Market Overview

Workiva Announces Second Quarter 2018 Financial Results

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Q2 Total Revenue of $59.1 million, Up 19.7% from Q2 2017

Q2 Subscription and Support Revenue of $48.8 million, Up 19.2% from
Q2 2017

Workiva Inc. (NYSE:WK), a leader in data collaboration, reporting and
compliance solutions, today announced financial results for its second
quarter ended June 30, 2018.

"We posted strong results in the second quarter of 2018, highlighted by
an increase of 19.7% in total revenue over the same quarter last year,
with subscription and support revenue up 19.2% and professional services
revenue up 22.4%," said Marty Vanderploeg, President and Chief Executive
Officer of Workiva. "We outperformed our guidance for quarterly revenue,
operating loss and loss per share."

"Because of the investments we have been making in our Wdesk platform
and distribution organization, I believe we have never been in a better
position to grow," said Vanderploeg. "I am proud of our progress, and
I'm excited about our future."

"Workiva is committed to pursing profitable growth," said Vanderploeg.
"We will continue to enhance our Wdesk platform, add new customers and
partners and expand Wdesk across our customers' organizations."

Second Quarter 2018 Financial Highlights

  • Revenue: Total revenue for the second quarter of 2018 reached
    $59.1 million, an increase of 19.7% from $49.4 million in the
    second quarter of 2017. Subscription and support revenue contributed
    $48.8 million, up 19.2% versus the second quarter of 2017.
    Professional services revenue was $10.3 million, an increase of 22.4%
    compared to the same quarter in the prior year.
  • Gross Profit: GAAP gross profit for the second quarter of 2018
    was $42.8 million compared with $35.1 million in the same quarter of
    2017. GAAP gross margin was 72.4% versus 71.1% in the second quarter
    of 2017. Non-GAAP gross profit for the second quarter of 2018 was
    $43.2 million, an increase of 22.1% compared with the prior year's
    second quarter, and non-GAAP gross margin was 73.1% compared to 71.6%
    in the second quarter of 2017.
  • Loss from Operations: GAAP loss from operations for the second
    quarter of 2018 was $21.8 million compared with a loss of $9.9 million
    in the prior year's second quarter. Non-GAAP loss from operations was
    $5.4 million, compared with non-GAAP loss from operations of $5.5
    million in the second quarter of 2017. Adoption of ASC 606 caused loss
    from operations to be $1.9 million less for the second quarter of 2018
    than what would have been recognized under the legacy standard.
    Included in GAAP loss from operations is a $9.5 million severance
    expense pursuant to a separation agreement with our former CEO.
  • Net Loss: GAAP net loss for the second quarter of 2018 was
    $21.8 million compared with a net loss of $10.2 million for the prior
    year's second quarter. GAAP net loss per basic and diluted share was
    $0.50 compared with a net loss per basic and diluted share of $0.25 in
    the second quarter of 2017. Included in GAAP net loss is a $9.5
    million severance expense, or $0.22 per basic and diluted share,
    pursuant to a separation agreement with our former CEO.
  • Non-GAAP net loss for the second quarter of 2018 was $5.4 million
    compared with a net loss of $5.8 million in the prior year's second
    quarter. Non-GAAP net loss per basic and diluted share was $0.12
    compared with a net loss per basic and diluted share of $0.14 in the
    second quarter of 2017.

Key Metrics

  • Customers: Workiva had 3,222 customers as of June 30, 2018, a
    net increase of 314 customers from June 30, 2017. Customers include
    more than 75 percent of Fortune 500® companies.
  • Revenue Retention Rate: As of June 30, 2018, Workiva's revenue
    retention rate (excluding add-on revenue) was 95.6%, and the revenue
    retention rate including add-on revenue was 106.9%. Add-on revenue
    includes the change in both seats purchased and seat pricing for
    existing customers. Revenue retention rates are calculated using the
    legacy accounting standard ASC 605. Revenue retention rates will be
    calculated using ASC 606 when comparable data becomes available.
  • Large Contracts: As of June 30, 2018, Workiva had 366 customers
    with an annual contract value (ACV) of more than $100,000, up 33.1%
    from 275 customers at June 30, 2017. Workiva had 161 customers with an
    ACV of more than $150,000, up 33.1% from 121 customers in the second
    quarter of last year.

