Yext Inc

1. Organization and Description of Business

Description of Business

Yext, Inc. ("Yext" or the "Company") empowers businesses to manage their knowledge so they can deliver relevant, actionable answers to consumer questions as well as consistent, accurate and engaging experiences to customers throughout the digital ecosystem. The Company's digital presence platform (also known as the Answers Platform) lets businesses structure and organize information about their brands in the Company's knowledge graph, Yext Content (also known as the Knowledge Graph), which is then delivered across first- and third-party websites and applications through its network of over 200 service and application providers, which the Company refers to as its Publisher Network. The Company's platform powers all of the Company's key products, including Listings, Reviews, Pages, and Search, each with robust analytics capabilities for businesses to easily track performance across customer experiences.

In August 2024, the Company acquired Hearsay Social, Inc., a digital client engagement platform for financial services ("Hearsay"). See Note 4 "Business Combination" for additional information.

Fiscal Year

The Company's fiscal year ends on January 31 st. References to fiscal 2025, for example, are to the fiscal year ending January 31, 2025.

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, 2024, filed with the SEC on March 13, 2024 (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.

The condensed consolidated balance sheet as of January 31, 2024, 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 nine months ended October 31, 2024 are not necessarily indicative of the results to be expected for any subsequent quarter, the fiscal year ending January 31, 2025, or any other period.

The following accounting policies should be read in conjunction with the Company's significant accounting policies as described in the Form 10-K.

Business Combinations

The Company accounts for business combinations using the acquisition method of accounting, which requires identifiable assets acquired and liabilities assumed in the acquiree, to be measured at their fair values, as of the acquisition date. Any excess of the consideration transferred over the fair value of the identifiable assets acquired and liabilities assumed is recorded as goodwill.

The determination of fair value requires management to make significant estimates, particularly with respect to intangible assets. These estimates are inherently uncertain and subject to change as additional information is obtained during the measurement period, which lasts for up to one year from the acquisition date. See Note 4 "Business Combination" for details.

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 those financial statements and the reported amounts of revenue and expense during the reporting period. These estimates include, but are not limited to, the standalone selling prices of performance obligations, the incremental borrowing rate associated with lease liabilities, the useful life of capitalized costs to obtain revenue contracts, income taxes including tax-related valuation allowances, the valuation and assumptions underlying stock-based compensation, the fair value of acquired assets and assumed liabilities from business combinations, contingent consideration, as well as the fair value of acquiree exchanged stock-based compensation awards, and useful lives and recoverability of intangible assets. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that it 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 is the provider of the platform and operates asone operating segment. An operating segment is defined as a component of an enterprise for which separate financial information is evaluated regularly by the chief operating decision makers ("CODM"). The Company defines its CODM as its executive officers, and their role is to make decisions about allocating resources and assessing performance. Following the acquisition of Hearsay, the Company's business continues to operate asone operating segment, with its CODM evaluating the Company's financial information, resources and performance on a consolidated basis. Since the Company operates asone operating segment, all required financial segment information can be found in the condensed consolidated financial statements.

Concentration of Credit Risk

Certain financial instruments that could be exposed to a concentration of credit risk include cash and cash equivalents and accounts receivable. The Company deposits its cash with financial institutions, and such deposits, at times, may exceed federally insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents to date. Collateral is not required for accounts receivable. One customer accounted for 11% of accounts receivable as of October 31, 2024, and as of January 31, 2024, no single customer accounted for more than 10% of the Company's accounts receivable. No single customer accounted for more than 10% of the Company's total revenue for the three and nine months ended October 31, 2024 and 2023, respectively.

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. The updated standard is effective for the Company's annual periods beginning in fiscal 2025 and interim periods beginning in the first quarter of fiscal 2026. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2023-07.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The amendments are effective for the Company’s annual periods beginning in fiscal 2026, with early adoption permitted, and should be applied either prospectively or retrospectively. The Company is currently evaluating the impact of ASU 2023-09.

