Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
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 ineffective as of January 31, 2021 due to the material weakness related to the processes to calculate, record and account for sales commissions as described below.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). 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 our internal control over financial reporting as of January 31, 2021 based on the guidelines established in the Internal Control—Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Internal control over financial reporting includes policies and procedures that provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
Based on the results of our evaluation, we concluded that as of January 31, 2021 we have not maintained effective internal control over financial reporting as a result of a material weakness associated with our processes to calculate, record and account for sales commissions. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness did not result in any identified material misstatements in the current period consolidated financial statements, nor in any restatements of consolidated financial statements previously reported by us, and there were no changes in previously released financial results. We have begun to develop remediation plans for the material weakness, which are described below under “Remediation Activities.”
The effectiveness of our internal control over financial reporting has been audited by Ernst & Young LLP, an independent registered public accounting firm, and as part of the audit, has issued an adverse opinion on the effectiveness of our internal control over financial reporting as of January 31, 2021, which is included in Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
In connection with the audit of the fiscal year 2020 consolidated financial statements, we and our independent registered public accounting firm identified a material weakness related to our processes to calculate, record and account for sales commissions. The identified deficiencies included controls related to reliance on certain outsourced IT service providers used in the processes to calculate, record and account for sales commissions and the related business process controls that rely upon information that was subject to the outsourced IT service providers’ control environment.
In fiscal year 2021, we worked to remediate the identified deficiencies in internal control over financial reporting identified above as described below:
• Improved governance of our incentive compensation plans
• Implemented new information technology systems to calculate, record and account for sales commissions
• Implemented IT general controls, including logical security and application change management controls for these new information technology systems
• Implemented new automated controls to calculate, record and account for sales commissions
• Implemented new manual controls and strengthened existing controls across the process to calculate, record and account for sales commissions, including management review controls to detect errors in calculated sales commissions
79
While we are taking steps toward remediating the material weakness, until the controls have been operating for a sufficient period of time and we have concluded that these controls are operating effectively, the material weakness described above will continue to exist. Except as noted above, 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, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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.
Remediation Activities
We are working to remediate the identified deficiencies in internal control over financial reporting relating to processes to calculate, record and account for sales commissions that resulted in a material weakness. Specifically, we are continuing to test and evaluate the new and revised processes and internal controls, including those related to the maintenance of plan participant data and the resulting calculations of amounts paid under our sales incentive compensation plans.
We believe we are making progress toward achieving the effectiveness of our internal controls over financial reporting and disclosure controls; however we cannot provide any assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts. In addition, as we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above. We will test and evaluate the implementation of these new and revised processes and internal controls to ascertain whether they are designed and operating effectively to provide reasonable assurance that they will prevent or detect a material error in our financial statements.
Item 9B. Other Information
None.
80
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information about our directors and persons nominated to become directors can be found under the caption “Directors and Corporate Governance – Board Composition” in our Proxy Statement for the 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended January 31, 2021 ("Proxy Statement") and is incorporated herein by reference.
Information about our named executive officers is reported under the caption “Executive Officers ” in our Proxy Statement and is incorporated herein by reference.
Information on beneficial ownership reporting compliance can be found under the caption “Delinquent Section 16(a) Reports” in our Proxy Statement and is incorporated herein by reference.
Our Board of Directors has adopted a Code of Business Conduct and Ethics, which establishes the standards of ethical conduct applicable to all directors, officers and employees of our Company, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. The code addresses, among other things, conflicts of interest, compliance with disclosure controls and procedures and internal controls over financial reporting, corporate opportunities and confidentiality requirements. Our Code of Business Conduct and Ethics is available on the Investor Relations section of our website at investors.yext.com. We intend to disclose any amendments to the code, or any waivers of its requirements, on our website to the extent required by SEC applicable rules and regulations. The inclusion of our website address in this annual report does not include or incorporate by reference into this annual report the information on or accessible through our website.
