UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to
Commission File Number: 001-38056
 
YEXT, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
20-8059722
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
1 Madison Ave, 5th Floor
New York, NY 10010
(Address of principal executive offices, including zip code)
(212) 994-3900
(Registrant's telephone number, including area code)
 
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 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.
Large accelerated filer
 
o
Accelerated filer
 
o
Non-accelerated filer
 
x  (Do not check if a smaller reporting company)
Smaller reporting company
 
o
 
 
 
Emerging growth company
 
x
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  o    No  x
As of August 20, 2018, the registrant had 98,585,370 shares of common stock, $0.001 par value per share outstanding.



TABLE OF CONTENTS
 
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q include, but are not limited to, statements regarding:
•
our future revenue, cost of revenue, operating expenses and cash flows;
•
anticipated trends, growth rates and challenges in our business and in the markets in which we operate;
•
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;
•
our ability to increase sales of our products;
•
maintaining and expanding our end-customer base and our relationships with our Knowledge Network; and
•
sufficiency of cash to meet cash needs for at least the next 12 months.
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 II, Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q, the words "we," "us," "our" and "Yext" refer to Yext, Inc. and its wholly owned subsidiaries, unless the context requires otherwise.


3


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
YEXT, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
(unaudited)
 
July 31, 2018
 
January 31, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
47,155

 
$
34,367

Marketable securities
77,664

 
83,974

Accounts receivable, net of allowances of $287 and $231, respectively
27,878

 
44,656

Prepaid expenses and other current assets
11,191

 
7,703

Deferred commissions, current
10,677

 
9,342

Total current assets
174,565

 
180,042

Property and equipment, net
11,649

 
11,438

Goodwill
4,726

 
4,924

Intangible assets, net
2,275

 
2,761

Other long term assets
4,519

 
4,324

Total assets
$
197,734

 
$
203,489

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable, accrued expenses and other current liabilities
$
30,237

 
$
27,416

Deferred revenue, current
87,474

 
89,474

Deferred rent, current
1,294

 
1,288

Total current liabilities
119,005

 
118,178

Deferred rent, non-current
2,594

 
3,213

Other long term liabilities
527

 
645

Total liabilities
122,126

 
122,036

Commitments and contingencies (Note 12)


 


Stockholders’ equity:
 
 
 
Preferred stock, $0.001 par value per share; 50,000,000 shares authorized at July 31, 2018 and January 31, 2018; zero shares issued and outstanding at July 31, 2018 and January 31, 2018
—

 
—

Common stock, $0.001 par value per share; 500,000,000 shares authorized at July 31, 2018 and January 31, 2018; 104,966,201 and 100,482,264 shares issued at July 31, 2018 and January 31, 2018, respectively; 98,460,867 and 93,976,930 shares outstanding at July 31, 2018 and January 31, 2018, respectively
105

 
100

Additional paid-in capital
361,719

 
328,344

Accumulated other comprehensive loss
(1,629
)
 
(1,636
)
Accumulated deficit
(272,682
)
 
(233,450
)
Treasury stock, at cost
(11,905
)
 
(11,905
)
Total stockholders’ equity
75,608

 
81,453

Total liabilities and stockholders’ equity
$
197,734

 
$
203,489

See the accompanying notes to the condensed consolidated financial statements.

4


YEXT, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
(unaudited)
 
Three months ended July 31,
 
Six months ended July 31,
 
2018
 
2017
 
2018
 
2017
Revenue
$
55,096

 
$
40,769

 
$
106,191

 
$
77,849

Cost of revenue
14,086

 
10,541

 
26,886

 
20,229

Gross profit
41,010

 
30,228

 
79,305

 
57,620

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
40,171

 
30,673

 
77,200

 
59,135

Research and development
9,983

 
6,493

 
17,712

 
11,479

General and administrative
12,060

 
9,569

 
23,598

 
18,907

Total operating expenses
62,214

 
46,735

 
118,510

 
89,521

Loss from operations
(21,204
)
 
(16,507
)
 
(39,205
)
 
(31,901
)
Investment income
376

 
322

 
763

 
322

Interest expense
(9
)
 
(82
)
 
(76
)
 
(170
)
Other (expense) income, net
(219
)
 
57

 
(389
)
 
(535
)
Loss from operations before income taxes
(21,056
)
 
(16,210
)
 
(38,907
)
 
(32,284
)
Provision for income taxes
(40
)
 
(189
)
 
(325
)
 
(221
)
Net loss
$
(21,096
)
 
$
(16,399
)
 
$
(39,232
)
 
$
(32,505
)
 
 
 
 
 
 
 
 
Net loss per share attributable to common stockholders, basic and diluted
$
(0.22
)
 
$
(0.18
)
 
$
(0.41
)
 
$
(0.49
)
Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted
97,511,660

 
90,064,644

 
96,248,506

 
65,676,665

 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
(11
)
 
$
165

 
$
(104
)
 
$
357

Unrealized gain (loss) on marketable securities
113

 
(60
)
 
111

 
(60
)
Total comprehensive loss
$
(20,994
)
 
$
(16,294
)
 
$
(39,225
)
 
$
(32,208
)
See the accompanying notes to the condensed consolidated financial statements.




5


YEXT, INC.
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)
(In thousands)
(unaudited)
 
 
 
 
 
 
Accumulated
 
 
Total
 
Convertible
 
 
Additional
Other
 
 
Stockholders’
 
Preferred Stock
Common Stock
Paid-In
Comprehensive
Accumulated
Treasury
Equity
 
Shares
Amount
Shares
Amount
Capital
Loss
Deficit
Stock
(Deficit)
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

Exercise of stock options
—

—

3,511

3

10,139

—

—

—

10,142

Vested restricted stock units converted to common shares
—

—

519

1

(1
)
—

—

—

—

Issuance of restricted stock
—

—

16

—

—

—

—

—

—

Issuance of common stock under employee stock purchase plan
—

—

438

1

4,090

—

—

—

4,091

Stock-based compensation
—

—

—

—

19,147

—

—

—

19,147

Other comprehensive income
—

—

—

—

—

7

—

—

7

Net loss
—

—

—

—

—

—

(39,232
)
—

(39,232
)
Balance, July 31, 2018
—

$
—

98,461

$
105

$
361,719

$
(1,629
)
$
(272,682
)
$
(11,905
)
$
75,608

See the accompanying notes to the condensed consolidated financial statements.


