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Workiva (WK) Beats on Q3 Earnings, Wdesk Adoption Strong


Workiva Inc. WK reported impressive third-quarter 2017 results. The company is benefiting from expanding clientele driven by robust adoption of Wdesk solution.

Workiva had 2,991 customers as of Sep 30, 2017, up from 295 customers as of Sep 30, 2016 and 83 customers at the end of second-quarter 2017.

Moreover, Workiva's revenue-retention rate (excluding add-on revenues) was 96.5%. Including add-on revenues, retention rate was 108.6% as of Sep 30.

Additionally, the company’s penetration into existing customer base with new use cases in finance and accounting, SOX and internal controls, audit, risk, compliance and management and performance reporting is a key catalyst.

Management noted that continuing investment in its platform, user management and sales & marketing is driving growth. Moreover, integration with more than 100 Cloud, Software-as-a-Service (SaaS) and on-premise applications, including Oracle ORCL ERP Cloud, has expanded its total addressable market (TAM) to $16.2 billion.

The stock has returned 64.4% year to date, substantially outperforming the 30% rally of the industry.

Quarter Details

Workiva reported loss of 23 cents per share in the third quarter, which was narrower than the Zacks Consensus Estimate of a loss of 29 cents and unchanged from the year-ago quarter’s figure.

Workiva Inc. Price, Consensus and EPS Surprise

Workiva Inc. Price, Consensus and EPS Surprise | Workiva Inc. Quote

The narrower loss can be attributed to 16.5% growth in revenues, which totaled $52.1 million, slightly better than the Zacks Consensus Estimate.

Subscription and support (S&S) revenues (82.7% of total revenue) increased 19.3% to $43.2 million. Almost 48% of the S&S revenue growth came from new customers, added in the last 12 months. The remaining 52% of the increase came from deeper penetration of the company’s products into existing customer base.

S&S revenue retention rate excluding add-ons was 95.4% at the end of the reported quarter, as compared with 95.8% at the end of the year-ago quarter.

Professional services (17.3% of total revenues) revenues were up 4.5% to $8.9 million. Management stated that revenues were roughly 500K higher than expectation, as some projects, which were anticipated to complete in the fourth quarter, closed in the reported quarter.

Operating Details

Non-GAAP gross margin contracted 140 basis points (bps) from the year-ago quarter to 70.6%.

S&S gross margin contracted 100 bps to 80.9%. This was primarily due to an increase in employee headcount and compensation to support initiatives in new markets. Professional services gross margin was 20.4%, down from 29.9% in the year-ago quarter.

Operating expenses increased 12.3% year over year to $50.2 million. Research & development (R&D) expenses, sales & marketing (S&M) expenses and general & administrative (G&A) expenses increased 22.2%, 6.1% and 11.8%, respectively.

The higher operating expenses reflected increases in compensation, travel and consulting expenses and continuing investment on developing the platform.

Operating loss was $9.1 million, unchanged from the year-ago loss figure.

Balance Sheet & Cash Flow

Workiva exited the quarter with cash and cash equivalents of $77.8 million, an increase of $4.9 million from the previous quarter. Net cash provided by operating activities was $5.2 million, compared with cash provided of $2.8 million in the year-ago quarter.


Workiva expects subscription revenues growth rate to continue to outpace the growth of services revenues in the current quarter and into 2018.

For fourth-quarter 2017, total revenues are anticipated between $53 million and $53.4 million. Non-GAAP operating loss is expected in the range of $8.8-$9.2 million.

Workiva expects negative operating cash flow in the fourth quarter due to the timing of the payment of certain annual cash bonuses.

Non-GAAP net loss is expected in the range of 22-23 cents per share.

For 2017, Workiva forecasts total revenues between $206.4 million and $206.8 million. Non-GAAP operating loss is expected in the range of $25.2-$25.6 million.

Non-GAAP net loss is expected in the range of 63-64 per share.

Workiva expects to post positive operating cash flow in 2017.

Zacks Rank & Key Picks

Workiva carries a Zacks Rank #3 (Hold).

Twitter Inc. TWTR and Adobe Systems Incorporated ADBE are a couple of better-ranked stocks in the broader sector. Both stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Twitter and Adobe are pegged at 21.5% and 17%, respectively.

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