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 October 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 every Interactive Data File required to be submitted 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 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
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 November 19, 2018, the registrant had 100,864,546 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)
 
October 31, 2018
 
January 31, 2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
28,337

 
$
34,367

Marketable securities
78,697

 
83,974

Accounts receivable, net of allowances of $148 and $231, respectively
34,446

 
44,656

Prepaid expenses and other current assets
10,687

 
7,703

Deferred commissions, current
10,948

 
9,342

Total current assets
163,115

 
180,042

Property and equipment, net
11,635

 
11,438

Goodwill
4,623

 
4,924

Intangible assets, net
2,064

 
2,761

Other long term assets
4,825

 
4,324

Total assets
$
186,262

 
$
203,489

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable, accrued expenses and other current liabilities
$
27,033

 
$
27,416

Deferred revenue, current
83,193

 
89,474

Deferred rent, current
1,472

 
1,288

Total current liabilities
111,698

 
118,178

Deferred rent, non-current
2,096

 
3,213

Other long term liabilities
598

 
645

Total liabilities
114,392

 
122,036

Commitments and contingencies (Note 12)


 


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

 
—

Common stock, $0.001 par value per share; 500,000,000 shares authorized at October 31, 2018 and January 31, 2018; 107,277,643 and 100,482,264 shares issued at October 31, 2018 and January 31, 2018, respectively; 100,772,309 and 93,976,930 shares outstanding at October 31, 2018 and January 31, 2018, respectively
107

 
100

Additional paid-in capital
382,564

 
328,344

Accumulated other comprehensive loss
(1,448
)
 
(1,636
)
Accumulated deficit
(297,448
)
 
(233,450
)
Treasury stock, at cost
(11,905
)
 
(11,905
)
Total stockholders’ equity
71,870

 
81,453

Total liabilities and stockholders’ equity
$
186,262

 
$
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 October 31,
 
Nine months ended October 31,
 
2018
 
2017
 
2018
 
2017
Revenue
$
58,742

 
$
44,332

 
$
164,933

 
$
122,181

Cost of revenue
14,886

 
11,658

 
41,772

 
31,887

Gross profit
43,856

 
32,674

 
123,161

 
90,294

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
45,669

 
32,756

 
122,869

 
91,891

Research and development
9,158

 
6,958

 
26,870

 
18,437

General and administrative
13,867

 
10,196

 
37,465

 
29,103

Total operating expenses
68,694

 
49,910

 
187,204

 
139,431

Loss from operations
(24,838
)
 
(17,236
)
 
(64,043
)
 
(49,137
)
Investment income
350

 
419

 
1,113

 
741

Interest income (expense)
74

 
(104
)
 
(2
)
 
(274
)
Other expense, net
(194
)
 
(132
)
 
(583
)
 
(667
)
Loss from operations before income taxes
(24,608
)
 
(17,053
)
 
(63,515
)
 
(49,337
)
Provision for income taxes
(158
)
 
(9
)
 
(483
)
 
(230
)
Net loss
$
(24,766
)
 
$
(17,062
)
 
$
(63,998
)
 
$
(49,567
)
 
 
 
 
 
 
 
 
Net loss per share attributable to common stockholders, basic and diluted
$
(0.25
)
 
$
(0.19
)
 
$
(0.66
)
 
$
(0.67
)
Weighted-average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted
99,628,479

 
90,353,608

 
97,387,544

 
73,992,705

 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
126

 
$
53

 
$
22

 
$
410

Unrealized gain (loss) on marketable securities
55

 
(88
)
 
166

 
(148
)
Total comprehensive loss
$
(24,585
)
 
$
(17,097
)
 
$
(63,810
)
 
$
(49,305
)
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
—

—

5,000

4

15,080

—

—

—

15,084

Vested restricted stock units converted to common shares
—

—

1,085

2

(2
)
—

—

—

—

Issuance of restricted stock
—

—

16

—

—

—

—

—

—

Issuance of common stock under employee stock purchase plan
—

—

694

1

6,777

—

—

—

6,778

Stock-based compensation
—

—

—

—

32,365

—

—

—

32,365

Other comprehensive income
—

—

—

—

—

188

—

—

188

Net loss
—

—

—

—

—

—

(63,998
)
—

(63,998
)
Balance, October 31, 2018
—

$
—

100,772

$
107

$
382,564

$
(1,448
)
$
(297,448
)
$
(11,905
)
$
71,870

See the accompanying notes to the condensed consolidated financial statements.


