Customer Success. Our customer success managersteam partners with users of our platform to learnunderstand their business objectives and collaborate. TEC isoffers best practices in the use of our largest user event each yearsoftware. We deliver 24/7 live customer support via phone, digital messaging and features sessions with industry leaders, business networking events and opportunitiesweb-based conferencing. We provide intensive training to share product ideas as well as train our customers and educate our prospects on new ways to use Wdesk.Executing digital and print campaigns through advertising, e-mails and direct marketing.Creating sales tools and field marketing events to support our sales organization to more effectively convert leads into customers.
Professional Services and Customer Success
We believe our professional services and customer success teams are essential contributors to our long-term successteam and differentiate our service from our competitors.segment them for each solution and market focus.
Professional Services. Professional ServicesOur professional services include initial setup of documents; XBRL mapping, tagging and review; best practices implementation; and business process consulting. Our XBRL team is primarily composed of people with accounting orand financial reporting experience who work with our customers to performprofessionals provide XBRL mapping, tagging and review services.services to our customers. We also employ a team of Solution Architectsconsultants who offer consulting services to customers to improve and streamline their Wdesk-related businessWorkiva-related data processes.
Customer Success. Our Customer Success teams support our users with in-depth knowledge and continuity for each customer’s Wdesk usage. Our Customer Success Managers (CSMs) provide 24/7 live customer support via phone, digital messaging and web-based conferencing. We provide intensive training to our CSMs and segment them for each solution and market focus. We have an in-house, e-learning curriculum called “The Learn Center” for Professional Services and CSMs to continue to develop skills related to Wdesk products, key markets and solution areas, management and compliance. The Learn Center also helps our employees stay current with industry and technology issues. In addition, we pay for employees to maintain professional certifications and licenses that are important to our customers, and we host regular company-wide employee education sessions on business, industry, technology and workplace topics.
Intellectual Property
Our intellectual property and proprietary rights are important to our business. To safeguard these rights, we rely on a combination of patent, trademark, copyright and trade secret laws and contractual protections in the United States and other jurisdictions.
As of December 31, 2017,2022, we had 3068 issued patents and 1916 patent applications pending in the United States relating to our platform. We cannot assure you that any of our patent applications will result in the issuance of a patent or whether the examination process will require us to narrow or otherwise limit our claims. Any patents issued may be contested, designed around, found unenforceable, or invalidated, and we may not be able to prevent third parties from infringing them. We also license software from third parties for integration into our solutions, including open source software and other software available on commercially reasonable terms. We cannot assure you that such third parties will maintain such software or continue to make it available.
We control access to and use of our proprietary software and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, end-customers, and partners, and our software is protected by U.S. and international copyright laws. Despite our efforts to protect our trade secrets and proprietary rights through intellectual property rights, licenses, and confidentiality agreements, unauthorized parties may still copy or otherwise obtain and use our software and technology. In addition, we intend to expand our international operations, and effective patent, copyright, trademark, and trade-secret protection may not be available or may be limited in foreign countries.
If we continue to be successful, we believe that competitors will be more likely to try to develop solutions and services that are similar to ours and that may infringe our proprietary rights. It may also be more likely that competitors or other third parties will claim that our platform infringes upon their proprietary rights.
Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other intellectual property rights. In particular, leading companies in the enterprise software industry have extensive patent portfolios and are regularly involved in both offensive and defensive litigation. From time to time, third parties, including certain of these leading companies, may assert claims of infringement, misappropriation or other violations of intellectual property rights against us, and our standard license and other agreements obligate us to indemnify our customers against such claims. Successful claims of infringement by a third party could prevent us from distributing certain solutions or performing certain services, require us to expend time and money to develop non-infringing solutions, or force us to pay substantial damages (including enhanced damages if we are found to have willfully infringed patents or copyrights), royalties or other fees. In addition, to the extent that we gain greater visibility and market exposure as a public company, we face a higher risk of being the subject of intellectual property infringement claims from third parties. We cannot assure you that we do not currently infringe, or that we will not in the future infringe, upon any third-party patents, copyrights or other proprietary rights.
We have registered a number of trademarks and logos, including "Workiva"“Workiva,” “Wdesk” and "Wdesk,"“Wdata” with the United States Patent and Trademark Office and in several jurisdictions outside the United States. We have also registered other trademarks in the United States and in other jurisdictions outside the United States. In addition, we intend to expand our international operations, and we cannot assure you that these names will be available for use in all such jurisdictions.
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. 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.
EmployeesGovernment Regulations
We believe that our businesses and operations are in substantial compliance with all applicable government laws and regulations. Any additional measures to maintain compliance are not expected to materially affect our capital expenditures, competitive position, financial position or results of operations. Various legislative and administrative regulations applicable to us have become effective or are under consideration in many parts of the world. To date, such developments have not had a substantial adverse impact on our revenues, earnings or cash flows. However, if new or amended laws or regulations impose significant operational restrictions and compliance requirements upon us or our business, our capital expenditures, results of operations, financial condition and competitive position could be negatively impacted. Refer to Item 1A. Risk Factors for further information.
