Workiva(WK) - 2020 Q1 - Quarterly Report

Part I. Financial Information This section presents Workiva Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Unaudited Consolidated Financial Statements This section presents Workiva Inc.'s unaudited condensed consolidated financial statements for the three months ended March 31, 2020, and 2019, including balance sheets, statements of operations, comprehensive loss, changes in stockholders' equity, and cash flows, along with detailed notes on accounting policies, financial instruments, convertible notes, stock-based compensation, and revenue recognition Condensed Consolidated Balance Sheets Presents Workiva Inc.'s financial position, detailing assets, liabilities, and equity at specific dates Balance Sheet Highlights (March 31, 2020 vs. Dec 31, 2019, in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :-------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $393,434 | $381,742 | | Total current assets | $565,234 | $571,232 | | Total assets | $643,716 | $646,396 | | Total current liabilities | $221,993 | $231,932 | | Convertible senior notes, net | $282,798 | $280,601 | | Total liabilities | $573,944 | $581,053 | | Total stockholders' equity | $69,772 | $65,343 | Condensed Consolidated Statements of Operations Details Workiva Inc.'s revenues, expenses, and net loss for the three months ended March 31, 2020 and 2019 Statements of Operations Highlights (Three Months Ended March 31, in thousands) | Metric | 2020 | 2019 | YoY Change | | :-------------------------- | :----- | :----- | :--------- | | Total revenue | $85,801 | $69,963 | +22.6% | | Subscription and support revenue | $68,361 | $56,123 | +21.8% | | Professional services revenue | $17,440 | $13,840 | +26.0% | | Gross profit | $63,405 | $50,427 | +25.7% | | Loss from operations | $(9,154) | $(7,332) | -24.9% | | Net loss | $(10,573) | $(7,463) | -41.7% | | Basic and diluted net loss per share | $(0.22) | $(0.17) | -29.4% | Condensed Consolidated Statements of Comprehensive Loss Outlines Workiva Inc.'s net loss and other comprehensive income or loss for the three months ended March 31, 2020 and 2019 Comprehensive Loss (Three Months Ended March 31, in thousands) | Metric | 2020 | 2019 | | :-------------------------------- | :------- | :------- | | Net loss | $(10,573) | $(7,463) | | Other comprehensive (loss) income, net of tax | $(9) | $52 | | Comprehensive loss | $(10,582) | $(7,411) | Consolidated Statements of Changes in Stockholders' Equity Summarizes changes in Workiva Inc.'s stockholders' equity, including net loss and stock-based compensation, for the three months ended March 31, 2020 Stockholders' Equity Changes (Three Months Ended March 31, 2020, in thousands) | Item | Amount | | :------------------------------------------------ | :------- | | Balances at December 31, 2019 | $65,343 | | Stock-based compensation expense | $9,936 | | Issuance of common stock upon exercise of stock options | $2,794 | | Issuance of common stock under employee stock purchase plan | $3,660 | | Net loss | $(10,573) | | Other comprehensive loss | $(9) | | Balances at March 31, 2020 | $69,772 | Condensed Consolidated Statements of Cash Flows Provides a summary of Workiva Inc.'s cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary (Three Months Ended March 31, in thousands) | Activity | 2020 | 2019 | | :-------------------------------------- | :----- | :------- | | Net cash provided by operating activities | $4,749 | $5,119 | | Net cash provided by (used in) investing activities | $2,801 | $(16,592) | | Net cash provided by financing activities | $4,755 | $12,520 | | Net increase in cash and cash equivalents | $11,692 | $1,152 | | Cash and cash equivalents at end of period | $393,434 | $78,736 | Notes to Condensed Consolidated Financial Statements Provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Organization and Significant Accounting Policies Describes Workiva's business, revenue seasonality, and the adoption of new accounting standards - Workiva provides a connected reporting and compliance platform used by public/private companies, government agencies, and higher-education institutions, offering collaboration, data linking, and audit trails[40] - Revenue from professional services is higher in Q1 due to Form 10-K filings; sales and marketing expense is historically higher in Q3 due to the annual user conference (though virtual in 2020 may mitigate this)[42] - Adopted ASU 2016-13 (Credit Losses) effective January 1, 2020, with no material impact on financial statements[46] 2. Supplemental Consolidated Balance Sheet Information Details specific components of accrued expenses and other current liabilities Accrued Expenses and Other Current Liabilities (in thousands) | Item | March 31, 2020 | December 31, 2019 | | :------------------------------ | :------------- | :---------------- | | Accrued vacation | $9,430 | $8,353 | | Accrued