6


YEXT, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)

 
Six months ended July 31,
 
2018
 
2017
Operating activities:
 
 
 
Net loss
$
(39,232
)
 
$
(32,505
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
3,241

 
2,385

Provision for bad debts
353

 
169

Stock-based compensation expense
19,021

 
9,065

Change in fair value of convertible preferred stock warrant liability
—

 
491

Deferred income taxes
(57
)
 
6

Amortization of deferred financing costs
66

 
69

Amortization of premium on marketable securities
47

 
44

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
16,065

 
13,168

Prepaid expenses and other current assets
(3,690
)
 
(2,571
)
Deferred commissions
(1,581
)
 
(487
)
Other long term assets
(94
)
 
(119
)
Accounts payable, accrued expenses and other current liabilities
4,875

 
(3,506
)
Deferred revenue
(1,434
)
 
125

Deferred rent
(598
)
 
(303
)
Other long term liabilities
2

 
20

Net cash used in operating activities
(3,016
)
 
(13,949
)
Investing activities:
 
 
 
Purchases of marketable securities
(24,692
)
 
(94,446
)
Maturities of marketable securities
31,067

 
—

Capital expenditures
(2,703
)
 
(1,886
)
Net cash provided by (used in) investing activities
3,672

 
(96,332
)
Financing activities:
 
 
 
Proceeds from initial public offering, net of underwriting discounts and commissions
—

 
123,527

Payments of deferred offering costs
—

 
(4,263
)
Proceeds from exercise of stock options
10,165

 
2,381

Proceeds from exercise of warrants
—

 
79

Repayments on Revolving Line
—

 
(5,000
)
Payments of deferred financing costs
(159
)
 
(99
)
Proceeds, net from employee stock purchase plan withholdings
2,479

 
1,337

Net cash provided by financing activities
12,485

 
117,962

Effect of exchange rate changes on cash, cash equivalents and restricted cash
(353
)
 
278

Net increase in cash, cash equivalents and restricted cash
12,788

 
7,959

Cash, cash equivalents and restricted cash at beginning of period
34,367

 
24,920

Cash, cash equivalents and restricted cash at end of period 
$
47,155

 
$
32,879


Supplemental reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets:
(in thousands)
July 31, 2018
 
July 31, 2017
Cash and cash equivalents
$
47,155

 
$
32,879

Restricted cash
—

 
—

Total cash, cash equivalents and restricted cash
$
47,155

 
$
32,879

See the accompanying notes to the condensed consolidated financial statements.

7


YEXT, INC.
Notes to Condensed Consolidated Financial Statements

Note 1. Organization and Description of Business
 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 Knowledge Network (formerly the PowerListings Network) of approximately 150 service and application providers, including Amazon Alexa, 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 2019, for example, are to the fiscal year ending January 31, 2019.
2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying condensed 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 interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2018, filed with the SEC on March 16, 2018 (the "Form 10-K"). The condensed 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 immaterial reclassifications to fiscal 2018 amounts were made to conform to the current period presentation.
The condensed consolidated balance sheet as of January 31, 2018, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures including certain notes required by GAAP on an annual reporting basis.
In the opinion of management, the accompanying condensed 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. The results for the three and six months ended July 31, 2018 are not necessarily indicative of the results to be expected for any subsequent quarter, the fiscal year ending January 31, 2019, or any other period.
Except as described elsewhere in this Note 2 under the heading “Recent Accounting Pronouncements - Adoption of New Accounting Standards,” there have been no material changes to the Company's significant accounting policies as described in the Form 10-K.
Use of Estimates
The preparation of condensed 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 condensed 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 condensed consolidated financial statements.

8

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 July 31, 2018, no single customer accounted for more than 10% of the Company's accounts receivable. At January 31, 2018, one customer accounted for approximately 12% of the Company's accounts receivable. No single customer accounted for more than 10% of the Company's revenue for the three and six months ended July 31, 2018 and 2017, respectively.
Geographic Locations
Revenue by geographic region consisted of the following:
 
 
Three months ended July 31,
 
Six months ended July 31,
(in thousands)
 
2018
 
2017
 
2018
 
2017
North America
 
$
47,941

 
$
37,771

 
$
92,811

 
$
72,691

International
 
7,155

 
2,998

 
13,380

 
5,158

Total revenue
 
$
55,096

 
$
40,769

 
$
106,191

 
$
77,849

North America revenue is predominantly attributable to the United States but also includes Canada. International revenue is predominantly attributable to Europe.
Recent Accounting Pronouncements
Section 107 of the Jumpstart Our Business Startups Act of 2012 (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 defer 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 long as the Company continues to qualify as an emerging growth company, it will not be required to 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. However, based on the market value of the Company's common stock held by non-affiliates as of July 31, 2018, the Company expects it may become a large accelerated filer and thus cease to be an emerging growth company upon the completion of the fiscal year ending January 31, 2019. If the Company ceases to be an emerging growth company, it may no longer be permitted to take advantage of the provisions of the JOBS Act which allows companies to adopt new or revised accounting standards when required by private company accounting standards.
Adoption of New Accounting Standards
The Company early adopted Accounting Standards Update, ("ASU") No. 2016-18, "Statement of Cash Flows (Topic 230) - Restricted Cash" during the fiscal year ending January 31, 2019. Amounts generally described as restricted cash are now presented with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The statement of cash flows will no longer present transfers between cash and cash equivalents and restricted cash. As a result of this adoption, there were no changes to the operating, investing and financing activities for the six months ended July 31, 2018. The presentation of the statement of cash flows for the six months ended July 31, 2017 required certain reclassifications to conform to the current year presentation as follows (in thousands):
 
