Workiva Inc. — FY 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; the filing also reports unaudited fourth-quarter results. Workiva sells Wdesk, a cloud-based collaborative reporting and data-management platform. Subscription and support fees generated 80.1% of FY 2016 revenue. The company reported 2,772 customers, including more than 70% of Fortune 500 companies.
Financial performance and liquidity
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Total revenue | $178.6 million | $145.3 million |
| Subscription and support revenue | $143.1 million | $116.3 million |
| Professional services revenue | $35.5 million | $29.0 million |
| Gross profit / gross margin | $127.0 million / 71.1% | $105.1 million / 72.4% |
| Operating loss / operating margin | $(43.6) million / (24.4)% | $(43.7) million / (30.0)% |
| Net loss / net margin | $(44.0) million / (24.6)% | $(43.4) million / (29.8)% |
| Basic and diluted loss per share | $(1.08) | $(1.09) |
| Cash used in operating activities | $(10.4) million | $(21.6) million |
Revenue grew 23.0% year over year; subscription and support revenue grew 23.1%. Operating loss was nearly flat, while net loss increased slightly. Gross margin declined 1.3 percentage points as cost of revenue grew faster than revenue. Operating expenses rose 14.7% to $170.6 million, including $80.5 million in sales and marketing and $57.4 million in research and development.
Q4 2016: Revenue was $46.4 million, compared with $39.9 million in Q4 2015; net loss was $7.5 million, compared with $10.3 million. Q4 revenue included $38.3 million subscription and support and $8.0 million professional services.
Liquidity and obligations: Cash and cash equivalents were $51.3 million, with another $11.4 million in marketable securities, totaling $62.7 million. The company reported $75.2 million of working capital excluding deferred revenue and deferred government grant obligations. Deferred revenue was $97.5 million, with $76.0 million expected to be recognized in 2017. No borrowings were outstanding on the $15.0 million Silicon Valley Bank credit facility at year-end; it matures in August 2018 and includes covenants. Capital lease and financing obligations totaled approximately $21.0 million on the balance sheet; contractual payments including interest were $41.0 million. Stockholders’ equity was a deficit of $3.1 million.
Material changes and operating indicators
- Revenue growth slowed to 23.0% from 28.9% in 2015. Customer count increased 9.8% to 2,772.
- Subscription and support retention, excluding add-ons, was 95.4%, down from 95.8%; including add-ons it was 107.4%, down from 112.5%.
- Most subscription growth came from existing customers: 76.5% of the year-over-year increase in subscription revenue, versus 23.5% from customers acquired after year-end 2015.
- Operating cash use improved by $11.2 million, principally alongside a $34.2 million increase in deferred revenue. Cash and cash equivalents declined $7.5 million during 2016.
- Other income included $1.1 million of government-grant-related income in 2016. FY 2015 included a $1.6 million recognition related to an Iowa economic development award, making year-over-year comparisons of other income less recurring.
Outlook, commentary and risks
The filing provides no formal financial guidance for FY 2017. Management said it expects continued operating losses and potentially negative operating cash flow, while believing available cash, customer receipts and credit-facility availability would fund operations for at least the next 12 months. The company plans continued investment in product development, sales, marketing and customer success. It began augmenting its direct-sales channel with partners in Q4 2016; these relationships were early-stage and had generated limited revenue. Management also noted that larger enterprise opportunities can involve longer, more complex sales cycles.
- Growth and profitability: Workiva has incurred annual net losses since inception; FY 2016 net loss was $44.0 million. Continued spending, slower growth or failure to scale new use cases could delay profitability or require additional capital.
- Retention and expansion: Retention metrics declined year over year; renewal, pricing and add-on-seat levels affect recurring revenue.
- Platform and security: Service availability depends on third-party cloud providers, including Google and Amazon. Outages, defects, cyber incidents or data-privacy noncompliance could damage customer relationships and results.
- Competition and regulation: Competition may intensify, while changes to reporting requirements could affect demand for regulatory-reporting solutions. Non-SEC markets and partner-led sales remain areas of execution risk.
- Commitments and governance: Long-term office financing and lease commitments are material. Class B shares carried ten votes per share and represented approximately 78% of voting power at year-end 2016.
The financial statements received an unqualified audit opinion. Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2016; the auditor did not provide an internal-control attestation because Workiva was an emerging growth company. The company reported no pending legal proceedings that management believed would have a material adverse effect.
Investor verification points
- Check whether recurring revenue growth and customer expansion can offset the year-over-year declines in retention metrics.
- Track operating cash flow alongside deferred-revenue growth, collections and the timing of customer prepayments.
- Assess progress toward profitability, especially gross margin trends and continued increases in operating expenses.
- Review the terms, covenant headroom and availability of the credit facility, and the substantial future financing and lease payments.
- Monitor adoption of non-SEC solutions and partner channels, as well as the impact of forthcoming revenue-recognition and lease-accounting standards.