, as well as changes in accounts receivable of $27.0 million, mainly due to timing of billing and cash collections during the period, and changes in costs to obtain revenue contracts of $18.3 million. This was partially offset by positive reconciling adjustments related to non-cash charges of stock-based compensation expense of $67.8 million, amortization of operating lease right-of-use assets of $11.1 million and depreciation and amortization expense of $8.1 million. In addition, net cash used in operating activities was also partially offset by changes in unearned revenue of $42.3 million and accounts payable, accrued expenses and other liabilities of $8.3 million.
Net cash provided by operating activities of $5.2 million for the fiscal year ended January 31, 2019 was primarily due to a change in unearned revenue of $47.0 million and non-cash charges related to stock-based compensation expense of $44.2 million, as well as a change in accounts payable, accrued expenses and other current liabilities of $17.6 million and non-cash charges related to depreciation and amortization expense of $6.8 million. These increases were partially offset by the net loss of $74.8 million, as well as changes in costs to obtain revenue contracts of $16.8 million, accounts receivable of $11.6 million, mainly due to timing of billing and cash collections during the period, and prepaid expenses and other current assets of $6.7 million.
Investing Activities
Net cash used in investing activities of $65.1 million for the fiscal year ended January 31, 2021 reflected capital expenditures primarily associated with our new corporate headquarters in New York, NY, and our office spaces in Rosslyn, VA and Tokyo, Japan, among others.
Net cash provided by investing activities of $39.3 million for the fiscal year ended January 31, 2020 was due to maturities of marketable securities of $51.2 million, partially offset by capital expenditures of $11.9 million.
Net cash provided by investing activities of $28.1 million for the fiscal year ended January 31, 2019 was due to maturities of marketable securities of $86.3 million, partially offset by purchases of marketable securities of $52.9 million, and capital expenditures of $5.3 million.
Financing Activities
Net cash provided by financing activities of $22.5 million for the fiscal year ended January 31, 2021 was primarily related to proceeds from exercise of stock options of $16.5 million, and net proceeds from employee stock purchase plan withholdings of $7.0 million, partially offset by payments of deferred financing costs of $0.9 million.
Net cash provided by financing activities of $168.4 million for the fiscal year ended January 31, 2020 was primarily related to proceeds from our common stock offering of $147.0 million, net of underwriting discounts and commissions, and to a lesser extent proceeds from exercises of stock options of $14.9 million, and $7.3 million of net proceeds from employee stock purchase plan withholdings.
Net cash provided by financing activities of $24.4 million for the fiscal year ended January 31, 2019 was primarily related to proceeds from exercises of stock options of $18.9 million, and $5.7 million of net proceeds from employee stock purchase plan withholdings.
Contractual Obligations
We are obligated to make payments under certain non-cancelable contractual obligations in the normal course of business. Our contractual obligations primarily relate to our operating lease arrangements for office space. Our other contractual obligations include contracts with our Knowledge Network application providers, which generally have a term of one year, although some have a term of several years, as well as contracts with our software vendors, among others. These obligations represent minimum contractual payments, or our best estimate for variable elements based on historical payments. Our contractual obligations have various expiry dates between fiscal years 2022 and 2035.
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As of January 31, 2021, our contractual obligations are as follows (in thousands):
Fiscal year ending January 31: Operating Leases Other
2022 $ 19,490 $ 30,091
2023 19,189 10,332
2024 18,915 4,921
2025 18,362 1,885
2026 18,986 1,828
2027 and thereafter
92,743 1,877
Total $ 187,685 $ 50,934
See Note 13 "Commitments and Contingencies" to our consolidated financial statements for further discussion on contractual obligations.
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.
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.
See 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 our subscriptions and associated support to the Yext platform. Our subscriptions 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. Our subscription and associated support performance obligation is distinct because a customer's use of the Yext platform is fully functional upon access, does not require any additional development, modification or customization, and is often sold separately. In certain instances, we enter into a contract that includes a promise to provide certain technical or customized professional services, in addition to a promise to provide its subscription and associated support. Our professional services performance obligation is distinct as it does not significantly change or enhance the functionality of the Yext platform.
