Workiva Inc. — Q1 2019 Form 10-Q
Business and period: Cloud-based reporting, compliance and connected-data software provider. Results cover the three months ended March 31, 2019, compared with Q1 2018; financial statements are unaudited. Workiva reported 3,366 customer organizations, including more than 75% of Fortune 500 companies, at quarter-end.
Financial performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total revenue | $70.0 million | $59.9 million |
| Subscription and support revenue | $56.1 million | $46.5 million |
| Professional services revenue | $13.8 million | $13.4 million |
| Gross profit / margin | $50.4 million / 72.1% | $43.4 million / 72.4% |
| Operating loss | $7.3 million | $9.5 million |
| Net loss | $7.5 million | $9.6 million |
| Basic and diluted loss per share | $0.17 | $0.22 |
| Cash from operating activities | $5.1 million | $1.8 million |
Revenue grew 16.8% year over year; subscription and support revenue rose 20.8%, while professional services rose 3.0%. Subscription and support represented 80.2% of revenue, up from 77.6%. Gross margin edged down 0.3 percentage points. Operating expenses increased 9.2% to $57.8 million: sales and marketing rose 20.8%, R&D rose 9.4%, and general and administrative expense fell 11.8%. Stock-based compensation was $8.2 million, compared with $5.9 million.
Liquidity, cash flow and obligations
At March 31, 2019, cash and cash equivalents were $78.7 million and marketable securities were $35.7 million, totaling $114.4 million. Cash and cash equivalents increased $1.2 million during the quarter. Investing activities used $16.6 million, principally reflecting $22.2 million of securities purchases, partly offset by $7.4 million of maturities; financing activities provided $12.5 million, mainly from employee option exercises and stock purchases.
Total liabilities were $252.4 million and stockholders’ equity was $3.9 million, compared with a $9.7 million stockholders’ deficit at year-end 2018. Financing obligations totaled $18.1 million. The company also reported a $15.0 million revolving credit facility, maturing August 2020, with a $0.5 million letter of credit outstanding; the filing does not state a drawn borrowing balance. Management said available resources, operating cash flows, credit-facility availability and potential securities offerings should fund operations for at least 12 months, while noting expected future operating losses and possible need for additional capital.
Adoption of ASC 842 on January 1, 2019 added operating lease right-of-use assets and liabilities to the balance sheet. At March 31, operating lease liabilities totaled $23.6 million; adoption did not affect operating results or total operating cash flows.
Material changes, outlook and risks
- Management attributed subscription growth to demand and improved pricing across reporting, risk and controls, financial reporting and capital-markets use cases. Customer count increased 7.9% year over year.
- Revenue retention was 95.7% excluding add-ons, unchanged year over year; including add-ons it increased to 110.7% from 105.3%. Customers with annual contract value above $100,000 rose to 493 from 335.
- Management expects subscription and support revenue to outgrow professional-services revenue annually. It plans continued investment in product development, sales, marketing, professional services and customer success. No specific financial guidance was provided.
- Management cautioned that larger enterprise deals can lengthen sales cycles, and that the company expects continued operating losses. Professional-services revenue and operating cash flow are subject to seasonality.
- Remaining performance obligations for subscription contracts were approximately $180.7 million, with about $151.3 million expected to be recognized over the next 12 months.
- The filing reported no pending legal proceedings expected by management to have a material adverse effect and no material changes in contractual commitments. Management stated disclosure controls were effective; internal-control enhancements related to ASC 842 were completed during the quarter.
Important facts for investors to verify
- Whether subscription growth, retention and larger-customer expansion continue as Workiva converts customers to solution-based licensing; the company expected most subscription revenue to use that model by mid-2020.
- Whether gross-margin pressure and rising sales, marketing and development costs affect the path toward profitability.
- How recurring operating cash generation develops, given the quarter’s cash-flow benefit from receivables collections and significant noncash stock compensation.
- Credit-facility borrowing availability and covenants, as well as the company’s need for additional capital if losses persist.
- The effects of ASC 842 lease commitments and the planned adoption of new credit-loss accounting guidance; the filing said the latter’s impact was still under evaluation.