In November 2024, the FASB issued 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosure (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disaggregated disclosures, in the notes to the financial statements, of certain categories of expenses that are included in expense line items on the face of the income statement. The updated standard is effective for the Company's annual periods beginning in fiscal 2028 and interim periods beginning in the first quarter of fiscal 2029. Early adoption is permitted. ASU 2024-03 is required to be applied prospectively, with retrospective application permitted. The Company is currently evaluating the impact of adopting ASU 2024-03.

3. Revenue

Performance Obligations

The Company has identified that it hastwo distinct performance obligations: subscription and associated support to the Company's platform and professional services. The Company's revenue is predominantly related to its subscription and associated support to the Company's platform. Professional services revenue accounted for approximately 7% and 8% of the Company's total revenue for the nine months ended October 31, 2024 and 2023, respectively.

Geographic Region

The Company disaggregates its revenue from contracts with customers by geographic region, as it believes this best depicts how the nature, amount, timing, and uncertainty of its revenues and cash flows are affected by economic factors. Revenue by geographic region is determined based on the region of the Company's contracting entity, which may be different than the region of its customers. The following table presents the Company's revenue by geographic region:

North America revenue is attributable to the United States. International revenue is predominantly attributable to European countries, but also includes Japan.

The Company's revenue attributable to the United States represented 79% of total revenue, revenue attributable to the United Kingdom, which serves as the Company's main contracting entity for Europe, represented 20% of total revenue, and no other individual country represented more than 10% of total revenue for each the nine months ended October 31, 2024 and 2023.

Contract Assets

The Company records a contract asset when revenue is recognized prior to being billed. Contract assets were $2.0 million as of October 31, 2024 and were not significant as of January 31, 2024. Contract assets are included in prepaid expenses and other current assets on the condensed consolidated balance sheet.

Contract Liabilities

A contract liability is an obligation to transfer goods or services for which consideration has been received or is due to a customer. The Company's contract liabilities consist primarily of unearned revenue and, to a lesser extent, customer deposits.

As of October 31, 2024, unearned revenue, current was $160.9 million, while unearned revenue, non-current, which is included within other long term liabilities on the Company's condensed consolidated balance sheet, was $1.5 million. Revenue recognized of $188.2 million during the nine months ended October 31, 2024 was included in unearned revenue at the beginning of the period.

Customer deposits represent payments received in advance in instances where a revenue contract is cancelable in nature, and therefore the Company does not have an unconditional obligation to transfer control to a customer. As of October 31, 2024 and January 31, 2024, customer deposits of $0.4 million and $0.2 million are included in accounts payable, accrued expenses and other current liabilities on the Company's condensed consolidated balance sheet, respectively.

Remaining Performance Obligations

The transaction price allocated to remaining performance obligations represents amounts under non-cancelable contracts expected to be recognized as revenue in future periods, and may be influenced by several factors, including seasonality, the timing of renewals, and contract terms. As of October 31, 2024, the Company had $457.1 million of remaining performance obligations, of which $404.5 million is expected to be recognized as revenue over the next twenty-four months, with the remaining balance expected to be recognized thereafter. As of January 31, 2024, the Company had $465.1 million of remaining performance obligations.

4. Business Combination

Hearsay Acquisition

On August 1, 2024 (the "Acquisition Date"), Yext completed its acquisition of Hearsay pursuant to an Agreement and Plan of Merger dated June 10, 2024 (such acquisition, the "Acquisition"). At the effective time of the Acquisition, each outstanding share of Hearsay stock was canceled and converted to a right to receive cash consideration, and Hearsay became a wholly owned subsidiary of Yext. The Acquisition is intended to produce an end-to-end digital presence platform, combining Yext’s digital presence management capabilities with Hearsay's compliant engagement solutions across social media, websites, text, and voice.