Corporate ESG Commitments
We believe society expects more from the business community: authenticity, trust, truth, and transparency. These expectations lie at the heart of what Workiva does for customers and ourselves. We are committing to ESG through authentic and purposeful action—supporting our people and customers, protecting the environment, and conducting good business practices. When it comes to our company’s ESG responsibilities, Workiva tracks a course for consistent progress and excellence. We’ve established a guiding ESG strategy to ensure that we advance trust and belonging in our workforce and industry, stand for truth in our customer and partner interactions and in marketing practices, and stay consistently transparent about our impact with society and our employees across our value chain.
Workiva’s ESG strategy includes a robust governance structure with oversight by and accountability to the Nomination and Governance Committee of the company’s board of directors. Additionally, as part of our strategy, we have created a materiality approach, a stakeholder engagement process, an ESG Task Force led by our CFO to ensure forward progress of our ESG goals, and committed to alignment with the United Nations Sustainable Development Goals (“UN SDGs”) and the Task Force on Climate-Related Disclosures (“TFCD”). Workiva was the first SaaS company to join the United Nations’ CFO Coalition for the SDGs, where we work alongside other global CFOs to guide companies in aligning their sustainability commitments with credible corporate finance strategies to create real world impact. To learn more about Workiva’s ESG efforts, track our progress in developing forward-looking commitments and key performance indicators, go to https://www.workiva.com/about/our-sustainability.
Human Capital
Workiva is a great place to work and has trusted and equipped our employees to work from wherever and whenever is best for them. We have been on the Fortune 100 Best Companies to Work For® list since 2019 and attribute our success to our values-based culture. Our employee engagement rate is 93% and we have an employee attrition rate of 19% which is lower than the industry average. Workiva offers market-competitive compensation and benefits to attract and retain the best employees.
By staying true to our company values, we have become a stronger and even more innovative team. As of December 31, 2017, we had 1,3182022, Workiva employed 2,447 full-time employees.people worldwide. Our headcount as of December 31, 20172022 increased 12.5%16.2% from our headcount2,106 full-time employees as of December 31, 2016. 2021.
Innovation thrives when people feel welcomed, valued, respected, and heard. Diversity, equity and inclusion are core values at Workiva, and an important component of our social commitment in our ESG strategy. We strive to create a workplace where everyone is comfortable bringing their best, authentic self to work every day. As we scale, we know that continuing to develop our workforce is essential to our growth.
Workiva fosters a work environment that encourages fairness, teamwork, and respect among all employees. We value all backgrounds, beliefs and interests, and we recognize this diversity as an important source of our innovation and success. We believe that our culture of diversity, equity and inclusion increases employee engagement, empowerment, and satisfaction. As of December 31, 2022, women represented 40% of our global workforce and 34% of our leadership (director and above). As of December 31, 2022, 20% of our U.S. employees and 15% of our U.S. leadership (director and above) were from underrepresented racial/ethnic groups. Increasing diversity in our workforce and key operational leadership roles will remain an organizational priority.Current key initiatives include Business Employee Resource Groups (“BERG”), learning and development and talent acquisition. The Company maintains its BERG chapters globally across seven communities: Asian, Black, Disabilities, Hispanic & Latino, LGBTQ+, Veterans, and Women. Each BERG is sponsored and supported by senior leaders across the enterprise.
The health and safety of our colleagues and anyone who enters our workplace around the world is of paramount importance to Workiva. Workiva offers mental health benefits and offers extra paid mental wellness days to all employees worldwide.
None of our U.S. employees isare represented by a labor organization or isare a party to any collective bargaining arrangement. We have never experienced a strike or similar work stoppage, and we consider our relations with our employees to be good. For the fiscal year ended December 31, 2022, employee compensation and benefits accounted for approximately 80% of our total operating expense.
Corporate Information
We were formed in California in August 2008 as WebFilings LLC. In July 2014, we changed our name to Workiva LLC, and we converted into a Delaware limited liability company in September 2014. On December 10, 2014, Workiva LLC was converted intoInc. is a Delaware corporation and renamed Workiva Inc. Ourwith principal executive offices are located at 2900 University Boulevard, Ames, Iowa 50010, and our50010. Our telephone number is (888) 275-3125. Our275-3125 and our website address is www.workiva.com.
Copies of annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) and 15(d) of the Securities Exchange Act, of 1934, as amended (the Exchange Act), are available, free of charge, on our website as soon as reasonably practicable after we file such material electronically with or furnish it to the SEC. The SEC also maintains a website that contains our SEC filings. The address of the site is www.sec.gov.
