WORKIVA INC — Annual Report (ESEF) 2020

Feb 17, 2021

WORKIVA INC.

Consolidated Statements of Operations

For the Years Ended December 31, 2020, 2019 and 2018
(In thousands, except share and per share data)

REVENUES	2020	2019	2018
Subscription revenue	$314,304	$274,857	$222,049
Professional services revenue	47,698	49,251	40,452
Total revenues	362,002	324,108	262,501
COST OF REVENUES
Cost of subscription revenue	70,454	59,944	50,504
Cost of professional services revenue	36,880	40,315	31,740
Total cost of revenues	107,334	100,259	82,244
GROSS PROFIT	254,668	223,849	180,257
OPERATING EXPENSES
Sales and marketing	141,533	136,230	111,735
Product development and amortization	67,692	58,636	51,986
General and administrative	45,099	42,242	34,517
Total operating expenses	254,324	237,108	198,238
INCOME (LOSS) FROM OPERATIONS	344	17,741	(17,981)
Interest expense	(3,216)	(3,247)	(3,280)
Other income (expense), net	527	757	1,132
INCOME (LOSS) BEFORE INCOME TAXES	(2,345)	15,251	(19,129)
Income tax expense (benefit)	108	2,547	(1,575)
NET INCOME (LOSS)	(2,453)	12,704	(17,554)
Net income (loss) attributable to controlling interest	(2,453)	12,704	(17,554)
Net income (loss) attributable to noncontrolling interests	—	—	—
NET INCOME (LOSS)	(2,453)	12,704	(17,554)
Earnings (loss) per share:
Basic	(0.02)	0.11	(0.16)
Diluted	(0.02)	0.10	(0.16)
Weighted-average shares outstanding:
Basic	113,759,783	113,472,837	112,820,457
Diluted	113,759,783	114,047,444	112,820,457

Consolidated Balance Sheets

December 31, 2020 and 2019
(In thousands)

	December 31, 2020	December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$68,239	$74,644
Accounts receivable, net of allowance for doubtful accounts of $1,489 and $1,200 at December 31, 2020 and 2019, respectively	61,250	58,808
Prepaid expenses and other current assets	15,359	15,744
Total current assets	144,848	149,196
Non-current assets:
Property and equipment, net	43,587	37,518
Operating lease right-of-use assets, net	23,000	22,204
Intangible assets, net of accumulated amortization of $12,751 and $9,457 at December 31, 2020 and 2019, respectively	32,154	35,450
Goodwill	39,482	39,482
Other non-current assets	10,822	6,950
Total non-current assets	149,045	141,604
Total assets	$293,893	$290,800
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$13,564	$12,890
Accrued expenses and other current liabilities	30,545	29,651
Deferred revenue, current portion	52,314	50,403
Operating lease liabilities, current portion	5,485	5,262
Total current liabilities	101,908	98,206
Non-current liabilities:
Long-term debt, net of debt issuance costs	86,573	87,073
Deferred revenue, non-current portion	10,443	9,566
Deferred income taxes, net	1,771	1,137
Operating lease liabilities, non-current portion	18,077	17,353
Other non-current liabilities	4,842	4,940
Total non-current liabilities	121,706	120,069
Total liabilities	223,614	218,275
Equity:
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.0001 par value, 200,000,000 shares authorized, 115,228,643 and 115,084,021 shares issued and outstanding at December 31, 2020 and 2019, respectively	12	12
Additional paid-in capital	353,081	351,192
Accumulated deficit	(181,805)	(179,352)
Accumulated other comprehensive income (loss)	16	18
Total stockholders’ equity	171,204	171,870
Noncontrolling interests	—	—
Total equity	171,204	171,870
Total liabilities and equity	$293,893	$290,800

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2020, 2019 and 2018
(In thousands)

	2020	2019	2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$(2,453)$	$12,704$	$(17,554)$
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	23,139	21,428	17,612
Amortization of intangible assets	3,304	3,220	2,503
Stock-based compensation expense	13,877	13,177	11,331
Provision for doubtful accounts	289	200	351
Changes in operating assets and liabilities:
Accounts receivable	(2,442)	(7,559)	(10,852)
Prepaid expenses and other current assets	385	(2,606)	(2,205)
Accounts payable	674	1,071	2,343
Accrued expenses and other current liabilities	894	4,938	1,594
Deferred revenue	6,386	7,414	4,186
Other non-current assets	(3,872)	(2,141)	(3,236)
Other non-current liabilities	(98)	1,221	813
Net cash provided by (used in) operating activities	33,075	50,647	(3,632)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment	(8,983)	(7,391)	(7,503)
Purchases of intangible assets	(113)	(38)	(57)
Net cash used in investing activities	(9,096)	(7,429)	(7,560)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt	—	—	7,500
Repayments of long-term debt	(500)	(500)	(500)
Payments related to debt issuance costs	—	—	(59)
Repurchases of common stock	—	—	(14,000)
Net cash provided by (used in) financing activities	(500)	(500)	(7,059)
Effect of exchange rate changes on cash and cash equivalents	132	(85)	(159)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	23,611	42,633	(18,351)
Cash and cash equivalents at beginning of year	74,644	32,011	50,362
Cash and cash equivalents at end of year	$68,239	$74,644	$32,011