The Acquisition Date fair value of consideration transferred for Hearsay consisted of the following:

Cash consideration and liabilities incurred of $132.5 million includes the base purchase price of $125.0 million and customary adjustments set forth in the merger agreement. The cash consideration includes $17.2 million of payments held in escrow as partial security for certain indemnification obligations of the former holders of Hearsay equity. Amounts held in escrow were reflected on the Company's condensed consolidated balance sheet at the Acquisition Date within restricted cash (current and non-current) as the funds are owned by the Company until settlement. In connection with the amounts held in escrow, the Company recognized a corresponding liability on its condensed consolidated balance sheet at the Acquisition Date at its present value of $16.6 million to reflect the amounts payable to former Hearsay equity holders following the resolution of contingencies surrounding the amounts held in escrow. The liability will be accreted to its contractual value over the estimated escrow period with changes in the liability being recorded within interest expense on the Company's condensed consolidated statements of operations and comprehensive loss. The amount of interest expense was immaterial during the three and nine months ended October 31, 2024.

The preliminary purchase price also includes $39.5 million of contingent consideration related to an earnout arrangement whereby the Company may be required to pay up to $75.0 million to the former holders of Hearsay's outstanding equity interests, subject to the achievement of certain Annual Recurring Revenue ("ARR") milestones over atwo-year period. The portion of the earnout arrangement included within contingent consideration excludes amounts attributable to employees of Hearsay that held unvested awards as of the Acquisition Date, for which earnout payments are subjected to future service. Accordingly, these amounts represent compensation expense in the post-Acquisition period. Payment of the earnout can be settled in cash or shares at the Company's election. The Company preliminarily estimated the fair value of the contingent consideration as of the Acquisition Date. This estimate incorporates projected ARR values inclusive of revenue synergies and growth rates, as well as other key inputs. The key inputs as of the Acquisition Date are outlined below:

See Note 6 "Fair Value of Financial Instruments" for additional details on the fair value of contingent consideration.

The Company also issued approximately 2.1 million replacement equity awards with a fair value of $11.8 million, of which (i) $7.8 million was allocated to consideration transferred for pre-Acquisition services, inclusive of employer related payroll taxes, and (ii) $4.2 million was allocated to the post-Acquisition period and expensed over the remaining requisite service period associated with the awards. The value attributed to consideration transferred was based on the fair value of Hearsay options prior to the exchange. Approximately 1.5 million equity awards that were granted also vested on the Acquisition Date, and $0.6 million was recognized in the post-Acquisition period immediately to reflect the excess of the fair value of the replacement awards over the fair value of the Hearsay options. These awards were subsequently net settled, which represents an event that is separate from the Acquisition.

In addition, the Company recognized other transaction related payments of $0.6 million in the estimated consideration which are comprised primarily of preliminary post-closing adjustments, including estimated working capital.

The Company is also required to make additional payments related to a $20.0 million incentive pool that can be settled in cash or shares at the Company's election, shortly after the first anniversary of the Acquisition Date. Approximately $8.8 million of this pool is to be paid to Hearsay founders and early employees, and is not contingent on future service being provided. This amount was recognized immediately in the post-Acquisition period in operating expenses, within general and administrative expenses on the Company's condensed consolidated statements of operations and comprehensive loss. The remaining amount of the incentive pool is allocated to employees generally subject to continued employment ofone-year from the Acquisition Date. In addition, a transaction bonus of $1.5 million is payable to individuals determined by Hearsay and deemed to be compensation expense attributable to the post-Acquisition period. Amounts attributable to the remaining incentive pool and transaction bonus will be expensed in the post-Acquisition period over the requisite service period.

Acquisition-related costs totaled $9.0 million and $11.2 million for the three and nine months ended October 31, 2024, respectively. These costs are expensed as incurred and include $8.8 million related to the portion of the incentive pool attributable to Hearsay founders and early employees, as well as professional fees. Acquisition-related costs are presented within general and administrative expense in the Company's condensed consolidated statement of operations and comprehensive loss.

The Company's financial results for the three and nine months ended October 31, 2024 reflect inclusion of the business operations of Hearsay from the Acquisition Date, which contributed $16.4 million and $7.9 million of revenue and net loss, respectively for both periods.

