Workiva Inc. — Q1 2023 Form 10-Q
Business context and reporting period. This summary covers the unaudited quarter ended March 31, 2023, compared with Q1 2022. Workiva sells cloud-based reporting, ESG, and governance, risk and compliance software, alongside professional services. The business is subscription-led: subscription and support represented 86.3% of quarterly revenue.
Key financial results
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $150.2 million | $129.7 million |
| Subscription and support revenue | $129.7 million, up 21.0% | $107.1 million |
| Professional services revenue | $20.5 million, down 9.0% | $22.6 million |
| Gross profit / margin | $111.7 million / 74.3% | $98.8 million / 76.2% |
| Operating loss | $46.8 million | $17.2 million |
| Net loss / diluted loss per share | $46.2 million / $0.86 | $18.5 million / $0.35 |
| Operating cash flow | $5.6 million | $(0.9) million |
Cash, cash equivalents and marketable securities totaled $439.8 million at quarter-end. Cash and cash equivalents were $195.5 million; marketable securities were $244.3 million. Current assets were $585.4 million and current liabilities $396.0 million. Convertible notes had $345.0 million principal and a $340.6 million carrying value, bear 1.125% interest, and mature in 2026. Management said available liquidity and operating cash flows should fund operations for at least the next 12 months.
Quarter-end deferred revenue was $345.4 million, including current and non-current balances. Remaining performance obligations for subscription contracts were approximately $777.5 million; about $435.3 million is expected to be recognized over the next 12 months.
Material changes and operating trends
- Revenue grew 15.8%, led by subscription and support growth from demand and continued customer solution expansion. Management expects subscription revenue growth to outpace professional services growth annually.
- Gross margin declined 1.9 percentage points as cost of revenue increased 24.8%, faster than revenue.
- Operating expenses rose 36.7% to $158.5 million. General and administrative expense increased 75.1%, including higher stock-based compensation and costs related to former executives’ transition agreements.
- Stock-based compensation was $38.0 million versus $15.3 million a year earlier, including $18.1 million associated with former executives’ transition agreements. It was a substantial non-cash expense and a major factor in the GAAP loss.
- Operating cash flow improved to $5.6 million, while cash and cash equivalents fell $44.7 million. Investing cash use was $50.5 million, primarily reflecting purchases of marketable securities.
- Customers increased to 5,754 from 4,408. Subscription revenue retention was 97.9%; including add-ons it was 109.2%. Customers with ACV of at least $100,000 rose to 1,363 from 1,124.
Outlook, commentary and risks
- The filing provides no numerical quarterly or full-year revenue or earnings guidance. Management expects continued investment in product development, sales, marketing, professional services and international growth, and expects operating losses and possibly negative operating cash flows to continue.
- Management cited foreign-exchange volatility, particularly a stronger U.S. dollar versus the euro and pound, as a potential headwind to near-term results and forecasting.
- Reduced IPO and SPAC activity adversely affected new sales of SEC and capital-markets solutions; market volatility could continue to pressure those sales.
- Workiva said the March 2023 failures of Silicon Valley Bank and Signature Bank could increase financial-market instability and affect customers’ ability to pay. The company reported no material deposits at either bank.
- The company reported no material changes to its previously disclosed contractual commitments or market-risk exposure, and no pending legal proceeding expected by management to have a material adverse effect. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether subscription growth and customer expansion continue, and how revenue retention develops.
- Whether expense growth, especially stock-based compensation and executive-transition costs, moderates and supports margin improvement.
- Operating cash flow conversion, deferred-revenue trends, and the use and liquidity of the marketable-securities portfolio.
- Exposure to foreign-exchange movements, IPO/SPAC market weakness, and any broader financial-sector disruption affecting customers.
- The notes’ conversion, redemption and maturity terms, including the $345.0 million principal due in 2026.