 
Six months ended July 31, 2017
Line Items - As Revised
 
As Previously Reported
 
Reclassification of Restricted Cash
 
As Revised
Net cash used in operating activities
 
$
(13,449
)
 
$
(500
)
 
$
(13,949
)
Net cash used in investing activities
 
(96,332
)
 
—

 
(96,332
)
Net cash provided by financing activities
 
117,962

 
—

 
117,962

Effects of exchange rate changes on cash, cash equivalents and restricted cash
 
278

 
—

 
278

Net increase in cash, cash equivalents and restricted cash
 
8,459

 
(500
)
 
7,959

Cash, cash equivalents and restricted cash at beginning of period
 
24,420

 
500

 
24,920

Cash, cash equivalents and restricted cash at end of period
 
$
32,879

 
$
—

 
$
32,879

The Company adopted ASU No. 2016-09, "Improvements to Employee Share-Based Payments Accounting" ("ASU 2016-09") effective February 1, 2018. The Company elected to continue to estimate its forfeiture rate. The adoption of this standard did not have an effect on the statement of cash flows. The Company prospectively records excess tax benefits and deficiencies that result when stock-based awards vest or are settled within the provision for incomes taxes in the consolidated statement of operations and comprehensive loss; all such excess tax benefits were fully offset by a valuation allowance for the three and six months ended July 31,

9

2018 and 2017. For previously unrecognized excess tax benefits that existed as of January 31, 2018, the Company used a modified-retrospective approach and recorded a $30.2 million decrease in accumulated deficit and increase in deferred tax assets; these amounts were fully offset by a valuation allowance as the Company assessed that the realization of such deferred tax assets is not more likely than not to be realized.
In March 2018, the Financial Accounting Standards Board ("FASB") issued ASU No. 2018-05, “Income Taxes (Topic 740)," to conform to SEC Staff Accounting Bulletin No. 118 ("SAB 118"). The standard was issued to allow registrants to record provisional amounts during a measurement period not to extend beyond one year from the enactment date in instances when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act (the "Tax Reform Act"). The standard was effective upon issuance. The Company continues to evaluate the impacts of the Tax Reform Act and expects to finalize its assessment by the fourth quarter of the fiscal year ending January 31, 2019.
New Accounting Standards To Be Adopted
In May 2014, the FASB issued 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).
So long as the Company qualifies as an emerging growth company, it plans to adopt the standard at the start of its fiscal year on February 1, 2019; however, as the Company may cease to be an emerging growth company at the end of its fiscal year ending January 31, 2019, it may be required to adopt the standard earlier. The Company will adopt the standard utilizing the modified retrospective approach, which will result in a cumulative effect adjustment as of the adoption date. 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 and the determination of the related amortization period, and the new disclosure requirements. The Company expects to capitalize more commissions and amortize them over a longer period of time under the new standard than it is under the existing accounting standard. 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 currently evaluating the standard for other potential impacts to its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases" ("ASU 2016-02"), 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. In July 2018, the FASB issued ASU 2018-10, "Leases, Codification Improvements" ("ASU 2018-10") and ASU 2018-11, "Leases, Targeted Improvements" ("ASU 2018-11"), to provide additional guidance for the adoption of ASU 2016-02. ASU 2018-10 clarifies certain provisions and corrects unintended applications of the guidance. ASU 2018-11 provides an alternative transition method which allows entities the option to present all prior periods under previous lease accounting guidance, while recognizing the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption. These standards are 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, these standards are 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 currently evaluating the potential impact of adopting this new accounting guidance.
In June 2018, the FASB issued ASU 2018-07, "Compensation - Stock Compensation (Topic 718): Improvements to nonemployee share-based payment accounting." This standard is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance substantially consistent with the accounting for employee share-based compensation. The standard is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, including emerging growth companies, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than a company's adoption date of ASU 2014-09. The Company is currently evaluating the potential impact of adopting this new accounting guidance.
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 condensed consolidated

10

balance sheets. Marketable securities are carried at fair value, with the unrealized gains and losses, net of income taxes, reflected in accumulated other comprehensive loss until realized. For the purposes of computing realized and unrealized gains and losses, cost is determined on a specific identification basis.
The following table summarizes the Company's investments in marketable securities:
 
July 31, 2018
(in thousands)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Commercial paper
$
—

 
$
—

 
$
—

 
$
—

Corporate bonds
42,241

 
—

 
(163
)
 
42,078

U.S. treasury securities
35,632

 
—

 
(46
)
 
35,586

Total marketable securities
$
77,873

 
$
—

 
$
(209
)
 
$
77,664

 
January 31, 2018
(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 July 31, 2018, the Company had gross unrealized losses of $0.2 million, of which $0.1 million of corporate bond securities with an aggregate fair value of $34.3 million have been in a continuous unrealized loss position for more than 12 months. As of January 31, 2018, no securities had been in a continuous unrealized loss position for more than 12 months. The Company does not believe the unrealized losses represent other-than-temporary impairments based on its evaluation of available evidence. As of July 31, 2018, the Company's marketable securities have a contractual maturity of two years or less and remaining contractual maturity of one year or less.
Interest income, realized gains, realized losses and other-than-temporary declines in fair value on securities available for sale are the potential components of investment income. Investment income for the periods presented consisted of the following:
 
Three months ended July 31,
 
Six months ended July 31,
(in thousands)
2018
 
2017
 
2018
 
2017
Interest income
$
376

 
$
322

 
$
763

 
$
322

Total investment income
$
376

 
$
322

 
$
763

 
$
322

The Company had no 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 (loss) 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. 