Item 1A. Risk Factors
Our operations and financial results are subject to various risks and uncertainties, including those described below. You should carefully consider the following risks and all of the other information contained in this report, including our consolidated financial statements and related notes, before investing in any of our securities. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks, or other risks and uncertainties that are not yet identified or that we currently think are immaterial, actually occur, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the market price of our Class A common stock could decline. We may amend, supplement or add to the risk factors described below from time to time in future reports filed with the SEC.
Summary of Risk Factors
We are providing the following summary of the risk factors contained in this Form 10-K to enhance the readabilityand accessibility of our risk factor disclosures. We encourage our stockholders to carefully review the full risk factors contained in this Form 10-K in their entirety for additional information regarding the risks and uncertainties that could cause our actual results to vary materially from recent results or from our anticipated future results.
Risks Related to Our Business and Industry
•We havederive a limited operating history, which makes it difficultmajority of our total revenue from customers using our platform for SEC filings.
•We cannot accurately predict subscription renewal or upgrade rates.
•Failure to predictmanage our growth may adversely affect our business or operations.
•Our revenue growth rate in recent periods may not be indicative of our future operating results.performance.
We were founded in 2008 and have a limited operating history. We began offering our first solution in 2010 and launched Wdesk in 2013. As a result of our brief operating history, our ability to forecast our future operating results is limited and subject to a number of uncertainties, including our ability to plan for and model future growth. We have encountered and will encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described herein. If our assumptions regarding these risks and uncertainties (which we use to plan our business) are incorrect or change due to changes in our markets, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations and our business could suffer.
•We have not been profitable historically and may not achieve or maintain profitability in the future.
We have posted a net loss in each fiscal year since we began operations in 2008, including net losses of approximately $44.4 million in fiscal 2017, $44.0 million in fiscal 2016 and $43.4 million in fiscal 2015. While we have experienced continued revenue growth in recent periods, we are not certain whether or when we will obtain a high enough volume of subscriptions to sustain or increase our growth or achieve or maintain profitability in the future. In addition, we plan to continue to invest in our infrastructure, new solutions, research and development and sales and marketing, and as a result, we cannot assure you that we will achieve or maintain profitability. Because we intend to continue spending in anticipation of the revenue we expect to receive from these efforts, our expenses will be greater than the expenses we would incur if we developed our business more slowly. In addition, we may find that these efforts are more expensive than we currently anticipate, which would further impact our profitability.
We may incur losses in the future for a number of reasons, including the other risks and uncertainties described in this annual report. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays and other unknown factors that may result in losses in future periods. If our revenue growth does not meet our expectations in future periods, our financial performance may be harmed, and we may not achieve or maintain profitability in the future.
Our revenue growth rate in recent periods may not be indicative of our future performance.
We experienced revenue growth rates of 16%, 23% and 29% in fiscal 2017, 2016 and 2015, respectively. Our historical revenue growth rates are not indicative of future growth, and we may not achieve similar revenue growth rates in future periods. You should not rely on our revenue or revenue growth for any prior quarterly or annual periods as any indication of our future revenue or revenue
growth. If we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability.
Failure to manage our growth may adversely affect our business or operations.
Since 2010, we have experienced significant growth in our business, customer base, employee headcount and operations, and we expect to continue to grow our business over the next several years. This growth places a significant strain on our management team and employees and on our operating and financial systems. To manage our future growth we must continue to scale our business functions, improve our financial and management controls and our reporting systems and procedures and expand and train our work force. In particular, we grew from 109 employees as of December 31, 2010 to more than 1,300 employees as of December 31, 2017. We anticipate that additional investments in sales personnel, infrastructure and research and development spending will be required to:
scale our operations and increase productivity;address the needs of our customers;further develop and enhance our existing solutions and offerings;develop new technology; andexpand our markets and opportunity under management, including into new solutions and geographic areas.
We cannot assure you that our controls, systems and procedures will be adequate to support our future operations or that we will be able to manage our growth effectively. We also cannot assure you that we will be able to continue to expand our market presence in the United States and other current markets or successfully establish our presence in other markets. Failure to effectively manage growth could result in difficulty or delays in deploying customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing new features or other operational difficulties, and any of these difficulties could adversely impact our business performance and results of operations.
Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our quarterly results of operations, including the levels of our revenue, gross margin, profitability, cash flow and deferred revenue, may vary significantly in the future, and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, and therefore, may not fully reflect the underlying performance of our business. Fluctuations in quarterly results may negatively impact the value of our Class A common stock. Factors that may cause fluctuations in our quarterly financial results include, without limitation, those listed below:
our ability to attract new customers in multiple regions around the world;the addition or loss of large customers, including through acquisitions or consolidations;the timing of recognition of revenue;the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure;network outages, security breaches, technical difficulties or interruptions with our services;general economic, industry and market conditions;
customer renewal rates and the extent to which customers subscribe for additional seats or solutions;pricing changes upon any renewals of customer agreements;changes in our pricing policies or those of our competitors;the mix of solutions sold during a period;seasonal variations in sales of our solutions;seasonal variations in the delivery of our services;the timing and success of new product and service introductions by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers or strategic partners;the announcement or adoption of new regulations and policy mandates or changes to existing regulations and policy mandates;changes in foreign currency exchange rates;future accounting pronouncements or changes in our accounting policies;general economic conditions, both domestically and in the foreign markets in which we sell our solutions;the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies; andunforeseen litigation and intellectual property infringement.
