WK 10-Q
Workiva Inc (WK)
10-Q
2023-10-30
For: 2023-09-30
View Original
Added on
April 12, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
(Mark One) | |||||
For the quarterly period ended | |||||
OR | |||||
For transition period from to | |||||
Commission File Number | |||||
___________________________________
(Exact name of registrant as specified in its charter)
___________________________________
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | ||||||||||
( | |||||||||||
(Address of principal executive offices and zip code) | |||||||||||
( | |||||||||||
(Registrant's telephone number, including area code) | |||||||||||
___________________________________ | |||||||||||
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer o | |||||
Non-accelerated filer o | Smaller reporting company | ||||
Emerging growth company | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ý
As of October 24, 2023, there were approximately 50,202,454 shares of the registrant's Class A common stock and 3,845,583 shares of the registrant's Class B common stock outstanding.
WORKIVA INC.
TABLE OF CONTENTS
Page | |||||||||||
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q 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. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical facts, including statements regarding our future results of operations and financial position, our business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022, in “Item 1A. Risk Factors” in Part II of this Quarterly Report on Form 10-Q and in any subsequent filing we make with the SEC, as well as in any documents incorporated by reference that describe risks and factors that could cause results to differ materially from those projected in these forward-looking statements.
Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements or events and circumstances reflected in the forward-looking statements will occur. We are under no duty to update any of these forward-looking statements after completion of this Quarterly Report on Form 10-Q to conform these statements to actual results or revised expectations.
ii
Part I. Financial Information
Item 1. Financial Statements
| WORKIVA INC. CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||
| (in thousands, except share and per share amounts) | |||||||||||
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
(unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Marketable securities | |||||||||||
Accounts receivable, net of allowance for doubtful accounts of $ | |||||||||||
| Deferred costs | |||||||||||
| Other receivables | |||||||||||
| Prepaid expenses and other | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Deferred costs, non-current | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
1
| WORKIVA INC. CONDENSED CONSOLIDATED BALANCE SHEETS (continued) | |||||||||||
| (in thousands, except share and per share amounts) | |||||||||||
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | |||||||||||
| Current liabilities | |||||||||||
Accounts payable | $ | $ | |||||||||
Accrued expenses and other current liabilities | |||||||||||
Deferred revenue | |||||||||||
| Finance lease obligations | |||||||||||
| Total current liabilities | |||||||||||
| Convertible senior notes, non-current | |||||||||||
Deferred revenue, non-current | |||||||||||
Other long-term liabilities | |||||||||||
| Operating lease liabilities, non-current | |||||||||||
| Finance lease obligations, non-current | |||||||||||
| Total liabilities | |||||||||||
| Stockholders’ (deficit) equity | |||||||||||
Class A common stock, $ | |||||||||||
Class B common stock, $ | |||||||||||
Preferred stock, $ | |||||||||||
Additional paid-in-capital | |||||||||||
Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total stockholders’ (deficit) equity | ( | ||||||||||
| Total liabilities and stockholders’ (deficit) equity | $ | $ | |||||||||
See accompanying notes.
2
| WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (unaudited) | |||||||||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Subscription and support | $ | $ | $ | $ | |||||||||||||||||||
| Professional services | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription and support | |||||||||||||||||||||||
| Professional services | |||||||||||||||||||||||
| Total cost of revenue | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Loss from operations | ( | ( | ( | ( | |||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Other (expense) income, net | ( | ( | |||||||||||||||||||||
| Loss before provision for income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net loss per common share: | |||||||||||||||||||||||
| Basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted-average common shares outstanding - basic and diluted | |||||||||||||||||||||||
See accompanying notes.
3
| WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) (unaudited) | |||||||||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive (loss) income | |||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ( | ( | ( | |||||||||||||||||||
| Unrealized gain (loss) on available-for-sale securities | ( | ( | |||||||||||||||||||||
| Other comprehensive (loss) income | ( | ( | ( | ||||||||||||||||||||
| Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
See accompanying notes.
4
WORKIVA INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) | |||||||||||||||||||||||||||||||||||
| (in thousands) (unaudited) | |||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||
| Common Stock (Class A and B) | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-in-Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders' Equity (Deficit) | ||||||||||||||||||||||||||||||
| Balances at December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of restricted stock units | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Tax withholding related to net share settlements of stock-based compensation awards | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Balances at March 31, 2023 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | |||||||||||||||||||||||||||||||||
| Issuance of restricted stock units | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Tax withholding related to net share settlements of stock-based compensation awards | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balances at June 30, 2023 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of restricted stock units | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Tax withholding related to net share settlements of stock-based compensation awards | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
Induced conversion of convertible senior notes | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balances at September 30, 2023 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
5
WORKIVA INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (continued) | |||||||||||||||||||||||||||||||||||
| (in thousands) (unaudited) | |||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||
| Common Stock (Class A and B) | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-in-Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders' Equity (Deficit) | ||||||||||||||||||||||||||||||
| Balances at December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | |||||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of restricted stock units | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Tax withholding related to net share settlements of stock-based compensation awards | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| — | — | ( | — | ( | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balances at March 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of restricted stock units | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Tax withholding related to net share settlements of stock-based compensation awards | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balances at June 30, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan | — | — | |||||||||||||||||||||||||||||||||
| Issuance of restricted stock units | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Tax withholding related to net share settlements of stock-based compensation awards | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balances at September 30, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
See accompanying notes.
6
| WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||||||||||
| (in thousands) (unaudited) | |||||||||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Cash flows from operating activities | |||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||
| Provision for doubtful accounts | |||||||||||||||||||||||
| Realized loss on sale of available-for-sale securities, net | |||||||||||||||||||||||
| (Accretion) amortization of premiums and discounts on marketable securities, net | ( | ( | |||||||||||||||||||||
| Amortization of issuance costs and debt discount | |||||||||||||||||||||||
Induced conversion expense | |||||||||||||||||||||||
| Deferred income tax | ( | ( | ( | ||||||||||||||||||||
| Changes in assets and liabilities: | |||||||||||||||||||||||
| Accounts receivable | ( | ( | ( | ||||||||||||||||||||
| Deferred costs | ( | ( | |||||||||||||||||||||
| Operating lease right-of-use asset | |||||||||||||||||||||||
| Other receivables | ( | ( | ( | ||||||||||||||||||||
| Prepaid expenses and other | ( | ||||||||||||||||||||||
| Other assets | ( | ( | |||||||||||||||||||||
| Accounts payable | ( | ( | |||||||||||||||||||||
| Deferred revenue | |||||||||||||||||||||||
| Operating lease liability | ( | ( | ( | ( | |||||||||||||||||||
| Accrued expenses and other liabilities | ( | ||||||||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||||||||
| Cash flows from investing activities | |||||||||||||||||||||||
| Purchase of property and equipment | ( | ( | ( | ( | |||||||||||||||||||
| Purchase of marketable securities | ( | ( | ( | ( | |||||||||||||||||||
| Sale of marketable securities | |||||||||||||||||||||||
| Maturities of marketable securities | |||||||||||||||||||||||
| Acquisitions, net of cash acquired | ( | ||||||||||||||||||||||
| Purchase of intangible assets | ( | ( | ( | ( | |||||||||||||||||||
| Net cash used in investing activities | ( | ( | ( | ( | |||||||||||||||||||
7
| WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) | |||||||||||||||||||||||
| (in thousands) (unaudited) | |||||||||||||||||||||||
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Cash flows from financing activities | |||||||||||||||||||||||
| Proceeds from option exercises | |||||||||||||||||||||||
| Taxes paid related to net share settlements of stock-based compensation awards | ( | ( | ( | ( | |||||||||||||||||||
| Proceeds from shares issued in connection with employee stock purchase plan | |||||||||||||||||||||||
| Proceeds from the issuance of convertible senior notes, net of issuance costs | |||||||||||||||||||||||
Payments for repurchase of convertible senior notes | ( | ( | |||||||||||||||||||||
| Principal payments on finance lease obligations | ( | ( | ( | ( | |||||||||||||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||||||||||||||
| Effect of foreign exchange rates on cash | ( | ( | ( | ( | |||||||||||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ||||||||||||||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||||||||||||||
| Cash and cash equivalents at end of period | $ | $ | $ | $ | |||||||||||||||||||
| Supplemental cash flow disclosure | |||||||||||||||||||||||
| Cash paid for interest | $ | $ | $ | $ | |||||||||||||||||||
| Cash paid for income taxes, net of refunds | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes.