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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.
The following table summarizes the Company's assets that are measured at fair value on a recurring basis, by level, within the fair value hierarchy:
 
 
July 31, 2018
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents:
 
 
 
 
 
 
 
 
    Money market funds (1)
 
$
24,183

 
$
—

 
$
—

 
$
24,183

Marketable securities:
 
 
 
 
 
 
 
 
    Commercial paper
 
—

 
—

 
—

 
—

    Corporate bonds
 
—

 
42,078

 
—

 
42,078

    U.S. treasury securities
 
—

 
35,586

 
—

 
35,586

Total assets
 
$
24,183

 
$
77,664

 
$
—

 
$
101,847

 
 
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

(1) Included in cash and cash equivalents on the condensed consolidated balance sheets. 
5. Goodwill and Intangible Assets
Goodwill
As of July 31, 2018 and January 31, 2018, the Company had goodwill of $4.7 million and $4.9 million, respectively. 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 1st, 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 determined that no events occurred or circumstances changed during the six months ended July 31, 2018 and 2017 that would more likely than not reduce the fair value of the Company's reporting unit below its carrying amount. However, if certain events occur or circumstances change, it may be necessary to record impairment charges in the future.
Intangible Assets
As of July 31, 2018 and January 31, 2018, the Company had intangible assets, net of $2.3 million and $2.8 million, respectively. 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 six months ended July 31, 2018 and 2017 that would indicate that its intangible assets with finite lives may not be recoverable. However, if certain events occur or circumstances change, it may be necessary to record impairment charges in the future.

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Amortization expense related to intangible assets totaled $0.2 million and $0.3 million for the three and six months ended July 31, 2018, respectively, and $0.1 million and $0.3 million for the three and six months ended July 31, 2017, respectively.
6. Property and Equipment, net
Property and equipment, net consisted of the following:
(in thousands)
July 31, 2018
 
January 31, 2018
Furniture and fixtures
$
706

 
$
719

Office equipment
6,906

 
4,636

Leasehold improvements
13,004

 
12,928

Computer software
5,191

 
4,563

Construction in progress
273

 
124

Total property and equipment
26,080

 
22,970

Less: accumulated depreciation
(14,431
)
 
(11,532
)
Total property and equipment, net
$
11,649

 
$
11,438

Depreciation expense was $1.5 million and $2.9 million for the three and six months ended July 31, 2018, respectively, and $1.1 million and $2.1 million for the three and six months ended July 31, 2017, respectively.
7. Accounts Payable, Accrued Expenses and Other Current Liabilities
        Accounts payable, accrued expenses and other current liabilities consisted of the following:
(in thousands)
July 31, 2018
 
January 31, 2018
Accounts payable
$
6,899

 
$
4,253

Accrued employee compensation
10,673

 
11,341

Accrued professional services and associated costs
2,133

 
1,333

Accrued Knowledge Network application provider fees
2,009

 
1,860

Accrued sales and use tax
1,443

 
1,846

Accrued employee stock purchase plan withholdings liability
2,138

 
3,750

Accrued other liabilities
4,942

 
3,033

Total accounts payable, accrued expenses and other current liabilities
$
30,237

 
$
27,416

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.
2016 Equity Incentive Plan
        In December 2016, the Company's Board of Directors adopted, and its stockholders approved, the 2016 Plan. The number of shares reserved for issuance under the 2016 Plan will increase on the first day of each fiscal year during the term of the 2016 Plan by the lesser of: (i) 10,000,000 shares, (ii) 4% of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year; or (iii) such other amount as the Company's Board of Directors may determine. On February 1, 2018, the number of shares of common stock available for issuance under the 2016 Plan was automatically increased according to its terms by 3,759,077 shares. 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 July 31, 2018, the number of shares available for future award under the 2016 Plan is 1,873,494.

13

Stock Options
       The following table summarizes the activity related to the Company's stock options:
 
Options Outstanding
 
Outstanding Stock Options
 
Weighted-Average Exercise Price
 
Weighted-Average Remaining Contractual Life (in years)
 
Aggregate Intrinsic Value
(in thousands)
Balance, January 31, 2018
22,512,856

 
$
5.65

 
6.91
 
$
146,471

Granted
—

 
$
—

 
 
 
 
Exercised
(3,510,930
)
 
$
2.89

 
 
 
 
Forfeited or canceled
(439,592
)
 
$
6.13

 
 
 
 
Balance, July 31, 2018
18,562,334

 
$
6.16

 
6.76
 
$
278,090

Vested and expected to vest
18,477,621

 
$
6.16

 
6.75
 
$
276,871

Exercisable at July 31, 2018
11,716,421

 
$
5.12

 
5.86
 
$
187,677

Nonvested option activity is as follows:
 
Options
 
Weighted-Average Grant Date Fair Value
Nonvested as of January 31, 2018
9,241,953

 
$
4.06

Granted
—

 
$
—

Vested
(1,981,469
)
 
$
3.60

Forfeited
(414,571
)
 
$
3.33

Balance as of July 31, 2018
6,845,913

 
$
4.23

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 July 31, 2018. 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 $42.3 million and $23.2 million for the six months ended July 31, 2018 and 2017, 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.
No options were granted during the three and six months ended July 31, 2018. The weighted-average grant date fair value of options granted during the three and six months ended July 31, 2017 was $5.95 and $5.35 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, 2018
4,457,585

 
$
12.26

Granted
4,264,569

 
$
17.24

Vested and converted to shares
(532,073
)
 
$
11.34

Forfeited or canceled
(268,521
)
 
$
12.68

Balance as of July 31, 2018
7,921,560

 
$
14.99

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. As of July 31, 2018, a total of 2,002,242 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 increases annually on the first day of each fiscal year beginning on February 1, 2018, in an amount 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. On February 1, 2018, the number of shares of common stock available for issuance under the ESPP was automatically increased according to its terms by 939,769 shares.