We derive a majority of our revenue from customers using our Wdesk platform for SEC filings. Our efforts to continue to increase use of our Wdesk platform in other applications may not succeed and may reduce our revenue growth rate.significantly.
We derive a majority of our revenue from customers using our Wdesk platform for SEC filings. We began our sales and marketing of Wdesk for regulatory risk, SOX, enterprise risk management and audit management relatively recently. While non-SEC use cases generated approximately half of our total booking in 2017, it is uncertain whether these non-SEC use cases will achieve the level of market acceptance we have achieved in the SEC filing market. Further, the introduction of new solutions beyond these markets may not be successful. Because it is our policy not to view actual customer data unless specifically invited by a customer to do so, we are unable to determine with any certainty how customers are using our platform and may not be able to determine with certainty the extent to which our new solutions are being utilized by customers. Any factor adversely affecting sales of our platform or solutions, including release cycles, market acceptance, competition, performance and reliability, reputation and economic and market conditions, could adversely affect our business and operating results.
•Our solutions face intense competition in the marketplace. If we are unable to compete effectively, our operating results could be adversely affected.
The market for our solutions is increasingly competitive, rapidly evolving and fragmented, and is subject to changing technology and shifting customer needs. Although we believe that our Wdesk platform and the solutions that it offers are unique, many vendors develop and market products and services that compete to varying extents with our offerings, and we expect competition in our market to continue to intensify. Moreover, industry consolidation may increase competition. In addition, many companies have chosen to invest in their own internal reporting solutions and therefore may be reluctant to switch to solutions such as ours.
•
We compete with many types of companies, including diversified enterprise software providers; providers of professional services, such as consultants and business and financial printers; governance, risk and compliance software providers; and business intelligence/corporate performance management software providers. Many of our existing competitors, as well as a number of potential new competitors, have longer operating histories, greater name recognition, more established customer bases and significantly greater financial, technical, marketing and other resources than we do. As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. We could lose customers if our competitors introduce new competitive products, add new features, acquire competitive products, reduce prices, form strategic alliances with other companies or are acquired by third parties with greater available resources. We also face competition from a variety of vendors of cloud-based and on-premise software applications that address only a portion of one of our solutions. We may also face increasing competition from open source software initiatives, in which competitors may provide software and intellectual property for free. In addition, if a prospective customer is currently using a competing solution, the customer may be unwilling to switch to our solutions without access to setup support services. If we are unable to provide those services on terms attractive to the customer, the prospective customer may be unwilling to utilize our solutions. If our competitors’ products, services or technologies become more accepted than our solutions, if they are successful in bringing their products or services to market earlier than ours, or if their products or services are more technologically capable than ours, then our revenue could be adversely affected. In addition, some of our competitors may offer their products and services at a lower price. If we are unable to achieve our target pricing levels, our operating results would be negatively affected. Pricing pressures and increased competition could result in reduced sales, reduced margins, losses or a failure to maintain or improve our competitive market position, any of which would adversely affect our business.
Our revenue growth will depend in part on the success of our efforts to augment our direct-sales channels by developing relationships with third parties.
Prior•Adverse economic conditions or reduced technology spending may adversely impact our business.
•If we cannot maintain our corporate culture as we grow, we could lose the innovation, teamwork, passion and focus on execution that we believe contribute to 2017, we relied almost exclusivelyour success.
•We depend on the direct-sales model to market Wdesk. In order to continue to buildour senior management team and other key employees.
•The COVID-19 pandemic has impacted our business, and its ultimate impact on our business and financial results is uncertain.
•Our workforce is our primary operating expense and subjects us to risks associated with increases in the cost of labor.
•Operations outside the United States expose us to risks inherent in international sales.
•A significant fluctuation between the U.S. Dollar and other currencies could adversely impact our operating results.
•Geopolitical conflicts, including the conflict between Russia and Ukraine, may adversely affect our business and results of operations.
•Fixed-fee engagements with customers may not meet our expectations if we planunderestimate the cost of these engagements.
•If we fail to continue to develop partnershipsour brand, our business may suffer.
•Legislative and regulatory changes could adversely affect our business.
•We may need to supportraise additional capital, which may not be available to us.
•We have acquired, and may continue to acquire, other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results.
•Because we recognize revenue over the term of each subscription, downturns or upturns in sales efforts through referrals and co-selling arrangements. Our effortsmay not be immediately reflected in our operating results.
•We are subject to develop relationships with partners are still at an early stage, we have generated limited revenue through these relationships to date, and we cannot assure you that we will be able to develop and maintain successful partnerships or that these partners will be successful in marketing and selling our platform or solutions based upon our platform. Identifying partners, negotiating and supporting relationships with them and maintaining relationships requires a significant commitment of time and resourcesgeneral litigation that may not yieldmaterially adversely affect us.