Financial Outlook

As of August 7, 2018, Workiva is providing guidance for its third
quarter 2018 and full year 2018 as follows:

Third Quarter 2018 Guidance:

  • Total revenue is expected to be in the range of $59.5 million to $60.0
    million.
  • GAAP loss from operations is expected to be in the range of $15.5
    million to $16.0 million.
  • Non-GAAP loss from operations is expected to be in the range of $8.9
    million to $9.4 million.
  • GAAP net loss per basic and diluted share is expected to be in the
    range of $0.36 to $0.37.
  • Non-GAAP net loss per basic and diluted share is expected to be in the
    range of $0.21 to $0.22.
  • Net loss per basic and diluted share is based on 43.8 million
    weighted-average shares outstanding.

Full Year 2018 Guidance:

  • Total revenue is expected to be in the range of $240.0 million to
    $241.0 million.
  • GAAP loss from operations is expected to be in the range of $57.9
    million to $58.9 million.
  • Non-GAAP loss from operations is expected to be in the range of $22.5
    million to $23.5 million.
  • GAAP net loss per basic and diluted share is expected to be in the
    range of $1.34 to $1.36.
  • Non-GAAP net loss per basic and diluted share is expected to be in the
    range of $0.53 to $0.55.
  • Net loss per basic and diluted share is based on 43.5 million
    weighted-average shares outstanding.

Quarterly Conference Call

Workiva will host a conference call today at 5:00 p.m. ET to review the
Company's financial results for the second quarter 2018, in addition to
discussing the Company's outlook for the third quarter and full year
2018. To access this call, dial 866-393-4306 (domestic) or 734-385-2616
(international). The conference ID is 9298157. A live webcast of the
conference call will be accessible in the "Investor Relations" section
of Workiva's website at www.workiva.com.
A replay of this conference call can also be accessed through August 14,
2018 at 855-859-2056 (domestic) or 404-537-3406 (international). The
replay pass code is 9298157. An archived webcast of this conference call
will also be available an hour after the completion of the call in the
"Investor Relations" section of the Company's website at www.workiva.com.

About Workiva

Workiva delivers Wdesk, a leading enterprise cloud platform for data
collaboration, reporting and compliance that is used by thousands of
organizations worldwide, including over 75 percent of the Fortune 500®.
Companies of all sizes, state and local governments and educational
institutions use Wdesk to help mitigate risk, improve productivity and
gain confidence in their data-driven decisions. For more information
about Workiva (NYSE:WK), please visit workiva.com.

Read the Workiva blog: www.workiva.com/blog
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Claim not confirmed by FORTUNE or Time Inc. FORTUNE 500® is a
registered trademark of Time Inc. and is used under license. FORTUNE and
Time Inc. are not affiliated with, and do not endorse products or
services of, Workiva Inc.

Non-GAAP Financial Measures

The non-GAAP adjustments referenced herein relate to the exclusion of
stock-based compensation and CEO separation expense. A reconciliation of
GAAP to non-GAAP historical financial measures has been provided in
Table I at the end of this press release. A reconciliation of GAAP to
non-GAAP guidance has been provided in Table II at the end of this press
release.