14

The initial offering period of the ESPP commenced on the effective date of the Initial Public Offering ("IPO"), April 13, 2017, and ended on March 15, 2018. In connection with the initial offering period of the ESPP, 437,527 shares of common stock were purchased under the ESPP at a purchase price of $9.35 per share for total proceeds of $4.1 million. A new offering period began on March 15, 2018 and will end on September 17, 2018. As of July 31, 2018, 292,447 shares are estimated to be purchased at the end of the current offering period and $2.1 million has been withheld on behalf of employees for these future purchases under the ESPP and is included in accounts payable, accrued expenses and other current liabilities.
The fair values of the Company’s shares issued and estimated shares to be purchased under the ESPP were estimated using the Black-Scholes option-pricing model with the following assumptions:
 
Three months ended July 31,
 
Six months ended July 31,
 
2018
 
2017
 
2018
 
2017
Employee Stock Purchase Plan
 
 
 
 
 
 
 
Expected life (years)
0.50
 
0.92
 
0.50
 
0.92
Expected volatility
34.41%
 
38.30%
 
34.41%
 
38.30%
Dividend yield
—
 
—
 
—
 
—
Risk-free rate
1.95%
 
1.02%
 
1.95%
 
1.02%
During the three and six months ended July 31, 2018, the Company recorded $0.5 million and $0.9 million, respectively, of stock-based compensation expense associated with the ESPP. As of July 31, 2018, total unrecognized compensation cost related to ESPP was $0.2 million, net of estimated forfeitures, which will be amortized over a weighted-average remaining period of 0.13 years.
A new offering period will commence on the first trading day on or after March 15th and September 15th 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 15th and March 15th, respectively. Participants may purchase the Company’s common stock through payroll deductions, up to a maximum of 15% of their eligible compensation. 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.
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 condensed 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:
 
Three months ended July 31,
 
Six months ended July 31,
(in thousands)
2018
 
2017
 
2018
 
2017
Cost of revenue
$
646

 
$
339

 
$
1,212

 
$
486

Sales and marketing
5,669

 
2,477

 
9,439

 
4,736

Research and development
2,086

 
749

 
3,642

 
1,312

General and administrative
2,627

 
1,438

 
4,728

 
2,531

Total stock-based compensation expense
$
11,028

 
$
5,003

 
$
19,021

 
$
9,065

As of July 31, 2018, there was approximately $137.9 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 3.4 years. During the three and six months ended July 31, 2018, the Company capitalized $0.1 million, for each of the periods, of stock-based compensation related to software development of its cloud-based platform, and $0.1 million and $0.2 million for the three and six months ended July 31, 2017, respectively.

15

The fair value of the Company’s stock options granted during the six months ended July 31, 2017 were estimated using the Black-Scholes option-pricing model with the following assumptions: (i) an expected life of 6.08 years based upon the simplified method for employee grants, 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; (ii) an expected volatility range of 48.77% - 49.52% based on the average of the historical volatility for a sample of comparable companies; (iii) a risk-free rate range of 1.87% - 2.13% based on the U.S. treasury yield curve in effect at the time of grants; and, (iv) a dividend yield of zero, as the Company has not historically paid any dividends and does not expect to declare or pay any dividends in the foreseeable future. The expected life assumptions for options granted to non-employees are based upon the remaining contractual term of the option. No options were granted during the six months ended July 31, 2018.
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 and all outstanding warrants exercisable for shares of convertible preferred stock automatically converted into warrants exercisable for 110,937 shares of common stock. At that time, a final fair value adjustment of $0.5 million was recorded to other expense, net and the remaining preferred stock warrant liability of $1.4 million was reclassified to stockholders' equity (deficit).
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 July 31, 2018, no shares of preferred stock were issued or outstanding.
Common Stock
        As of July 31, 2018 and January 31, 2018, the Company had authorized 500,000,000 shares 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
 As of July 31, 2018 and January 31, 2018, the Company had 6,505,334 shares of treasury stock which are carried at its cost basis of $11.9 million on the Company's condensed consolidated balance sheets.
10. Debt
        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"). In March 2018, the Credit Agreement was amended to extend the maturity date to March 16, 2020. No significant debt issuance costs were incurred in association with the amendment. 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 Credit 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

16


acquisition transactions, pay dividends or make distributions, and certain other restrictions on the Company's activities each defined specifically in the agreement.
        As of July 31, 2018 and January 31, 2018, the Company had no debt outstanding on its Revolving Line. As of July 31, 2018, the Company was in compliance with all debt covenants and had $15.0 million available under its Revolving Line.
11. Income Taxes
For the six months ended July 31, 2018 and 2017, the Company recorded a provision for income taxes of $0.3 million and $0.2 million, respectively.
ASC 740 generally requires providing for income taxes during interim periods based on the estimated annual effective tax rate ("AETR") for the full fiscal year. For the three and six months ended July 31, 2018, the Company calculated its income tax provision as though the interim year to date period was an annual period, referred to herein as the discrete method. The Company believes that the application of the AETR method is impractical at this time, given that normal deviations in the projected pre-tax net income (loss) in certain jurisdictions could result in a disproportionate and unreliable effective tax rate under the AETR method.
The Company's effective tax rate generally differs from the U.S. federal statutory tax rate primarily due to a full valuation allowance related to the Company's U.S. deferred tax assets, partially offset by the foreign tax rate differential on non-U.S. income. 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.
On December 22, 2017, the Tax Reform Act was enacted, which 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%. 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. As the Company continues to assess its provision for 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.
12. Commitments and Contingencies
Leases, Knowledge Network Application Provider Agreements and Other
        The Company is obligated to make payments under certain non-cancelable operating leases for office space, with various expiry dates between fiscal years 2019 and 2028, including the Company's primary facility in New York, which expires in December 2020. The Company is a party to various agreements with Knowledge Network application providers, which expire at various dates between fiscal years 2019 and 2035.
        Future minimum annual payments under these and other contractual obligations in the normal course of business as of July 31, 2018 are as follows (in thousands):
Fiscal year ending January 31:
 
Operating Leases
 
Application Providers and Other
2019
 
$
3,967

 
$
8,434

2020
 
7,982

 
3,015

2021
 
7,194

 
233

2022
 
800

 
12

2023 and thereafter
 
2,341

 
65

Total
 
$
22,284

 
$
11,759

        Rent expense was $1.8 million and $3.6 million for the three and six months ended July 31, 2018, respectively, and $1.5 million and $3.0 million for the three and six months ended July 31, 2017, respectively.
Legal Proceedings
       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.