Information about the procedures by which security holders may recommend nominees to our Board of Directors can be found in our Proxy Statement under the caption “Directors and Corporate Governance – Identifying and Evaluating Director Nominees” and is incorporated herein by reference.
Information concerning the composition of the audit committee and our audit committee financial expert is contained in our Proxy Statement under the caption “Directors and Corporate Governance – Board Committee and Meetings – Audit Committee” and is incorporated herein by reference.
Item 11. Executive Compensation
Information about the compensation of our directors and named executive officers, compensation committee interlocks and the compensation committee report can be found in our Proxy Statement under the caption “Directors and Corporate Governance – Compensation of Non-Employee Directors,” “– Compensation Committee Interlocks,” “– Compensation Risk Management” and “Executive Compensation” and is incorporated herein by reference.
Information about the Compensation Committee Report can be found in our Proxy Statement under the caption "Compensation Committee Report" and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information with respect to securities authorized for issuance under equity compensation plans can be found under “Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Securities Authorized for Issuance under Equity Compensation Plans” and is incorporated herein by reference.
Information about the security ownership of certain beneficial owners and of directors and named executive officers, can be found in our Proxy Statement under the caption “Beneficial Ownership of Shares of Common Stock”.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information with respect to certain relationships and related person transactions and director independence can be found in our Proxy Statement under “Certain Relationships and Related Person Transactions” and “Directors and Corporate Governance – Director Independence” and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information with respect to the audit committee's pre-approval policies and procedures for audit and other services and information on our principal accountant fees and services can be found in our Proxy Statement under “Item 2 — Ratification of Independent Registered Public Accounting Firm — Audit and Non-Audit Fees” and “— Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm” and is incorporated herein by reference.
81
PART IV
Item 15. Exhibits and Financial Statement Schedules
(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 : The Financial Statement Schedules 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
3. 1
Amended and Restated Certificate of Incorporation
S-1/A
333-216642
3.2 3/17/2017
3.2
Amended and Restated Bylaws
S-1/A
333-216642
3.4 3/17/2017
4.1
Form of Common Stock Certificate
S-1/A
333-216642
4.1 3/28/2017
4.2
Fifth Amended and Restated Investors' Rights Agreement, dated May 28, 2014, as subsequently amended, by and among the Registrant and certain security holders of the Registrant.
S-1
333-216642
4.2 3/13/2017
4.3
Description of Registrant's Securities registered pursuant to Section 12 of the Securities Exchange Act of 1934
x
10.1
Form of Indemnification Agreement entered into between the Registrant and its directors and executive officers.
S-1/A
333-216642
10.1 3/17/2017
10.2
2016 Equity Incentive Plan.
S-1
333-216642
10.2 3/13/2017
10.3
Form of Stock Option Grant Notice and Stock Option Agreement under 2016 Equity Incentive Plan.
S-1/A
333-216642
10.3 3/17/2017
10.4
Form of Restricted Stock Unit Agreement under 2016 Equity Incentive Plan.
S-1/A
333-216642
10.4 3/17/2017
10.5
Form of Restricted Stock Agreement under 2016 Equity Incentive Plan.
S-1/A
333-216642
10.5 3/17/2017
10.6
2017 Employee Stock Purchase Plan.
S-1/A
333-216642
10.6 3/17/2017
10.7
2008 Equity Incentive Plan.
S-1
333-216642
10.7 3/13/2017
10.8
Form of Stock Option Grant Notice and Stock Option Agreement under 2008 Equity Incentive Plan.
S-1
333-216642
10.8 3/13/2017
10.9
Form of Restricted Stock Unit Agreement under 2008 Equity Incentive Plan.
S-1
333-216642
10.9 3/13/2017
10.10
Employee Incentive Plan.
S-1
333-216642
10.10 3/13/2017
10.1 1
Outside Director Compensation Policy.
