Workiva Inc. — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual filing, not a standalone fourth-quarter report. Workiva sells Wdesk, a cloud-based enterprise reporting and data-management platform, primarily through subscriptions and support.
Financial performance and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Total revenue | $145.3 million | $112.7 million |
| Subscription and support revenue | $116.3 million | $91.3 million |
| Professional services revenue | $29.0 million | $21.4 million |
| Gross profit / gross margin | $105.1 million / 72.4% | $78.8 million / 69.9% |
| Operating loss | $43.7 million | $38.6 million |
| Net loss | $43.4 million | $41.2 million |
| Cash used in operating activities | $21.6 million | $3.5 million |
- Revenue grew 28.9%; subscription and support revenue grew 27.3%, while professional services revenue grew 35.6%. Subscription and support represented 80.0% of revenue.
- Operating expenses rose 26.7% to $148.8 million, led by sales and marketing expense of $69.6 million, research and development of $50.5 million, and general and administrative expense of $28.7 million. The operating-loss margin improved to 30.0% negative from 34.4% negative.
- At year-end, cash and cash equivalents were $58.8 million and marketable securities were $17.4 million. Total liabilities were $118.2 million and stockholders’ equity was $25.7 million.
- No amount was drawn under the $15 million Silicon Valley Bank facility. It matures in August 2016, is secured by company assets, contains restrictive covenants and requires at least $5 million of cash or unused borrowing capacity.
- Capital lease and financing obligations totaled $22.9 million, including current and long-term portions. Contractual obligations totaled $64.1 million, principally financing obligations and leases.
Changes versus prior periods
- Total revenue growth slowed to 28.9% from 32.3% in 2014; subscription and support growth slowed to 27.3% from 40.1%.
- Net loss widened by $2.2 million, although net loss per share improved to $1.09 from $1.28. The annual net loss remained substantial as the company continued investing in growth.
- Operating cash use increased to $21.6 million from $3.5 million. Management cited higher operating losses, reduced incentives for long-term prepayments and increased accounts receivable.
- Customer count increased 11.6% to 2,524. Subscription and support revenue retention excluding add-ons was 95.8%, down from 97.0%; including add-ons it was 112.5%, up from 104.1%.
- Fourth-quarter revenue was $39.9 million versus $30.1 million in Q4 2014; quarterly net loss was $10.3 million versus $12.7 million. Q4 2015 included higher government-grant income.
Outlook, commentary and risks
- Management expects continued investment in sales, marketing, customer success, infrastructure and product development, and expects operating losses and negative operating cash flows to continue. It said available cash, customer receipts and credit-facility availability should fund operations for at least twelve months. The filing provides no specific revenue or earnings guidance.
- Growth strategy centers on acquiring customers, expanding use within existing accounts, adding solutions and expanding internationally. About 94% of FY 2015 revenue came from the United States. Management highlighted new and developing Wdesk capabilities, including SOX and audit-related tools and larger data workbooks.
- Key risks include persistent unprofitability and cash consumption; slowing subscription growth; dependence on renewals and expansion; competition and uncertain adoption of newer solutions; service outages, cybersecurity and third-party cloud-provider dependence; and execution risks from rapid hiring and growth.
- Professional-services revenue is seasonal, typically stronger around calendar-year SEC filing periods. The company also cited foreign-currency, regulatory, tax, litigation, intellectual-property and public-company compliance risks.
- Unusual item: in Q4 2015, Workiva resolved contingencies on an Iowa economic-development grant, recognizing $1.6 million of grant income and reducing property and equipment by $0.6 million. Total 2015 government-grant income recognized was $2.4 million.
- Management reported effective disclosure controls and internal control over financial reporting as of year-end. The external auditor did not attest to internal-control effectiveness because Workiva was an emerging growth company. No pending legal proceeding was identified as expected to have a material adverse effect.
Important facts for investors to verify
- Whether subscription growth and retention remain resilient, and whether expansion revenue offsets customer attrition.
- Whether the company can reduce operating losses and cash burn while continuing planned investment.
- Cash, marketable securities, deferred revenue, financing obligations and compliance with the credit facility’s covenants and maturity terms.
- The sustainability of reported margins, including the effect of services mix, staffing costs and the nonrecurring grant recognition.
- Progress and customer adoption in SOX, audit, risk and international markets beyond core SEC reporting.
- Governance implications of the dual-class structure: Class B shares have ten votes per share, and holders collectively controlled about 80% of voting power at year-end.