17

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 condensed 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:
 
 
Three months ended July 31,
 
Six months ended July 31,
(in thousands, except share and per share data)
 
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
 
     Net loss attributable to common stockholders
 
$
(21,096
)
 
$
(16,399
)
 
$
(39,232
)
 
$
(32,505
)
Denominator:
 
 
 
 
 
 
 
 
     Weighted-average common shares outstanding
 
97,511,660

 
90,064,644

 
96,248,506

 
65,676,665

Net loss per share attributable to common stockholders, basic and diluted
 
$
(0.22
)
 
$
(0.18
)
 
$
(0.41
)
 
$
(0.49
)
        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 net 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 equivalent shares outstanding would have been anti-dilutive. Anti-dilutive common equivalent shares were as follows:
 
 
As of July 31,
 
 
2018
 
2017
Options to purchase common stock
 
18,562,334

 
25,486,316

Restricted stock and restricted stock units
 
7,921,560

 
2,795,181

Shares estimated to be purchased under ESPP
 
292,447

 
515,371

Total anti-dilutive common equivalent shares
 
26,776,341

 
28,796,868


18


Item 2. 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 condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. As discussed in the section titled "Special Note Regarding Forward Looking Statements," the following discussion and analysis contains forward looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward looking statements.  Factors that could cause or contribute to these differences include, but are not limited to, those discussed in the section titled "Risk Factors" under Part II, Item 1A in this Quarterly Report on Form 10-Q.
Overview
Yext 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 Knowledge Network (formerly the PowerListings Network) and includes Amazon Alexa, Apple Maps, Bing, Cortana, Facebook, Google, Google Assistant, Google Maps, Siri and Yelp. We have established direct data integrations with applications in our Knowledge 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. Subscriptions are offered in a discrete range of packages with pricing based on specified feature sets and the number of licenses managed with our platform.
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 the majority of our revenue is based in the U.S., we continue to grow internationally. 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 was more than 10% of our total revenue for the three and six months ended July 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.
Fiscal Year
Our fiscal year ends on January 31. References to fiscal 2019, for example, are to the fiscal year ending January 31, 2019.
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, quarterly, 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 to our Knowledge Network application providers. Our ongoing arrangements with Knowledge Network application 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 Knowledge Network application 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. 

19


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.
Results of Operations
The following table sets forth selected condensed consolidated statement of operations data for each of the periods indicated:
 
Three months ended July 31,
 
Six months ended July 31,
(in thousands)
2018
 
2017
 
2018
 
2017
Revenue
$
55,096

 
$
40,769

 
$
106,191

 
$
77,849

Cost of revenue(1)
14,086

 
10,541

 
26,886

 
20,229

 Gross profit
41,010

 
30,228

 
79,305

 
57,620

Operating expenses:
 
 
 
 
 
 
 
 Sales and marketing(1)
40,171

 
30,673

 
77,200

 
59,135

 Research and development(1)
9,983

 
6,493

 
17,712

 
11,479

 General and administrative(1)
12,060

 
9,569

 
23,598

 
18,907

 Total operating expenses
62,214

 
46,735

 
118,510

 
89,521

Loss from operations
(21,204
)
 
(16,507
)
 
(39,205
)
 
(31,901
)
Investment income
376

 
322

 
763

 
322

Interest expense
(9
)
 
(82
)
 
(76
)
 
(170
)
Other expense, net
(219
)
 
57

 
(389
)
 
(535
)
Loss from operations before income taxes
(21,056
)
 
(16,210
)
 
(38,907
)
 
(32,284
)
Provision for income taxes
(40
)
 
(189
)
 
(325
)
 
(221
)
Net loss
$
(21,096
)
 
$
(16,399
)
 
$
(39,232
)
 
$
(32,505
)
(1)Amounts include stock-based compensation expense as follows:
 
Three months ended July 31,
 
Six months ended July 31,
(in thousands)
2018
 
2017
 
2018
 
2017
Cost of revenue
$
646

 
$
339

 
$
1,212

 
$
486

Sales and marketing
5,669

 
2,477

 
9,439

 
4,736

Research and development
2,086

 
749

 
3,642

 
1,312

General and administrative
2,627

 
1,438

 
4,728

 
2,531

Total stock-based compensation expense
$
11,028

 
$
5,003

 
$
19,021

 
$
9,065


20


The following table sets forth selected condensed consolidated statements of operations data for each of the periods indicated as a percentage of total revenue: 
 
Three months ended July 31,
 
Six months ended July 31,
 
2018
 
2017
 
2018
 
2017
Revenue
100
 %
 
100
 %
 
100
 %
 
100
 %
Cost of revenue
26

 
26

 
25

 
26

 Gross profit
74

 
74

 
75

 
74

Operating expenses:
 
 
 
 
 
 
 
 Sales and marketing
73

 
75

 
73

 
76

 Research and development
17

 
16

 
17

 
15

 General and administrative
22

 
23

 
22

 
24

 Total operating expenses
112

 
114

 
112

 
115

Loss from operations
(38
)
 
(40
)
 
(37
)
 
(41
)
Investment income
—

 
—

 
—

 
—

Interest expense
—

 
—

 
—

 
—

Other expense, net
—

 
—

 
—

 
(1
)
Loss from operations before income taxes
(38
)
 
(40
)
 
(37
)
 
(42
)
Provision for income taxes
—

 
—

 
—

 
—

Net loss
(38
)%
 
(40
)%
 
(37
)%
 
(42
)%
Three Months Ended July 31, 2018 Compared to Three Months Ended July 31, 2017
Revenue and Cost of Revenue
 
Three months ended July 31,
 
Variance
(in thousands)
2018
 
2017
 
Dollars
 
Percent
 Revenue
$
55,096

 
$
40,769

 
$
14,327

 
35
%
 Cost of revenue
14,086

 
10,541

 
$
3,545

 
34
%
 Gross profit
$
41,010

 
$
30,228

 
$
10,782

 
36
%
 Gross margin
74.4
%
 
74.1
%
 
 
 