commissions | $2,791 | $5,561 | | Accrued bonuses | $4,122 | $7,121 | | Estimated health insurance claims | $1,089 | $1,040 | | ESPP employee contributions | $2,114 | $3,734 | | Customer deposits | $11,818 | $12,151 | | Operating lease liabilities | $4,341 | $3,064 | | Accrued other liabilities | $7,057 | $8,906 | | Total | $42,762 | $49,930 | 3. Cash Equivalents and Marketable Securities Provides a breakdown of Workiva's marketable securities and their fair values Marketable Securities (March 31, 2020, in thousands) | Item | Amortized Cost | Unrealized Gains | Unrealized Losses | Aggregate Fair Value | | :------------------------ | :------------- | :--------------- | :---------------- | :------------------- | | Money market funds | $367,978 | $— | $— | $367,978 | | Commercial paper | $2,961 | $— | $— | $2,961 | | U.S. treasury debt securities | $20,888 | $283 | $— | $21,171 | | U.S. corporate debt securities | $78,532 | $49 | $(124) | $78,457 | | Total | $470,359 | $332 | $(124) | $470,567 | - Unrealized losses on U.S. corporate debt securities totaled $124 thousand as of March 31, 2020, but are not believed to represent credit losses[51] 4. Fair Value Measurements Explains the classification of financial instruments based on fair value hierarchy levels - Cash equivalents are classified as Level 1 (quoted prices in active markets), while marketable securities and convertible senior notes are classified as Level 2 (quoted prices for comparable instruments or over-the-counter market)[53][54][56] Fair Value Measurements (March 31, 2020, in thousands) | Description | Total | Level 1 | Level 2 | | :------------------------ | :------ | :------ | :------ | | Money market funds | $367,978 | $367,978 | $— | | Commercial paper | $2,961 | $— | $2,961 | | U.S. treasury debt securities | $21,171 | $— | $21,171 | | U.S. corporate debt securities | $78,457 | $— | $78,457 | | Total | $470,567 | $367,978 | $102,589 | 5. Convertible Senior Notes Details the terms, carrying amounts, and interest expense related to Workiva's convertible senior notes - Issued $345.0 million of 1.125% convertible senior notes due 2026 in August 2019, with net proceeds of $335.9 million[57][140] - Initial conversion rate is 12.4756 shares per $1,000 principal, equivalent to $80.16 per share. The company intends to settle conversions with a combination of cash and Class A common stock[58][60] Convertible Senior Notes Carrying Amount (in thousands) | Component | March 31, 2020 | December 31, 2019 | | :------------------------------------------ | :------------- | :---------------- | | Liability component (net carrying amount) | $282,798 | $280,601 | | Equity component, net of purchase discounts and issuance costs | $58,560 | $58,560 | Interest Expense Related to Notes (Three Months Ended March 31, 2020, in thousands) | Item | Amount | | :-------------------------- | :----- | | Contractual interest expense | $970 | | Amortization of debt discount | $1,953 | | Amortization of issuance costs | $244 | | Total interest expense | $3,167 | 6. Commitments and Contingencies Addresses potential future obligations and legal matters, noting no material adverse effects are expected - No currently pending legal proceedings are expected to have a material adverse effect on the business, operating results, financial condition, or cash flows[66] 7. Stock-Based Compensation Reports the total stock-based compensation expense and unrecognized amounts for restricted stock units - Stock-based compensation expense totaled $9.9 million for the three months ended March 31, 2020, up from $8.2 million in the prior year[70][126] Stock-Based Compensation Expense by Category (Three Months Ended March 31, in thousands) | Category | 2020 | 2019 | | :------------------------ | :--- | :--- | | Cost of revenue | $856 | $766 | | Research and development | $1,583 | $1,900 | | Sales and marketing | $2,736 | $1,964 | | General and administrative | $4,761 | $3,563 | | Total | $9,936 | $8,193 | - Unrecognized compensation expense for restricted stock units was approximately $79.0 million, to be recognized over 2.6 years[76] 8. Revenue Recognition Details revenue breakdown by type and expected recognition from remaining performance obligations Revenue by Type of Good or Service (Three Months Ended March 31, in thousands) | Type | 2020 | 2019 | | :------------------------ | :----- | :----- | | Subscription and support | $68,361 | $56,123 | | XBRL professional services | $13,432 | $11,410 | | Other services | $4,008 | $2,430 | | Total revenues | $85,801 | $69,963 | - Recognized $63.6 million of revenue from deferred revenue balances at the beginning of the period for Q1 2020[82] - Expects to recognize approximately $269.2 million from remaining subscription performance obligations, with $187.4 million over the next 12 months[83] 9. Net Loss Per Share Presents basic and diluted net loss per common share and weighted-average