8
1. Organization and Significant Accounting Policies
Organization
Workiva Inc., a Delaware corporation, and its wholly-owned subsidiaries (the “Company” or “we” or “us”) is on a mission to power transparent reporting for a better world. We believe that consumers, employees, shareholders, and other stakeholders today expect more from business – more action, transparency, and disclosure of financial and non-financial information. We build solutions to meet that demand and streamline processes, connect data and teams, and ensure consistency – all within the Workiva platform, the world’s leading cloud platform for assured integrated reporting. Our operational headquarters are located in Ames, Iowa, with additional offices located in the United States, Europe, the Asia-Pacific region and Canada.
Basis of Presentation and Principles of Consolidation
Seasonality affects our revenue, expenses and cash flows from operations. Revenue from professional services has been higher in the first quarter as many of our customers file their 10-K in the first calendar quarter. Our sales and marketing expense also has some degree of seasonality. With the exception of September 2020 and September 2021 when we transitioned to a virtual event, sales and marketing expense has historically been higher in the third quarter due to our annual user conference in September. In addition, the timing of the payments of cash bonuses to employees during the first and fourth calendar quarters may result in some seasonality in operating cash flow. The condensed consolidated financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report and the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 21, 2023.
The unaudited condensed consolidated financial statements include the accounts of Workiva Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
9
Use of Estimates
Recently Adopted Accounting Pronouncements
New Accounting Pronouncements Not Yet Adopted
2. Supplemental Consolidated Balance Sheet Information
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following (in thousands):
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||
| Accrued vacation | $ | $ | |||||||||
| Accrued commissions | |||||||||||
| Accrued bonuses | |||||||||||
| Accrued payroll | |||||||||||
| Estimated health insurance claims | |||||||||||
| Accrued interest | |||||||||||
| ESPP employee contributions | |||||||||||
| Customer deposits | |||||||||||
| Operating lease liabilities | |||||||||||
| Accrued other liabilities | |||||||||||
| $ | $ | ||||||||||
10
3. Cash Equivalents and Marketable Securities
At September 30, 2023, cash equivalents and marketable securities consisted of the following (in thousands):
Amortized Cost | Unrealized Gains | Unrealized Losses | Aggregate Fair Value | ||||||||||||||||||||
| Money market funds | $ | $ | — | $ | — | $ | |||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
| U.S. treasury debt securities | ( | ||||||||||||||||||||||
| U.S. government agency debt securities | ( | ||||||||||||||||||||||
| Corporate debt securities | ( | ||||||||||||||||||||||
| Foreign government debt securities | ( | ||||||||||||||||||||||
| $ | $ | $ | ( | $ | |||||||||||||||||||
| Included in cash and cash equivalents | $ | $ | — | $ | — | $ | |||||||||||||||||
| Included in marketable securities | $ | $ | $ | ( | $ | ||||||||||||||||||
At December 31, 2022, cash equivalents and marketable securities consisted of the following (in thousands):
Amortized Cost | Unrealized Gains | Unrealized Losses | Aggregate Fair Value | ||||||||||||||||||||
| Money market funds | $ | $ | — | $ | — | $ | |||||||||||||||||
| U.S. treasury debt securities | ( | ||||||||||||||||||||||
| Corporate debt securities | ( | ||||||||||||||||||||||
| Foreign government debt securities | ( | ||||||||||||||||||||||
| $ | $ | $ | ( | $ | |||||||||||||||||||
| Included in cash and cash equivalents | $ | $ | — | $ | — | $ | |||||||||||||||||
| Included in marketable securities | $ | $ | $ | ( | $ | ||||||||||||||||||
The contractual maturities of the investments classified as marketable securities are as follows (in thousands):
| As of September 30, 2023 | |||||
| Due within one year | $ | ||||
| Due in one to two years | |||||
| $ | |||||
11
| As of September 30, 2023 | |||||||||||||||||||||||
Less than 12 months | 12 months or greater | ||||||||||||||||||||||
Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||||
| U.S. treasury debt securities | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| U.S. government agency debt securities | ( | ||||||||||||||||||||||
| Corporate debt securities | ( | ( | |||||||||||||||||||||
| Foreign government debt securities | ( | ||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | |||||||||||||||||
We do not believe the unrealized losses represent credit losses based on our evaluation of available evidence as of September 30, 2023, which includes an assessment of whether it is more likely than not we will be required to sell the investment before recovery of the investment's amortized cost basis.
4. Fair Value Measurements
We determine the fair values of our financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value assumes that the transaction to sell the asset or transfer the liability occurs in the principal or most advantageous market for the asset or liability and establishes that the fair value of an asset or liability shall be determined based on the assumptions that market participants would use in pricing the asset or liability. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. The fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 - Inputs are unobservable inputs based on our assumptions.
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Financial Assets
Based on our valuation of our money market funds and marketable securities, we concluded that they are classified in either Level 1 or Level 2, and we have no financial assets measured using Level 3 inputs on a recurring basis. The following table presents information about our assets that are measured at fair value on a recurring basis using the above input categories (in thousands):
| Fair Value Measurements as of September 30, 2023 | Fair Value Measurements as of December 31, 2022 | |||||||||||||||||||||||||||||||||||||
Description | Total | Level 1 | Level 2 | Total | Level 1 | Level 2 | ||||||||||||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Commercial paper | ||||||||||||||||||||||||||||||||||||||
| U.S. treasury debt securities | ||||||||||||||||||||||||||||||||||||||
| U.S. government agency debt securities | ||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | ||||||||||||||||||||||||||||||||||||||
| Foreign government debt securities | ||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Included in cash and cash equivalents | $ | $ | ||||||||||||||||||||||||||||||||||||
| Included in marketable securities | $ | $ | ||||||||||||||||||||||||||||||||||||
Convertible Senior Notes
As of September 30, 2023, the fair value of our convertible senior notes due in 2026 and 2028 was $97.7 million and $689.7 million, respectively. The fair value was determined based on the quoted price of the convertible senior notes in an over-the-counter market on the last trading day of the reporting period and has been classified as Level 2 in the fair value hierarchy. See Note 5 to the condensed consolidated financial statements for more information.
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5. Convertible Senior Notes
The following table presents details of our convertible senior notes, which are further discussed below (original principal in thousands):
Month Issued | Maturity Date | Free Convertibility Date | Redemption Date | Original Principal (including overallotment) | Initial Conversion Rate per $1,000 Principal | Initial Conversion Price | ||||||||||||||||||||||||||||||||||||||
2026 Notes | August 2019 | August 15, 2026 | May 15, 2026 | August 21, 2023 | $ | 12.4756 | $ | |||||||||||||||||||||||||||||||||||||
2028 Notes | August 2023 | August 15, 2028 | May 15, 2028 | August 21, 2026 | $ | 7.4690 | $ | |||||||||||||||||||||||||||||||||||||
In August 2019, we issued $345.0 million aggregate principal amount of 1.125 % convertible senior notes due 2026 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, including the exercise in full by the initial purchasers of their option to purchase an additional $45.0 million principal amount (the "2026 Notes”). The 2026 Notes bear interest at a fixed rate of 1.125 % per annum, payable semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 2020. Proceeds from the issuance of the 2026 Notes totaled $335.9 million, net of initial purchaser discounts and issuance costs.
In August 2023, we issued $702.0 million aggregate principal amount of 1.250 % convertible senior notes due 2028 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, including the partial exercise of 77.0 million principal amount by the initial purchasers of their option to purchase up to an additional $100 million principal amount (the "2028 Notes”). The 2028 Notes bear interest at a fixed rate of 1.250 % per annum, payable semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 2024. Proceeds from the issuance of the 2028 Notes totaled $691.1 million, net of initial purchaser discounts and issuance costs.
The 2026 Notes and the 2028 Notes are together referred to as the "Notes".
The Notes were issued pursuant to an indenture and are senior, unsecured obligations of the Company. The 2028 Notes will rank equally with all of the Company’s existing and future senior unsecured indebtedness, including the Company’s outstanding 2026 Notes.