Workiva believes that the use of non-GAAP gross profit and gross margin,
non-GAAP loss from operations, non-GAAP net loss and non-GAAP net loss
per share is helpful to its investors. These measures, which are
referred to as non-GAAP financial measures, are not prepared in
accordance with generally accepted accounting principles in the United
States, or GAAP. Non-GAAP gross profit is calculated by excluding
stock-based compensation expense attributable to cost of revenues from
gross profit. Non-GAAP gross margin is the ratio calculated by dividing
non-GAAP gross profit by revenues. Non-GAAP loss from operations is
calculated by excluding stock-based compensation expense and CEO
separation expense from loss from operations. Non-GAAP net loss is
calculated by excluding stock-based compensation expense, net of tax,
and CEO separation expense from net loss. Non-GAAP net loss per share is
calculated by dividing non-GAAP net loss by the weighted- average shares
outstanding as presented in the calculation of GAAP net loss per share.
Because of varying available valuation methodologies, subjective
assumptions and the variety of equity instruments that can impact a
company's non-cash expenses, Workiva believes that providing non-GAAP
financial measures that exclude stock-based compensation expense allows
for more meaningful comparisons between its operating results from
period to period. Because of the non-recurring nature of CEO separation
expense, Workiva believes this expense is not representative of ongoing
operating costs. Workiva's management excludes CEO separation expense
when evaluating its ongoing performance and/or predicting its operating
trends and believes that its investors should have access to the same
set of tools that we use in analyzing results. Workiva's management uses
these non-GAAP financial measures as tools for financial and operational
decision making and for evaluating Workiva's own operating results over
different periods of time.

Non-GAAP financial measures may not provide information that is directly
comparable to that provided by other companies in Workiva's industry, as
other companies in the industry may calculate non-GAAP financial results
differently. In addition, there are limitations in using non-GAAP
financial measures because the non-GAAP financial measures are not
prepared in accordance with GAAP, may be different from non-GAAP
financial measures used by other companies and exclude expenses that may
have a material impact on Workiva's reported financial results. Further,
stock-based compensation expense has been and will continue to be for
the foreseeable future a significant recurring expense in Workiva's
business and an important part of the compensation provided to its
employees. The presentation of non-GAAP financial information is not
meant to be considered in isolation or as a substitute for the directly
comparable financial measures prepared in accordance with GAAP.
Investors should review the reconciliation of non-GAAP financial
measures to the comparable GAAP financial measures included below, and
not rely on any single financial measure to evaluate Workiva's business.

Safe Harbor Statement

Certain statements in this press release are "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended, and are subject to the safe harbor created
thereby. These statements relate to future events or the Company's
future financial performance and involve known and unknown risks,
uncertainties and other factors that may cause the actual results,
levels of activity, performance or achievements of the Company or its
industry to be materially different from those expressed or implied by
any forward-looking statements. In particular, statements about the
Company's expectations, beliefs, plans, objectives, assumptions, future
events or future performance contained in this press release are
forward-looking statements. In some cases, forward-looking statements
can be identified by terminology such as "may," "will," "could,"
"would," "should," "expect," "plan," "anticipate," "intend," "believe,"
"estimate," "predict," "potential," "outlook," "guidance" or the
negative of those terms or other comparable terminology.

Please see the Company's documents filed or to be filed with the
Securities and Exchange Commission, including the Company's annual
reports filed on Form 10-K and quarterly reports on Form 10-Q, and any
amendments thereto for a discussion of certain important risk factors
that relate to forward-looking statements contained in this report. The
Company has based these forward-looking statements on its current
expectations, assumptions, estimates and projections. While the Company
believes these expectations, assumptions, estimates and projections are
reasonable, such forward-looking statements are only predictions and
involve known and unknown risks and uncertainties, many of which are
beyond the Company's control. These and other important factors may
cause actual results, performance or achievements to differ materially
from those expressed or implied by these forward-looking statements. Any
forward-looking statements are made only as of the date hereof, and
unless otherwise required by applicable securities laws, the Company
disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.

       
WORKIVA INC.

