Workiva Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Workiva provides cloud-based compliance and regulatory reporting software and related professional services.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $132.8 million | $112.7 million | $394.1 million | $322.5 million |
| Subscription and support revenue | $118.6 million | $98.9 million | $339.1 million | $275.1 million |
| Gross profit | $100.4 million | $86.3 million | $298.5 million | $247.8 million |
| Gross margin | 75.6% | 76.6% | 75.7% | 76.9% |
| Operating loss | $(30.1) million | $(8.0) million | $(75.5) million | $(17.9) million |
| Net loss | $(29.7) million | $(6.6) million | $(77.0) million | $(23.4) million |
| Operating cash flow | $4.9 million | $16.3 million | $12.6 million | $40.6 million |
- Revenue grew 17.9% in Q3 and 22.2% for the nine-month period; subscription and support revenue grew 19.9% and 23.3%, respectively.
- Operating expenses rose 38.5% in Q3 and 40.8% year to date, outpacing revenue growth. Q3 sales and marketing expense increased 40.3%; research and development increased 29.3%; general and administrative increased 49.0%.
- Cash, cash equivalents and marketable securities totaled $433.0 million at September 30, 2022, compared with $530.4 million at year-end 2021. Nine-month investing cash outflow was $79.2 million, including the ParsePort acquisition.
- Convertible senior notes had $345.0 million principal and a $339.9 million carrying value, classified as non-current; they bear 1.125% interest and mature in 2026. The company reported no conversion conditions were met in Q3.
- Stockholders’ deficit was $5.5 million, versus equity of $73.0 million at year-end 2021. The filing reports $54.1 million of stock-based compensation expense for the first nine months.
Changes, outlook and risks
- Management attributed subscription growth to customer demand, solution expansion and, year to date, better pricing. Customer count was 5,541 versus 4,146 a year earlier; subscription revenue retention was 98.1%, while retention including add-ons declined to 107.0% from 111.1%.
- Remaining performance obligations for subscription contracts were approximately $668.3 million; Workiva expected to recognize $376.2 million over the next 12 months. The filing provides no formal revenue or earnings guidance.
- Management said more measured customer buying and longer sales cycles affected the business. A stronger U.S. dollar, particularly against the euro and pound, weighed on year-over-year revenue growth and could affect near-term results if continued. Reduced IPO and SPAC activity pressured new sales of SEC and capital-markets solutions; management expected that pressure to continue in Q4 2022.
- Management expects continued operating losses and potentially negative operating cash flows, but believes available cash and operating cash flows will fund operations for at least the next 12 months.
- Workiva acquired ParsePort ApS on April 1, 2022, for $100.7 million gross consideration ($99.2 million net of acquired cash). The preliminary allocation included $78.2 million of goodwill and $24.0 million of intangible assets. Acquisition revenue and net loss included in the period were described as insignificant.
- Adoption of ASU 2020-06 changed convertible-note accounting and reduced reported non-cash interest expense; prior-year results were not restated. Q3 included additional stock compensation associated with severance agreements, including $3.5 million in general and administrative expense. Foreign currency translation and securities valuation contributed to accumulated other comprehensive loss.
- Risks highlighted include macroeconomic weakness, inflation and higher interest rates, technology-spending reductions, foreign-exchange volatility, geopolitical conflict including Russia-Ukraine, and continued IPO/SPAC market weakness. The company reported no pending legal proceeding expected by management to have a material adverse effect and no material changes to other previously disclosed risk factors.
Important facts for investors to verify
- Whether revenue growth can continue as sales cycles lengthen and IPO/SPAC-related demand remains weak.
- Whether expense growth, including hiring and stock-based compensation, moderates enough to improve operating margins and reduce losses.
- Cash consumption, the adequacy of liquidity, and the terms and potential dilution or cash-settlement implications of the 2026 convertible notes.
- Trends in retention including add-ons, customer expansion, and ParsePort’s contribution after acquisition.
- The impact of currency movements, macroeconomic conditions and any final changes to the preliminary ParsePort purchase-price allocation.