The following table summarizes the preliminary purchase price allocation of the fair values of the assets acquired and liabilities assumed at the Acquisition Date:

(1) Other long term assets includes a $5.9 million indemnification asset, with the underlying indemnified liability of $6.2 million recorded within other long term liabilities.

(2) Included within other long term liabilities is a deferred tax liability of approximately $1.7 million.

The Company determined the fair value of assets acquired and liabilities assumed by using available market information and various valuation methods that require judgement related to estimates. The preliminary fair value estimates and assumptions regarding certain tangible assets acquired and liabilities assumed, and the valuation of intangible assets acquired, income taxes and contingent consideration are subject to change as additional information is obtained during the measurement period.

Pursuant to the terms of the merger agreement, the Company was indemnified by the sellers for the pre-Acquisition contingent liability assumed in the Acquisition associated with the Canadian Good and Services Tax (“GST”) and Harmonized sales tax (“HST”) related to certain historical foreign sales transactions. The indemnification of the indirect tax liability is capped at $5.9 million and an escrow fund was established in the same amount. At the Acquisition Date, the associated indirect tax liability was recorded at the estimated fair value of $6.2 million within other long term liabilities, and the Company recorded an indemnification asset up to the amount of the escrow fund balance of $5.9 million. In October 2024, initial filings to settle this matter with the Canada Revenue Agency were initiated and an initial payment of $1.9 million was made. As of October 31, 2024, the remaining indirect tax liability was $4.5 million.

Goodwill represents the excess of the purchase consideration over the fair value of the underlying net identifiable assets and is attributable primarily to expected synergies and the assembled workforce of Hearsay. Goodwill is not deductible for income tax purposes.

Intangible Assets

The following table sets forth the preliminary amounts allocated to the intangible assets identified and their estimated useful lives as of the Acquisition Date:

The fair values of the identifiable intangible assets are based on management’s estimates as of the Acquisition Date. The fair value of the intangible assets was determined using the excess earnings method and the relief from royalty method, under the income approach. The Company applied judgment in estimating the fair value of customer relationships using the excess earnings method, which involved the use of significant assumptions with respect to revenue, EBITDA, attrition rate, research and development addback, technology royalty rate, and discount rate. The fair value of the developed technology and trademark was estimated using the relief from royalty method, which incorporates assumptions including royalty rates, annual obsolescence, tax rates, and discount rates.

Pro Forma Results

The unaudited pro forma financial information presented below was derived from historical financial records of Yext and Hearsay and presents the operating results for the periods presented as if the Acquisition occurred on February 1, 2023. The pro forma results include adjustments to record additional compensation expense, adjust commission expense, and adjust for the impact of purchase accounting adjustments including amortization and depreciation expense, and the related tax effects.

Accordingly, the following unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the Acquisition had occurred at the beginning of fiscal year 2024, nor are they indicative of future results of operations:

5. Investments in Marketable Securities

The following tables summarize the Company's investments in marketable securities:

As of October 31, 2024 and January 31, 2024, the Company's marketable securities have a maturity of 90 days or less and are classified as cash and cash equivalents. During the nine months ended October 31, 2024 and 2023, the Company had no material reclassification adjustments from accumulated other comprehensive loss to net loss.

The Company classifies interest income on investments in marketable securities, amortization of premiums and discounts, and realized gains and losses on securities available for sale within interest income in the condensed consolidated statements of operations and comprehensive loss.

The Company regularly reviews its debt securities and monitors the surrounding economic conditions to assess the risk of expected credit losses. As of October 31, 2024 and January 31, 2024, the unrealized losses and the related risk of expected credit losses were not significant.

6. 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.

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.

The Company's assets and liabilities measured at fair value on a recurring basis, by level, within the fair value hierarchy are as follows:

The Company’s cash equivalents and marketable securities for the periods presented were valued using quoted market prices or alternative pricing sources and models utilizing observable market inputs and were classified as Level 1 or Level 2, accordingly.

As of October 31, 2024, the Company measured its contingent consideration associated with the Acquisition, on a recurring basis using significant unobservable inputs, classified as Level 3.