shares outstanding Net Loss Per Common Share (Three Months Ended March 31) | Metric | 2020 | 2019 | | :------------------------------------------ | :----- | :----- | | Basic and diluted net loss per common share | $(0.22) | $(0.17) | | Weighted-average common shares outstanding | 47,545,703 | 45,229,279 | - Approximately 4.3 million shares underlying convertible senior notes were anti-dilutive and excluded from diluted net loss per share calculation[85] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Workiva's financial condition and operational results for the three months ended March 31, 2020. It covers the company's business overview, the impact of the COVID-19 pandemic, key performance drivers, detailed financial comparisons, and liquidity. The company reported significant revenue growth but also increased net losses, while navigating the uncertainties introduced by COVID-19 Overview Provides a high-level summary of Workiva's business model, platform usage, and key financial highlights - Workiva's platform is used by 3,507 organizations, including nearly 75% of Fortune 500® companies, for connected reporting and compliance[88] - The company operates on a Software-as-a-Service (SaaS) model, with over 75% of subscription revenue priced on a solution-based licensing model as of March 31, 2020[92] Revenue and Net Loss (Three Months Ended March 31, in millions) | Metric | 2020 | 2019 | YoY Growth | | :---------------- | :--- | :--- | :--------- | | Total Revenue | $85.8 | $70.0 | +22.6% | | Net Loss | $(10.6) | $(7.5) | -41.3% | Impact of COVID-19 Discusses the effects of the COVID-19 pandemic on Workiva's operations, sales, and future financial outlook - COVID-19 led to remote work, restricted travel, and virtual marketing events, but the platform remains fully operational[100] - The pandemic has negatively impacted sales activities, causing customers and prospects to delay purchasing decisions, and may lead to reduced technology spending or contract renegotiations[101] - The full impact of COVID-19 on business and operating results is uncertain and may not be fully reflected until future periods due to the subscription-based service model[101] Key Factors Affecting Our Performance Outlines Workiva's growth strategies, investment plans, and seasonal factors influencing financial performance - Growth strategies include expanding usage among existing customers via solution-based licensing, acquiring new customers in finance, regulatory, risk, and reporting, and introducing new solutions[102][103][104] - Expanding across enterprises is expected to increase seats and revenue but may lengthen sales cycles due to larger, more complex deals[105] - Continued investment in platform development, sales, marketing, professional services, and customer success is planned, particularly for EMEA, integrated risk, statutory reporting, and Wdata[108] - Professional services revenue is seasonal, typically higher in Q1 due to 10-K filings, and sales and marketing expenses are historically higher in Q3 due to the annual user conference[109] Key Performance Indicators Presents key metrics such as revenue, customer count, and retention rates for evaluating business performance Key Performance Indicators (As of March 31) | Metric | 2020 | 2019 | YoY Change | | :------------------------------------------ | :----- | :----- | :--------- | | Total revenue (in thousands) | $85,801 | $69,963 | +22.6% | | Subscription and support revenue (in thousands) | $68,361 | $56,123 | +21.8% | | Number of customers | 3,507 | 3,366 | +4.2% | | Subscription and support revenue retention rate | 94.5% | 95.7% | -1.2 ppt | | Subscription and support revenue retention rate including add-ons | 110.9% | 110.7% | +0.2 ppt | | Number of customers with annual contract value $100k+ | 670 | 493 | +35.9% | | Number of customers with annual contract value $150k+ | 308 | 207 | +48.8% | - Customer attrition in the latest quarter was nearly half due to customers being acquired or ceasing SEC filings[112] Components of Results of Operations Explains how Workiva generates revenue and categorizes its costs of revenue and operating expenses - Revenue is generated from cloud-based software subscriptions (ratable recognition) and professional services (recognized as completed or performed)[118][119][120] - Cost of revenue includes personnel, third-party vendors, server usage (AWS, Google Cloud), IT, and facility costs[121] - Sales commissions with amortization periods over one year are deferred and amortized over three years[122] Results of Operations (Comparison of Three Months Ended March 31, 2020 and 2019) Compares Workiva's financial performance across key income statement items for the specified periods Consolidated Statement of Operations Data (Three Months Ended March 31, in thousands) | Item | 2020 | 2019 | % of Revenue 2020 | % of Revenue 2019 | | :-------------------------- | :----- | :----- | :---------------- | :---------------- | | Total revenue | $85,801 | $69,963 | 100.0% | 100.0% | | Gross profit | $63,405 | $50,427 | 73.9% | 72.1% | | Total operating expenses | $72,559 | $57,759 | 84.6% | 82.6% | | Loss from operations | $(9,154) | $(7,332) | (10.7)% | (10.5)% | | Net loss | $(10,573) | $(7,463) | (12.3)% | (10.6)% | Revenue Analyzes the breakdown and growth of subscription and professional services revenue Revenue Breakdown (Three Months Ended March 31, in thousands) | Revenue Type | 2020 | 2019 | % Change | | :---------------------- | :----- | :----- | :------- | | Subscription and support | $68,361 | $56,123 | 21.8% | | Professional services | $17,440 | $13,840 | 26.0% | | Total revenue | $85,801 | $69,963 | 22.6% | - Total customer count increased by 4.2% from March 31, 2019, to March 31, 2020[128] Cost of Revenue Examines the changes in costs associated with subscription and professional services revenue Cost of Revenue Breakdown (Three Months Ended March 31, in thousands) | Cost Type | 2020 | 2019 | % Change | | :---------------------- | :----- | :----- | :------- |\ | Subscription and support | $12,153 | $9,809 | 23.9% | | Professional services | $10,243 | $9,727 | 5.3% | | Total cost of revenue | $22,396 | $19,536 | 14.6% | Operating Expenses Details the trends and drivers behind research and development, sales and marketing, and general and administrative expenses Operating Expenses Breakdown (Three Months Ended March 31, in thousands) | Expense Type | 2020 | 2019 | % Change | | :------------------------ | :----- | :----- | :------- | | Research and development | $22,994 | $22,011 | 4.5% | | Sales and marketing | $36,117 | $25,365 | 42.4% | | General and administrative | $13,448 | $10,383 | 29.5% | | Total operating expenses | $72,559 | $57,759 | 25.6% | - Sales and marketing headcount increased by 34.9% year-over-year, contributing to an $8.8 million increase in cash-based compensation and benefits[133] Non-Operating Income (Expenses) Reviews interest income, interest expense, and other non-operating gains or losses Non-Operating Income (Expenses) (Three Months Ended March 31, in thousands) | Item | 2020 | 2019 | % Change | | :-------------------------- | :----- | :----- | :------- | | Interest income | $1,706 | $492 | 246.7% | | Interest expense | $(3,554) | $(440) | 707.7% | | Other income and (expense), net | $718 | $(172) | (517.4)% | - Interest expense increased by $3.1 million due to the issuance of senior convertible notes[136] - Other income (expense), net increased by $0.9 million primarily due to gains on foreign currency transactions[137] Liquidity and Capital Resources Assesses Workiva's ability to meet short-term and long-term obligations using available cash and financing - Principal sources of liquidity as of March 31, 2020, were $496.0 million in cash, cash equivalents, and marketable securities[138] - Expects current liquidity and operating cash flows to be sufficient for at least the next twelve months, despite incurring operating losses[138] - Issued $345.0 million in 1.125% convertible senior notes due 2026 in August 2019, generating $335.9 million in net proceeds[140] - Cash provided by operating activities was $4.7 million for Q1 2020, influenced by net loss, non-cash charges, and changes in operating assets and liabilities, including a decrease in deferred revenue due to COVID-19 related credit risk[141] - Cash provided by investing activities was $2.8 million for Q1 2020, primarily from maturities and sales of marketable securities, offset by purchases[143] - Cash provided by financing activities was $4.8 million for Q1 2020, mainly from option exercises and ESPP proceeds, offset by tax payments for stock-based compensation[145] Contractual Obligations and Commitments Confirms no material changes to Workiva's contractual obligations since the last reporting period - No material changes in contractual obligations and commitments since December 31, 2019[147] Off-Balance Sheet Arrangements States that Workiva has no off-balance sheet arrangements with unconsolidated entities - No off-balance sheet arrangements with unconsolidated entities or financial partnerships[148] Critical Accounting Policies and Estimates Confirms no significant changes to Workiva's critical accounting policies and estimates during the quarter - No significant changes to critical accounting policies and estimates during Q1 2020[150] Item 3. Quantitative and Qualitative Disclosure About Market Risk The company's market risk exposures have not materially changed since December 31, 2019, with further details available in the Annual Report on Form 10-K - Market risk exposures have not materially changed since December 31, 2019[151] Item 4. Controls and Procedures This section confirms the effectiveness of Workiva's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter ended March 31, 2020 Evaluation