•A failure to maintain adequate internal controls over our financial and management systems could cause errors in our financial reporting, which could cause a significant returnloss of investor confidence and result in a decline in the price of our Class A common stock.
•Our relatively limited operating history makes it difficult to predict our future operating results.
Risks Related to Technology and Intellectual Property
•If we or our service providers fail to keep our customers’ information confidential or otherwise handle their information improperly, our business and reputation could be adversely affected.
•The success of our cloud-based software largely depends on our investment. We expect that our partners will have only limited commitmentsability to dedicate resources to marketing and promoting our solutions. In addition, our competitors may be more effective in providing incentivesprovide reliable solutions to our partners or prospective partnerscustomers.
•Any failure to favor their products oroffer high-quality technical support services over our solutions. If we are unsuccessful in establishing or maintainingmay adversely affect our relationships with partners, or if these partners are unsuccessful in marketing or selling our solutions or are unable or unwilling to devote sufficient resources to these activities, our ability to compete in the marketplace or to grow our revenue could be impaired and our operating results may suffer. Further, new or emerging technologies, technological trends or changes in customer requirements may result in certain third parties de-emphasizing their dealings with us or becoming potential competitors in the future.customers.
•Failure to establish and maintain partnerships that can provide complementary technology offerings and software integrations could limit our ability to grow our business.
Our growth strategy includes expanding the use of Wdesk through complementary technology offerings and software integrations, such as third-party application programming interfaces, or APIs. While we have established relationships with certain providers of complementary technology offerings
and software integrations, we cannot assure you that we will be successful in maintaining partnerships with these providers or in establishing additional partnerships of this type. Third-party providers of complementary applications and APIs may decline to enter into partnerships with us or may later terminate their relationships with us, change the features of their applications and platforms, restrict our access to their applications and platforms or alter the terms governing use of their applications and APIs and access to those applications and platforms in an adverse manner. Such changes could functionally limit or terminate our ability to use these third-party applications and platforms with Wdesk, which could negatively impact our offerings and harm our business. Further, if we fail to integrate Wdesk with new third-party applications and platforms that our customers use, or to adapt to the data transfer requirements of such third-party applications and platforms, we may not be able to offer the functionality that our customers need, which would negatively impact our offerings and, as a result, could negatively affect our business, results of operations and financial condition. In addition, we may benefit from these partners’ brand recognition, reputations, referrals and customer bases. Any losses or shifts in the referrals from or the market positions of these partners in general, in relation to one another or to new competitors or new technologies could lead to losses in our relationships or customers or our need to identify or transition to alternative channels for marketing our solutions.
If we do not keep pace with technological changes, our solutions may become less competitive and our business may suffer.competitive.
Our market is characterized by rapid technological change, frequent product and service innovation and evolving industry standards. If we are unable to provide enhancements and new features for our existing solutions or new solutions that achieve market acceptance or that keep pace with these technological developments, our business could be adversely affected. For example, we focus on enhancing the features of our Wdesk platform to improve its utility for larger customers with complex, dynamic and global operations. The success of enhancements, new features and solutions depends on several factors, including the timely completion, introduction and market acceptance of the enhancements or new features or solutions. If we fail to successfully complete and introduce platform enhancements, or if our customers experience difficulties using our platform as a result of the implementation of these enhancements, our revenue retention and revenue growth may be adversely affected. In addition, because our solutions are designed to operate on a variety of systems, we will need to continuously modify and enhance our solutions to keep pace with changes in internet-related hardware, software, communication, browser and database technologies. We may not be successful in either developing these modifications and enhancements or in bringing them to market in a timely fashion. Furthermore, uncertainties about the timing and nature of new network platforms or technologies, or modifications to existing platforms or technologies, could increase our research and development expenses. Any failure of our solutions to keep pace with technological changes or operate effectively with future network platforms and technologies could reduce the demand for our solutions, result in customer dissatisfaction and adversely affect our business.
•If we fail to manage our technical operations infrastructure, our existing customers may experience service outages, and our new customers may experience delays in the deployment of our solutions.
We have experienced significant growth•The inability to maintain software licenses, or the existence of errors in the number of users, projects and data that our operations infrastructure supports. We seek to maintain sufficient excess capacity in our operations infrastructure to meet the needs of all of our customers. We also seek to maintain excess capacity to facilitate the rapid provision of new customer deployments and the expansion of existing customer deployments. In addition, we need to properly manage our technological operations infrastructure in order to support changes in hardware and software parameters and the evolution of our solutions, all of which require significant lead time. Our Wdesk platform interacts with technology provided by Google, Amazon and other third-party providers, and our technological infrastructure depends on this technology. We have experienced, and may in the future experience, website disruptions, outages and other performance
problems. These problems may be caused by a variety of factors, including infrastructure changes, human or software errors, viruses, security attacks, fraud, spikes in customer usage and denial of service issues. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. If we do not accurately predict our infrastructure requirements, our existing customers may experience service outages that may subject us to financial penalties, financial liabilities and customer losses. If our operations infrastructure fails to keep pace with increased sales, customers may experience delays as we seek to obtain additional capacity, which could adversely affect our reputation and our revenue.
