Workiva(WK) - 2019 Q4 - Annual Report

Part I Business Workiva offers a cloud-based connected reporting and compliance platform, serving over 3,500 organizations, with 2019 revenue of $297.9 million despite ongoing net losses Overview Workiva's connected reporting platform serves 3,510 organizations, including Fortune 500 companies, with $297.9 million revenue and a $48.1 million net loss in 2019 - As of December 31, 2019, Workiva's platform was used by 3,510 organizations, including nearly 75% of Fortune 500® companies[15] - The Wdata component of the platform enables customers to connect and integrate data from various enterprise systems like ERP, GRC, and CRM, automating workflows and improving data integrity[16][17] Financial Performance (2017-2019) (in millions) | Metric | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | | Revenue | $207.9 | - | $297.9 | | Net Loss | $44.4 | $50.1 | $48.1 | - In 2019, approximately 83% of revenue was from subscription and support fees, with the remainder from professional services[35] Customer Retention Rates (as of Dec 2019) | Metric | Rate | | :--- | :--- | | Subscription & Support Revenue Retention Rate (excl. add-ons) | 94.7% | | Subscription & Support Revenue Retention Rate (incl. add-ons) | 113.0% | Workiva Technology and Platform Milestones Workiva's enterprise-grade technology, built on AWS and Google Cloud, ensures scalability and reliability, with continuous platform evolution since its 2010 SEC reporting solution - The company's technology utilizes Amazon Web Services and Google Cloud Platform, enabling on-demand scaling of compute and storage capacity[25] - Key platform milestones include the initial SEC reporting solution (2010), a broader platform launch (2013), the introduction of Wdata for large dataset management (2018), and a next-generation platform rollout with improved features like Workiva Connected Sheets (2019)[26][29][30] Our Industry and Market Trends Industry trends like disconnected data, complex regulations, and demand for machine-readable formats drive the need for Workiva's platform, highlighting the inadequacy of legacy processes - Industry trends driving demand include widespread and disconnected data, changing regulatory requirements like SOX and ESEF, and the growing use of machine-readable data (XBRL)[36][37][39] - The SEC has mandated phased-in deadlines for Inline XBRL reporting, starting June 15, 2019, for large accelerated filers and extending to all filers by June 15, 2021[40] - The European Securities and Markets Authority (ESMA) now mandates Inline XBRL for its ESEF taxonomy, affecting over 5,000 E.U. issuers for reporting periods ending on or after January 1, 2020[44] - Legacy business processes are insufficient for modern enterprises due to restricted access, inefficient collaboration, rigid workflows, manual dataset creation, and a lack of audit trails and controls[48][49][52] Growth Strategy Workiva's growth strategy focuses on expanding within existing customers, acquiring new ones, growing its partner ecosystem, and continuous platform innovation, with a key emphasis on international expansion - Core growth strategies include expanding within existing customers, pursuing new customers, expanding the partner ecosystem, offering more solutions, and continuous innovation[63][64][65] - In 2019, the company began focusing investments in five key growth vectors: EMEA expansion, global statutory reporting, integrated risk, Wdata, and the U.S. federal government[70] - International expansion is a key priority, as approximately 96% of revenue for the year ended December 31, 2019, was generated in North America[71] - The company achieved FedRAMP Moderate Impact authorization in October 2019, enabling it to help federal agencies manage a wider range of information types and expanding its market within the U.S. government[78] Workiva Platform Use Cases Workiva targets four primary areas: Regulatory Reporting (SEC, ESEF), Non-Regulatory Reporting (FP&A), Integrated Risk (SOX, ERM), and Financial Services (Dodd-Frank, CCAR) - The company focuses its sales and marketing resources in four main areas: Regulatory Reporting, Non-Regulatory Reporting, Financial Services, and Integrated Risk[80] - Regulatory reporting use cases include SEC filings (10-K, 10-Q), European ESEF reporting, and global statutory reporting for multinational corporations[82][83][84] - Integrated Risk solutions cover SOX compliance, internal audit management, Enterprise Risk Management (ERM), and policy and procedure management[87][88][90] Competition, Sales, and Marketing Workiva competes against manual processes, diversified software, niche solutions, and professional services, leveraging a "land-and-expand" sales strategy through direct and partner channels - Primary competitors include the status quo of manual processes using legacy software, diversified enterprise software providers, niche software providers, and professional services firms[102][111] - The company employs a "land-and-expand" sales strategy focused on acquiring new customers and growing relationships within existing ones[106] - The sales organization uses a combination of field sales, inside sales, and partnership channels, supported by customer success and professional services teams[107][109] Intellectual Property, Employees, and Corporate Information Workiva protects its technology with 44 issued patents and 19 pending applications, grew its employee count to 1,580 in 2019, and is headquartered in Ames, Iowa - As of December 31, 2019, the company had 44 issued patents and 19 pending patent applications in the United States[118] - Full-time employee headcount increased by 19.8% from 1,319 at the end of 2018 to 1,580 at the end of 2019[125] - The company was formed in 2008, converted to a Delaware corporation in 2014, and is headquartered in Ames, Iowa[126] Risk Factors Workiva faces significant risks including unprofitability, intense competition, reliance on SEC filings, technological changes, data security, and a dual-class stock structure concentrating voting control Risks Related to Our Business and Industry The company faces risks from its history of