Workiva Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; comparisons are with Q1 2016 unless noted. Workiva provides cloud-based Wdesk software and related services. It reported 2,825 customers at quarter-end, including more than 70% of FORTUNE 500 companies.
Financial performance
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Total revenue | $51.9 million | $44.6 million |
| Subscription and support revenue | $39.5 million | $33.6 million |
| Professional services revenue | $12.4 million | $11.0 million |
| Gross profit / gross margin | $37.7 million / 72.6% | $31.4 million / 70.6% |
| Operating loss | $6.0 million | $12.1 million |
| Net loss / diluted loss per share | $5.8 million / $0.14 | $12.0 million / $0.30 |
| Operating cash flow | $2.6 million provided | $19.1 million used |
Revenue increased 16.5%; subscription and support revenue rose 17.7%, while professional services revenue rose 12.7%. Operating expenses were nearly flat at $43.7 million. Stock-based compensation was $4.1 million, up from $3.4 million. The company remained loss-making, with an 11.3% net loss margin versus 27.0%.
Balance sheet and liquidity
At March 31, cash and cash equivalents were $52.2 million and marketable securities were $12.5 million, totaling $64.7 million. Current assets were $95.4 million versus current liabilities of $98.0 million. Deferred revenue totaled $101.7 million, including $79.1 million current. Total liabilities were $144.8 million and stockholders’ deficit was $5.0 million.
Long-term debt was $53,000, with a further $20,000 current portion. Capital lease and financing obligations totaled $20.7 million. No amount was outstanding under the $15 million credit facility; it matures in August 2018 and includes covenants, including a requirement to maintain at least $5 million of cash or unused borrowing capacity. Management said available cash, customer receipts, and facility availability should fund operations for at least the next 12 months.
Changes, outlook, and risks
- Revenue growth decelerated to 16.5% from 26.7% in Q1 2016. Customer count grew 10.5% year over year. Revenue retention excluding add-ons declined to 95.1% from 96.1%; including add-ons, it fell to 106.6% from 112.1%.
- Operating loss narrowed substantially, supported by higher gross margin and lower sales and marketing expense. Management attributed the latter partly to simplification of the sales organization. Research and development and general and administrative costs increased.
- Operating cash flow improved from a large use of cash to cash generation, helped by a $4.1 million increase in deferred revenue. Accrued expenses and other liabilities fell $5.8 million, primarily due to timing of annual bonus payments.
- Management expects to continue investing in product development, sales, marketing, and customer success, and expects operating expenses to increase. It also stated the company expects continued operating losses and may have negative operating cash flow; no specific revenue or earnings guidance was provided.
- Workiva planned to adopt ASC 606 on January 1, 2018 using the modified retrospective method. It expected some professional-services revenue acceleration and increased capitalization and longer deferral of contract acquisition costs; other effects remained under evaluation.
- Management reported no material change in risk factors, contractual obligations, or market-risk exposures, and no pending legal proceeding expected to have a material adverse effect. Forward-looking results remain subject to competitive, execution, and other risks described in the filing.
Key facts for investors to verify
- Whether subscription growth and customer retention stabilize or continue to weaken, particularly as sales cycles lengthen.
- Whether improved operating cash flow is sustainable beyond deferred-revenue growth and the timing of bonus payments.
- How continued investment, stock-based compensation, and expected operating expense growth affect progress toward profitability.
- The eventual impact and transition adjustments from ASC 606, especially for professional-services revenue and capitalized contract costs.
- Liquidity and covenant headroom under the credit facility, together with the company’s ability to finance operations while continuing to incur losses.