 
Total revenue was $55.1 million for the three months ended July 31, 2018, compared to $40.8 million for the three months ended July 31, 2017, an increase of $14.3 million or 35%. This increase was primarily due to continued new customer acquisitions and expanded subscriptions sold to existing customers.
Cost of revenue was $14.1 million for the three months ended July 31, 2018, compared to $10.5 million for the three months ended July 31, 2017, an increase of $3.5 million or 34%. This increase was primarily due to a $1.4 million increase in personnel‑related costs, which mainly consisted of salaries and wages, reflecting higher headcount and a $0.6 million increase in Knowledge Network application provider fees. The remaining increase in cost of revenue primarily related to increases in depreciation expense, stock-based compensation expense, and costs associated with our data centers.
Gross margin was 74.4% for the three months ended July 31, 2018, compared to 74.1% for the three months ended July 31, 2017, as revenue growth outpaced the increase in cost of revenue.
Operating Expenses
 
Three months ended July 31,
 
Variance
(in thousands)
2018
 
2017
 
Dollars
 
Percent
 Sales and marketing
$
40,171

 
$
30,673

 
$
9,498

 
31
%
 Research and development
$
9,983

 
$
6,493

 
$
3,490

 
54
%
 General and administrative
$
12,060

 
$
9,569

 
$
2,491

 
26
%
Sales and marketing expense was $40.2 million for the three months ended July 31, 2018, compared to $30.7 million for the three months ended July 31, 2017, an increase of $9.5 million, or 31%. The increase was primarily due to a $5.2 million increase in personnel‑related costs, which mainly consisted of salaries and wages, reflecting higher headcount, as well as commissions, as we

21


continued to expand our sales force to invest in our overall growth. In addition, stock-based compensation expense increased $3.2 million.
Research and development expense was $10.0 million for the three months ended July 31, 2018, compared to $6.5 million for the three months ended July 31, 2017, an increase of $3.5 million, or 54%. The increase was primarily due to a $2.1 million increase in personnel-related costs, which mainly consisted of salaries and wages, reflecting higher headcount, as well as a $1.3 million increase in stock-based compensation expense.
General and administrative expense was $12.1 million for the three months ended July 31, 2018, compared to $9.6 million for the three months ended July 31, 2017, an increase of $2.5 million, or 26%. The increase was primarily due to a $1.2 million increase in stock-based compensation expense, as well as a $0.7 million increase in personnel‑related costs, which mainly consisted of salaries and wages, reflecting higher headcount.
Six Months Ended July 31, 2018 Compared to Six Months Ended July 31, 2017
Revenue and Cost of Revenue
 
Six months ended July 31,
 
Variance
(in thousands)
2018
 
2017
 
Dollars
 
Percent
 Revenue
$
106,191

 
$
77,849

 
$
28,342

 
36
%
 Cost of revenue
26,886

 
20,229

 
$
6,657

 
33
%
 Gross profit
$
79,305

 
$
57,620

 
$
21,685

 
38
%
 Gross margin
74.7
%
 
74.0
%
 
 
 
 
Total revenue was $106.2 million for the six months ended July 31, 2018, compared to $77.8 million for the six months ended July 31, 2017, an increase of $28.3 million or 36%. This increase was primarily due to continued new customer acquisitions and expanded subscriptions sold to existing customers.
Cost of revenue was $26.9 million for the six months ended July 31, 2018, compared to $20.2 million for the six months ended July 31, 2017, an increase of $6.7 million or 33%. This increase was primarily due to a $2.7 million increase in personnel‑related costs, which mainly consisted of salaries and wages, reflecting higher headcount and a $1.1 million increase in Knowledge Network application provider fees. The remaining increase in cost of revenue primarily related to increases in depreciation expense, stock-based compensation expense, and costs associated with our data centers.
Gross margin was 74.7% for the six months ended July 31, 2018, compared to 74.0% for the six months ended July 31, 2017, as revenue growth outpaced the increase in cost of revenue.
Operating Expenses
 
Six months ended July 31,
 
Variance
(in thousands)
2018
 
2017
 
Dollars
 
Percent
 Sales and marketing
$
77,200

 
$
59,135

 
$
18,065

 
31
%
 Research and development
$
17,712

 
$
11,479

 
$
6,233

 
54
%
 General and administrative
$
23,598

 
$
18,907

 
$
4,691

 
25
%
Sales and marketing expense was $77.2 million for the six months ended July 31, 2018, compared to $59.1 million for the six months ended July 31, 2017, an increase of $18.1 million, or 31%. The increase was primarily due to a $10.4 million increase in personnel‑related costs, which mainly consisted of salaries and wages, reflecting higher headcount, as well as commissions, as we continued to expand our sales force to invest in our overall growth. In addition, stock-based compensation expense increased $4.7 million.
Research and development expense was $17.7 million for the six months ended July 31, 2018, compared to $11.5 million for the six months ended July 31, 2017, an increase of $6.2 million, or 54%. The increase was primarily due to a $3.9 million increase in personnel-related costs, which mainly consisted of salaries and wages, reflecting higher headcount, as well as a $2.3 million increase in stock-based compensation expense.
General and administrative expense was $23.6 million for the six months ended July 31, 2018, compared to $18.9 million for the six months ended July 31, 2017, an increase of $4.7 million, or 25%. The increase was primarily due to a $2.2 million increase in stock-based compensation expense, as well as a $1.4 million increase in personnel‑related costs, which mainly consisted of salaries and wages, reflecting higher headcount.