 

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

           
Three months ended June 30, Six months ended June 30,
2018 2017 2018 2017
Revenue
Subscription and support $ 48,837 $ 40,980 $ 95,307 $ 80,520
Professional services 10,293   8,411   23,729   20,775  
Total revenue 59,130   49,391   119,036   101,295  
Cost of revenue
Subscription and support (1) 8,637 7,758 17,439 15,395
Professional services (1) 7,659   6,528   15,368   13,109  
Total cost of revenue 16,296   14,286   32,807   28,504  
Gross profit 42,834   35,105   86,229   72,791  
Operating expenses
Research and development (1) 20,718 16,239 40,845 31,775
Sales and marketing (1) 22,252 19,787 43,258 38,500
General and administrative (1) 21,654   8,943   33,422   18,364  
Total operating expenses 64,624   44,969   117,525   88,639  
Loss from operations (21,790 ) (9,864 ) (31,296 ) (15,848 )
Interest expense (449 ) (475 ) (899 ) (930 )
Other income, net 492   176   835   788  
Loss before provision for income taxes (21,747 ) (10,163 ) (31,360 ) (15,990 )
Provision for income taxes 21   33   26   42  
Net loss $ (21,768 ) $ (10,196 ) $ (31,386 ) $ (16,032 )
Net loss per common share:
Basic and diluted $ (0.50 ) $ (0.25 ) $ (0.73 ) $ (0.39 )
Weighted-average common shares outstanding - basic and diluted 43,234,655 41,429,691 43,048,110 41,270,038
 

(1) Includes stock-based compensation expense as follows:

 
Three months ended June 30, Six months ended June 30,
2018 2017 2018 2017
Cost of revenue
Subscription and support $ 228 $ 178 $ 399 $ 318
Professional services 146 100 296 200
Operating expenses
Research and development 1,495 472 2,516 965
Sales and marketing 1,440 694 2,553 1,353
General and administrative 7,156 2,953 10,606 5,700
 
WORKIVA INC.

 

CONSOLIDATED BALANCE SHEETS

(in thousands)

           
June 30, 2018 December 31, 2017
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 57,495 $ 60,333
Marketable securities 23,216 16,364
Accounts receivable, net 39,088 28,800
Deferred commissions 4,844 2,376
Other receivables 801 975
Prepaid expenses 8,229   6,444  
Total current assets 133,673 115,292
Property and equipment, net 39,338 40,444
Deferred commissions, non-current 6,462
Intangible assets, net 1,196 1,118
Other assets 1,025   861  
Total assets $ 181,694   $ 157,715  
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable $ 4,688 $ 3,060
Accrued expenses and other current liabilities 30,979 20,212
Deferred revenue 118,490 104,684
Deferred government grant obligation 42 217
Current portion of capital lease and financing obligations 1,160   1,168  
Total current liabilities 155,359 129,341
Deferred revenue, non-current 21,835 22,709
Deferred government grant obligation 267 278
Other long-term liabilities 4,056 3,896
Capital lease and financing obligations 17,841   18,425  
Total liabilities 199,358 174,649
Stockholders' deficit
Common stock 43 42
Additional paid-in-capital 270,560 248,289
Accumulated deficit (288,342 ) (265,337 )
Accumulated other comprehensive income 75   72  
Total stockholders' deficit (17,664 ) (16,934 )
Total liabilities and stockholders' deficit $ 181,694   $ 157,715  
 
WORKIVA INC.

 