Contingent Consideration

The Company records contingent consideration resulting from a business combination at its fair value on the acquisition date. The Company generally determines the fair value of contingent consideration using the Real Options Method that employs a Monte Carlo simulation model. Each reporting period thereafter, these obligations are revalued and changes in their fair values are recorded within general and administrative expenses within the condensed consolidated statements of operations and comprehensive loss. Changes in the fair value of the contingent consideration can result from changes in assumed discount periods and rates, and from changes pertaining to the estimated or actual achievement of the defined milestones. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, future business and economic conditions, as well as changes in any of the assumptions described above, can materially impact the fair value and corresponding changes in fair value of the contingent consideration the Company records in any given period.

In connection with the Acquisition, the estimated fair value of the contingent consideration incorporates projected ARR values inclusive of revenue synergies and growth rates, as well as other key inputs. The key inputs as of October 31, 2024 are outlined below:

A rollforward of the fair value of the contingent consideration liability for the three months ended October 31, 2024 is as follows:

7. Goodwill and Intangible Assets

Goodwill

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 asone operating segment, which represents itsone reporting unit. The test for impairment is conducted annually each November 1 st, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

During the three months ended October 31, 2024, the Acquisition was completed, resulting in the following changes in the carrying amount of goodwill for the nine months ended October 31, 2024:

The Company determined that no events occurred or circumstances changed that would more likely than not reduce the fair value of the Company's reporting unit below its carrying amount during the reporting periods ended October 31, 2024, and 2023.

Intangible Assets

The Company’s intangible assets with definite lives are amortized on a straight-line basis over their estimated useful 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 has no indefinite-lived intangible assets.

The Company determined that no events occurred or circumstances changed during the reporting periods ended October 31, 2024 and 2023 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 was $3.5 million for each of the three and nine months ended October 31, 2024, respectively and less than $0.1 million for each of the three and nine months ended October 31, 2023, respectively.

The gross carrying amount and accumulated amortization of intangible assets other than goodwill are as follows:

(1)Recognized in connection with the Acquisition.

The estimated future aggregate amortization expense as of October 31, 2024 is as follows (in thousands):

8. Property and Equipment, Net

Property and equipment are recorded at cost and depreciated or amortized on a straight-line basis over their estimated useful lives. Property and equipment, net consisted of the following:

As of October 31, 2024 and January 31, 2024, the Company's property and equipment, net attributable to the United States was 91% and 90%, respectively. No other individual country represented more than 10% of the total property and equipment, net as of those periods. Depreciation expense was $2.8 million and $8.6 million for the three and nine months ended October 31, 2024, respectively and $3.5 million and $12.6 million for the three and nine months ended October 31, 2023, respectively.

9. Accounts Payable, Accrued Expenses and Other Current Liabilities

Accounts payable, accrued expenses and other current liabilities consisted of the following:

(1) As of October 31, 2024, accrued employee compensation includes $3.5 million related to the portion of the incentive pool and other retention arrangements where continuing service is required arising from the Acquisition.

(2) As of October 31, 2024, other current liabilities includes $11.3 million payable to Hearsay owners in connection with escrow funds held by Yext related to indemnity claims in connection with the Acquisition.

(3) As of October 31, 2024, other current liabilities includes $8.8 million related to the incentive pool allocated to founders and early employees in connection with the Acquisition.

10. Stock-Based Compensation

Hearsay Social, Inc. 2019 Equity Incentive Plan

In connection with the Acquisition, the Company assumed the Hearsay Social, Inc. 2019 Equity Incentive Plan (the "Hearsay Plan"), including all outstanding restricted stock units ("RSUs") held by continuing Hearsay employees. These assumed awards were converted into approximately 2.1 million RSUs to receive shares of the Company’s common stock at the effective time of the Acquisition and are generally subject to their original terms and conditions under the Hearsay Plan. The Hearsay Plan allows for the issuance of up to approximately 6.0 million shares of the Company’s common stock. Under the Hearsay Plan, the Company may grant stock options with an exercise price that is no less than the fair market value on the date of grant, restricted stock RSUs, and other stock-based awards to the Company’s employees. Equity awards granted under the Hearsay Plan following the Acquisition are expected to be on similar terms and consistent with similar grants made pursuant the Company’s 2016 Equity Incentive Plan. Awards canceled and forfeited and shares withheld to satisfy tax withholding obligations become further available for future issuance under the Hearsay Plan. As of October 31, 2024, approximately 3.8 million shares were available for future award under the Hearsay Plan.

