Workiva Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; unaudited consolidated financial statements. Workiva sells Wdesk, a cloud-based enterprise software platform, through subscriptions and professional services.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Total revenue | $44.6 million | $35.2 million |
| Subscription and support revenue | $33.6 million | $26.3 million |
| Professional services revenue | $11.0 million | $8.9 million |
| Gross profit / margin | $31.4 million / 70.6% | $25.5 million / 72.6% |
| Operating loss | $(12.1) million | $(7.0) million |
| Net loss | $(12.0) million | $(7.4) million |
| Net loss per share | $(0.30) | $(0.19) |
| Cash used in operating activities | $(19.1) million | $(9.2) million |
At March 31, cash and cash equivalents were $43.2 million and marketable securities were $12.7 million, totaling $55.9 million. Total assets were $124.3 million, total liabilities $107.7 million, and stockholders’ equity $16.6 million. Capital lease and financing obligations totaled approximately $22.5 million; long-term debt was $91,000. No credit-facility borrowings were outstanding.
Changes versus the prior-year quarter
- Revenue grew 26.7%; subscription and support revenue increased 27.9%, while professional services revenue increased 23.4%.
- Gross margin declined 2.0 percentage points. Total operating expenses increased 34.2% to $43.6 million, led by sales and marketing, up 46.6% to $20.1 million.
- Net loss widened by $4.6 million. Operating cash use more than doubled, to $19.1 million.
- Customers increased 11.7% to 2,557. Subscription and support revenue retention was 96.1%, versus 95.9%; including add-ons, retention rose to 112.1% from 105.8%.
Outlook, commentary, and risks
- Management expects continued operating losses and negative operating cash flows, but believes cash resources, customer receipts, and credit-facility availability will fund operations for at least the next 12 months. No specific revenue or earnings guidance is provided.
- Management plans continued investment in sales, marketing, customer success, product development, and infrastructure; operating expenses are expected to increase. Headcount was 1,160, up 22.6% year over year.
- Operating cash use reflected the quarterly net loss and working-capital movements, including decreases in deferred revenue and accrued liabilities; the latter included timing of annual bonus payments. Professional services revenue has seasonal characteristics, often tied to customers’ Form 10-K filing activity.
- Other income included $433,000 from recognition of a government job-training reimbursement obligation, compared with $66,000 in the prior-year quarter. This contributed to the year-over-year improvement in non-operating income.
- In April 2016, the company amended its $15 million Silicon Valley Bank facility to extend maturity to August 2018. The facility includes covenants, including a requirement to maintain at least $5 million of cash or unused borrowing capacity.
- Operating lease payments total $23.5 million over future periods. Management reported no pending litigation expected to have a material adverse effect, no material changes to previously disclosed risk factors, and no material change in market-risk exposure.
Important facts for investors to verify
- Whether revenue growth and customer expansion can continue while operating expenses grow faster than revenue and gross margin declines.
- Whether cash burn improves, particularly as deferred revenue and accrued liabilities fluctuate; management’s 12-month liquidity assessment depends partly on customer receipts and facility availability.
- Credit-facility availability, covenant compliance, and the effect of the April 2016 maturity extension.
- The size and timing of lease commitments, capital lease obligations, and future stock-based compensation; Q1 stock-based compensation was $3.4 million.
- The filing’s reported customer retention measures and their definitions, including the distinction between retention excluding and including add-ons.