As a provider of cloud-based software we rely on the services of third-party data center hosting facilities. Interruptions or delays in those services could impair the delivery of our service and harm our business.
Our Wdesk platform has been developed with, and is based on, cloud computing technology. It is hosted pursuant to service agreements on servers by third-party service providers, including those with Google and Amazon. We do not control the operation of these providers or their facilities, and the facilities are vulnerable to damage, interruption or misconduct. Unanticipated problems at these facilitieslicense could result in lengthy interruptions in our services. If the services of oneincreased costs or more of these providers are terminated, disrupted, interrupted or suspended for any reason, we could experience disruption in our ability to offer our solutions, or we could be required to retain the services of replacement providers, which could increase our operating costs and harm our business and reputation. In addition, as we grow, we may move or transfer our data and our customers’ data to other cloud hosting providers. Despite precautions taken during this process, any unsuccessful data transfers may impair the delivery of our service. Further, any damage to, or failure of, the cloud servers that we use could result in interruptions in our services. Interruptions in ourreduced service may damage our reputation, reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their subscriptions and adversely affect our renewal rates and our ability to attract new customers. Our business would be harmed if our customers and potential customers believe our service is unreliable.levels.
•Any failure or interruptions in the internet infrastructure, bandwidth providers, data center providers, other third parties or our own systems for providing our solutions to customers could negatively impact our business.
Our ability•Changes in laws and regulations related to deliver our solutions is dependent on the development and maintenance of the internet or changes in the internet infrastructure itself may diminish the demand for our solutions.
•We are subject to U.S. and other telecommunications services by third parties. Such services include maintenance of a reliable network backbone with the necessary speed,foreign data capacityprivacy and security for providing reliable internet accessprotection laws and services and reliable telecommunications systems that connect our operations. While our solutions are designed to operate without interruption, we may experience interruptions and delays in services and availability from time to time. We rely on systemsregulations as well as contractual privacy obligations.
•Any failure to protect our intellectual property rights or defend against accusations of infringement of third-party vendors, including data center, bandwidth,intellectual property rights could impair our ability to protect our proprietary technology and telecommunications equipment providers,our brand.
•Some of our solutions utilize open source software, and any failure to provide our solutions. We do not maintain redundant systems or facilities for somecomply with the terms of these services. In the event of a catastrophic event with respect to one or more of these systems or facilities, we may experience an extended period of system unavailability, whichopen source licenses could negatively impact our relationship with our customers.
Any failure to offer high-quality technical support services may adversely affect our relationships with our customers and our financial results.
Once our solutions are deployed, our customers depend on our customer success organization to resolve technical issues relating to our solutions. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by our competitors. Increased customer demand for these services, without corresponding revenue, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependentbusiness.
on our solutions and business reputation and on positive recommendations from our existing customers. Any failureRisks Related to maintain high-quality technical support, or a market perception that we do not maintain high-quality support,Taxes
•The adoption of new tax legislation could adversely affect our reputation,business and financial condition.
•Determining our income tax rate is complex and subject to uncertainty.
•Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
Risks Related to Ownership of Our Securities
•Our stock price has been and will likely continue to be volatile or may decline regardless of our operating performance.
•If there are substantial sales of shares of our Class A common stock or some or all of our convertible senior notes are converted and sold, the price of our Class A common stock could decline.
•The dual class structure of our common stock concentrates voting control with certain of our executives.
•Anti-takeover provisions in our charter documents, our convertible senior notes and Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management and may negatively affect the market price of our Class A common stock.
•We do not intend to pay dividends for the foreseeable future.
Risks Related to our Indebtedness
•The conditional conversion feature of our convertible senior notes may adversely affect our financial condition and operating results.
•Servicing our debt requires a significant amount of cash.
Risks Related to Our Business and Industry
We derive a majority of our total revenue from customers using our platform for SEC filings.
We derive a majority of our total revenue from customers using our platform for SEC filings. We sell oura variety of other solutions, to existingincluding ESG, global statutory reporting, SOX, capital markets, enterprise risk management and prospective customers, and our business, operating results and financial position.
Because our Wdesk platform is offered on a subscription basis, we are required to recognize revenue for it overaudit management, but the termintroduction of new solutions beyond the subscription. As a result, downturns or upturns in salesSEC market may not be immediately reflectedsuccessful. Although non-SEC solutions generated 66% of new solution and new customer bookings in 2022, it is uncertain whether they will achieve the level of market acceptance we have achieved in the SEC market. Any factor adversely affecting sales of our operating results.