Stock-Based Compensation Expense

Stock-based compensation represents the cost related to stock-based awards granted in lieu of monetary payment. The Company measures stock-based compensation associated with stock-based awards issued to employees at the grant date, based on the estimated fair value of the award, and recognizes expense, net of estimated forfeitures, over the requisite service period of the applicable award generally using the straight-line method or accelerated attribution method.

The following table summarizes the Company's stock-based compensation expense for equity classified awards for the periods presented:

In addition, certain liability classified awards were granted in connection with the Acquisition and generally relate to portions of the incentive pool and earnout that generally vest overone year from the Acquisition Date. These awards may be settled in cash or shares at the Company's election, and are measured at fair value at each reporting date based on their expected value, with compensation cost being recognized over the related service period. The corresponding liabilities associated with these awards are included within accounts payable, accrued expenses and other current liabilities, and other long term liabilities on the Company's condensed consolidated balance sheet depending on the estimated settlement date of the award. The following table summarizes the Company's stock-based compensation expense for liability classified awards for the periods presented:

Stock Options

The following table summarizes the activity related to the Company's stock options:

Restricted Stock and Restricted Stock Units

The following table summarizes the activity related to the Company's restricted stock and restricted stock units ("RSUs"):

Performance-Based Restricted Stock Units

The following table summarizes the activity related to the Company’s performance-based restricted stock units ("PSUs"):

As of October 31, 2024, the market conditions accompanying the PSUs were not satisfied and therefore, no shares vested.

11. Debt

On March 11, 2020, the Company entered into a credit agreement (the “Credit Agreement”) with Silicon Valley Bank (“SVB”). In January 2021, the Company amended the Credit Agreement which modified the conditions pursuant to which subsidiaries are required to become guarantors. On December 22, 2022, the Company entered into a second amendment (“Amendment No. 2”) to the Credit Agreement, dated March 11, 2020, and on July 26, 2024, the Company entered into a third amendment ("Amendment No. 3") to the Credit Agreement, collectively referred to as the Credit Facility. No significant debt issuance costs were incurred in association with Amendment No.2 and Amendment No.3.

Amendment No. 2 amended the Credit Facility to, among other things (i) extend the maturity date of the Credit Facility to December 22, 2025, (ii) amend the interest rate provisions to replace LIBOR with SOFR as the interest rate benchmark, and (iii) amend the recurring revenue growth rate financial covenant.

Amendment No. 3 amended the Credit Facility to, among other things (i) amend the interest rate applicable to loans under the Credit Facility, and (ii) replace the consolidated quick ratio and recurring revenue growth rate financial covenants with consolidated total leverage ratio and minimum liquidity financial covenants.

The Credit Facility provides for a senior secured revolving loan facility of up to $50.0 million that matures on December 22, 2025, with the right subject to certain conditions to add an incremental revolving loan facility of up to $50.0 million in the aggregate. The revolving loan facility provides for borrowings up to the amount of the facility with sub-limits of up to (i) $30.0 million to be available for the issuance of letters of credit and (ii) $10.0 million to be available for swingline loans.

As amended, the revolving loans bear interest, at the Company’s election, at an annual rate based on SOFR or a base rate. Loans based on SOFR shall bear interest at a rate between SOFR plus 1.75% and SOFR plus 2.25%, depending on the Company’s consolidated total leverage ratio and subject to a SOFR floor of 1.00%. Loans based on the base rate shall bear interest at a rate between the base rate minus 1.25% and the base rate minus 0.75%, depending on the Company’s consolidated total leverage ratio. The Company is also obligated to pay a commitment fee on the unused portion of the facility at a rate of 0.25% per annum.

