Workiva Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; filed February 20, 2019. This is an annual report, not a standalone fourth-quarter filing. Workiva provides cloud-based reporting, data and compliance software through its Wdesk platform; it had 3,340 customers at year-end.
Financial performance
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $244.3 million | $207.9 million |
| Subscription and support revenue | $200.4 million | $169.3 million |
| Professional services revenue | $44.0 million | $38.6 million |
| Gross profit / gross margin | $178.5 million / 73.0% | $147.6 million / 71.0% |
| Operating loss | $(49.8) million | $(44.3) million |
| Net loss | $(50.1) million | $(44.4) million |
| Operating cash flow | $6.4 million | $5.5 million |
| Cash, cash equivalents and marketable securities | $98.3 million | $76.7 million |
Subscription and support accounted for 82.0% of revenue. Net loss per share was $1.15. Cash and cash equivalents alone were $77.6 million. Working capital excluding deferred revenue was $134.2 million. Stockholders’ deficit was $9.7 million.
There were no borrowings under the $15.0 million revolving credit facility at year-end; a $0.5 million letter of credit reduced availability to approximately $14.5 million. The facility matures in August 2020 and includes covenants, including a minimum $5.0 million of cash or unused borrowing capacity. Separate capital lease and financing obligations had a balance-sheet carrying value of $18.4 million; related undiscounted contractual payments were $37.7 million, including interest.
Changes versus prior year
- Revenue grew 17.5%, compared with 16.4% in 2017. Subscription and support revenue increased 18.4%; professional services revenue rose 13.9%.
- Gross margin improved to 73.0% from 71.0%, while operating loss narrowed as a share of revenue to 20.5% from 21.3%. Net loss nevertheless increased by $5.6 million.
- Operating expenses rose 18.9%, led by research and development (+19.7%) and general and administrative (+42.3%). General and administrative costs included $9.5 million of cash- and equity-based compensation under the former CEO’s separation agreement.
- Customer count increased 9.0% to 3,340. Revenue retention excluding add-ons was 96.1% (96.0% in 2017); including add-ons it was 107.1% (107.6%). Customers with annual contract value above $100,000 increased to 443 from 324.
- Operating cash flow increased modestly, but the $17.3 million increase in cash and cash equivalents was also supported by $19.9 million of proceeds from stock option exercises and employee stock purchases, net of related financing outflows.
Outlook, commentary and risks
- Management gave no specific revenue or earnings guidance in this 10-K. It expects continued operating losses and plans further investment in product development, infrastructure, sales and marketing; it also expects headcount growth in 2019. Management stated available liquidity, operating cash flows, credit availability and potential shelf offerings should fund operations for at least 12 months.
- Workiva introduced Wdata in 2018 and began shifting from seat-based to solution-based licensing, expecting most subscription revenue to use solution-based pricing by mid-2020. Management expects this model to support expansion, but the transition, pricing effects and longer sales cycles for larger enterprise deals create execution risk.
- Non-SEC use cases generated just over half of 2018 bookings, but the company still described SEC filing customers as a majority of revenue. Approximately 90.5% of 2018 revenue was attributable to U.S. operations.
- ASC 606 was adopted January 1, 2018 using the modified retrospective method. It changed revenue timing and presentation and deferred more sales commissions. For 2018, reported revenue was about $0.9 million lower than under the prior standard overall, while reported net loss was about $7.9 million lower; operating cash flow was unchanged.
- Management identified risks including persistent losses, competition, customer renewals, successful adoption of new solutions and licensing, cloud-service availability and security, privacy regulation, international expansion and foreign exchange. The company relies on third-party cloud infrastructure. No pending legal proceeding was identified as expected to have a material adverse effect.
- Workiva expects ASC 842 lease adoption in 2019 to add approximately $16 million of assets and liabilities, with no significant effect on the income statement or cash flows. The auditors issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective at year-end.
Investor verification priorities
- Track whether subscription growth, customer expansion and retention remain strong as solution-based licensing replaces seat-based pricing.
- Assess the path to profitability: operating expense growth, stock-based compensation (up to $30.8 million from $19.5 million), and the former CEO separation charges materially affected 2018 results.
- Reconcile operating cash flow and liquidity with deferred revenue, receivables and deferred commission growth; confirm credit-facility covenant compliance and financing-obligation payments.
- Review reported results on a consistent accounting basis, particularly the ASC 606 adjustments and the 2019 ASC 842 lease adoption.
- Monitor security, privacy and service-continuity disclosures, as well as progress in non-SEC markets and international revenue diversification.
- Consider governance and dilution: Class B shares carry ten votes per share, and Class B holders collectively controlled approximately 73% of voting power at year-end.