Holders of the Notes may convert all or a portion of their Notes prior to the close of business on their respective Free Convertibility dates, in multiples of $1,000 principal amount, only under the following circumstances:
•during any calendar quarter commencing after the calendar quarter in which the respective Notes were issued (and only during such calendar quarter), if the last reported sale price of our Class A common stock, par value $0.001 per share (which we refer to in this offering memorandum as our “Class A common stock”), for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;
•during the five consecutive business day period immediately following any ten consecutive trading day period (the “measurement period”) in which the trading price (as defined below) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of our Class A common stock and the conversion rate on each such trading day;
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•if we call any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
•upon the occurrence of certain specified corporate events as set forth in the relevant indenture.
On or after the relevant Free Convertibility Date, holders of the Notes may convert their Notes at any time until the close of business on the second scheduled trading day immediately preceding the maturity date of the Notes.
Upon conversion, we will pay or deliver, as the case may be, cash, shares of our Class A common stock or a combination of cash and shares of our Class A common stock, at our election, in the manner and subject to the terms and conditions provided in the indenture.
The Company may redeem for cash all or any portion of the Notes, at its option, on or after the respective Redemption Date, if the last reported sale price of the Company’s common stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus any accrued and unpaid interest to, but excluding, the respective Redemption Date.
During the third quarter of 2023 none of the conversion conditions were met and therefore the Notes are not convertible at the option of the holders. As a result, the Notes were classified as non-current liabilities on the condensed consolidated balance sheet as of September 30, 2023.
Interest expense representing the amortization of issuance costs as well as contractual interest expense is amortized to interest expense at an effective interest rate of 1.5 % and 1.6 % over the term of the 2026 Notes and 2028 Notes, respectively.
As of September 30, 2023, the remaining life of the 2026 Notes and 2028 Notes were approximately 2.8 years and 4.9 years.
Partial Repurchase of 2026 Notes
We used $396.9 million of the net proceeds from the 2028 Notes offering discussed above to repurchase $273.8 million principal amount, together with accrued and unpaid interest thereon, of our 2026 Notes in separate and individually negotiated transactions with certain holders. The repurchase was accounted for as an induced conversion. The fair value of the repurchased 2026 Notes on the date of repurchase was $351.8 million. The consideration in excess of fair value resulted in a loss on induced conversion of $45.1 million which was recorded as interest expense in the condensed consolidated statement of operations. The difference between the fair value and the carrying value of the 2026 Notes on the date of repurchase of $81.1 million, including unamortized debt issuance costs of $3.1 million, was recorded in additional paid-in capital.
The net carrying amount of the Notes was as follows (in thousands):
| September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
2026 Notes | 2028 Notes | 2026 Notes | 2028 Notes | ||||||||||||||||||||
| Principal | $ | $ | $ | $ | |||||||||||||||||||
| Unamortized issuance costs | ( | ( | ( | ||||||||||||||||||||
| Net carrying amount | $ | $ | $ | $ | |||||||||||||||||||
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Interest expense related to the Notes was as follows (in thousands):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Contractual interest expense | $ | $ | $ | $ | |||||||||||||||||||
| Amortization of issuance costs | |||||||||||||||||||||||
| Total interest expense | $ | $ | $ | $ | |||||||||||||||||||
6. Commitments and Contingencies
Litigation
From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We evaluate the development of legal matters on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of any currently pending legal proceedings to which we are a party will not have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
7. Stock-Based Compensation
We grant stock-based incentive awards to attract, motivate and retain qualified employees, non-employee directors and consultants, and to align their financial interests with those of our stockholders. We utilize stock-based compensation in the form of restricted stock units, performance restricted stock units, options to purchase Class A common stock and Employee Stock Purchase Plan ("ESPP") purchase rights. Prior to our corporate conversion in December 2014, awards were provided under the 2009 Unit Incentive Plan (“the 2009 Plan”). The 2009 Plan was amended to provide that no further awards will be issued thereunder, and our board of directors and stockholders adopted and approved our 2014 Equity Incentive Plan (“the 2014 Plan” and, together with the 2009 Plan, “the Plans”).
Stock-Based Compensation Expense
Stock-based compensation expense was recorded in the following cost and expense categories consistent with the respective employee or service provider’s related cash compensation (in thousands):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
Subscription and support | $ | $ | $ | $ | |||||||||||||||||||
Professional services | |||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
Research and development | |||||||||||||||||||||||
Sales and marketing | |||||||||||||||||||||||
General and administrative | |||||||||||||||||||||||
Total | $ | $ | $ | $ | |||||||||||||||||||
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During the first nine months of 2023, we recognized an additional $18.1 million in stock-based compensation pursuant to certain transition agreements with former executives who retired during the period.
Stock Options
The following table summarizes the option activity under the Plans for the nine months ended September 30, 2023:
Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | |||||||||||||||
| Outstanding at December 31, 2022 | $ | ||||||||||||||||
| Granted | |||||||||||||||||
| Forfeited | ( | ||||||||||||||||
| Expired | |||||||||||||||||
| Exercised | ( | ||||||||||||||||
| Outstanding at September 30, 2023 | $ | ||||||||||||||||
| Exercisable at September 30, 2023 | $ | ||||||||||||||||
Restricted Stock Units and Performance Restricted Stock Units
The following table summarizes the restricted stock unit and performance restricted stock unit activity under the Plans for the nine months ended September 30, 2023:
Number of Shares | Weighted- Average Grant Date Fair Value | ||||||||||
| Unvested at December 31, 2022 | $ | ||||||||||
| Granted | |||||||||||
| Forfeited | ( | ||||||||||
Vested(1) | ( | ||||||||||
| Unvested at September 30, 2023 | $ | ||||||||||
(1) During the nine months ended September 30, 2023, in accordance with our Nonqualified Deferred Compensation Plan, recipients elected to defer settlement of 2,925 shares of their vested restricted stock units and 359,812 shares were released from deferral.
Employee Stock Purchase Plan
During the nine months ended September 30, 2023, 200,436 shares of common stock were purchased under the ESPP at a weighted-average price of $62.43 per share, resulting in cash proceeds of $12.5 million.
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8. Revenue Recognition
Disaggregation of Revenue
Revenues by industry are derived from leading software providers. The following table presents our revenues disaggregated by industry (in thousands):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Industrials | $ | $ | $ | $ | |||||||||||||||||||
| Diversified financials | |||||||||||||||||||||||
| Information technology | |||||||||||||||||||||||
| Banks | |||||||||||||||||||||||
| Consumer discretionary | |||||||||||||||||||||||
| Healthcare | |||||||||||||||||||||||
| Insurance | |||||||||||||||||||||||
| Real estate | |||||||||||||||||||||||
| Energy | |||||||||||||||||||||||
| Utilities | |||||||||||||||||||||||
| Materials | |||||||||||||||||||||||
| Public administration | |||||||||||||||||||||||
| Consumer staples | |||||||||||||||||||||||
Telecommunication services | |||||||||||||||||||||||
Other | |||||||||||||||||||||||
Total revenues | $ | $ | $ | $ | |||||||||||||||||||
The following table presents our revenues disaggregated by type of good or service (in thousands):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Subscription and support | $ | $ | $ | $ | |||||||||||||||||||
| XBRL professional services | |||||||||||||||||||||||
| Other services | |||||||||||||||||||||||
Total revenues | $ | $ | $ | $ | |||||||||||||||||||
Deferred Revenue
We recognized $129.9 million and $107.7 million of revenue during the three months ended September 30, 2023 and 2022, respectively, that was included in the deferred revenue balances at the beginning of the respective periods. We recognized $277.8 million and $224.6 million of revenue during the nine months ended September 30, 2023 and 2022, respectively, that was included in the deferred revenue balances at the beginning of the respective periods.
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9. Net Loss Per Share
Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including convertible senior notes, outstanding stock options, stock related to unvested restricted stock units, and common stock issuable pursuant to the ESPP to the extent dilutive. Basic and diluted net loss per share was the same for each period presented, as the inclusion of all potential common shares outstanding would have been anti-dilutive.
The net loss per share is allocated based on the participation rights of the Class A and Class B common shares as if the loss for the year has been distributed. As the liquidation and dividend rights are identical, the net loss is allocated on a proportionate basis.
