Workiva Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Workiva provides cloud-based compliance and regulatory reporting software and related professional services. Unless otherwise noted, financial amounts below are in U.S. dollars.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $112.7 million | $88.1 million | $322.5 million | $257.8 million |
| Subscription and support revenue | $98.9 million | $75.9 million | $275.1 million | $214.9 million |
| Gross margin | 76.6% | 75.2% | 76.9% | 74.2% |
| Operating loss | $8.0 million | $6.9 million | $17.9 million | $32.7 million |
| Net loss | $6.6 million | $10.4 million | $23.4 million | $40.4 million |
| Loss per share, diluted | $0.13 | $0.21 | $0.46 | $0.84 |
| Cash from operating activities | $16.3 million | $7.9 million | $40.6 million | $19.9 million |
Q3 revenue grew 27.9% year over year; subscription and support revenue grew 30.4%. For the nine-month period, revenue grew 25.1%, led by 28.0% growth in subscription and support. Subscription and support accounted for 87.8% of Q3 revenue, versus 86.1% a year earlier. Despite higher Q3 operating loss, net loss narrowed, reflecting a $3.7 million gain related to OneCloud and an income tax benefit.
Liquidity, debt, and cash flow
- At September 30, cash and cash equivalents were $291.1 million and marketable securities were $231.2 million, totaling $522.3 million. Current assets were $630.9 million and current liabilities were $616.7 million.
- Cash declined $31.7 million during the first nine months to $291.1 million. Investing activities used $64.9 million, including the OneCloud acquisition; financing activities used $7.3 million, chiefly due to $23.7 million in taxes paid on net share settlements.
- The company had $345.0 million principal amount of 1.125% convertible senior notes due 2026. After a conversion condition was met, holders could convert through December 31, 2021; the $296.3 million net carrying amount was consequently classified as current. No conversion requests had been received through the filing date. The company said it intended to settle conversions using a combination of cash and shares, subject to the indenture.
- Management stated that available cash, cash equivalents, and operating cash flows were expected to fund operations for at least the next 12 months, while noting expected continuing operating losses and possible negative operating cash flow.
Material changes and management commentary
- Workiva acquired OneCloud, an integration-platform-as-a-service company, on July 30, 2021, to expand integration and data-preparation capabilities. Net cash consideration was $35.1 million. The acquisition contributed an insignificant amount of reported revenue and net loss in the period; preliminary allocation included $34.3 million of goodwill and $7.0 million of intangible assets.
- Customer count rose to 4,146 from 3,583 year over year. Subscription and support revenue retention was 96.5%, compared with 94.9%; including add-ons, it was 111.1%, compared with 110.0%. Customers with annual contract value of at least $100,000 increased to 1,043 from 785.
- Research and development, sales and marketing, and general and administrative expenses all increased year over year, primarily reflecting higher compensation and headcount as the company invested in growth. Headcount grew 20.6% to 2,014. Q3 sales and marketing expense included $1.0 million of additional stock compensation related to severance obligations.
- Remaining performance obligations for subscription contracts were approximately $518.5 million, of which about $305.2 million was expected to be recognized over the next 12 months. This is a contracted-revenue measure, not formal earnings guidance.
- The filing provides no specific full-year revenue or earnings guidance. Management described continued investment in the platform, sales and marketing, professional services, and customer success, including expansion in EMEA and selected solution areas.
Risks, contingencies, and unusual items
- COVID-19 effects remained uncertain, including potential impacts on customer purchasing decisions, sales cycles, employee productivity, travel, and the broader economy. The company expected travel, office, and entertainment costs to rise as reopening progressed.
- Workiva warned that proposed or implemented U.S. COVID-19 vaccination requirements could lead to employee attrition and adversely affect operations and revenue. It said it would be required to comply with the federal-contractor vaccination guidance for covered employees.
- Management cited possible exposure to changes in the IPO/SPAC market, which had supported demand for some capital-markets and SEC solutions. Enterprise-wide deals may also involve longer sales cycles.
- The company reported no pending legal proceeding that management believed would have a material adverse effect. It also reported no material change in contractual obligations other than the convertible-note classification and a new London office lease, commencing October 1, 2021, with base rent of approximately $1.6 million annually.
Most important facts for investors to verify
- Whether any convertible-note holders elected conversion after the filing date, and the resulting cash and share dilution implications.
- Whether subscription growth, retention, and large-customer expansion continue, including the drivers of revenue attrition reflected in the 96.5% base retention rate.
- Whether operating expense growth and stock-based compensation remain elevated relative to revenue growth, and whether losses continue to narrow.
- How much operating cash flow depends on deferred-revenue growth and other working-capital timing, and how acquisition and investment spending affect liquidity.
- How COVID-19, vaccination requirements, and IPO/SPAC market conditions affect employee retention, customer demand, and future growth.