6


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

 
Nine months ended October 31,
 
2018
 
2017
Operating activities:
 
 
 
Net loss
$
(63,998
)
 
$
(49,567
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
5,028

 
3,751

Provision for bad debts
302

 
321

Stock-based compensation expense
31,943

 
15,002

Change in fair value of convertible preferred stock warrant liability
—

 
491

Deferred income taxes
(54
)
 
(13
)
Amortization of deferred financing costs
98

 
105

Amortization of premium on marketable securities
(61
)
 
108

Gain on sale of marketable securities
—

 
(1
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
9,352

 
3,629

Prepaid expenses and other current assets
(3,325
)
 
(1,989
)
Deferred commissions
(1,831
)
 
(1,152
)
Other long term assets
(509
)
 
(161
)
Accounts payable, accrued expenses and other current liabilities
3,681

 
(2,625
)
Deferred revenue
(5,298
)
 
2,263

Deferred rent
(910
)
 
(581
)
Other long term liabilities
2

 
89

Net cash used in operating activities
(25,580
)
 
(30,330
)
Investing activities:
 
 
 
Purchases of marketable securities
(52,916
)
 
(106,155
)
Maturities of marketable securities
58,420

 
7,500

Sales of marketable securities
—

 
6,041

Capital expenditures
(4,321
)
 
(2,747
)
Net cash provided by (used in) investing activities
1,183

 
(95,361
)
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
15,044

 
4,686

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
3,947

 
2,724

Net cash provided by financing activities
18,832

 
121,654

Effect of exchange rate changes on cash, cash equivalents and restricted cash
(465
)
 
229

Net decrease in cash, cash equivalents and restricted cash
(6,030
)
 
(3,808
)
Cash, cash equivalents and restricted cash at beginning of period
34,367

 
24,920

Cash, cash equivalents and restricted cash at end of period 
$
28,337

 
$
21,112

Supplemental reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets:
(in thousands)
October 31, 2018
 
October 31, 2017
Cash and cash equivalents
$
28,337

 
$
21,112

Restricted cash
—

 
—

Total cash, cash equivalents and restricted cash
$
28,337

 
$
21,112

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 nine months ended October 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 October 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 nine months ended October 31, 2018 and 2017, respectively.
Geographic Locations
Revenue by geographic region consisted of the following:
 
 
Three months ended October 31,
 
Nine months ended October 31,
(in thousands)
 
2018
 
2017
 
2018
 
2017
North America
 
$
50,523

 
$
40,319

 
$
143,334

 
$
113,010

International
 
8,219

 
4,013

 
21,599

 
9,171

Total revenue
 
$
58,742

 
$
44,332

 
$
164,933

 
$
122,181

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 to become a large accelerated filer and thus cease to be an emerging growth company on January 31, 2019. At that time, the Company will be required to adopt new or revised accounting standards as required by public companies, including those standards which the Company had previously deferred pursuant to the JOBS Act.
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 nine months ended October 31, 2018. The presentation of the statement of cash flows for the nine months ended October 31, 2017 required certain reclassifications to conform to the current year presentation as follows (in thousands):
 
 
Nine months ended October 31, 2017
Line Items - As Revised
 
As Previously Reported
 
Reclassification of Restricted Cash
 
As Revised
Net cash used in operating activities
 
$
(29,830
)
 
$
(500
)
 
$
(30,330
)
Net cash used in investing activities
 
(95,361
)
 
—

 
(95,361
)
Net cash provided by financing activities
 
121,654

 
—

 
121,654

Effects of exchange rate changes on cash, cash equivalents and restricted cash
 
229

 
—

 
229

Net decrease in cash, cash equivalents and restricted cash
 
(3,308
)
 
(500
)
 
(3,808
)
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
 
$
21,112

 
$
—

 
$
21,112

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 income 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 nine months ended