A reconciliation of the denominator used in the calculation of basic and diluted loss per share is as follows (in thousands, except share and per share data):
| Three months ended | |||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | ||||||||||||||||||||||
Class A | Class B | Class A | Class B | ||||||||||||||||||||
| Numerator | |||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Denominator | |||||||||||||||||||||||
| Weighted-average common shares outstanding - basic and diluted | |||||||||||||||||||||||
| Basic and diluted net loss per share | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Nine months ended | |||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | ||||||||||||||||||||||
| Class A | Class B | Class A | Class B | ||||||||||||||||||||
| Numerator | |||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Denominator | |||||||||||||||||||||||
| Weighted-average common shares outstanding - basic and diluted | |||||||||||||||||||||||
| Basic and diluted net loss per share | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
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The anti-dilutive securities excluded from the weighted-average shares used to calculate the diluted net loss per common share were as follows:
As of | |||||||||||
| September 30, 2023 | September 30, 2022 | ||||||||||
| Shares subject to outstanding common stock options | |||||||||||
| Shares subject to unvested restricted stock units and performance restricted stock units | |||||||||||
| Shares issuable pursuant to the ESPP | |||||||||||
Shares underlying our convertible senior notes | |||||||||||
10. Intangible Assets and Goodwill
The following table presents the components of net intangible assets (in thousands):
| As of September 30, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Weighted Average Useful Life (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||||||||
| Acquired technology | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Acquired customer-related | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Acquired trade names | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Patents | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
Amortization expense related to intangible assets was $1.5 4.6 million and $3.8 million for the nine months ended September 30, 2023 and 2022, respectively.
As of September 30, 2023, expected remaining amortization expense of intangible assets by fiscal year is as follows (in thousands):
| Remainder of 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total expected amortization expense | $ | ||||
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The changes in the carrying amount of goodwill were as follows (in thousands):
| December 31, 2022 | $ | ||||
| Foreign currency translation adjustments | ( | ||||
| September 30, 2023 | $ | ||||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of our operations should be read in conjunction with the condensed consolidated financial statements and related notes included elsewhere in this report and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 21, 2023. In addition to historical consolidated financial information, this discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to these differences include, but are not limited to, those identified below, and those discussed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022, in “Item 1A. Risk Factors” in Part II of this Quarterly Report on Form 10-Q and in any subsequent filing we make with the SEC.
Overview
Workiva’s mission is to power transparent reporting for a better world. We believe that consumers, employees, shareholders, and other stakeholders today expect more from business – more action, transparency, and disclosure of financial and non-financial information. We build solutions to meet that demand and streamline processes, connect data and teams, and ensure consistency – all within the Workiva platform, the world’s leading cloud platform for assured integrated reporting. Additionally, we offer the only unified software-as-a-service (“SaaS”) platform that brings customers’ financial reporting, Environmental, Social, and Governance (“ESG”), and Governance, Risk, and Compliance (“GRC”) together in a controlled, secure, audit-ready platform.
The Workiva platform empowers customers by connecting and transforming data from hundreds of enterprise resource planning (“ERP”), human capital management (“HCM”), and customer relationship management (“CRM”) systems, as well as other third-party cloud and on-premise applications. Customers use our platform to create, review and publish data-linked documents and reports with greater control, consistency, accuracy, and productivity. Our platform is flexible and scalable, so customers can easily adapt it to define, automate, and change their business processes in real time.
Workiva provides more than 5,000 organizations across the globe with SaaS platform solutions to help solve some of the most complex reporting and disclosure challenges. While our customers use our platform for more than 100 different use cases, we organize our sales and marketing resources into four purpose-built solution groups focusing primarily on the office of the Chief Financial Officer (“CFO”): financial reporting, ESG, GRC, and industry verticals. Workiva also serves approximately 900 customers with non-platform, eXtensible Business Reporting Language ("XBRL")-tagging services, primarily through ParsePort, an XBRL conversion software company Workiva acquired in 2022.
We operate our business on a Software-as-a-Service (“SaaS”) model. Customers enter into annual and multi-year subscription contracts to gain access to our platform. Our subscription fee includes the use of our software and technical support. Our subscription pricing is based primarily on a solution-based licensing model. Under this model, operating metrics related to a customer’s expected use of each solution determine the price. We charge customers additional fees primarily for document setup and XBRL tagging services.
We generate sales primarily through our direct sales force and, to a lesser extent, our customer success and professional services teams. In addition, we augment our direct sales channel with partnerships. Our advisory and service partners offer a wider range of domain and functional expertise that broadens the capabilities of our platform, bringing scale and support to customers and prospects. Our technology partners enable more data and process integrations to help customers connect critical transactional systems directly to our platform.
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We continue to invest in the development of our solutions, infrastructure and sales and marketing to drive long-term growth. Our full-time employee headcount increased to 2,519 at September 30, 2023 from 2,446 at September 30, 2022, an increase of 3.0%.
We have achieved significant revenue growth in recent periods. Our revenue grew to $158.2 million and $463.4 million during the three and nine months ended September 30, 2023, respectively from $132.8 million and $394.1 million during the three and nine months ended September 30, 2022, respectively. We incurred a net loss of $56.3 million and $123.3 million during the three and nine months ended September 30, 2023, respectively compared to $29.7 million and $77.0 million during the three and nine months ended September 30, 2022, respectively.
We continue to invest for future growth and are focused on several key drivers, including focusing on multi-solution adoption by new and existing customers, further developing our partner program, accelerating international expansion and developing our fit-for-purpose solutions. These growth drivers often require a more sophisticated go-to-market approach and, as a result, we may incur additional costs upfront to obtain new customers and expand our relationships with existing customers, including additional sales and marketing expenses.
Effects of Volatility in the IPO/SPAC Markets
In the United States, volatility in the public markets led to a decrease in the number of initial public offerings (“IPOs”) and special-purpose acquisition companies (“SPACs”) in 2022. New sales of our SEC and capital markets solutions were adversely affected by this decline in the IPO and SPAC markets. Reduced valuation multiples caused by higher interest rates, inflation, and geopolitical instability continue to negatively impact the number of IPOs and SPACs in fiscal year 2023. Accordingly, this volatility continues to apply pressure to new sales of our SEC and capital markets solutions. Whether and to what extent the IPO and SPAC markets will moderate cannot be accurately predicted.
Key Factors Affecting Our Performance
Generate Growth From Existing Customers. The Workiva platform can exhibit a powerful network effect within an enterprise, meaning that the usefulness of our platform attracts additional users. Since solution-based licensing offers our customers an unlimited number of seats for each solution purchased, we expect customers to add more seats over time. As more employees in an enterprise use our platform, additional opportunities for collaboration and automation drive demand among their colleagues for additional solutions.
Pursue New Customers. We sell to organizations that manage large, complex processes with distributed teams of contributors and disparate sets of business data. We market our platform to professionals and executives in the areas of financial and non-financial reporting, including regulatory, multi-entity and performance reporting. In addition, we market to teams responsible for environmental, social and governance reporting, and governance, risk and compliance programs. We intend to continue to build our sales and marketing organization and leverage our brand equity to attract new customers.
Offer More Solutions. We intend to introduce new solutions to continue to meet growing demand for our platform. Our close and trusted relationships with our customers are a source for new use cases, features and solutions. We have a disciplined process for tracking, developing and releasing new solutions that are designed to have immediate, broad applicability; a strong value proposition; and a high return on investment for both Workiva and our customers. Our advance planning team assesses customer needs, conducts industry-based research and defines new markets. This vetting process involves our sales, product marketing, customer success, professional services, research and development, finance and senior management teams.
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Expand Across Enterprises. Our success in delivering multiple solutions has created demand from customers for a broader-based, enterprise-wide Workiva platform. In response, we have been improving our technology and realigning sales and marketing to capitalize on our growing enterprise-wide opportunities. We believe this expansion will add seats and revenue and continue to support our high revenue retention rates. However, we expect that enterprise-wide deals will be larger and more complex, which tend to lengthen the sales cycle.
Add Partners. We continue to expand and deepen our relationships with global and regional partners, including consulting firms, system integrators, large and mid-sized independent software vendors, and implementation partners. Our advisory and service partners offer a wider range of domain and functional expertise that broadens our platform’s capabilities and promotes Workiva as part of the digital transformation projects they drive for their customers. Our technology partners enable powerful data and process integrations to help customers connect critical transactional systems directly to our platform, with powerful linking, auditability and control features. We believe that our partner ecosystem extends our global reach, accelerates the usage and adoption of our platform, and enables more efficient delivery of professional services.