Consolidated Statements of Stockholders’ Equity

For the Years Ended December 31, 2020, 2019 and 2018
(In thousands, except share data)

	Common Stock	Additional Paid-in Capital	Accumulated Deficit	Accumulated Other Comprehensive Income (Loss)	Total Stockholders’ Equity
Balance at December 31, 2017	$11,216	$291,348	$(161,998)	$24	$140,590
Stock-based compensation	—	11,331	—	—	11,331
Exercise of stock options	56	4,723	—	—	4,779
Repurchases of common stock	—	—	—	—	(14,000)
Net loss	—	—	(17,554)	—	(17,554)
Other comprehensive loss	—	—	—	(5)	(5)
Balance at December 31, 2018	11,272	307,402	(179,552)	19	139,141
Stock-based compensation	—	13,177	—	—	13,177
Exercise of stock options	126	7,756	—	—	7,882
Net income	—	—	12,704	—	12,704
Other comprehensive loss	—	—	—	(1)	(1)
Balance at December 31, 2019	11,398	328,335	(166,848)	18	172,803
Stock-based compensation	—	13,877	—	—	13,877
Exercise of stock options	14	2,001	—	—	2,015
Net loss	—	—	(2,453)	—	(2,453)
Other comprehensive loss	—	—	—	(2)	(2)
Balance at December 31, 2020	$11,412	$344,213	$(169,301)	$16	$186,340

The accompanying notes are an integral part of these consolidated financial statements.

Notes to Consolidated Financial Statements

1. Organization and Basis of Presentation

Workiva Inc. (the “Company”) was incorporated in Delaware in 2008. The Company is a leading provider of reporting and compliance software solutions. Our solutions enable organizations to solve complex challenges in financial reporting, regulatory filing, environmental, social, and governance (ESG) reporting, and other types of business reporting. We provide a cloud-based platform that integrates data, documents, and teams to help companies manage and report on their business information.

The consolidated financial statements include the accounts of Workiva Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

The Company has a fiscal year end of December 31.

2. Summary of Significant Accounting Policies

Revenue Recognition

We recognize revenue from the sale of subscriptions for our cloud-based platform and professional services related to the implementation and training of our solutions. Our revenue recognition policy is in accordance with ASC 606, Revenue from Contracts with Customers.

• Subscription Revenue: Subscription revenue is recognized ratably over the contract term, which is typically one to three years. We recognize revenue over time as the customer receives and consumes the benefits of the subscription. The transaction price for subscription contracts is allocated to the distinct performance obligations.
• Professional Services Revenue: Professional services revenue includes implementation, training, and other consulting services. Revenue for these services is recognized as the services are performed, typically based on the achievement of milestones or upon completion of the services.

We assess whether contracts contain distinct performance obligations and determine the standalone selling price for each performance obligation. The transaction price is then allocated to each performance obligation based on relative standalone selling prices.

Deferred Revenue

Deferred revenue represents amounts billed to customers for subscriptions that have not yet been recognized as revenue. This is recognized as revenue over the subscription term.

Stock-Based Compensation

We account for stock-based compensation awards granted to employees and directors in accordance with ASC 718, Compensation—Stock Compensation. Stock-based awards are measured at the grant-date fair value and recognized as compensation expense over the requisite service period.

Estimates and Assumptions

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Concentration of Credit Risk

Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. We place our cash and cash equivalents with high-credit-quality financial institutions. Our accounts receivable are typically from a large number of customers, and we have not historically experienced significant credit losses. We maintain an allowance for doubtful accounts based on historical experience and our assessment of the collectibility of our accounts receivable.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is recognized using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Amortization of leasehold improvements is recognized over the shorter of the lease term or the estimated useful life of the improvements.