9

October 31, 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).
The Company plans to adopt the standard on January 31, 2019 utilizing the modified retrospective approach, which will result in a cumulative effect adjustment for the full fiscal year. 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 its revenue recognition policies, accounting for deferred commissions, and the new disclosure requirements. The Company has evaluated both qualitative and quantitative factors and plans to amortize deferred commissions over a longer benefit period, expected to be three years, in comparison to the current policy of amortizing such amounts over the revenue contract terms. The Company is continuing its process to assess the new standard with consideration to industry trends and interpretive guidance, and to analyze and quantify the effect of the adoption on 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. 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. The Company plans to adopt the standard on February 1, 2019 utilizing the modified retrospective approach, which includes a number of optional practical expedients which it may elect to apply. The Company has an implementation plan in place guiding its transition, including the new accounting and disclosure requirements. It expects the adoption will result in the recognition of right-of-use assets and lease liabilities for its operating leases, which will increase total assets and liabilities. The Company is continuing to evaluate the standard, with consideration to industry trends and additional interpretive guidance, for other potential impacts to its consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, "Compensation - Stock Compensation (Topic 718): Improvements to Non-employee 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 Company plans to adopt this standard on February 1, 2019 and is currently evaluating the potential impact of adopting this new accounting guidance.
In August 2018, the FASB issued ASU 2018-15, "Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract." This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with those to develop or obtain internal-use software. The Company plans to early adopt this standard on February 1, 2019 on a prospective basis and is currently evaluating the potential impact of adopting this new accounting guidance.

10

3. Investments in Marketable Securities
The Company considers all of its investments in marketable securities, irrespective of the maturity date, as available for use in current operations, and therefore classifies these securities within current assets on the condensed consolidated balance sheets. Marketable securities are carried at fair value, with the unrealized gains and losses, net of income taxes, reflected in accumulated other comprehensive 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:
 
October 31, 2018
(in thousands)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Commercial paper
$
—

 
$
—

 
$
—

 
$
—

Corporate bonds
25,960

 
—

 
(95
)
 
25,865

U.S. treasury securities
52,891

 
—

 
(59
)
 
52,832

Total marketable securities
$
78,851

 
$
—

 
$
(154
)
 
$
78,697

 
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 October 31, 2018, the Company had gross unrealized losses of $0.2 million, of which $0.1 million of marketable securities with an aggregate fair value of $32.3 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 October 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 October 31,
 
Nine months ended October 31,
(in thousands)
2018
 
2017
 
2018
 
2017
Interest income
$
350

 
$
418

 
$
1,113

 
$
740

Realized gains
—

 
1

 
—

 
1

Total investment income
$
350

 
$
419

 
$
1,113

 
$
741

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. 

11

Level 2 inputs are based on observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. 
Level 3 inputs are based on unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities, and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability.
All of the Company’s cash equivalents and marketable securities are classified within Level 1 or Level 2 because the Company’s cash equivalents and marketable securities are valued using quoted market prices or alternative pricing sources and models utilizing observable market inputs.
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:
 
 
October 31, 2018
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash equivalents:
 
 
 
 
 
 
 
 
    Money market funds (1)
 
$
18,678

 
$
—

 
$
—

 
$
18,678

Marketable securities:
 
 
 
 
 
 
 
 
    Commercial paper
 
—

 
—

 
—

 
—

    Corporate bonds
 
—

 
25,865

 
—

 
25,865

    U.S. treasury securities
 
—

 
52,832

 
—

 
52,832

Total assets
 
$
18,678

 
$
78,697

 
$
—

 
$
97,375

 
 
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 October 31, 2018 and January 31, 2018, the Company had goodwill of $4.6 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 nine months ended October 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.

12

Intangible Assets
As of October 31, 2018 and January 31, 2018, the Company had intangible assets, net of $2.1 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 nine months ended October 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.
Amortization expense related to intangible assets totaled $0.2 million and $0.5 million for the three and nine months ended October 31, 2018, respectively, and $0.2 million and $0.5 million for the three and nine months ended October 31, 2017, respectively.
6. Property and Equipment, net
Property and equipment, net consisted of the following:
(in thousands)
October 31, 2018
 
January 31, 2018
Furniture and fixtures
$
715

 
$
719

Office equipment
7,605

 
4,636

Leasehold improvements
13,052

 
12,928

Computer software
5,795

 
4,563

Construction in progress
522

 
124

Total property and equipment
27,689

 
22,970

Less: accumulated depreciation
(16,054
)
 
(11,532
)
Total property and equipment, net
$
11,635

 
$
11,438

Depreciation expense was $1.6 million and $4.5 million for the three and nine months ended October 31, 2018, respectively, and $1.2 million and $3.2 million for the three and nine months ended October 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)
October 31, 2018
 
January 31, 2018
Accounts payable
$
4,417

 
$
4,253

Accrued employee compensation
11,034

 
11,341

Accrued professional services and associated costs
2,063

 
1,333

Accrued Knowledge Network application provider fees
2,353

 
1,860

Accrued sales and use tax
1,391

 
1,846

Accrued employee stock purchase plan withholdings liability
918

 
3,750

Accrued other liabilities
4,857

 
3,033

Total accounts payable, accrued expenses and other current liabilities
$
27,033

 
$
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.