We generally recognize subscriptionplatform or solutions, including release cycles, market acceptance, competition, performance and support revenue from customers ratably over the terms of their subscription agreements, which are typically on a quarterly or annual cyclereliability, reputation and automatically renew for additional periods. As a result, a substantial portion of the revenue we report in each quarter will be derived from the recognition of deferred revenue relating to subscription agreements entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any one quarter may not be immediately reflected in our revenue results for that quarter. This decline, however, will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in salesregulatory, economic and market acceptance of our solutions and potential changes in our rate of renewals may not be fully reflected in our results of operations until future periods. Our subscription model also makes it difficult for us to rapidly increase our subscription revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term. In addition, we may be unable to adjust our cost structure to reflect the changes in revenue, whichconditions, could adversely affect our business and operating results.
We cannot accurately predict subscription renewal or upgrade rates and the impact these rates may have on our future revenue and operating results.rates.
Our business depends substantially on customers renewing their subscriptions with us and expanding their use of our services. Our customers have no obligation to renew their subscriptions for our services after the expiration of their initialcurrent subscription period. While we have historically maintained a subscription and support revenue retention rate of greater than 95%94%, we may be unable to maintain this historical rate and we may be unable to accurately predict our subscription and support revenue retention rate. In addition, our customers may renew for shorter contract lengths, lower prices or fewer users.a reduced scope of service. We cannot accurately predict new subscription or expansion rates and the impact these rates may have on our future revenue and operating results. Our renewal rates may decline or fluctuate as a result of a number of factors, including customer dissatisfaction with our service, customers’ ability to continue their operations and spending levels and deteriorating general economic conditions. If our customers do not renew their subscriptions for our service, purchase fewer solutions at the time of renewal, or negotiate a lower price upon renewal, our revenue will decline and our business will suffer. Our future success also depends in part on our ability to sell additional solutions and services, more subscriptions or enhanced editions of our services to our current customers, which may also require increasingly sophisticated and costly sales efforts that are targeted at senior management. If our efforts to sell additional solutions and services to our customers are not successful, our growth and operations may be impeded.
Failure to manage our growth may adversely affect our business or operations.
Since our formation, we have experienced significant growth in our business, customer base, employee headcount and operations, and we expect to continue to expand our business over the next several years. This growth places a significant strain on our management team and employees as well as our operating and financial systems. To manage our future growth, we must continue to scale our business functions, improve our financial and management controls and our reporting systems and procedures and expand and train our work force. In particular, we grew from 2,106 employees as of December 31, 2021 to more than 2,400 employees as of December 31, 2022. We anticipate that additional investments in sales personnel, infrastructure and research and development spending will be required to:
•scale our operations and increase productivity;
•address the needs of our customers;
•further develop and enhance our existing solutions and offerings;
•develop new technology; and
•expand our markets and opportunity under management, including into new solutions and geographic areas.
We cannot assure you that our controls, systems and procedures will be adequate to support our future operations or that we will be able to manage our growth effectively. We also cannot assure you that we will be able to continue to expand our market presence in the United States, Europe, Asia Pacific region and other current markets or successfully establish our presence in other markets. Failure to effectively manage growth could result in difficulty or delays in deploying customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing new features or other operational difficulties, and any of these difficulties could adversely impact our business performance and results of operations.
Our revenue growth rate in recent periods may not be indicative of our future performance.
We experienced revenue growth rates of 21%, 26% and 18% in fiscal 2022, 2021 and 2020, respectively. Our historical revenue growth rates are not indicative of future growth, and we may not achieve similar revenue growth rates in future periods. You should not rely on our revenue or revenue growth for any prior quarterly or annual periods as any indication of our future revenue or revenue growth. If we are unable to maintain consistent revenue or revenue growth, our stock price could be volatile, and it may be difficult to achieve and maintain profitability.
We have not been profitable historically and may not achieve or maintain profitability in the future.
We have posted a net loss in each fiscal year since we began operations in 2008, including net losses of approximately $90.9 million in fiscal 2022, $37.7 million in fiscal 2021 and $48.4 million in fiscal 2020. While we have experienced continued revenue growth in recent periods, we are not certain whether or when we will obtain a high enough volume of subscriptions to sustain or increase our growth or achieve or maintain profitability in the future. In addition, any declinewe plan to continue to invest in our customer renewalsinfrastructure, new solutions, research and development and sales and marketing, and as a result, we cannot assure you that we will achieve or failuremaintain profitability. Because we intend to convincecontinue spending in anticipation of the revenue we expect to receive from these efforts, our expenses will be greater than the expenses we would incur if we developed our business more slowly. In addition, we may find that these efforts are more expensive than we currently anticipate, which would further impact our profitability.
Our quarterly results may fluctuate significantly.
Our quarterly results of operations, including the levels of our revenue, gross margin, profitability, cash flow and deferred revenue, may vary significantly in the future due to a variety of factors, including the risks and uncertainties described herein, and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Fluctuations in quarterly results may negatively affect the value of our Class A common stock.
