Workiva(WK) - 2019 Q1 - Quarterly Report

Part I. Financial Information This section presents Workiva Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2019 Item 1. Unaudited Consolidated Financial Statements This section presents Workiva Inc.'s unaudited condensed consolidated financial statements for Q1 2019, detailing financial position, performance, and cash flows, including the impact of ASC 842 adoption Condensed Consolidated Balance Sheets The balance sheet as of March 31, 2019, reflects increased total assets and liabilities, with stockholders' equity turning positive, largely due to ASC 842 adoption Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 (unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $78,736 | $77,584 | | Total current assets | $183,515 | $177,231 | | Operating lease right-of-use assets | $17,057 | $— | | Total assets | $256,281 | $231,111 | | Liabilities & Equity | | | | Deferred revenue (Current) | $149,943 | $148,545 | | Total current liabilities | $187,794 | $191,581 | | Operating lease liabilities, non-current | $20,846 | $— | | Total liabilities | $252,425 | $240,851 | | Total stockholders' equity (deficit) | $3,856 | ($9,740) | Condensed Consolidated Statements of Operations For Q1 2019, total revenue increased significantly, driven by subscription growth, leading to a narrowed loss from operations and reduced net loss compared to the prior year Q1 2019 vs Q1 2018 Statement of Operations (in thousands, except per share data) | Metric | Three months ended March 31, 2019 | Three months ended March 31, 2018 | | :--- | :--- | :--- | | Subscription and support revenue | $56,123 | $46,470 | | Professional services revenue | $13,840 | $13,436 | | Total revenue | $69,963 | $59,906 | | Gross profit | $50,427 | $43,395 | | Loss from operations | ($7,332) | ($9,506) | | Net loss | ($7,463) | ($9,618) | | Net loss per share (basic and diluted) | ($0.17) | ($0.22) | Condensed Consolidated Statements of Cash Flows Q1 2019 saw improved net cash from operating activities, primarily due to a smaller net loss and working capital changes, while investing activities used cash for marketable securities Cash Flow Summary for Three Months Ended March 31 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,119 | $1,783 | | Net cash (used in) provided by investing activities | ($16,592) | $427 | | Net cash provided by financing activities | $12,520 | $2,805 | | Net increase in cash and cash equivalents | $1,152 | $4,923 | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, including the ASC 842 lease standard adoption, and provide insights into marketable securities, stock-based compensation, and future revenue from performance obligations - Effective January 1, 2019, the company adopted the new lease accounting standard ASC 842, resulting in the recognition of $15.7 million in operating right-of-use assets and corresponding lease liabilities on the balance sheet[45][47] - Total stock-based compensation expense for Q1 2019 was $8.2 million, an increase from $5.9 million in Q1 2018[63] - As of March 31, 2019, approximately $180.7 million of revenue is expected to be recognized from remaining performance obligations, with $151.3 million expected within the next 12 months[76] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Workiva's Q1 2019 performance, highlighting strong revenue growth driven by subscription services, customer base expansion, improved operating leverage, and robust liquidity Overview Workiva offers a cloud-based platform, Wdesk, serving a large customer base, and is transitioning its SaaS model to a solution-based licensing approach - As of March 31, 2019, Workiva served 3,366 organizations, including more than 75% of Fortune 500® companies, with its Wdesk platform[80] - The company is transitioning from a user-based pricing model to a solution-based licensing model, expecting a substantial majority of subscription revenue to be on this new model by mid-2020[83] Key Performance Indicators Key performance indicators demonstrate strong customer growth and retention, with significant increases in customers with higher annual contract values and improved retention rates including add-ons Key Performance Indicators as of March 31 | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Number of customers | 3,366 | 3,119 | | Subscription and support revenue retention rate | 95.7% | 95.7% | | Subscription and support revenue retention rate including add-ons | 110.7% | 105.3% | | Number of customers with ACV $100k+ | 493 | 335 | | Number of customers with ACV $150k+ | 207 | 151 | Results of Operations Q1 2019 results show robust total revenue growth driven by subscription services, alongside controlled operating expense increases and a reduced loss from operations Revenue Comparison (in thousands) | Revenue Type | Q1 2019 | Q1 2018 | % Change | | :--- | :--- | :--- | :--- | | Subscription and support | $56,123 | $46,470 | 20.8% | | Professional services | $13,840 | $13,436 | 3.0% | | Total revenue | $69,963 | $59,906 | 16.8% | Operating Expense Comparison (in thousands) | Expense Category | Q1 2019 | Q1 2018 | % Change | | :--- | :--- | :--- | :--- | | Research and development | $22,011 | $20,127 | 9.4% | | Sales and marketing | $25,365 | $21,006 | 20.8% | | General and administrative | $10,383 | $11,768 | (11.8)% | | Total operating expenses | $57,759 | $52,901 | 9.2% | - The decrease in General and Administrative expenses was primarily due to a $1.0 million reduction in cash-based compensation, benefits, and travel costs, largely related to executive compensation[121] Liquidity and Capital Resources As of March 31, 2019, Workiva maintains strong liquidity with substantial cash and marketable securities, supported by improved operating cash flow and available credit facilities - As of March 31, 2019, the company's cash, cash equivalents, and marketable securities totaled $114.4 million[124] - The company has a $15.0 million credit facility with Silicon Valley Bank, maturing in August 2020, and a universal shelf registration statement to offer and sell up to $250.0 million in securities[125][127] Item 3. Quantitative and Qualitative Disclosure About Market Risk The company states that its exposures to market risk have not materially changed since the disclosures made in its Annual Report on Form 10-K for the year ended December 31, 2018 - There have been no material changes in the company's market risk exposures since December 31, 2018[139] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2019, with enhancements made to comply with the new ASC 842 lease accounting guidance - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of the end of the period[142] - During Q1 2019, the company enhanced internal controls and procedures to comply with the new leasing guidance under ASC 842[143] Part II. Other Information This section covers other information including legal proceedings, risk factors, equity sales, and required exhibits Item 1. Legal Proceedings The company reports that it is not currently a party to any legal proceedings that would have a material adverse effect on its business, financial condition, or operating results - Workiva is not presently a party to any legal proceedings that management believes would have a material adverse effect on the company[146] Item 1A. Risk Factors This section notes no material changes to risk factors from the 2018 Form 10-K, except for a new risk related to the adoption of the ASC 842 lease accounting standard - A new risk factor has been added concerning the potential adverse effects of changes in U.S. GAAP, specifically highlighting the adoption of the new lease accounting standard, ASC 842, effective January 1, 2019[148][149] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of securities or material changes in IPO proceeds use, detailing the acquisition of Class A Common Stock for employee tax obligations - During the three months ended March 31, 2019, the company acquired 9,898 shares of its Class A Common Stock from employees to satisfy mandatory tax withholding requirements upon the vesting of stock-based compensation awards[154] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, which include certifications from the CEO and CFO as required by the Sarbanes-Oxley Act of 2002, as well as XBRL data files - Exhibits filed with the report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, and XBRL Interactive Data Files[156]