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

         
Three months ended June 30, Six months ended June 30,
2018     2017 2018     2017
Cash flows from operating activities
Net loss $ (21,768 ) $ (10,196 ) $ (31,386 ) $ (16,032 )
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities
Depreciation and amortization 876 867 1,748 1,758
Stock-based compensation expense 10,465 4,397 16,370 8,536
Provision for doubtful accounts 139 146 183 432
(Accretion) amortization of premiums and discounts on marketable
securities, net
(15 ) 28 3 59
Recognition of deferred government grant obligation (100 ) (198 ) (208 ) (736 )
Changes in assets and liabilities:
Accounts receivable (236 ) (3,228 ) 6,306 (542 )
Deferred commissions (2,020 ) (149 ) (3,669 ) (151 )
Other receivables 148 (865 ) 175 (25 )
Prepaid expenses (2,020 ) (2,830 ) (1,789 ) (2,026 )
Other assets (110 ) 36 (168 ) 13
Accounts payable (1,294 ) (678 ) 1,383 339
Deferred revenue 8,747 14,398 6,402 18,494
Accrued expenses and other liabilities 4,642   2,254   3,887   (3,557 )
Net cash (used in) provided by operating activities (2,546 ) 3,982   (763 ) 6,562  
Cash flows from investing activities
Purchase of property and equipment (210 ) (26 ) (219 ) (147 )
Purchase of marketable securities (11,283 ) (2,259 ) (11,283 ) (6,350 )
Maturities of marketable securities 3,900 1,850 4,400 4,851
Purchase of intangible assets (64 ) (58 ) (128 ) (89 )
Net cash used in investing activities (7,657 ) (493 ) (7,230 ) (1,735 )
Cash flows from financing activities
Proceeds from option exercises 3,318 4,709 6,393 5,515
Taxes paid related to net share settlements of stock-based
compensation awards
(519 ) (1,861 ) (936 )
Proceeds from shares issued in connection with employee stock
purchase plan
1,370
Repayment of other long-term debt (20 ) (20 )
Principal payments on capital lease and financing obligations (294 ) (490 ) (592 ) (787 )
Proceeds from government grants 22 22 22 22
Payments of issuance costs on line of credit   (10 )   (10 )
Net cash provided by financing activities 2,527   4,211   5,332   3,784  
Effect of foreign exchange rates on cash (85 ) 82 (177 ) 94
Net (decrease) increase in cash and cash equivalents (7,761 ) 7,782 (2,838 ) 8,705
Cash and cash equivalents at beginning of period 65,256   52,204   60,333   51,281  
Cash and cash equivalents at end of period $ 57,495   $ 59,986   $ 57,495   $ 59,986  
 
TABLE I

WORKIVA INC.

RECONCILIATION OF NON-GAAP INFORMATION

(in thousands, except share and per share)

           
Three months ended June 30, Six months ended June 30,
2018     2017 2018     2017
Gross profit, subscription and support $ 40,200 $ 33,222 $ 77,868 $ 65,125
Add back: Stock-based compensation 228   178   399   318  
Gross profit, subscription and support, non-GAAP $ 40,428   $ 33,400   $ 78,267   $ 65,443  
As a percentage of subscription and support revenue, non-GAAP 82.8 % 81.5 % 82.1 % 81.3 %
 
Gross profit, professional services $ 2,634 $ 1,883 $ 8,361 $ 7,666
Add back: Stock-based compensation 146   100   296   200  
Gross profit, professional services, non-GAAP $ 2,780   $ 1,983   $ 8,657   $ 7,866  
As a percentage of professional services revenue, non-GAAP 27.0 % 23.6 % 36.5 % 37.9 %
 
Gross profit $ 42,834 $ 35,105 $ 86,229 $ 72,791
Add back: Stock-based compensation 374   278   695   518  
Gross profit, non-GAAP $ 43,208   $ 35,383   $ 86,924   $ 73,309  
As percentage of revenue, non-GAAP 73.1 % 71.6 % 73.0 % 72.4 %
 
Research and development $ 20,718 $ 16,239 $ 40,845 $ 31,775
Less: Stock-based compensation 1,495   472   2,516   965  
Research and development, non-GAAP $ 19,223   $ 15,767   $ 38,329   $ 30,810  
As percentage of revenue, non-GAAP 32.5 % 31.9 % 32.2 % 30.4 %
 