13

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 October 31, 2018, the number of shares available for future award under the 2016 Plan is 1,446,083.
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
(5,000,035
)
 
$
3.02

 
 
 
 
Forfeited or canceled
(585,453
)
 
$
5.99

 
 
 
 
Balance, October 31, 2018
16,927,368

 
$
6.41

 
6.51
 
$
216,783

Vested and expected to vest
16,864,828

 
$
6.41

 
6.51
 
$
216,009

Exercisable at October 31, 2018
11,115,428

 
$
5.55

 
5.68
 
$
151,944

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
(2,894,581
)
 
$
3.72

Forfeited
(535,432
)
 
$
3.17

Balance as of October 31, 2018
5,811,940

 
$
4.31

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 October 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 $69.3 million and $29.7 million for the nine months ended October 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 nine months ended October 31, 2018. The weighted-average grant date fair value of options granted during the three and nine months ended October 31, 2017 was $6.66 and $5.63 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
5,031,773

 
$
18.44

Vested and converted to shares
(1,098,253
)
 
$
13.03

Forfeited or canceled
(462,453
)
 
$
13.43

Balance as of October 31, 2018
7,928,652

 
$
16.01


14

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. 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. As of October 31, 2018, a total of 1,746,085 shares of the Company's common stock are available for sale to employees under the ESPP.
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 second offering period began on March 15, 2018 and ended on September 17, 2018. In connection with the second offering period, 256,157 shares of common stock were purchased under the ESPP at a purchase price of $10.49 per share for total proceeds of $2.7 million. A third offering period began on September 17, 2018 and will end on March 15, 2019. As of October 31, 2018, 179,221 shares are estimated to be purchased at the end of the offering period and $0.9 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 Black-Scholes option-pricing model assumptions used to calculate the fair value of shares estimated to be purchased under the respective ESPP offering periods were as follows:
 
Three months ended October 31,
 
Nine months ended October 31,
 
2018
 
2017
 
2018
 
2017
Employee Stock Purchase Plan
 
 
 
 
 
 
 
Expected life (years)
0.50
 
—
 
0.50
 
0.92
Expected volatility
45.09%
 
—%
 
34.41% - 45.09%
 
38.30%
Dividend yield
—
 
—
 
—
 
—
Risk-free rate
2.35%
 
—%
 
1.95% - 2.35%
 
1.02%
During the three and nine months ended October 31, 2018, the Company recorded $0.5 million and $1.5 million, respectively, of stock-based compensation expense associated with the ESPP. As of October 31, 2018, total unrecognized compensation cost related to ESPP was $0.9 million, net of estimated forfeitures, which will be amortized over a weighted-average remaining period of 0.37 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 October 31,
 
Nine months ended October 31,
(in thousands)
2018
 
2017
 
2018
 
2017
Cost of revenue
$
820

 
$
461

 
$
2,032

 
$
947

Sales and marketing
6,891

 
2,741

 
16,330

 
7,477

Research and development
2,369

 
1,121

 
6,011

 
2,433

General and administrative
2,842

 
1,614

 
7,570

 
4,145

Total stock-based compensation expense
$
12,922

 
$
5,937

 
$
31,943

 
$
15,002


15

As of October 31, 2018, there was approximately $141.5 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 3.3 years. During the three and nine months ended October 31, 2018, the Company capitalized $0.3 million and $0.4 million, respectively, of stock-based compensation related to software development of its cloud-based platform, and $0.1 million and $0.3 million for the three and nine months ended October 31, 2017, respectively.
The fair value of the Company’s stock options granted during the nine months ended October 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 47.33% - 48.77% based on the average of the historical volatility for a sample of comparable companies; (iii) a risk-free rate range of 1.87% - 2.37% 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 nine months ended October 31, 2018.
9. Equity
The following tables summarize the changes in convertible preferred stock and stockholders' equity (deficit) for the three and nine months ended October 31, 2018 and 2017 (in thousands):
 
 
 
 
 
