Workiva Inc. — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; the filing was signed March 11, 2015. Workiva provides Wdesk, a cloud-based enterprise reporting and data-management platform. The company converted from an LLC to a Delaware corporation in December 2014 and completed its IPO that month.
Financial performance and liquidity
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Total revenue | $112.7 million | $85.2 million |
| Subscription and support revenue | $91.3 million | $65.2 million |
| Professional services revenue | $21.4 million | $20.0 million |
| Gross profit / margin | $78.8 million / 69.9% | $60.5 million / 71.0% |
| Operating loss | $38.6 million | $29.3 million |
| Net loss / diluted loss per share | $41.2 million / $1.28 | $29.5 million / $0.94 |
| Cash used in operating activities | $3.5 million | $10.5 million |
| Cash and cash equivalents at year-end | $101.1 million | $15.5 million |
| Deferred revenue at year-end | $56.3 million | $36.4 million |
- Revenue increased 32.3%; subscription and support revenue rose 40.1%, while professional services revenue increased 7.0%. Subscription and support represented 81.0% of revenue, up from 76.5%.
- Cost of revenue increased 37.4%, faster than revenue, and gross margin declined 1.1 percentage points. Operating expenses rose 30.8%, including R&D up 29.4% and sales and marketing up 30.3%.
- Cash used in investing activities was $4.1 million, including $8.6 million of capital expenditures, partly offset by proceeds from securities sales. Cash provided by financing activities was $93.2 million, principally reflecting the IPO.
- The IPO sold 7.2 million Class A shares at $14 per share and generated approximately $90.4 million in net proceeds. No amounts were outstanding under the Silicon Valley Bank credit facility at year-end; it had a stated $15 million facility, subject to borrowing-base terms and covenants.
- Balance-sheet liabilities included $24.7 million of capital lease and financing obligations and $0.2 million of long-term debt. Contractual obligations totaled $69.1 million, including $45.6 million of financing obligations and $20.9 million of operating leases.
Material changes and operating indicators
- Customers increased to 2,261 from 1,927, a 17.3% increase. Workiva reported serving more than 65% of both the Fortune 500 and Fortune 100.
- Subscription and support revenue retention, excluding add-on seats, was 97.0%, compared with 97.8% in 2013. Including add-ons, retention was 104.1%, down from 114.4%; management attributed the decline partly to redirecting account teams toward newer use cases and larger deals.
- Headcount grew 23% to 953. Management said it would continue investing in sales, marketing, customer success and product development, including hiring quota-carrying sales staff in 2015.
- Fourth-quarter revenue was $30.1 million versus $23.6 million in Q4 2013; fourth-quarter net loss was $12.7 million versus $5.9 million.
Outlook, risks and unusual items
- No specific revenue, earnings or margin guidance is provided. Management expects continued operating losses and negative operating cash flows while investing for growth, but believes available cash, customer receipts and credit-facility availability will fund operations for at least the next twelve months.
- Management identifies execution and growth risks, continued unprofitability, reliance on SEC-reporting use cases, competition, customer renewals and expansion, service outages or security incidents, and dependence on third-party cloud providers. Approximately 95% of 2014 revenue came from the United States.
- Quarterly results can be seasonal: professional services revenue typically rises in Q1 around customers’ annual SEC filings. Revenue from subscriptions is recognized over contract terms, so changes in sales may affect reported results with a lag.
- Disclosure controls were deemed ineffective at year-end due to a material weakness in accounting for government grants. The filing also describes a prior material weakness involving forgivable-loan arrangements. Management reported corrective steps; the auditor audited the financial statements but did not provide an opinion on internal control effectiveness.
- Prior-period financial statements were revised for government job-training reimbursements. The filing reports increased net losses of approximately $1.5 million for 2013, $148,000 for 2012 and $1.0 million for 2011 in selected financial data; management characterized the underlying error as immaterial to prior annual statements.
- The LLC-to-corporation conversion made Workiva subject to corporate income taxes late in 2014. A $29.9 million deferred tax asset was fully offset by a valuation allowance; the reported 2014 tax provision was $32,000.
- Class B shares carry ten votes per share versus one vote for Class A; Class B holders collectively held approximately 82% of voting power at year-end. The company reported no material pending legal proceedings and does not expect to pay dividends in the foreseeable future.
Important facts for investors to verify
- Whether subscription growth and customer expansion can continue as add-on revenue retention has declined, and whether non-SEC use cases become material.
- Progress in remediating the government-grant accounting weakness and the reliability of future financial reporting.
- Cash consumption, capital spending, financing-lease obligations and compliance with the credit facility’s financial and restrictive covenants.
- Gross-margin trends as cloud usage and customer-success costs rise, and whether expense growth supports a path toward profitability.
- Post-IPO share supply and governance: the dual-class voting structure and shares subject to lock-up restrictions, including scheduled releases beginning June 10, 2015.