Sales and marketing $ 22,252 $ 19,787 $ 43,258 $ 38,500
Less: Stock-based compensation 1,440   694   2,553   1,353  
Sales and marketing, non-GAAP $ 20,812   $ 19,093   $ 40,705   $ 37,147  
As percentage of revenue, non-GAAP 35.2 % 38.7 % 34.2 % 36.7 %
 
General and administrative $ 21,654 $ 8,943 $ 33,422 $ 18,364
Less: Stock-based compensation 3,535 2,953 6,985 5,700
Less: CEO separation expense(1) 9,527     9,527    
General and administrative, non-GAAP $ 8,592   $ 5,990   $ 16,910   $ 12,664  
As percentage of revenue, non-GAAP 14.5 % 12.1 % 14.2 % 12.5 %
 
Loss from operations $ (21,790 ) $ (9,864 ) $ (31,296 ) $ (15,848 )
Add back: Stock-based compensation 6,844 4,397 12,749 8,536
Add back: CEO separation expense(1) 9,527     9,527    
Loss from operations, non-GAAP $ (5,419 ) $ (5,467 ) $ (9,020 ) $ (7,312 )
As percentage of revenue, non-GAAP (9.2 )% (11.1 )% (7.6 )% (7.2 )%
 
Net loss $ (21,768 ) $ (10,196 ) $ (31,386 ) $ (16,032 )
Add back: Stock-based compensation 6,844 4,397 12,749 8,536
Add back: CEO separation expense(1) 9,527     9,527    
Net loss, non-GAAP $ (5,397 ) $ (5,799 ) $ (9,110 ) $ (7,496 )
As percentage of revenue, non-GAAP (9.1 )% (11.7 )% (7.7 )% (7.4 )%
 
Net loss per basic and diluted share: $ (0.50 ) $ (0.25 ) $ (0.73 ) $ (0.39 )
Add back: Stock-based compensation 0.16 0.11 0.30 0.21
Add back: CEO separation expense(1) 0.22     0.22    
Net loss per basic and diluted share, non-GAAP $ (0.12 ) $ (0.14 ) $ (0.21 ) $ (0.18 )
Weighted-average common shares outstanding - basic and diluted,
non-GAAP
43,234,655 41,429,691 43,048,110 41,270,038

(1) CEO separation expense in the three and six months ended June 30,
2018 includes stock-based compensation of $3.6 million related to the
acceleration of eligible stock awards and separation payment expense of
$5.9 million pursuant to the former CEO's employment agreement. Included
as separation payment expense are cash payments made in excess of the
related bonus accrual recorded through the date of separation.

 
TABLE II

WORKIVA INC.

RECONCILIATION OF NON-GAAP GUIDANCE

(in thousands, except share and per share data)

             

Three months ending
September 30, 2018

Year ending December 31,
2018

 
Loss from operations, GAAP range $ (15,500 ) - $ (16,000 ) $ (57,900 ) - $ (58,900 )
Add back: Stock-based compensation 6,600 6,600 25,873 25,873
Add back: CEO separation expense(1)     9,527   9,527  
Loss from operations, non-GAAP range $ (8,900 ) - $ (9,400 ) $ (22,500 ) - $ (23,500 )
 
Net loss per share, GAAP range $ (0.36 ) - $ (0.37 ) $ (1.34 ) - $ (1.36 )
Add back: Stock-based compensation 0.15 0.15 0.59 0.59
Add back: CEO separation expense(1)     0.22   0.22  
Net loss per share, non-GAAP range $ (0.21 ) - $ (0.22 ) $ (0.53 ) - $ (0.55 )
 
Weighted-average common shares outstanding - basic and diluted 43,800,000 43,800,000 43,500,000 43,500,000

(1) CEO separation expense in the year ending December 31, 2018 includes
stock-based compensation of $3.6 million related to the acceleration of
eligible stock awards and separation payments of $5.9 million pursuant
to the former CEO's employment agreement. Included as separation payment
expense are cash payments made in excess of the related bonus accrual
recorded through the date of separation.

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