net losses, intense competition, reliance on SEC filings, technological changes, third-party data center dependence, and evolving data privacy regulations - The company has a history of net losses, including $48.1 million in 2019, $50.1 million in 2018, and $44.4 million in 2017, and may not achieve or maintain profitability in the future[130] - A majority of revenue is derived from customers using the platform for SEC filings, and efforts to increase use in other applications may not succeed, potentially reducing the revenue growth rate[140] - The business relies on third-party data center hosting facilities, including Google and Amazon, and interruptions or delays in these services could impair service delivery[150] - The company is subject to complex and evolving U.S. and foreign data privacy laws, such as GDPR and CCPA, and failure to comply could result in significant fines and reputational harm[172][175][176] - In August 2019, the company issued convertible senior notes, which introduce risks related to potential conversion, dilution, and the requirement to use cash for settlement, which could affect liquidity[223] Risks Related to Ownership of Our Class A Common Stock Ownership of Workiva's Class A common stock carries risks from price volatility, a dual-class structure concentrating 69% of voting power with Class B holders, and anti-takeover provisions - The dual-class structure of common stock concentrates voting control. As of December 31, 2019, Class B stockholders held approximately 69% of the voting power, limiting the influence of Class A stockholders on corporate matters[237] - Anti-takeover provisions, such as a classified board of directors and limitations on stockholder actions, may delay or prevent a change of control or changes in management[239][240] - The company does not intend to pay dividends for the foreseeable future, meaning investors must rely on stock price appreciation for returns[249] Unresolved Staff Comments The company reports that it has no unresolved staff comments - None[252] Properties Workiva's corporate headquarters is a leased 120,000 square foot office in Ames, Iowa, supplemented by additional leased facilities across ten U.S. cities and multiple international locations - The corporate headquarters is a leased space of approximately 120,000 square feet in Ames, Iowa[253] - The company leases additional offices in ten U.S. cities and multiple international locations, including Canada, Europe, and the Asia-Pacific region[253] Legal Proceedings The company is not currently a party to any legal proceedings expected to have a material adverse effect on its business, financial condition, or operating results - Workiva is not presently a party to any legal proceedings that are expected to have a material adverse effect on the company[254] Mine Safety Disclosures This item is not applicable to the company - Not applicable[255] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Workiva's Class A common stock trades on the NYSE under "WK", while Class B is not publicly traded; the company has never paid cash dividends and does not intend to in the foreseeable future - Class A common stock is listed on the NYSE under the symbol "WK"[258] - The company has never declared or paid cash dividends and does not expect to in the foreseeable future[260] Selected Consolidated Financial Data This section provides a five-year summary of Workiva's financials, showing consistent revenue growth to $297.9 million in 2019, alongside persistent net losses and increased assets due to convertible senior notes Selected Consolidated Statement of Operations Data (2017-2019) (in thousands) | (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total revenue | $297,891 | $244,344 | $207,869 | | Gross profit | $212,879 | $178,484 | $147,624 | | Loss from operations | $(45,722) | $(49,788) | $(44,303) | | Net loss | $(48,134) | $(50,071) | $(44,426) | | Net loss per share | $(1.04) | $(1.15) | $(1.07) | Selected Consolidated Balance Sheet Data (as of Dec 31) (in thousands) | (in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $381,742 | $77,584 | | Total assets | $646,396 | $231,111 | | Deferred revenue | $206,186 | $173,716 | | Convertible senior notes, net | $280,601 | $— | | Total stockholders' equity (deficit) | $65,343 | $(9,740) | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Workiva's 2019 financial performance, highlighting a 21.9% revenue increase to $297.9 million, ongoing investments leading to a $48.1 million net loss, and a strong liquidity position of $488.0 million in cash and marketable securities Results of Operations In 2019, total revenue increased by 21.9% to $297.9 million, driven by subscription growth, while operating expenses rose 13.3%, resulting in a $48.1 million net loss Revenue Comparison (2019 vs. 2018) (in thousands) | Revenue Type | 2019 | 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Subscription and support | $245,765 | $200,392 | $45,373 | 22.6% | | Professional services | $52,126 | $43,952 | $8,174 | 18.6% | | Total revenue | $297,891 | $244,344 | $53,547 | 21.9% | Operating Expenses Comparison (2019 vs. 2018) (in thousands) | Expense Category | 2019 | 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $89,921 | $81,602 | $8,319 | 10.2% | | Sales and marketing | $120,300 | $90,337 | $29,963 | 33.2% | | General and administrative | $48,380 | $56,333 | $(7,953) | (14.1)% | | Total operating expenses | $258,601 | $228,272 | $30,329 | 13.3% | - The decrease in General and Administrative expenses in 2019 was primarily due to the absence of separation agreement costs for the former CEO, which amounted to $5.9 million in cash-based and $3.6 million in equity-based compensation in 2018[316] Liquidity and Capital Resources Workiva's liquidity was significantly bolstered by the $345.0 million convertible senior notes issuance in August 2019, resulting in $488.0 million in cash and marketable securities by year-end Cash Flow Summary (in thousands) | (in thousands) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Cash flow from operating activities | $30,566 | $6,400 | $5,520 | | Cash flow used in investing activities | $(90,065) | $(5,632) | $(6,473) | | Cash flow from financing activities | $363,370 | $16,876 | $9,822 | - In August 2019, the company issued $345.0 million in 1.125% convertible senior notes due 2026, receiving net proceeds of $335.9 million[324] - Principal sources of liquidity as of December 31, 2019, were cash, cash equivalents, and marketable securities totaling $488.0 million[321] Critical Accounting Policies and Estimates Revenue recognition under ASC 606 is a critical accounting policy, involving identifying performance obligations, determining transaction prices, and recognizing subscription revenue ratably over the contract term - Revenue recognition is a critical accounting policy, following the five-step model under ASC 606[340][342] - Subscription and support revenue is recognized ratably over the contract term[340] - Agreements for professional services are typically treated as customer options to purchase services, with revenue recognized upon exercise of the option and completion of the service[341] Quantitative and Qualitative Disclosures about Market Risk Workiva's primary market risks are foreign currency fluctuations and interest rate sensitivity, with a 100-basis point interest rate increase estimated to reduce its investment portfolio market value by $0.8 million - The company's primary market risks are foreign currency exchange rates and interest rate sensitivity[348] - Foreign currency risk stems from sales and expenses denominated in Canadian dollars, Euros, and British Pounds, among others. Foreign currency transaction losses were $609,000 in 2019[349] - As of December 31, 2019, an immediate 100-basis point increase in interest rates would have caused an estimated $0.8 million reduction in the market value of the company's investment portfolio[354] Financial Statements and Supplementary Data This section presents Workiva's audited consolidated financial statements for 2017-2019, including an unqualified opinion from Ernst & Young LLP and detailed notes on critical audit matters like Convertible Senior Notes and Revenue Recognition - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[361][362] - Critical Audit Matters identified by the auditor were the accounting for Convertible Senior Notes, specifically the bifurcation and valuation of liability and equity components, and Revenue Recognition, focusing on the identification of distinct performance obligations in customer contracts[366][368][371] Consolidated Balance Sheet Highlights (As of Dec 31, 2019) (in thousands) | Account | Amount (in thousands) | | :--- | :--- | | Total Assets | $646,396 | | Cash and cash equivalents | $381,742 | | Marketable securities | $106,214 | | Total Liabilities | $581,053 | | Deferred revenue (current & non-current) | $206,186 | | Convertible senior notes, net | $280,601 | | Total Stockholders' Equity | $65,343 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[528] Controls and Procedures Management concluded that Workiva's disclosure controls and procedures, as well as internal control over financial reporting, were effective as of December 31, 2019, with no material changes during the fourth quarter - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[531] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2019[532] - No material changes to internal control over financial reporting occurred during the fourth quarter of 2019[533] Other Information On February 13, 2020, the Compensation Committee approved the 2020 Short-Term Incentive Plan for executive officers, linking cash bonuses to performance metrics like revenue growth and operating cash flow - The Compensation Committee approved the 2020 Short-Term Incentive Plan for executive officers on February 13, 2020, with cash bonuses tied to performance metrics like revenue growth and operating cash flow[534] Part III Directors, Executive Officers and Corporate Governance This section details Workiva's executive officers, including President and CEO Martin J. Vanderploeg, and incorporates information on directors, code of ethics, and board committees by reference from the 2020 proxy statement - Martin J. Vanderploeg, Ph.D., is the President and Chief Executive Officer[538] - Julie Iskow joined as Executive Vice President and Chief Operating Officer in October 2019[539] - Information concerning directors, the code of ethics, and board committees is incorporated by reference from the 2020 Annual Meeting of Stockholders proxy statement[537][546][547] Executive Compensation Information regarding executive and director compensation is incorporated by reference from the company's definitive proxy statement for the 2020 Annual Meeting of Stockholders - This information is incorporated by reference from the 2020 proxy statement[549] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management, as well as details on equity compensation plans, is incorporated by reference from the company's definitive proxy statement for the 2020 Annual Meeting of Stockholders - This information is incorporated by reference from the 2020 proxy statement[550] Certain Relationships and Related Transactions and Director Independence Information regarding certain relationships, related-party transactions, and director independence is incorporated by reference from the company's definitive proxy statement for the 2020 Annual Meeting of Stockholders - This information is incorporated by reference from the 2020 proxy statement[551] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's definitive proxy statement for the 2020 Annual Meeting of Stockholders - This information is incorporated by reference from the 2020 proxy statement[552] Part IV Exhibits and Financial Statement Schedules This section lists all documents filed with the Form 10-K, including consolidated financial statements, corporate governance documents, debt indentures, equity compensation plans, and executive certifications - This section contains the list of all financial statements and exhibits filed with the Form 10-K[555] - Key exhibits filed include corporate governance documents, debt indentures, equity compensation plans, and executive certifications[555][556][557]