Workiva Inc. (NYSE: WK) — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Workiva provides cloud software for financial reporting, ESG, and governance, risk and compliance, plus related professional services.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $158.2 million | $132.8 million | $463.4 million | $394.1 million |
| Subscription and support revenue | $143.4 million | $118.6 million | $409.9 million | $339.1 million |
| Gross margin | 75.8% | 75.6% | 74.9% | 75.7% |
| Operating loss | $(15.5) million | $(30.1) million | $(85.1) million | $(75.5) million |
| Net loss | $(56.3) million | $(29.7) million | $(123.3) million | $(77.0) million |
| Operating cash flow | $15.0 million | $4.9 million | $46.5 million | $12.6 million |
Q3 revenue increased 19.1%, driven mainly by 20.9% subscription and support growth. Nine-month revenue rose 17.6%; professional services revenue declined 2.7% for the period. Subscription and support represented 90.7% of Q3 revenue, up from 89.3%.
Q3 operating loss narrowed year over year, while the nine-month operating loss widened. Net losses increased in both comparisons, principally reflecting a $45.1 million non-cash loss on the induced conversion associated with repurchasing 2026 notes. Q3 interest expense was $47.4 million; nine-month interest expense was $50.4 million. Stock-based compensation was $19.4 million in Q3 and $78.0 million for the nine months.
Liquidity, debt and cash flow
- Cash and cash equivalents were $404.9 million and marketable securities were $377.5 million at September 30, 2023, totaling $782.4 million.
- Nine-month operating cash flow was $46.5 million; investing cash flow was $(182.0) million, largely reflecting purchases of marketable securities; financing cash flow was $300.3 million.
- In August, Workiva issued $702.0 million principal amount of 1.25% convertible notes due 2028, receiving $691.1 million net of issuance costs. It used $396.9 million to repurchase $273.8 million principal amount of 2026 notes.
- At quarter-end, the balance sheet reported $70.5 million net carrying value of 2026 notes and $691.4 million of 2028 notes. Total liabilities were $1.263 billion; stockholders’ deficit was $113.7 million.
- Management said available cash, cash equivalents and operating cash flows should fund operations for at least the next 12 months, while noting expectations of continued operating losses and possible negative operating cash flows.
Business changes, outlook and risks
- Customer count grew to 5,945 from 5,541. Subscription and support revenue retention was 97.7% versus 98.1%; retention including add-ons improved to 112.0% from 107.0%. Customers with ACV of at least $100,000 increased to 1,561 from 1,257.
- Remaining performance obligations for subscription contracts were approximately $835.5 million; Workiva expected to recognize $466.7 million over the next 12 months. The filing does not provide a specific financial forecast or formal guidance.
- Management cited strong subscription demand and customer solution expansion, while continuing investment in product development, sales and marketing, partners, and international growth. It expects subscription revenue growth to outpace professional services growth.
- Management said weaker IPO and SPAC activity continues to pressure new sales of SEC and capital-markets solutions. Larger enterprise deals may lengthen sales cycles. The filing also identifies uncertainty around financial-services industry disruptions and possible effects on Workiva and customers.
- Unusual items included the induced-conversion expense and additional stock-based compensation under former-executive transition agreements, including $18.1 million during the first nine months. Management reported no currently pending legal proceeding expected to have a material adverse effect and no material changes to previously disclosed risk factors other than the financial-services industry risk.
Important facts for investors to verify
- How much of the increased net loss and interest expense is attributable to the one-time induced-conversion charge versus ongoing financing costs.
- Whether subscription growth, add-on retention, and large-customer expansion continue, and how customer attrition affects the 97.7% base retention rate.
- How continued investment and stock-based compensation affect operating leverage, margins, and eventual profitability.
- The terms, potential dilution or cash settlement consequences, and maturity obligations of both convertible note issues.
- Whether the stated liquidity runway remains adequate if operating losses persist or IPO/SPAC-related demand and broader financial conditions worsen.