Workiva Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Workiva provides cloud-based compliance and regulatory reporting software on a subscription basis.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $105.6 million | $83.9 million | $209.8 million | $169.7 million |
| Subscription and support revenue | $91.2 million | $70.7 million | $176.1 million | $139.1 million |
| Gross margin | 76.7% | 73.5% | 77.0% | 73.7% |
| Operating loss | $(5.7) million | $(16.7) million | $(9.9) million | $(25.8) million |
| Net loss | $(9.5) million | $(19.6) million | $(16.8) million | $(30.0) million |
| Operating cash flow | $12.8 million | $7.2 million | $24.3 million | $12.0 million |
Q2 revenue rose 25.9% year over year, led by 29.0% growth in subscription and support; professional services grew 9.3%. Management attributed subscription growth to broad demand and improved pricing. Gross margin improved as revenue growth outpaced cost of revenue. Operating expenses increased 10.7% in Q2, including investment in research and development and sales and marketing. The net loss narrowed, though the company remained unprofitable. Q2 diluted loss per share was $0.19, versus $0.41 a year earlier.
Liquidity, debt and other metrics
At June 30, 2021, cash and cash equivalents were $322.2 million and marketable securities were $229.4 million, totaling $551.6 million in cash, equivalents and securities. Current assets were $659.0 million and current liabilities $307.1 million. Deferred revenue totaled $257.2 million, including $225.0 million current. The company reported $345.0 million principal amount of 1.125% unsecured convertible notes due 2026, with a $294.0 million net carrying amount and $521.0 million estimated fair value. Management said available liquidity and operating cash flows should fund operations for at least the next 12 months, while also expecting continued operating losses and possible negative operating cash flows.
For the six months, cash used in investing was $26.4 million, primarily reflecting net purchases of marketable securities; financing provided $1.1 million. Customers totaled 3,949, up from 3,512 a year earlier. Subscription revenue retention was 96.0%, or 111.6% including add-ons. Customers with annual contract value of at least $100,000 increased to 952 from 716.
Outlook, risks and notable items
The filing provides no specific full-year revenue or earnings guidance. Remaining performance obligations for subscription contracts were approximately $477.1 million at June 30; about $282.4 million was expected to be recognized over the following 12 months, with most of the balance in the next 24 months thereafter. Workiva plans continued investment in its platform, sales, marketing and customer support. It expected travel, office and entertainment costs to rise as offices reopened.
Management cited uncertainty from COVID-19, including potential customer spending reductions, delayed purchasing decisions, remote-work effects and business disruptions. It also noted that delayed European Single Electronic Format requirements could weigh on EMEA demand, and that a weaker IPO/SPAC market could affect sales of capital-markets-related solutions. The company identified seasonality in professional services, sales and marketing costs, and operating cash flow.
On July 30, 2021, after quarter-end, Workiva acquired OneCloud, an integration-platform provider, to extend integration and data-preparation capabilities. Purchase accounting was incomplete at filing. The company also signed a three-year London office lease, with an optional two-year extension and base rent of approximately $1.6 million annually. Management reported no pending legal proceedings expected to have a material adverse effect and no material changes to risk factors beyond the COVID-19 discussion. Disclosure controls were assessed as effective.
Key facts investors should verify
- Whether subscription growth and retention continue, and how customer additions and larger contracts translate into recurring revenue.
- Whether improving gross margins can be sustained as hiring and spending increase, and how quickly operating losses narrow.
- Cash generation and liquidity trends, including deferred commissions, deferred revenue, stock-based compensation and the convertible notes.
- OneCloud’s purchase price, acquired assets and liabilities, integration costs and contribution to results once disclosed.
- The duration and business effects of COVID-19, regulatory timing in EMEA, and changes in IPO/SPAC-related demand.