 
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, 2018
—

$
—

93,977

$
100

$
328,344

$
(1,636
)
$
(233,450
)
$
(11,905
)
$
81,453

Exercise of stock options
—

—

1,678

2

4,908

—

—

—

4,910

Vested restricted stock units converted to common shares
—

—

141

—

—

—

—

—

—

Issuance of restricted stock
—

—

4

—

—

—

—

—

—

Issuance of common stock under employee stock purchase plans
—

—

438

1

4,090

—

—

—

4,091

Stock-based compensation
—

—

—

—

8,066

—

—

—

8,066

Other comprehensive loss
—

—

—

—

—

(95
)
—

—

(95
)
Net loss
—

—

—

—

—

—

(18,136
)
—

(18,136
)
Balance, April 30, 2018
—

—

96,238

103

345,408

(1,731
)
(251,586
)
(11,905
)
80,289

Exercise of stock options
—

—

1,833

1

5,231

—

—

—

5,232

Vested restricted stock units converted to common shares
—

—

378

1

(1
)
—

—

—

—

Issuance of restricted stock
—

—

12

—

—

—

—

—

—

Stock-based compensation
—

—

—

—

11,081

—

—

—

11,081

Other comprehensive income
—

—

—

—

—

102

—

—

102

Net loss
—

—

—

—

—

—

(21,096
)
—

(21,096
)
Balance, July 31, 2018
—

—

98,461

105

361,719

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

Exercise of stock options
—

—

1,489

1

4,941

—

—

—

4,942

Vested restricted stock units converted to common shares
—

—

566

1

(1
)
—

—

—

—

Issuance of common stock under employee stock purchase plans
—

—

256

—

2,687

—

—

—

2,687

Stock-based compensation
—

—

—

—

13,218

—

—

—

13,218

Other comprehensive income
—

—

—

—

—

181

—

—

181

Net loss
—

—

—

—

—

—

(24,766
)
—

(24,766
)
Balance, October 31, 2018
—

$
—

100,772

$
107

$
382,564

$
(1,448
)
$
(297,448
)
$
(11,905
)
$
71,870


16


 
 
 
 
 
 
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
—

—

2,728

3

2,137

—

—

—

2,140

Exercise of common stock warrants
—

—

143

—

—

—

—

—

—

Vested restricted stock units converted to common shares
—

—

60

—

—

—

—

—

—

Stock-based compensation
—

—

—

—

4,062

—

—

—

4,062

Other comprehensive income
—

—

—

—

—

192

—

—

192

Net loss
—

—

—

—

—

—

(16,106
)
—

(16,106
)
Balance, April 30, 2017
—

—

89,995

97

300,092

(1,616
)
(182,991
)
(11,905
)
103,677

Exercise of stock options
—

—

69

—

241

—

—

—

241

Exercise of common stock warrants
—

—

36

—

79

—

—

—

79

Vested restricted stock units converted to common shares
—

—

40

—

—

—

—

—

—

Issuance of restricted stock
—

—

13

—

—

—

—

—

—

Stock-based compensation
—

—

—

—

5,181

—

—

—

5,181

Other comprehensive income
—

—

—

—

—

105

—

—

105

Net loss
—

—

—

—

—

—

(16,399
)
—

(16,399
)
Balance, July 31, 2017
—

—

90,153

97

305,593

(1,511
)
(199,390
)
(11,905
)
92,884

Exercise of stock options
—

—

726

1

2,304

—

—

—

2,305

Vested restricted stock units converted to common shares
—

—

30

—

—

—

—

—

—

Stock-based compensation
—

—

—

—

6,033

—

—

—

6,033

Other comprehensive loss
—

—

—

—

—

(35
)
—

—

(35
)
Net loss
—

—

—

—

—

—

(17,062
)
—

(17,062
)
Balance, October 31, 2017
—

$
—

90,909

$
98

$
313,930

$
(1,546
)
$
(216,452
)
$
(11,905
)
$
84,125

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

17

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 October 31, 2018, no shares of preferred stock were issued or outstanding.
Common Stock
        As of October 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 October 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 acquisition transactions, pay dividends or make distributions, and certain other restrictions on the Company's activities each defined specifically in the agreement.
        As of October 31, 2018 and January 31, 2018, the Company had no debt outstanding on its Revolving Line. As of October 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 nine months ended October 31, 2018 and 2017, the Company recorded a provision for income taxes of $0.5 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 nine months ended October 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.