of Disclosure Controls and Procedures Confirms the effectiveness of Workiva's disclosure controls and procedures as of March 31, 2020 - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2020, providing reasonable assurance for timely and accurate financial reporting[155] Changes in Internal Control Over Financial Reporting Reports no material changes in Workiva's internal control over financial reporting during the quarter - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2020[156] Part II. Other Information Presents additional information not covered in the financial statements, including legal, risk, and equity matters Item 1. Legal Proceedings Workiva is involved in legal proceedings typical of its business operations but does not foresee any material adverse effects on its financial condition or results from current litigation - No legal proceedings are expected to have a material adverse effect on the company's business, financial condition, operating results, or cash flows[159] Item 1A. Risk Factors This section highlights the significant and uncertain impact of the COVID-19 pandemic on Workiva's business, including negative effects on sales activities, potential delays in customer spending, and contract renegotiations. It also reiterates other factors that could cause quarterly results to fluctuate, such as customer acquisition/retention, economic conditions, and international operational risks - The COVID-19 pandemic has adversely impacted the business, with uncertain future developments regarding its duration, spread, and impact on customers and sales cycles[161][162] - COVID-19 has negatively affected sales activities, potentially leading to delayed purchasing decisions, reduced technology spending, or contract renegotiations by customers[163] - Quarterly results may fluctuate significantly due to factors like customer acquisition/loss, timing of revenue recognition, operating expenses, economic conditions (including COVID-19), renewal rates, pricing changes, and international operational risks[166][168] - The subscription-based model means downturns in sales may not be immediately reflected in operating results, and the company cannot accurately predict renewal or upgrade rates[171][172] - International sales expose the company to various risks, including localization needs, increased costs, data privacy laws, weaker intellectual property protection, and foreign currency fluctuations[176][178] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no unregistered sales of equity securities and no material change in the planned use of IPO proceeds. It also details the company's purchases of Class A Common Stock for tax withholding purposes during the quarter Sales of Unregistered Securities Confirms that Workiva made no unregistered sales of equity securities during the period - No unregistered sales of securities[179] Use of Proceeds from Public Offerings of Common Stock States no material change in the planned use of proceeds from Workiva's public offerings - No material change in the planned use of IPO proceeds[180] Issuer Purchases of Equity Securities Details Workiva's purchases of Class A Common Stock for tax withholding purposes Issuer Purchases of Equity Securities (Three Months Ended March 31, 2020) | Month | Total Number of Shares Purchased | Average Price Paid Per Share | | :------------ | :------------------------------- | :--------------------------- | | January 2020 | 4,065 | $45.15 | | February 2020 | 26,274 | $45.49 | | March 2020 | — | $— | | Total | 30,339 | $45.44 | - Shares were purchased to satisfy mandatory tax withholding requirements upon vesting of stock-based compensation awards[181] Item 5. Other Information This section discloses a consulting agreement with Troy Calkins, Executive Vice President, Chief Administrative Officer and Corporate Secretary, upon his retirement, including the acceleration of vesting for a portion of his restricted stock units and the cancellation of another RSU award - Troy Calkins, EVP, CAO, and Corporate Secretary, entered a 12-month consulting agreement upon retirement, with an hourly fee of $400[182] - 75,281 restricted stock units from his 2018 award were accelerated to vest on May 30, 2020, and a 2020 RSU award of 25,997 units was canceled[182][183] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and financial information formatted in Inline XBRL - Includes certifications from CEO and CFO (Sarbanes-Oxley Act Sections 302 and 906) and financial information in Inline XBRL format[185] Signatures The report is officially signed by the company's President and Chief Executive Officer, Executive Vice President and Chief Financial Officer, and Senior Vice President, Treasurer and Chief Accounting Officer, confirming its submission - Report signed by Martin J. Vanderploeg (President and CEO), J. Stuart Miller (EVP and CFO), and Jill Klindt (SVP, Treasurer and CAO)[188]