Workiva Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited consolidated results. Workiva sells Wdesk, a cloud-based software platform, and related professional services.
Financial performance
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $59.9 million | $51.9 million |
| Gross profit / gross margin | $43.4 million / 72.4% | $37.7 million / 72.6% |
| Operating expenses | $52.9 million | $43.7 million |
| Operating loss / margin | $9.5 million / (15.9%) | $6.0 million / (11.6%) |
| Net loss / diluted loss per share | $9.6 million / $0.22 | $5.8 million / $0.14 |
| Cash from operating activities | $1.8 million | $2.6 million |
Subscription and support revenue was $46.5 million, up 17.5%, and represented 77.6% of revenue. Professional services revenue was $13.4 million, up 8.7%. Revenue growth was 15.4% as reported. Gross margin was nearly flat year over year, while operating and net losses widened as expenses grew faster than revenue. Research and development expense rose 29.6%; sales and marketing rose 12.3%; general and administrative rose 24.9%.
Liquidity, cash flow and obligations
At March 31, 2018, cash and cash equivalents were $65.3 million and marketable securities were $15.8 million, totaling $81.1 million. Cash increased $4.9 million during the quarter. Current assets were $131.3 million versus current liabilities of $144.5 million, including $110.9 million of current deferred revenue.
Capital lease and financing obligations totaled $19.3 million; no amount was outstanding on the $15.0 million revolving credit facility. Operating lease commitments were $29.2 million. Management said available cash, operating cash flows, credit availability and potential securities offerings should fund operations for at least the next 12 months, while noting expected future operating losses and possible need for additional capital.
Changes, outlook and risks
- Revenue increased $8.0 million year over year, primarily from subscription growth and a 10.4% increase in customers. The company reported 3,119 customers and a 95.7% subscription revenue retention rate excluding add-ons; retention including add-ons was 105.3%, down from 106.6%.
- Workiva adopted ASC 606 on January 1, 2018 using the modified retrospective method. It increased opening accumulated equity by $8.4 million. Adoption had no effect on operating cash flow, but changed the timing and classification of revenue and contract costs. For Q1, ASC 606 reduced reported professional services revenue by $1.7 million versus the prior standard; management’s legacy-standard comparison showed subscription growth of 16.9% and professional services growth of 22.4%.
- Management expects continued investment in product development, sales and marketing, and customer support, and expects total operating expenses to increase. It also plans to convert a substantial majority of quarterly contracts to annual terms over the next 12 months. No specific revenue or earnings guidance is provided.
- Management cited longer and more complex sales cycles for larger enterprise opportunities. Professional services revenue and operating cash flow may be seasonal. Risk factors were reported as unchanged from the 2017 Form 10-K; management said pending legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Assess underlying growth using the company’s ASC 605 comparison, given ASC 606’s differing revenue timing and classification.
- Track whether customer expansion and retention—including the decline in retention with add-ons—support subscription growth.
- Monitor expense growth, stock-based compensation ($5.9 million in Q1), operating losses and the path toward operating cash-flow sustainability.
- Review liquidity needs, deferred revenue and lease/financing obligations against management’s stated 12-month funding outlook.