Investment in growth. We plan to continue to invest in the development of our platform, fit-for-purpose solutions and application marketplace to enhance our current offerings and build new features. In addition, we expect to continue to invest in our sales, marketing, professional services and customer success organizations to drive additional revenue and support the needs of our growing customer base and to take advantage of opportunities that we have identified in Europe, the Middle East and Africa ("EMEA") and Asia-Pacific ("APAC") regions.
Seasonality. Our revenue from professional services has some degree of seasonality. Many of our customers employ our professional services just before they file their Form 10-K, often in the first calendar quarter. Our sales and marketing expense also has some degree of seasonality. With the exception of September 2020 and September 2021 when we transitioned to a virtual event, sales and marketing expense has historically been higher in the third quarter due to our annual user conference in September. In addition, the timing of the payments of cash bonuses to employees during the first and fourth calendar quarters may result in some seasonality in operating cash flow.
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Key Performance Indicators
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Financial metrics | |||||||||||||||||||||||
Total revenue | $ | 158,175 | $ | 132,849 | $ | 463,386 | $ | 394,072 | |||||||||||||||
| Percentage increase in total revenue | 19.1 | % | 17.9 | % | 17.6 | % | 22.2 | % | |||||||||||||||
| Subscription and support revenue | $ | 143,421 | $ | 118,591 | $ | 409,857 | $ | 339,064 | |||||||||||||||
| Percentage increase in subscription and support revenue | 20.9 | % | 19.9 | % | 20.9 | % | 23.3 | % | |||||||||||||||
| Subscription and support as a percent of total revenue | 90.7 | % | 89.3 | % | 88.4 | % | 86.0 | % | |||||||||||||||
| As of September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating metrics | |||||||||||
| Number of customers | 5,945 | 5,541 | |||||||||
| Subscription and support revenue retention rate | 97.7% | 98.1% | |||||||||
| Subscription and support revenue retention rate including add-ons | 112.0% | 107.0% | |||||||||
| Number of customers with annual contract value $100k+ | 1,561 | 1,257 | |||||||||
| Number of customers with annual contract value $150k+ | 851 | 676 | |||||||||
| Number of customers with annual contract value $300k+ | 296 | 214 | |||||||||
Total customers. We believe total number of customers is a key indicator of our financial success and future revenue potential. We define a customer as an entity with an active subscription contract as of the measurement date. Our customer is typically a parent company or, in a few cases, a significant subsidiary that works with us directly. Companies with publicly-listed securities account for a substantial majority of our customers. As of September 30, 2023 and 2022, our total customer count includes 926 and 895 ParsePort ESEF customers, respectively.
Subscription and support revenue retention rate. We calculate our subscription and support revenue retention rate based on all customers that were active at the end of the same calendar quarter of the prior year (“base customers”). We begin by annualizing the subscription and support revenue recorded in the same calendar quarter of the prior year for those base customers who are still active at the end of the current quarter. We divide the result by the annualized subscription and support revenue in the same quarter of the prior year for all base customers.
Our subscription and support revenue retention rate was 97.7% as of September 30, 2023, down slightly from 98.1% as of September 30, 2022. We believe that our success in maintaining a high rate of revenue retention is attributable primarily to our robust technology platform and strong customer service. Customers whose securities were deregistered due to merger or acquisition or financial distress accounted for just over half of our revenue attrition in the latest quarter.
Subscription and support revenue retention rate including add-ons. Add-on revenue includes the change in both solutions and pricing for existing customers. We calculate our subscription and support revenue retention rate including add-ons by annualizing the subscription and support revenue recorded in the current quarter for our base customers that were active at the end of the current quarter. We divide the
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result by the annualized subscription and support revenue in the same quarter of the prior year for all base customers.
Our subscription and support revenue retention rate including add-ons was 112.0% as of the quarter ended September 30, 2023, up from 107.0% as of September 30, 2022.
Annual contract value. Our annual contract value (“ACV”) for each customer is calculated by annualizing the subscription and support revenue recognized during each quarter. We believe the increase in the number of larger contracts shows our progress in expanding our customers’ adoption of our platform.
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Subscription and support revenue from customers with annual contract value of $100k+ as a percent of total subscription and support revenue | 67.1% | 62.3% | 65.6% | 61.6% | |||||||||||||||||||
| Subscription and support revenue from customers with annual contract value of $150k+ as a percent of total subscription and support revenue | 52.1% | 47.4% | 51.0% | 46.9% | |||||||||||||||||||
| Subscription and support revenue from customers with annual contract value of $300k+ as a percent of total subscription and support revenue | 32.6% | 27.6% | 31.2% | 27.1% | |||||||||||||||||||
Components of Results of Operations
Revenue
We generate revenue through the sale of subscriptions to our cloud-based software and the delivery of professional services. We serve a wide range of customers in many industries, and our revenue is not concentrated with any single customer or small group of customers. For the nine months ended September 30, 2023 and 2022, no single customer represented more than 1% of our revenue, and our largest 10 customers accounted for less than 5% of our revenue in the aggregate.
We generate sales directly through our sales force and partners. We also identify some sales opportunities with existing customers through our customer success and professional services teams.
Our customer contracts typically range in length from twelve to 36 months. We typically invoice our customers for subscription fees annually in advance. For contracts with a two or three year term, customers sometimes elect to pay the entire multi-year subscription term in advance. Our arrangements do not contain general rights of return.
Subscription and Support Revenue. We recognize subscription and support revenue on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Amounts that are invoiced are initially recorded as deferred revenue.
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Professional Services Revenue. We believe our professional services facilitate the sale of our subscription service to certain customers. To date, most of our professional services have consisted of document set up, XBRL tagging, and consulting to help our customers with business processes and best practices for using our platform. Our professional services are not required for customers to utilize our solution. We recognize revenue for document set ups when the service is complete and control has transferred to the customer. Revenues from XBRL tagging and consulting services are recognized as the services are performed.
Cost of Revenue
Cost of revenue consists primarily of personnel and related costs directly associated with our professional services, customer success teams and training personnel, including salaries, benefits, bonuses, and stock-based compensation; the costs of contracted third-party vendors; the costs of server usage by our customers; information technology costs; and facility costs. Costs of server usage are comprised primarily of fees paid to Amazon Web Services.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of personnel and related costs, including salaries, benefits, bonuses, commissions, travel, and stock-based compensation. Other costs included in this expense are marketing and promotional events, our annual user conference, online marketing, product marketing, information technology costs, and facility costs. We pay sales commissions for initial contracts and expansions of existing customer contracts. When the relevant amortization period is one year or less, we expense sales commissions as incurred. All other sales commissions are considered incremental costs of obtaining a contract with a customer and are deferred and amortized on a straight-line basis over a period of benefit that we have determined to be three years.
Research and Development Expenses
Research and development expenses consist primarily of personnel and related costs, including salaries, benefits, bonuses, and stock-based compensation; costs of server usage by our developers; information technology costs; and facility costs.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel and related costs for our executive, finance and accounting, legal, human resources, and administrative personnel, including salaries, benefits, bonuses, and stock-based compensation; legal, accounting, and other professional service fees; other corporate expenses; information technology costs; and facility costs.