22


Liquidity and Capital Resources
As of July 31, 2018, our principal sources of liquidity were cash, cash equivalents and marketable securities, comprised primarily of bank deposits, money market funds, corporate bonds and U.S. treasury securities, totaling $124.8 million. 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 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, significant marketing events and related expenses, and 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 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"). 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.
As of July 31, 2018, we had no debt outstanding and $15.0 million available under our Revolving Line.
Cash Flows
The following table summarizes our cash flows:
 
Six months ended July 31,
(in thousands)
2018
 
2017
 Net cash used in operating activities
$
(3,016
)
 
$
(13,949
)
 Net cash provided by (used in) investing activities
$
3,672

 
$
(96,332
)
 Net cash provided by financing activities
$
12,485

 
$
117,962

Operating Activities
Net cash used in operating activities of $3.0 million for the six months ended July 31, 2018 was primarily due to the net loss of $39.2 million, as well as changes in prepaid expenses and other current assets of $3.7 million, deferred commissions of $1.6 million and deferred revenue of $1.4 million. These decreases were partially offset by a change in accounts receivable of $16.1 million, reflecting growth in subscription arrangements as compared to the same period in fiscal 2018, as well as the timing of cash collections, including those from certain significant customers, as well as a change in accounts payable, accrued expenses and other current liabilities of $4.9 million, generally associated with timing. In addition, non-cash charges related to stock‑based compensation expense of $19.0 million and depreciation and amortization of $3.2 million, resulted in positive adjustments in reconciling our net loss to net cash used in operating activities.
Net cash used in operating activities of $13.9 million for the six months ended July 31, 2017 was primarily due to the net loss of $32.5 million, a change in accounts payable, accrued expenses and other current liabilities of $3.5 million, mainly due to the timing of payments associated with commissions and salaries, and a change in prepaid expenses and other current assets of $2.6 million. These decreases were offset by a change in accounts receivable of $13.2 million, mainly due to timing of billing and cash collections during the period, stock‑based compensation expense of $9.1 million, and depreciation and amortization of $2.4 million.
Investing Activities
Net cash provided by investing activities of $3.7 million for the six months ended July 31, 2018 was related to maturities associated with marketable securities of $31.1 million, offset by purchases of marketable securities of $24.7 million and capital expenditures of $2.7 million.

23


Net cash used in investing activities of $96.3 million for the six months ended July 31, 2017 was primarily related to purchases of marketable securities of $94.4 million and capital expenditures of $1.9 million.
Financing Activities
Net cash provided by financing activities of $12.5 million for the six months ended July 31, 2018 was related to proceeds from exercises of stock options of $10.2 million and proceeds, net from employee stock purchase plan withholdings of $2.5 million, partially offset by payments of deferred financing costs of $0.2 million. 
Net cash provided by financing activities of $118.0 million for the six months ended July 31, 2017 was primarily related to proceeds from our Initial Public Offering ("IPO") of $123.5 million, net of underwriting discounts and commissions, as well as proceeds from exercises of stock options of $2.4 million, and proceeds, net from employee stock purchase plan withholdings of $1.3 million. These amounts were partially offset by the repayment of our Revolving Line of $5.0 million and costs paid in connection with our IPO of $4.3 million.
Contractual Obligations
We are obligated to make payments under certain non-cancelable operating leases for office space, with various expiry dates between fiscal years 2019 and 2028, including our primary facility in New York, which expires in December 2020. We are a party to various agreements with Knowledge 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 July 31, 2018 (in thousands):
Fiscal year ending January 31:
 
Operating Leases
 
Application Providers and Other(1)
2019
 
$
3,967

 
$
8,434

2020
 
7,982

 
3,015

2021
 
7,194

 
233

2022
 
800

 
12

2023 and thereafter
 
2,341

 
65

Total
 
$
22,284

 
$
11,759

(1) Includes any minimum contractual commitment levels of variable payments to Knowledge Network application providers, as well as 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.
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.
Except as described in Note 2, “Summary of Significant Accounting Policies- Recent Accounting Pronouncements -Adoption of New Accounting Standards,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to those disclosed in our Annual Report on Form 10-K.
Recent Accounting Pronouncements
See Note 2, "Summary of Significant Accounting Policies- Recent Accounting Pronouncements," to the condensed consolidated financial statements for our discussion about adopted and pending recent accounting pronouncements.

24


Item 3. Quantitative and Qualitative Disclosures About Market Risk
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 (loss) income 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 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 July 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, comprised primarily of bank deposits, money market funds, corporate bonds and U.S. treasury securities, totaling $124.8 million as of July 31, 2018. 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 marketable securities have significant risk of default or illiquidity. While we believe our cash equivalents and 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.
Item 4. 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 effective as of July 31, 2018.
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 July 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 the Annual Report on Form 10-K.

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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 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.


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PART II. OTHER INFORMATION
Item 1.    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.
Item 1A. Risk Factors
You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this Quarterly Report on Form 10-Q, including our condensed 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, and a net loss of $39.2 million in the six months ended July 31, 2018. As of July 31, 2018, we had an accumulated deficit of $272.7 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.

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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.
Failure to adequately expand our sales force will impede our growth.
Our revenue growth is substantially reliant on our sales force. Much of 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 qualified 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 our 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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compliance with international laws and regulations, including without limitation, those governing privacy, data security and data transfer, such as the General Data Protection Regulation, or GDPR, which may impair our ability to grow our business or offer our service in some locations, may subject us to liability for non-compliance or may require us to change our business practices;
•
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;
•
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.
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 Knowledge 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 Knowledge Network application providers.
We have established strategic relationships with approximately 150 third-party service and application providers that comprise our Knowledge Network, including Amazon Alexa, 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 Knowledge 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 Knowledge 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.

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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.
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.

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If customers do not renew their subscriptions for our platform or if they 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.
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;
•
introduction of competing products;
•
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.
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.
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 be innovative. 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 any 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.
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.

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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.
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 July 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, or for the six months ended July 31, 2018. 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. For example, consolidation among our third-party resellers may require us to renegotiate agreements on less favorable terms, including longer payment periods, or may lead to a termination of our agreements with these resellers. 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, 37% from the fiscal year ended January 31, 2017 to the fiscal year ended January 31, 2018, and 36% from the six months ended July 31, 2017 to the six months ended July 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

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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 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 fina