S-1/A
333-216642
10.13 3/17/2017
10.1 2
Change of Control and Severance Policy.
S-1
333-216642
10.14 3/13/2017
10.1 3
Form of Employment Agreement with the executive officers of the Company .
S-1/A
333-216642
10.15 3/17/2017
10.1 4
Advisor Agreement between the Company and James Steele, dated as of September 30, 2020
8-K 001-38056 10.1 9/3/2020
10.1 5
Agreement of Lease, dated May 24, 2012, by and between the Registrant and 1 Madison Office Fee LLC.
S-1
333-216642
10.11 3/13/2017
82
10.1 6
Lease dated May 15, 2014 by and between the Registrant and Credit Suisse (USA) Inc.
S-1
333-216642
10.12 3/13/2017
10.17
Surrender Agreement, dated as of the May 29, 2020 between 1 Madison Office Fee LLC, as landlord under the original lease and as sublandlord under the sublease and Yext, Inc., as tenant under the original lease and as subtenant under the sublease.
8-K 001-38056 10.1 6/4/2020
10.1 8
Sublease dated as of April 23, 2019 by and between Aetna Life Insurance Company and Yext, Inc.
10-Q 001-38056 10.1 5/31/2019
10.1 9
Credit Agreement, dated as of March 11, 2020, by and among Yext, Inc., as borrower, the lenders from time to time party thereto, and Silicon Valley Bank, as administrative agent, collateral agent, issuing lender and swingline lender.
8-K 001-38056 10.1 3/12/2020
10.2 0
First Amendment to Credit Agreement and Guarantee and Collateral Agreement , dated as of January 29, 2021, among Yext, Inc., as borrower and Silicon Valley Bank, as administrative agent and lender.
x
21.1
List of subsidiaries of Yext, Inc.
x
23.1
Consent of Ernst & Young LLP, independent registered public accounting firm.
x
24.1
Power of Attorney (contained in the signature page to this Annual Report on Form 10-K).
x
31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
x
31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
x
32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
x
32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
x
101 Interactive Data Files Pursuant to Rule 405 of Regulation S-T formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of January 31, 2021 and 2020, (ii) Consolidated Statements of Operations and Comprehensive Loss for the fiscal years ended January 31, 2021, 2020 and 2019, (iii) Consolidated Statements of Stockholders' Equity as of January 31, 2021, 2020 and 2019 (iv) Consolidated Statements of Cash Flows for the fiscal years ended January 31, 2021, 2020 and 2019 and (v) Notes to Consolidated Financial Statements
104 The cover page from the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2021, formatted in Inline XBRL (included in Exhibit 101).
* 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.
Item 16. Form 10-K Summary
None.
83
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.
Date: March 16, 2021
Yext, Inc.
By: /s/ Steven Cakebread
Steven Cakebread
Chief Financial Officer
(Principal Financial Officer)
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.
84
Signature Title Date
/s/ Howard Lerman Chief Executive Officer and Director March 16, 2021
Howard Lerman (Principal Executive Officer)
/s/ Steven Cakebread Chief Financial Officer March 16, 2021
Steven Cakebread (Principal Financial Officer)
/s/ Darryl Bond Chief Accounting Officer March 16, 2021
Darryl Bond (Principal Accounting Officer)
/s/ Brian Distelburger President and Director March 16, 2021
Brian Distelburger
/s/ Jesse Lipson Director March 16, 2021
Jesse Lipson
/s/ Julie Richardson Director March 16, 2021
Julie Richardson
/s/ Andrew Sheehan Director March 16, 2021
Andrew Sheehan
/s/ Hillary Smith Director March 16, 2021
Hillary Smith
/s/ Michael Walrath Director March 16, 2021
Michael Walrath
/s/ Seth Waugh Director March 16, 2021
Seth Waugh
/s/ Tamar Yehoshua Director March 16, 2021
Tamar Yehoshua
85