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Results of Operations
The following table sets forth selected consolidated statement of operations data for each of the periods indicated:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Subscription and support | $ | 143,421 | $ | 118,591 | $ | 409,857 | $ | 339,064 | |||||||||||||||
| Professional services | 14,754 | 14,258 | 53,529 | 55,008 | |||||||||||||||||||
| Total revenue | 158,175 | 132,849 | 463,386 | 394,072 | |||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
Subscription and support(1) | 24,864 | 19,235 | 74,080 | 56,683 | |||||||||||||||||||
Professional services(1) | 13,491 | 13,184 | 42,297 | 38,846 | |||||||||||||||||||
| Total cost of revenue | 38,355 | 32,419 | 116,377 | 95,529 | |||||||||||||||||||
| Gross profit | 119,820 | 100,430 | 347,009 | 298,543 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
Research and development(1) | 41,747 | 38,583 | 130,235 | 113,644 | |||||||||||||||||||
Sales and marketing(1) | 72,576 | 64,560 | 215,168 | 184,879 | |||||||||||||||||||
General and administrative(1) | 21,022 | 27,405 | 86,660 | 75,507 | |||||||||||||||||||
| Total operating expenses | 135,345 | 130,548 | 432,063 | 374,030 | |||||||||||||||||||
| Loss from operations | (15,525) | (30,118) | (85,054) | (75,487) | |||||||||||||||||||
| Interest income | 7,294 | 1,440 | 15,546 | 2,325 | |||||||||||||||||||
| Interest expense | (47,437) | (1,510) | (50,437) | (4,540) | |||||||||||||||||||
| Other (expense) income, net | (71) | 964 | (1,450) | 1,467 | |||||||||||||||||||
| Loss before provision for income taxes | (55,739) | (29,224) | (121,395) | (76,235) | |||||||||||||||||||
| Provision for income taxes | 530 | 467 | 1,934 | 810 | |||||||||||||||||||
| Net loss | $ | (56,269) | $ | (29,691) | $ | (123,329) | $ | (77,045) | |||||||||||||||
(1) Stock-based compensation expense included in these line items was as follows:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
Subscription and support | $ | 1,247 | $ | 855 | $ | 3,732 | $ | 2,557 | |||||||||||||||
Professional services | 623 | 533 | 1,923 | 1,578 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
Research and development | 4,155 | 3,399 | 13,677 | 9,272 | |||||||||||||||||||
Sales and marketing | 7,108 | 4,657 | 20,769 | 14,388 | |||||||||||||||||||
General and administrative | 6,244 | 10,853 | 37,928 | 26,258 | |||||||||||||||||||
Total stock-based compensation expense | $ | 19,377 | $ | 20,297 | $ | 78,029 | $ | 54,053 | |||||||||||||||
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The following table sets forth our consolidated statement of operations data as a percentage of revenue for each of the periods indicated:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Subscription and support | 90.7 | % | 89.3 | % | 88.4 | % | 86.0 | % | |||||||||||||||
| Professional services | 9.3 | 10.7 | 11.6 | 14.0 | |||||||||||||||||||
| Total revenue | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||
| Subscription and support | 15.7 | 14.5 | 16.0 | 14.4 | |||||||||||||||||||
| Professional services | 8.5 | 9.9 | 9.1 | 9.9 | |||||||||||||||||||
| Total cost of revenue | 24.2 | 24.4 | 25.1 | 24.3 | |||||||||||||||||||
| Gross profit | 75.8 | 75.6 | 74.9 | 75.7 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Research and development | 26.4 | 29.0 | 28.1 | 28.8 | |||||||||||||||||||
| Sales and marketing | 45.9 | 48.6 | 46.4 | 46.9 | |||||||||||||||||||
| General and administrative | 13.3 | 20.6 | 18.7 | 19.2 | |||||||||||||||||||
| Total operating expenses | 85.6 | 98.2 | 93.2 | 94.9 | |||||||||||||||||||
| Loss from operations | (9.8) | (22.6) | (18.3) | (19.2) | |||||||||||||||||||
| Interest income | 4.6 | 1.1 | 3.4 | 0.6 | |||||||||||||||||||
| Interest expense | (30.0) | (1.1) | (10.9) | (1.2) | |||||||||||||||||||
| Other (expense) income, net | — | 0.7 | (0.3) | 0.4 | |||||||||||||||||||
| Loss before provision for income taxes | (35.2) | (21.9) | (26.1) | (19.4) | |||||||||||||||||||
| Provision for income taxes | 0.3 | 0.4 | 0.4 | 0.2 | |||||||||||||||||||
| Net loss | (35.5) | % | (22.3) | % | (26.5) | % | (19.6) | % | |||||||||||||||
Comparison of Three and Nine Months Ended September 30, 2023 and 2022
Revenue
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||||||||
Subscription and support | $ | 143,421 | $ | 118,591 | 20.9% | $ | 409,857 | $ | 339,064 | 20.9% | |||||||||||||||||||||||||
Professional services | 14,754 | 14,258 | 3.5% | 53,529 | 55,008 | (2.7)% | |||||||||||||||||||||||||||||
Total revenue | $ | 158,175 | $ | 132,849 | 19.1% | $ | 463,386 | $ | 394,072 | 17.6% | |||||||||||||||||||||||||
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Total revenue increased $25.3 million for the three months ended September 30, 2023 compared to the same quarter a year ago due primarily to a $24.8 million increase in subscription and support revenue. Growth in subscription and support revenue in the third quarter was attributable mainly to strong demand and continued solution expansion across our customer base. Revenue from professional services increased slightly during the three months ended September 30, 2023 compared to the same quarter a year ago. The increase in revenue from professional services was due primarily to an increase in revenue from XBRL professional services partially offset by a decrease in revenue from other services as we continue to transition consulting and other services to our partners. We expect the revenue growth rate from subscription and support to continue to outpace revenue growth from professional services on an annual basis.
Total revenue increased $69.3 million for the nine months ended September 30, 2023 compared to the same period a year ago due primarily to a $70.8 million increase in subscription and support revenue. Growth in subscription and support revenue was attributable mainly to strong demand and continued solution expansion across our customer base. Professional services revenue decreased $1.5 million during the nine months ended September 30, 2023 compared to the same period a year ago. The decrease was driven primarily by the continued transition of consulting and other services to our partners and the timing of performance of XBRL services. We expect the revenue growth rate from subscription and support to continue to outpace revenue growth from professional services on an annual basis.
Cost of Revenue
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||||||||||||||
Subscription and support | $ | 24,864 | $ | 19,235 | 29.3% | $ | 74,080 | $ | 56,683 | 30.7% | |||||||||||||||||||||||||
Professional services | 13,491 | 13,184 | 2.3% | 42,297 | 38,846 | 8.9% | |||||||||||||||||||||||||||||
Total cost of revenue | $ | 38,355 | $ | 32,419 | 18.3% | $ | 116,377 | $ | 95,529 | 21.8% | |||||||||||||||||||||||||
Cost of revenue increased $5.9 million during the three months ended September 30, 2023 compared to the same quarter a year ago due primarily to $4.2 million in higher cash-based compensation and benefits costs due in part to increased headcount, $0.5 million of additional stock-based compensation, and a $0.8 million increase in the cost of cloud infrastructure services. The increases in headcount and cloud infrastructure services resulted primarily from our continued investment in and support of our platform and solutions.
Cost of revenue increased $20.8 million during the nine months ended September 30, 2023 compared to the same period a year ago due primarily to $13.4 million in higher cash-based compensation and benefits costs due in part to increased headcount, $1.5 million of additional stock-based compensation, a $1.0 million increase in travel expense, a $3.1 million increase in the cost of cloud infrastructure services, a $0.6 million increase in software expense, and a $0.5 million increase in outsourced service fees. The increases in headcount, cloud infrastructure services, software expense, and outsourced service fees resulted primarily from our continued investment in and support of our platform and solutions. The increase in travel expense was due to a modest continued return to travel.
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Operating Expenses
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||
Research and development | $ | 41,747 | $ | 38,583 | 8.2% | $ | 130,235 | $ | 113,644 | 14.6% | |||||||||||||||||||||||||
Sales and marketing | 72,576 | 64,560 | 12.4% | 215,168 | 184,879 | 16.4% | |||||||||||||||||||||||||||||
General and administrative | 21,022 | 27,405 | (23.3)% | 86,660 | 75,507 | 14.8% | |||||||||||||||||||||||||||||
Total operating expenses | $ | 135,345 | $ | 130,548 | 3.7% | $ | 432,063 | $ | 374,030 | 15.5% | |||||||||||||||||||||||||
Research and Development
Research and development expenses increased $3.2 million during the three months ended September 30, 2023 compared to the same quarter a year ago due primarily to $2.4 million in higher cash-based compensation and benefits and $0.8 million of additional stock-based compensation. The increase in compensation was primarily driven by continued investment in our employees in support of our platform and solutions.
Research and development expenses increased $16.6 million during the nine months ended September 30, 2023 compared to the same period a year ago due primarily to $11.6 million in higher cash-based compensation and benefits, $4.4 million of additional stock-based compensation, and a $0.7 million increase in travel expense. The increase in compensation was the result of our continued investment in and support of our platform and solutions. During the first nine months of 2023, we recognized an additional $1.6 million in stock-based compensation pursuant to certain severance obligations. The increase in travel expense was primarily due to our annual internal research and development event and a modest continued return to travel.
