Workiva Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Workiva provides cloud-based compliance and regulatory reporting software and related professional services. Unless otherwise stated, amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $129.7 million | $104.2 million | +24.4% |
| Subscription and support revenue | $107.1 million | $84.9 million | +26.1% |
| Professional services revenue | $22.6 million | $19.3 million | +16.9% |
| Gross profit / margin | $98.8 million / 76.2% | $80.5 million / 77.3% | Margin down 1.1 points |
| Operating loss / margin | $17.2 million / (13.3%) | $4.1 million / (4.0%) | Loss widened |
| Net loss | $18.5 million | $7.3 million | Loss widened |
| Diluted loss per share | $0.35 | $0.15 | Loss per share increased |
| Operating cash flow | $(0.9) million | $11.5 million | Declined |
Margins and spending: Gross margin declined as cost of revenue grew 30.4%, faster than revenue. Operating expenses rose 36.9% to $116.0 million, with higher investment in research and development, sales and marketing, and general and administrative functions. Stock-based compensation was $15.3 million, versus $11.6 million a year earlier.
Cash, liquidity, and debt: At March 31, cash and cash equivalents were $303.1 million and marketable securities were $220.5 million, totaling $523.5 million. The company reported $345.0 million principal amount of 1.125% convertible notes due 2026, carried at $339.3 million and classified as non-current. Management said existing liquidity and operating cash flows should fund operations for at least the next 12 months, while anticipating continued operating losses and potentially negative operating cash flows.
Material changes and operating indicators
- Revenue growth was driven mainly by subscription and support, which management attributed to demand and better pricing across use cases. Customer count increased 16.0% year over year to 4,408.
- Subscription and support revenue retention was 97.7%, up from 95.1%; retention including add-ons was 109.2%, down from 111.2%. Management cited weaker IPO/SPAC activity and customers moving from higher-priced capital-markets solutions to more moderately priced ongoing solutions as pressure on add-on retention.
- Customers with annual contract value of at least $100,000 increased to 1,124 from 884. Headcount reached 2,230, up 27.4% year over year.
- Operating cash flow fell from positive $11.5 million to negative $0.9 million, reflecting the net loss and working-capital movements, including a $12.5 million decrease in accrued expenses and other liabilities.
- Adoption of ASU 2020-06 changed convertible-note accounting and reduced reported non-cash interest expense. It also increased the notes’ carrying value and contributed to their non-current classification after no holder conversion conditions were met in Q1.
Outlook, risks, and notable items
- No numerical revenue or earnings guidance is provided in the filing. Management plans continued investment in the platform, solutions, sales, marketing, services, and customer success, including expansion in EMEA and APAC.
- The slowdown in U.S. IPO and SPAC activity adversely affected new sales of SEC and Capital Markets solutions; management said future market conditions are uncertain.
- On April 1, 2022, Workiva acquired ParsePort, a provider of European Single Electronic Format reporting solutions, for $100 million in cash, subject to customary adjustments. Purchase accounting was incomplete at filing. This post-quarter acquisition is not reflected in March 31 cash and securities.
- Management reported no material adverse effect from COVID-19 to date but noted possible future operational disruption. The filing added geopolitical conflict, including Russia-Ukraine, as a risk to global markets and Workiva’s European operations.
- Professional-services revenue and operating cash flow have seasonal patterns. Management reported no material pending legal proceedings and no material changes to contractual obligations or market-risk exposure.
Important facts for investors to verify
- Whether subscription growth and retention, particularly add-on retention, stabilize amid weaker IPO/SPAC activity.
- How increased operating expenses and stock-based compensation affect the path to improved operating margins and cash generation.
- The final purchase accounting, integration, and financial impact of the $100 million ParsePort acquisition.
- Liquidity after the acquisition and the terms, conversion conditions, and dilution implications of the 2026 convertible notes.
- Whether reported Q1 trends persist, taking account of seasonality and the company’s warning that quarterly results may not indicate full-year performance.