Workiva(WK) - 2019 Q2 - Quarterly Report

Part I. Financial Information Unaudited Consolidated Financial Statements Unaudited Q2 2019 financials show 24.3% revenue growth, a reduced net loss, and positive operating cash flow, with assets reaching $280.0 million Condensed Consolidated Balance Sheets Total assets increased to $280.0 million by June 30, 2019, driven by higher cash and ASC 842 adoption, while stockholders' equity turned positive to $9.6 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 (unaudited) | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $94,713 | $77,584 | | Total current assets | $205,353 | $177,231 | | Operating lease right-of-use assets | $16,510 | $— | | Total assets | $279,982 | $231,111 | | Liabilities & Stockholders' Equity | | | | Deferred revenue (Current) | $156,234 | $148,545 | | Total current liabilities | $204,434 | $191,581 | | Operating lease liabilities, non-current | $20,038 | $— | | Total liabilities | $270,355 | $240,851 | | Total stockholders' equity (deficit) | $9,627 | $(9,740) | - The adoption of the new lease standard (ASC 842) on January 1, 2019, resulted in the recognition of $15.7 million in operating right-of-use assets and corresponding lease liabilities[51] Condensed Consolidated Statements of Operations Q2 2019 total revenue grew 24.3% to $73.5 million, with net loss significantly improving to $8.3 million due to reduced operating expenses Consolidated Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2019 | Q2 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Subscription and support revenue | $60,472 | $48,837 | $116,595 | $95,307 | | Professional services revenue | $13,012 | $10,293 | $26,852 | $23,729 | | Total revenue | $73,484 | $59,130 | $143,447 | $119,036 | | Gross profit | $52,807 | $42,834 | $103,234 | $86,229 | | Total operating expenses | $61,234 | $64,624 | $118,993 | $117,525 | | Loss from operations | $(8,427) | $(21,790) | $(15,759) | $(31,296) | | Net loss | $(8,322) | $(21,768) | $(15,785) | $(31,386) | | Net loss per share (basic & diluted) | $(0.18) | $(0.50) | $(0.35) | $(0.73) | Condensed Consolidated Statements of Cash Flows Net cash from operations turned positive at $23.9 million for H1 2019, a significant improvement driven by lower net loss and working capital changes Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $23,882 | $(763) | | Net cash used in investing activities | $(24,685) | $(7,230) | | Net cash provided by financing activities | $17,717 | $5,332 | | Net increase (decrease) in cash | $17,129 | $(2,838) | Notes to Condensed Consolidated Financial Statements Notes detail ASC 842 adoption, revenue disaggregation, $197.7 million in remaining performance obligations, and $16.7 million in stock-based compensation - The company adopted the new lease standard, ASC 842, on January 1, 2019, using the modified retrospective approach, which resulted in recognizing right-of-use assets and lease liabilities without restating prior periods[49] - As of June 30, 2019, the company had $197.7 million in remaining performance obligations for subscription contracts, with $160.8 million expected to be recognized as revenue over the next 12 months[83] - Total stock-based compensation expense was $8.5 million for Q2 2019 and $16.7 million for the six months ended June 30, 2019[70] Revenue by Type (in thousands) | Revenue Type | Q2 2019 | Q2 2018 | | :--- | :--- | :--- | | Subscription and support | $60,472 | $48,837 | | XBRL professional services | $9,522 | $6,916 | | Other services | $3,490 | $3,377 | | Total revenues | $73,484 | $59,130 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes 24.3% revenue growth to a new licensing model and increased investments, anticipating higher operating losses in H2 2019 - The company is transitioning customers from a seat-based to a solution-based licensing model, which typically has a higher contract value and offers unlimited seats per solution[91] - A substantial majority of subscription revenue is expected to be on this model by year-end 2019[92] - Management is accelerating investments in talent and technology, particularly for expansion in EMEA, integrated risk, statutory reporting, and Wdata, to maintain long-term revenue growth[97][104] - These investments are expected to increase operating losses through the second half of 2019[104] Key Performance Indicators (as of June 30) | Operating Metric | 2019 | 2018 | | :--- | :--- | :--- | | Number of customers | 3,421 | 3,222 | | Subscription and support revenue retention rate | 95.4% | 95.6% | | Subscription and support revenue retention rate including add-ons | 114.5% | 106.9% | | Number of customers with ACV $100k+ | 558 | 366 | | Number of customers with ACV $150k+ | 238 | 161 | Results of Operations Q2 2019 revenue grew 24.3% driven by subscription and professional services, while a 48.2% decrease in G&A expenses improved operating loss - Q2 2019 subscription and support revenue growth was driven by strong demand and the ongoing conversion of customer accounts to a solution-based licensing model[125] - Sales and marketing expenses increased by $6.0 million in Q2 2019 compared to Q2 2018, driven by a 16.8% increase in headcount and higher costs for marketing programs related to partnership and international expansion[132] - General and administrative expenses decreased by $10.4 million in Q2 2019 compared to Q2 2018[134] - The prior-year period included significant cash and equity-based compensation pursuant to a separation agreement with the former CEO[135] Liquidity and Capital Resources The company held $137.6 million in liquid assets, with Q2 2019 operations providing $18.8 million in cash, supported by a $15.0 million credit facility - Cash provided by operating activities was $18.8 million for Q2 2019, compared to cash used of $2.5 million in Q2 2018[139] - The improvement is attributed to a lower net loss and favorable working capital changes[143] - The company believes current cash, cash flows from operations, and availability under its credit facility will be sufficient to fund operations for at least the next twelve months[139] - In June 2019, the company entered into non-cancelable agreements for cloud services, committing to purchase $0.9 million in 2019, $1.7 million in 2020, $1.7 million in 2021, and $0.9 million in 2022[156] Quantitative and Qualitative Disclosure About Market Risk Market risk exposures remain materially unchanged since December 31, 2018, as previously disclosed in the Annual Report - There have been no material changes in the company's market risk exposures since December 31, 2018[160] Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal controls - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[163] - No material changes were identified in the company's internal control over financial reporting during the most recently completed fiscal quarter[164] Part II. Other Information Legal Proceedings No current legal proceedings are expected to materially adversely affect the company's business or financial condition - The company is not presently a party to any legal proceedings that management believes would have a material adverse effect on the business[166] Risk Factors No material changes to risk factors, except for a new risk concerning potential adverse effects from changes in U.S. GAAP, specifically ASC 842 - A new risk factor has been added concerning the potential adverse effects of changes in accounting principles, such as the recently adopted lease standard ASC 842[167][168][169] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred, and the planned use of IPO proceeds remains materially unchanged - There has been no material change in the planned use of proceeds from the company's initial public offering[172] Exhibits Exhibits include CEO and CFO certifications and financial statements formatted in Inline XBRL - The exhibits filed include CEO and CFO certifications and financial data in Inline XBRL format[173]