Sales and Marketing
Sales and marketing expenses increased $8.0 million during the three months ended September 30, 2023 compared to the same quarter a year ago due primarily to $5.2 million in higher cash-based compensation and benefits and $2.5 million of additional stock-based compensation. The increase in compensation was primarily due to an increase in employee headcount and sales commissions as we continue to invest in our go-to-market activities.
Sales and marketing expenses increased $30.3 million during the nine months ended September 30, 2023 compared to the same period a year ago due primarily to $17.7 million in higher cash-based compensation and benefits, $6.4 million of additional stock-based compensation, a $3.7 million increase in travel expense, a $1.0 million increase in professional service fees, and a $0.8 million increase in software expense. During the first nine months of 2023, we recognized an additional $1.9 million in cash-based and stock-based compensation pursuant to certain severance obligations. The remaining increase in compensation was primarily due to an increase in employee headcount and sales commissions as we continue to invest in our go-to-market activities. The increases in professional service fees and software expense were the result of our continued investment in and support of our platform and solutions. The increase in travel expense was primarily due to a modest continued return to travel and our annual internal sales and marketing event which was held in person in the first half of 2023. The event was held virtually in the prior year.
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General and Administrative
General and administrative expenses decreased $6.4 million during the three months ended September 30, 2023 compared to the same quarter a year ago due primarily to a $0.4 million decrease in cash-based compensation and benefits, a $4.7 million decrease in stock-based compensation, and a $1.0 million decrease related to recruiting and professional service fees. The decrease in stock-based compensation during the third quarter of 2023 is primarily due to the recognition of $3.5 million in stock-based compensation pursuant to certain severance agreements during the third quarter of 2022 which did not recur in 2023. The remaining decrease in compensation was primarily due to a decrease in employee headcount.
General and administrative expenses increased $11.2 million during the nine months ended September 30, 2023 compared to the same period a year ago due primarily to $2.2 million in higher cash-based compensation and benefits, $11.6 million of additional stock-based compensation, a $0.5 million increase in public relations expense, partially offset by a $2.7 million decrease related to recruiting and professional service fees and a $1.4 million decrease in goods and service tax expense. In addition, during 2023 we recorded one-time fees of $0.6 million related to the cancellation of certain events. During the first nine months of 2023, we recognized an additional $1.4 million and $18.1 million in cash-based compensation and stock-based compensation, respectively, pursuant to certain transition agreements with former executives. Public relations expense increased during 2023 as we continue to execute on our brand strategy. The decrease in sales tax expense was related to a goods and services tax refund which is not expected to recur.
Non-Operating Income (Expenses)
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | % Change | 2023 | 2022 | % Change | ||||||||||||||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Interest income | $ | 7,294 | $ | 1,440 | 406.5% | $ | 15,546 | $ | 2,325 | 568.6% | |||||||||||||||||||||||||
Interest expense | (47,437) | (1,510) | 3041.5% | (50,437) | (4,540) | 1010.9% | |||||||||||||||||||||||||||||
| Other (expense) income, net | (71) | 964 | * | (1,450) | 1,467 | * | |||||||||||||||||||||||||||||
(*) Percentage is not meaningful.
Interest Income, Interest Expense and Other (Expense) Income, Net
During the three months ended September 30, 2023, interest income increased $5.9 million compared to the same quarter a year ago due primarily to an increase in our investment balance, facilitated by the issuance of our 2028 convertible notes, coupled with higher interest rates. Interest expense increased compared to the same quarter a year ago due primarily to a $45.1 million loss on induced conversion from the partial repurchase of our convertible senior notes due in 2026. Other (expense) income, net decreased $1.0 million compared to the same quarter a year ago due primarily to losses on foreign currency transactions.
During the nine months ended September 30, 2023, interest income increased $13.2 million compared to the same period a year ago due primarily to larger investment balances coupled with higher interest rates. Interest expense increased compared to the same period a year ago due primarily to a $45.1 million loss on induced conversion from the partial repurchase of convertible senior notes due in 2026. Other (expense) income, net decreased $2.9 million compared to the same period a year ago due primarily to losses on the sale of available-for-sale securities and losses on foreign currency transactions.
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Results of Operations for Fiscal 2022 Compared to 2021
For a comparison of our results of operations for the fiscal years ended December 31, 2022 and 2021, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our annual report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 21, 2023.
Liquidity and Capital Resources
Overview of Sources and Uses of Cash
As of September 30, 2023, our principal sources of liquidity were cash, cash equivalents and marketable securities totaling $782.4 million, which were held for working capital purposes. We have financed our operations primarily through the proceeds of offerings of equity, convertible debt, and cash from operating activities. We have generated significant operating losses and negative cash flows from operating activities as reflected in our accumulated deficit and consolidated statements of cash flows. While we expect to continue to incur operating losses and may incur negative cash flows from operations in the future, we believe that current cash and cash equivalents and cash flows from operating activities will be sufficient to fund our operations for at least the next twelve months.
Convertible Debt
In August 2023, we issued $702.0 million aggregate principal amount of 1.250% convertible senior notes due 2028 (the "2028 Notes"). Proceeds from the issuance of the 2028 Notes totaled $691.1 million, net of initial purchaser discounts and issuance costs. We used $396.9 million of the net proceeds from the 2028 Notes offering to repurchase $273.8 million principal amount, together with accrued and unpaid interest thereon, of our 1.125% convertible senior notes due 2026 (the "2026 Notes") in separate and individually negotiated transactions with certain holders. As of September 30, 2023, we had outstanding debt relating to our 2026 Notes and 2028 Notes of $70.5 million and $691.4 million, with corresponding maturity dates of August 15, 2026 and August 15, 2028, respectively.
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Cash Flows
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
| Cash flow provided by operating activities | $ | 14,991 | $ | 4,855 | $ | 46,533 | $ | 12,602 | |||||||||||||||
| Cash flow used in investing activities | (109,026) | (2,632) | (182,044) | (79,246) | |||||||||||||||||||
| Cash flow provided by (used in) financing activities | 301,220 | 3,471 | 300,281 | (143) | |||||||||||||||||||
| Net increase (decrease) in cash and cash equivalents, net of impact of exchange rates | $ | 205,946 | $ | 3,244 | $ | 164,688 | $ | (70,889) | |||||||||||||||
Operating Activities
For the three months ended September 30, 2023, cash provided by operating activities was $15.0 million. The primary factors affecting our operating cash flows during the period were our net loss of $56.3 million, adjusted for non-cash charges of $2.7 million for depreciation and amortization of our property and equipment and intangible assets, $19.4 million of stock-based compensation expense, $1.9 million for the accretion of premiums and discounts on marketable securities, $0.5 million for the amortization of our debt discount and issuance costs, a $45.1 million loss on induced conversion from the partial repurchase of our convertible senior notes due in 2026, and a $5.5 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $15.2 million increase in accounts receivable, and a $1.6 million increase in other receivables offset by a $3.5 million decrease in prepaid expenses, a $3.1 million decrease in deferred costs, a $1.0 million decrease in other assets, a $11.1 million increase in deferred revenue, and a $3.5 million increase in accrued expenses and other liabilities. Customer growth and contract renewals for longer terms accounted for most of the increase in deferred revenue. Deferred costs decreased primarily due to the amortization of direct and incremental costs of obtaining a customer contract. The increases in accounts receivable, other receivables and accrued expenses and other liabilities as well as the decreases in prepaid expenses and other assets were attributable primarily to the timing of our billings, cash collections, and cash payments.
For the three months ended September 30, 2022, cash provided by operating activities was $4.9 million. The primary factors affecting our operating cash flows during the period were our net loss of $29.7 million, adjusted for non-cash charges of $2.7 million for depreciation and amortization of our property and equipment and intangible assets, $20.3 million of stock-based compensation expense and a $11.0 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $7.9 million increase in accounts receivable, a $1.4 million increase in deferred costs, and a $1.1 million increase in other assets offset by a $3.6 million decrease in prepaid expenses, a $3.9 million increase in accounts payable and a $14.8 million increase in deferred revenue. Deferred costs increased primarily due to payments made to our sales force related to the direct and incremental costs of obtaining a customer contract. Customer growth accounted for most of the increase in deferred revenue. The increases in accounts receivable, other assets, and accounts payable as well as the decrease in prepaid expenses were attributable primarily to the timing of our billings, cash collections, and cash payments.