The obligations under the Credit Facility are secured by a lien on substantially all of the Company's tangible and intangible property and by a pledge of all of the Company's equity interests of material direct and indirect domestic subsidiaries and 66% of each class of capital stock of any material first-tier foreign subsidiaries, subject to limited exceptions.

The Credit Facility contains customary affirmative and negative covenants and restrictions, as well as financial covenants that require us to maintain minimum liquidity of $35.0 million at all times and a consolidated total leverage ratio of no greater than 3.00 to 1.00, tested on a quarterly basis.

As of October 31, 2024, the Company was in compliance with all debt covenants. As of such date, the $50.0 million revolving loan facility had $36.6 million available and $13.4 million in letters of credit allocated as security in connection with office space.

12. Income Taxes

The Company calculates its year-to-date provision for income taxes by applying the estimated annual effective tax rate ("AETR") to year-to-date income or loss from operations before income taxes and adjusts for discrete tax items recorded in the period. During the three and nine months ended October 31, 2024, the Company recorded a provision for income taxes of $3.0 million and $1.8 million, respectively. During the three and nine months ended October 31, 2023, the Company recorded a provision for income taxes of $0.4 million and $1.3 million, respectively.

The provision for income taxes recorded included a discrete tax benefit of $1.4 million from a partial release of the valuation allowance in connection with the Acquisition. The net deferred tax liability from the Acquisition provided a source of additional income to support the realizability of the Company's pre-existing deferred tax assets and as a result, the Company released a portion of its valuation allowance. The tax benefit associated with the release of the valuation allowance was offset by income taxes in profitable jurisdictions outside of the United States and the Company's state taxes.

The Company's effective tax rate generally differs from the U.S. federal statutory tax rate primarily due to full valuation allowances related to the Company's net deferred tax assets in the U.S. and certain foreign jurisdictions, U.S. state income taxes, and foreign rate differential on profitable jurisdictions. The Company regularly evaluates the realizability of its deferred tax assets and establishes a valuation allowance on a jurisdictional basis 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. To the extent sufficient positive evidence becomes available, a portion of the valuation allowance against certain net deferred tax assets could be released in the future and would result in a non-cash income tax benefit in the period of release.

13. Commitments and Contingencies

Contractual Obligations

The Company is obligated to make payments under certain non-cancelable contractual obligations in the normal course of business. The Company's contractual obligations primarily relate to its operating lease arrangements for office space. Its other contractual obligations include contracts with its Publisher Network application providers, which generally have a term of one year, although some have a term of several years, and its software vendors, among others. These obligations represent minimum contractual payments, or the Company's best estimate for variable elements based on historical payments. The Company's contractual obligations have various expiry dates between fiscal years 2025 and 2035.

As of October 31, 2024, the Company's contractual obligations are as follows (in thousands):

The Company may also be required to pay up to $75.0 million to the former holders of Hearsay's outstanding equity interests, subject to the achievement of certain ARR milestones over atwo-year period. Payments can be settled in cash or shares at the Company's election and are estimated to occur in fiscal years 2026 and 2027.

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 significant 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 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.

14. 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:

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, restricted stock units, and performance-based restricted stock units where the market conditions have not been met 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, net loss per share attributable to common stockholders was the same on a basic and diluted basis, as the inclusion of all potential common equivalent shares outstanding would have been anti-dilutive. Anti-dilutive common equivalent shares were as follows:

(1) An additional 1.3 million shares of common stock may be awarded for certain PSUs based on the Company's total shareholder return ("TSR") relative to the TSR of companies in the S&P Software and Services Select Index over specified performance periods.

In connection with the Acquisition, the Company may also be required to pay up to $75.0 million to the former holders of Hearsay's outstanding equity interests, subject to the achievement of certain ARR milestones over atwo-year period. Payment can be settled in cash or shares at the Company's election. In addition, an incentive pool of $20.0 million is payable to Hearsay founders, early employees and current employees, which can be settled in cash or shares at the Company's election.