18

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 2020 and 2028, including its 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 October 31, 2018 are as follows (in thousands):
Fiscal year ending January 31:
 
Operating Leases
 
Application Providers and Other
2019
 
$
1,992

 
$
3,468

2020
 
7,734

 
6,765

2021
 
6,705

 
1,260

2022
 
550

 
541

2023 and thereafter
 
2,273

 
82

Total
 
$
19,254

 
$
12,116

        Rent expense was $2.0 million and $5.6 million for the three and nine months ended October 31, 2018, respectively, and $1.6 million and $4.7 million for the three and nine months ended October 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.
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.

19

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 October 31,
 
Nine months ended October 31,
(in thousands, except share and per share data)
 
2018
 
2017
 
2018
 
2017
Numerator:
 
 
 
 
 
 
 
 
     Net loss attributable to common stockholders
 
$
(24,766
)
 
$
(17,062
)
 
$
(63,998
)
 
$
(49,567
)
Denominator:
 
 
 
 
 
 
 
 
     Weighted-average common shares outstanding
 
99,628,479

 
90,353,608

 
97,387,544

 
73,992,705

Net loss per share attributable to common stockholders, basic and diluted
 
$
(0.25
)
 
$
(0.19
)
 
$
(0.66
)
 
$
(0.67
)
        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 October 31,
 
 
2018
 
2017
Options to purchase common stock
 
16,927,368

 
24,591,376

Restricted stock and restricted stock units
 
7,928,652

 
3,649,893

Shares estimated to be purchased under ESPP
 
179,221

 
493,564

Total anti-dilutive common equivalent shares
 
25,035,241

 
28,734,833


20


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 nine months ended October 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. 

21


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 October 31,
 
Nine months ended October 31,
(in thousands)
2018
 
2017
 
2018
 
2017
Revenue
$
58,742

 
$
44,332

 
$
164,933

 
$
122,181

Cost of revenue(1)
14,886

 
11,658

 
41,772

 
31,887

 Gross profit
43,856

 
32,674

 
123,161

 
90,294

Operating expenses:
 
 
 
 
 
 
 
 Sales and marketing(1)
45,669

 
32,756

 
122,869

 
91,891

 Research and development(1)
9,158

 
6,958

 
26,870

 
18,437

 General and administrative(1)
13,867

 
10,196

 
37,465

 
29,103

 Total operating expenses
68,694

 
49,910

 
187,204

 
139,431

Loss from operations
(24,838
)
 
(17,236
)
 
(64,043
)
 
(49,137
)
Investment income
350

 
419

 
1,113

 
741

Interest income (expense)
74

 
(104
)
 
(2
)
 
(274
)
Other expense, net
(194
)
 
(132
)
 
(583
)
 
(667
)
Loss from operations before income taxes
(24,608
)
 
(17,053
)
 
(63,515
)
 
(49,337
)
Provision for income taxes
(158
)
 
(9
)
 
(483
)
 
(230
)
Net loss
$
(24,766
)
 
$
(17,062
)
 
$
(63,998
)
 
$
(49,567
)
(1)Amounts include stock-based compensation expense as follows:
 
Three months ended October 31,
 
Nine months ended October 31,
(in thousands)
2018
 
2017
 
2018
 
2017
Cost of revenue
$
820

 
$
461

 
$
2,032

 
$
947

Sales and marketing
6,891

 
2,741

 
16,330

 
7,477

Research and development
2,369

 
1,121

 
6,011

 
2,433

General and administrative
2,842

 
1,614

 
7,570

 
4,145

Total stock-based compensation expense
$
12,922

 
$
5,937

 
$
31,943

 
$
15,002


22


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 October 31,
 
Nine months ended October 31,
 
2018
 
2017
 
2018
 
2017
Revenue
100
 %
 
100
 %
 
100
 %
 
100
 %
Cost of revenue
25

 
26

 
25

 
26

 Gross profit
75

 
74

 
75

 
74

Operating expenses:
 
 
 
 
 
 
 
 Sales and marketing
78

 
74

 
75

 
75

 Research and development
15

 
16

 
16

 
15

 General and administrative
24

 
23

 
23

 
24

 Total operating expenses
117

 
113

 
114

 
114

Loss from operations
(42
)
 
(39
)
 
(39
)
 
(40
)
Investment income
—

 
1

 
—

 
—

Interest income (expense)
—