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For the nine months ended September 30, 2023, cash provided by operating activities was $46.5 million. The primary factors affecting our operating cash flows during the period were our net loss of $123.3 million, adjusted for non-cash charges of $8.4 million for depreciation and amortization of our property and equipment and intangible assets, $78.0 million of stock-based compensation expense, $4.5 million for the accretion of premiums and discounts on marketable securities, $0.7 million in realized losses on the sale of available-for-sale securities, $1.1 million for the amortization of our debt discount and issuance costs, a $45.1 million loss on induced conversion from the partial repurchase of our convertible senior notes due in 2026, and a $41.0 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $4.0 million increase in prepaid expenses, a $1.8 million increase in other receivables, and a $1.3 million decrease in accounts payable offset by a $7.2 million decrease in accounts receivable, a $6.2 million decrease in deferred costs, a $1.5 million decrease in other assets, a $22.2 million increase in deferred revenue, and a $10.2 million increase in accrued expenses and other liabilities. Customer growth accounted for most of the increase in deferred revenue. Deferred costs decreased primarily due to the amortization of direct and incremental costs of obtaining a customer contract. The increases in other receivables, prepaid expenses and accrued expenses and other liabilities as well as the decreases in accounts receivable and accounts payable were attributable primarily to the timing of our billings, cash collections, and cash payments.
For the nine months ended September 30, 2022, cash provided by operating activities was $12.6 million. The primary factors affecting our operating cash flows during the period were our net loss of $77.0 million, adjusted for non-cash charges of $7.4 million for depreciation and amortization of our property and equipment and intangible assets, $54.1 million of stock-based compensation expense, $1.0 million for the amortization of our debt discount and issuance costs, $1.2 million for the amortization of premiums and discounts on marketable securities, and a $26.0 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $6.2 million increase in accounts receivable, a $2.7 million increase in deferred costs, and a $1.1 million increase in other assets offset by a $0.9 million decrease in prepaid expenses, a $6.0 million increase in accounts payable, and a $28.6 million increase in deferred revenue. Deferred costs increased due primarily to payments made to our sales force related to the direct and incremental costs of obtaining a customer contract. Customer growth accounted for most of the increase in deferred revenue. The increases in accounts receivable, other assets, and accounts payable as well as the decrease in prepaid expenses were attributable primarily to the timing of our billings, cash collections, and cash payments.
Investing Activities
Cash used in investing activities of $109.0 million for the three months ended September 30, 2023 was due primarily to $145.0 million in purchases of marketable securities and $0.9 million in purchases of fixed assets partially offset by $36.9 million from maturities of marketable securities. Our capital expenditures were associated primarily with computer equipment in support of expanding our infrastructure and work force.
Cash used in investing activities of $2.6 million for the three months ended September 30, 2022 was due primarily to $41.6 million in purchases of marketable securities and $1.0 million in purchases of fixed assets partially offset by $40.1 million from maturities of marketable securities. Our capital expenditures were associated primarily with computer equipment in support of expanding our infrastructure and work force.
Cash used in investing activities of $182.0 million for the nine months ended September 30, 2023 was due primarily to $322.0 million in purchases of marketable securities and $1.7 million in purchases of fixed assets partially offset by $65.1 million from the sale of marketable securities and $76.8 million from maturities of marketable securities. Our capital expenditures were associated primarily with computer equipment in support of expanding our infrastructure and work force.
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Cash used in investing activities of $79.2 million for the nine months ended September 30, 2022 was due primarily to $99.2 million for the acquisition of ParsePort, $99.6 million in purchases of marketable securities, and $2.2 million in purchases of fixed assets partially offset by $106.9 million from maturities of marketable securities as well as $15.0 million from the sale of marketable securities. Our capital expenditures were associated primarily with computer equipment in support of expanding our infrastructure and work force.
Financing Activities
Cash provided by financing activities of $301.2 million for the three months ended September 30, 2023 was due primarily to $691.1 million in proceeds from the issuance of convertible senior notes due in 2028, net of issuance costs, $1.1 million in proceeds from option exercises, and $7.0 million in proceeds from shares issued in connection with our employee stock purchase plan partially offset by $396.9 million paid for the partial repurchase of our convertible senior notes due in 2026 and $1.0 million in taxes paid related to net share settlements of stock-based compensation awards.
Cash provided by financing activities of $3.5 million for the three months ended September 30, 2022 was due primarily to $0.6 million in proceeds from option exercises and $4.0 million in proceeds from shares issued in connection with our employee stock purchase plan partially offset by $0.7 million in taxes paid related to net share settlements of stock-based compensation awards.
Cash provided by financing activities of $300.3 million for the nine months ended September 30, 2023 was due primarily to $691.1 million in proceeds from the issuance of convertible senior notes due in 2028, net of issuance costs, $3.3 million in proceeds from option exercises, and $12.5 million in proceeds from shares issued in connection with our employee stock purchase plan partially offset by $396.9 million paid for the partial repurchase of our convertible senior notes due in 2026 and $9.4 million in taxes paid related to net share settlements of stock-based compensation awards.
Cash used in financing activities of $0.1 million for the nine months ended September 30, 2022 was due primarily to $10.7 million in taxes paid related to net share settlements of stock-based compensation awards and $1.3 million in principal payments on finance lease obligations partially offset by $2.6 million in proceeds from option exercises and $9.3 million in proceeds from shares issued in connection with our employee stock purchase plan.
Contractual Obligations and Commitments
There were no material changes in our contractual obligations and commitments from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 21, 2023.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, income taxes and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
During the nine months ended September 30, 2023, there were no significant changes to our critical accounting policies and estimates as described in the financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 21, 2023.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk, see “Item 7A., Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2022. Our exposures to market risk have not changed materially since December 31, 2022.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures are designed to, and are effective to, provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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Part II. Other Information
Item 1. Legal Proceedings
From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that in the opinion of our management, if determined adversely to us, would have a material adverse effect on our business, financial condition, operating results or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2022 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. There have been no material changes during fiscal 2023 to the risk factors that were included in the Form 10-K, other than what is set forth immediately below.
Recent events affecting the financial services industry could have an adverse impact on the Company's business operations, financial condition and results of operations.
Silicon Valley Bank and Signature Bank closed in March of 2023 which created bank-specific and broader financial institution liquidity risks and concerns. The future effect of these events on the financial services industry and broader economy are unknown and difficult to predict but could include failures of other financial institutions to which we or our customers face direct or more significant exposure, as well as other risks not yet identified. Any of these effects could have material adverse impacts on our liquidity, our current and/or projected business operations and financial condition and our results of operations.
Item 2. Unregistered Sales of Securities and Use of Proceeds
Sales of Unregistered Securities
Not applicable.
Issuer Purchases of Equity Securities
The following table provides information about purchases of shares of our Class A Common Stock during the three months ended September 30, 2023 related to shares withheld upon vesting of restricted stock units for tax withholding obligations:
| Date | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under Program | ||||||||||||||||||||||
| July 2023 | 279 | $ | 101.66 | — | — | |||||||||||||||||||||
| August 2023 | 906 | 106.06 | — | — | ||||||||||||||||||||||
| September 2023 | 7,787 | 110.38 | — | — | ||||||||||||||||||||||
| Total | 8,972 | $ | 109.67 | — | — | |||||||||||||||||||||
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(1) Total number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of stock-based compensation awards.
Item 5. Other Information
Director and Officer Trading Arrangements
During the three months ended September 30, 2023, no director or officer of the Company, other than what has been set forth immediately above, adopted , modified or terminated
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Item 6. Exhibits
The following exhibits are being filed herewith or incorporated by reference herein:
Exhibit Number | Description | |||||||
4.1 | Indenture, dated August 17, 2023, between Workiva Inc. and U.S. Bank Trust Company, National Association, incorporated by reference from Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August 17 2023. | |||||||
4.2 | Form of 1.250% Convertible Senior Note due 2028, incorporated by reference from Exhibit 4.2 to the Company's Current Report on Form 8-K filed on August 17, 2023. | |||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 101 | The following financial information from Workiva Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Loss, (iv) the Consolidated Statements of Changes in Stockholders Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 30th day of October, 2023.
WORKIVA INC. | |||||
By: | /s/ Julie Iskow | ||||
Name: | Julie Iskow | ||||
Title: | President and Chief Executive Officer | ||||
By: | /s/ Jill Klindt | ||||
Name: | Jill Klindt | ||||
Title: | Executive Vice President, Chief Financial Officer and Treasurer | ||||
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