Intangible Assets

Intangible assets, primarily consisting of acquired technology and customer relationships, are stated at cost less accumulated amortization. Amortization is recognized using the straight-line method over the estimated useful lives of the assets, which range from three to ten years. We review intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations. Goodwill is not amortized but is tested for impairment annually, or more frequently if events or changes in circumstances indicate that its fair value may be less than its carrying amount.

Income Taxes

We account for income taxes under the asset and liability method in accordance with ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Derivative Financial Instruments

We do not currently enter into derivative financial instruments for hedging purposes.

Earnings Per Share

Basic earnings per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding, assuming dilution from all potentially dilutive common stock equivalents, such as stock options and restricted stock awards.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their fair values due to their short maturities. The fair value of our long-term debt is estimated based on observable market prices or quoted market prices for similar instruments.

Leases

We determine whether an arrangement is a lease at inception. Operating lease assets and liabilities are recognized at the commencement date based on the future minimum lease payments under the lease, discounted at the rate implicit in the lease or our incremental borrowing rate. Operating lease right-of-use assets represent our right to use the leased asset for the lease term, and operating lease liabilities represent our obligation to make lease payments.

3. Revenue Recognition

Our revenue is primarily derived from subscription agreements for our cloud-based platform and associated professional services.

Subscription Revenue: Subscription revenue is recognized on a straight-line basis over the contractual term of the subscription. We generally bill our customers in advance on a quarterly or annual basis.

Professional Services Revenue: Revenue from professional services is recognized as the services are performed and the related costs are incurred. This includes implementation, training, and consulting services.

Deferred Revenue: Deferred revenue consists of unearned revenue from subscription agreements and customer deposits for professional services. Amounts billed in advance are recorded as deferred revenue and recognized as revenue over the service period.

4. Stock-Based Compensation

We have a stock-based compensation plan under which we grant stock options and restricted stock awards to our employees and directors.

The following table summarizes our stock-based compensation expense for the years ended December 31:

	2020	2019	2018
Stock-based compensation expense	$13,877	$13,177	$11,331

The weighted-average grant-date fair value of stock options granted was $27.68, $20.12, and $16.50 for 2020, 2019, and 2018, respectively.

The estimated fair value of restricted stock awards granted was $27.68, $20.12, and $16.50 in 2020, 2019, and 2018, respectively.

5. Earnings Per Share

The following table presents the calculation of basic and diluted earnings per share for the years ended December 31:

	2020	2019	2018
Net income (loss) attributable to common stockholders	$(2,453)$	$12,704$	$(17,554)$
Weighted-average shares outstanding - basic	113,759,783	113,472,837	112,820,457
Basic earnings (loss) per share	$(0.02)	$0.11	$(0.16)
Weighted-average shares outstanding - diluted	113,759,783	114,047,444	112,820,457
Diluted earnings per share	$(0.02)	$0.10	$(0.16)

Potentially dilutive securities excluded from the calculation of diluted earnings per share because their inclusion would be anti-dilutive were:

	2020	2019	2018
Stock options	5,457,102	5,021,044	3,937,461
Restricted stock awards	1,502,679	1,602,097	1,364,269

6. Long-Term Debt

As of December 31, 2020 and 2019, our long-term debt consisted of:

	December 31, 2020	December 31, 2019
Promissory note	$90,000,000	$90,000,000
Less: Debt issuance costs, net	(3,427)	(2,927)
Total long-term debt, net	$86,573	$87,073

In January 2018, the Company entered into a credit agreement with a financial institution for a $30,000,000 term loan. In November 2019, the Company entered into a new credit agreement with a financial institution for a $90,000,000 term loan. The term loan is scheduled to mature on November 18, 2024.

The Company is required to make quarterly principal payments on the term loan. The remaining principal balance as of December 31, 2020 is $90,000,000.

7. Commitments and Contingencies

Legal Proceedings: We are involved in various legal proceedings from time to time. We assess our legal obligations and accrue for losses that are probable and reasonably estimable. As of December 31, 2020, we are not aware of any pending legal proceedings that we believe will have a material adverse effect on our financial condition or results of operations.

Operating Leases: We lease office space and equipment under various non-cancelable operating lease agreements. Future minimum rental payments under non-cancelable operating leases as of December 31, 2020 are as follows:

	Amount
2021	$7,030,000
2022	$6,600,000
2023	$5,950,000
2024	$5,600,000
2025	$4,000,000
Thereafter	$4,500,000
Total minimum lease payments	$33,680,000

8. Subsequent Events

The Company has evaluated subsequent events through February 17, 2021, the date these consolidated financial statements were filed.

There were no material events or transactions during this period that required recognition or disclosure in the consolidated financial statements.# DOCUMENT

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