Workiva Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015; comparisons are to the corresponding 2014 periods. Workiva provides Wdesk, a cloud-based software-as-a-service platform for enterprise reporting, compliance, risk and related workflows. The company reported more than 2,300 enterprise customers at quarter-end.
Financial performance and liquidity
| Metric | Q2 2015 | Q2 2014 | First half 2015 | First half 2014 |
|---|---|---|---|---|
| Revenue | $34.0 million | $26.5 million | $69.1 million | $54.6 million |
| Subscription and support revenue | $28.1 million | $22.0 million | $54.4 million | $42.6 million |
| Gross profit / margin | $24.2 million / 71.3% | $18.6 million / 70.1% | $49.7 million / 71.9% | $39.3 million / 71.9% |
| Operating loss | $10.6 million | $10.1 million | $17.6 million | $14.4 million |
| Net loss | $11.0 million | $10.6 million | $18.5 million | $15.1 million |
| Net loss per share, basic and diluted | $0.28 | $0.33 | $0.47 | $0.48 |
| Operating cash flow | $(2.6) million | $4.2 million | $(11.8) million | $5.7 million |
Q2 revenue grew 28.1% year over year; first-half revenue grew 26.5%. At June 30, cash and cash equivalents were $86.4 million, down from $101.1 million at year-end 2014. Total liabilities were $108.8 million and stockholders’ equity was $42.6 million. Capital lease and financing obligations totaled approximately $24.1 million; long-term debt and its current portion totaled approximately $0.1 million. No borrowings were outstanding under the $15 million credit facility. Deferred revenue was $58.0 million, including current and long-term balances.
Material changes and management commentary
- Subscription and support revenue rose 27.8% in Q2 and 27.5% in the first half. Management attributed growth to new customers and expansion within existing customers. Q2 customer count increased 13.6% year over year to 2,390.
- Subscription and support revenue retention was 96.3%, compared with 97.7% a year earlier; including add-ons, retention was 108.4%, versus 108.3%.
- Operating expenses increased 21.3% in Q2 and 25.4% in the first half, with higher sales and marketing, research and development, and administrative costs. The company cited hiring, investment in the next generation of Wdesk, marketing new solutions, and public-company costs.
- Management expects operating losses and negative operating cash flows to continue, while stating that cash, customer receipts and available credit should fund operations for at least the next 12 months. It expects operating expenses to increase as it expands sales, marketing and development teams. No specific revenue or earnings guidance was provided.
Risks, contingencies and unusual items
- Operating cash flow shifted from positive in first-half 2014 to negative in first-half 2015. Cash decline and continued losses make the pace of growth investment and cash consumption important to monitor.
- The company disclosed prior material weaknesses in controls related to forgivable loans and government grant accounting. Management said remediation measures had been implemented and disclosure controls were effective at June 30, 2015, but cautioned that future deficiencies could occur.
- A $313,000 government grant received in March was recorded as a deferred obligation pending resolution of contingencies; the company anticipated offsetting it against property and equipment in December 2015 if realized. Grant recognition contributed to other income.
- Management reported no pending legal proceeding expected to have a material adverse effect and no material changes in lease commitments or market-risk exposure. Litigation-related costs and management distraction remain possible.
- The company identified continued investment, competition and other uncertainties as risks; actual results may differ materially from forward-looking statements.
Key facts for investors to verify
- Whether revenue growth and customer expansion continue while subscription retention remains high.
- Whether operating expenses and cash burn moderate relative to revenue growth, and whether the stated 12-month liquidity outlook remains supportable.
- How much of deferred revenue converts to recognized revenue, and whether shifts toward annual contracts affect cash generation.
- Progress in sustaining effective financial-reporting controls, particularly for grants and financing arrangements.
- Resolution and accounting treatment of the Iowa government grant contingencies, and the terms and availability of the credit facility.