In instances when a contract includes more than one performance obligation, we must allocate the transaction price to the performance obligations on a relative standalone selling price basis ("SSP"). SSP represents the price at which a company would sell a promised product or service separately to a customer. We determine the SSP based on a series of complex factors. Our selling prices associated with our subscription and associated support are considered highly variable based on discounting practices, customer geography, customer size, and other such factors. In contrast, our selling prices associated with our professional services are more observable, predictable and consistent. Accordingly, we use the residual method to determine SSP.
The recognition of revenue is determined through application of the five-step model in accordance with ASC 606. Revenue is recognized upon transfer of control of services to our customers, including third-party reseller customers, in an amount that reflects the consideration we expect to receive in exchange for those services. 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 reseller customers in association with these transactions, and do not have direct interactions with the reseller’s customer.
Revenue is generally recognized ratably over the contract term beginning on the commencement date of each contract, which is the date our platform is made available to our customers. Amounts that have been invoiced for non-cancelable contracts are recorded in accounts receivable and unearned revenue or revenue. See to Note 2 "Summary of Significant Accounting Policies" and Note 3 "Revenue" to our consolidated financial statements for further discussion on our revenue recognition.
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Costs Capitalized to Obtain Revenue Contracts
We capitalize costs of obtaining revenue contracts that are incremental and recoverable. Incremental costs primarily include sales commissions, certain related incentives, and associated payroll tax and fringe benefit costs. We amortize such costs on a straight-line basis over the average benefit period, which is typically three years for new contracts and one year for renewals. We determine the average benefit period by considering both qualitative and quantitative factors, which include the estimated life of capitalized software development costs resulting from additional functionality to the Yext platform and estimated customer life, among other such factors. Amortization of costs capitalized to obtain revenue contracts is included in sales and marketing expense in the consolidated statements of operations and comprehensive loss.
Stock-Based Compensation
Stock-based compensation for all employee and non-employee stock-based awards, including restricted stock units and restricted stock, is measured at fair value on the date of grant and recognized over the service period. The fair value of restricted stock units and restricted stock are calculated based on the fair value of our common stock on the date of grant, while the fair value of stock options are calculated using a Black-Scholes option-pricing model.
Stock-based compensation expense is recognized over the requisite service periods of awards, which is typically one to four years for restricted stock units and restricted stock. The estimated forfeiture rate applied to employee awards 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 our current estimates, such amounts will be recorded as a cumulative adjustment in the period actual results are realized or 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. We do not apply a forfeiture rate assumption to value non-employee awards, given the nature of the services provided.
For our Employee Stock Purchase Plan ("ESPP"), we measure stock-based compensation expense at fair-value using a Black-Scholes option-pricing model, at the commencement of each offering period and recognize the expense over that offering period, which is generally six months. The key assumptions used in the Black-Scholes option-pricing model include a volatility assumption based on the historical volatility of our stock price and the risk-free rate assumption based on the U.S. treasury yield curve in effect at the commencement of the offering period or grant date. The dividend yield assumption is zero as we have not historically paid any dividends and do not expect to declare or pay any dividends in the foreseeable future.
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 which 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.
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.
Leases
We enter into contracts in the normal course of business and assess whether any such contracts contain a lease. We classify leases as operating or financing in nature, and record the associated lease liability and right-of-use asset on our balance sheet. The lease liability represents the present value of future lease payments, net of lease incentives, discounted using incremental borrowing rates.
For each individual lease arrangement, we estimate an incremental borrowing rate at the commencement date. The incremental borrowing rate is determined based on what we would estimate to pay for a collateralized loan over a similar term and economic environment for each lease arrangement. As of January 31, 2021, a hypothetical 100 basis point change in our estimated incremental borrowing rates for our respective leases would have a less than 10% impact to the aggregated total operating lease liability on the consolidated balance sheet.
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With respect to our operating lease arrangements, we account for lease components, and non-lease components that are fixed, as a single lease component in the measurement of operating lease liabilities and right-of-us assets. Non-lease components that are variable are expensed as incurred in the consolidated statement of operations and comprehensive loss. Lease arrangements with an initial term of 12 months or less are recognized on a straight-line basis over the lease term and are not recorded on the consolidated balance sheet.
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.
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