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Workiva's Growth Picks Up, but Losses Grow

Enterprise software provider Workiva (NYSE: WK) reported its third-quarter results after the market closed on Nov. 7. Revenue growth picked up a bit compared to the second quarter, but rising costs drove the company's losses higher. Workiva's push to win enterprisewide contracts for its Wdesk platform is slowing down growth, but the company sees its product as unique among competitors with narrower focuses. Here's what investors need to know about Workiva's third-quarter results.

Workiva results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$52.1 million

$44.7 million

16.5%

Net income

($14.1 million)

($12.9 million)

N/A

Non-GAAP earnings per share

($0.23)

($0.23)

N/A

Data source: Workiva.

Image source: Workiva.

What happened with Workiva this quarter?

  • Subscription and support revenue increased by 19.3% year over year to $43.2 million, while professional services revenue rose 4.5% to $8.9 million.
  • Workiva had 2,991 customers at the end of the third quarter, up 295 in the past year, and up 83 since the end of the second quarter.
  • Workiva's revenue retention rate was 96.5% excluding add-on revenue, and 108.6% including add-on revenue. This compares to 96.1% and 106%, respectively, during the second quarter. Change in seats purchased and seat prices for existing customers is considered add-on revenue.
  • GAAP operating expenses increased by 16.7% year over year to $50.2 million, with research and development spending soaring 22.2% to $17.5 million.
  • Operating cash flow was $5.2 million, up from $2.8 million in the prior-year period.

Workiva provided the following guidance for the fourth quarter and the full year:

  • Fourth-quarter revenue is expected between $53 million and $53.4 million, up from $46.4 million in the fourth quarter of last year.
  • Fourth-quarter non-GAAP net loss is expected between $0.22 and $0.23 per share.
  • Full-year revenue is expected between $206.4 million and $206.8 million, up from $178.6 million in 2016.
  • Full-year non-GAAP net loss is expected between $0.63 and $0.64 per share.

What management had to say

CEO Matthew Rizai gave a few examples during the conference call of how its customers are using Wdesk:

A large regional bank is using Wdesk for its call reports which are quarterly filings required by the FDIC. A large sporting-goods company is now using Wdesk for corporate performance management. The company will use Wdesk to consolidate spreadsheets into a linked workbook, thereby reducing manual data entry. The treasury department of a private electrical products manufacturer is using Wdesk for debt compliance reporting.

President and COO Martin Vanderploeg commented on the uniqueness of the company's approach: "We're not seeing any competition that's building a generalized platform like we are for the CFO office, as Stuart talked about. In some of the use case areas where our platform is being used for, we see competitors traditional on-premise and we see some new cloud competitors, but we have yet to see anybody developing a platform remotely similar to ours."

Looking forward

Workiva's operating expenses rose faster than revenue during the third quarter, pushing the bottom line deeper into the red. Much of that increase was due to R&D, with sales and marketing spending up just 6% year over year. For the first nine months of 2017, sales and marketing spending was down slightly, driven in part by Workiva's strategy of forming partnerships.

The company's guidance calls for similar growth, and similar losses, during the fourth quarter. Workiva's platform strategy differentiates it from its competitors, but it's led to slower growth. The company is hoping that this platform push pays off in the long run.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool recommends Workiva. The Motley Fool has a disclosure policy.