In addition, we have historically experienced seasonal variations in our revenue from professional services as many of our customers to broadenemploy our professional services just before they file their useForm 10-K with the SEC in the first calendar quarter. The majority of our SEC customers report their financials on a calendar year basis. While we expect our professional services would harmrevenue to become less seasonal as our non-SEC offerings grow, a significant portion of our revenue may continue to reflect seasonality, which makes it difficult to predict our future operating results.
Our solutions face intense competition in the marketplace.
The market for our solutions is increasingly competitive, rapidly evolving and fragmented, and is subject to changing technology and shifting customer needs. Although we believe that our platform and the solutions that it offers are unique, many vendors develop and market products and services that compete to varying extents with our offerings, and we expect competition in our market to continue to intensify. Moreover, industry consolidation may increase competition. In addition, many companies have chosen to invest in their own internal reporting solutions and therefore may be reluctant to switch to solutions such as ours.
We compete with many types of companies, including diversified enterprise software providers; providers of professional services, such as consultants and business and financial printers; governance, risk and compliance software providers; business intelligence/corporate performance management software providers; and business reporting software providers. Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. We could lose customers if our competitors introduce new competitive products, add new features, acquire competitive products, reduce prices, form strategic alliances with other companies or are acquired by third parties with greater available resources. We may also face increasing competition from open source software initiatives, in which competitors may provide software and intellectual property for free. In addition, if a prospective customer is currently using a competing solution, the customer may be unwilling to switch to our solutions without access to setup support services. If we are unable to provide those services on terms attractive to the customer, the prospective customer may be unwilling to utilize our solutions. If our competitors’ products, services or technologies become more accepted than our solutions, if they are successful in bringing their products or services to market earlier than ours, or if their products or services are more technologically capable than ours, then our revenue could be adversely affected. Pricing pressures and increased competition could result in reduced sales, reduced margins, losses or a failure to maintain or improve our competitive market position, any of which would adversely affect our business.
Our revenue growth will depend in part on the success of our efforts to augment our direct-sales channels by developing relationships with third parties.
We have established strategic relationships with global advisory firms, regional consulting and implementation firms and technology partners. We expect these parties to contribute to our growth through referrals, influencing purchases and enhancing our value proposition through advisory and implementation services. We plan to continue to expand our partner ecosystem and build relationships with third parties. Identifying partners, negotiating and supporting relationships with them, on-boarding those firms into our ecosystem and maintaining relationships requires a significant commitment of time and resources that may not yield a significant return on our investment. If we are unsuccessful in establishing or maintaining our relationships with partners, or if these partners are unsuccessful in marketing or selling our solutions, or are unable or unwilling to devote sufficient resources to these activities, our ability to compete in the marketplace or to grow our revenue could be impaired and our operating results may suffer. Furthermore, our partners rely on highly skilled and trained professionals to position the platform in the market and to provide implementation and consulting services to our customers. We have formal training and enablement programs for our partners; however, our enablement efforts may be ineffective. If we do not adequately develop and maintain a sufficient number of qualified and trained partner professionals with knowledge of our solutions and our platform, we may suffer from services not being delivered correctly, improper expectations being set with our customers and customers therefore choosing not to expand the use of our platform or deciding not to renew their subscriptions. Also, our partners may have relationships with our competitors and experience with other products or services that could be used as substitutes for our platform. These relationships and product experience may result in our partners recommending our competitors’ products or services over our own products or services. In addition, new or emerging technologies and technological trends or changes in customer requirements may result in certain third parties de-emphasizing their dealings with us or becoming potential competitors in the future.
Adverse economic conditions or reduced technology spending may adversely impact our business.
Our business depends on the overall demand for technology and on the economic health of our current and prospective customers. Global financial developments and global health crises or pandemics may harm us, including disruptions or restrictions on our employees’ ability to work and travel. In general, worldwideweakened global economic conditions, remain unstable,including those from the ongoing COVID-19 pandemic, inflation, interest rates, and these conditionsarmed conflicts (such as Russia and Ukraine conflict) make it difficult for our customers, prospective customers and us to forecast and plan future business activities accurately. These conditions could cause our customers or prospective customers to reevaluate their decision to purchase our solutions. Weak global economic conditions or a reduction in technology spending even if economic conditions improve, could adversely impact our business, financial condition and results of operations in a number of ways, including longer sales cycles, lower prices for our solutions, reduced bookings and lower or no growth. Additionally, our capital markets business can serve as a point of entry for customers to our platform. The growth of our capital markets and SEC businesses are based in part on the strength of the IPO/special-purpose acquisition company (“SPAC”) market, which can fluctuate. A significant decline in the IPO/SPAC market has adversely affected sales of our capital markets solution and could potentially affect other solutions.
The United Kingdom formally left the European Union on January 31, 2020, and ratified a trade and cooperation agreement governing its future relationship with the E.U. on certain aspects of trade and other strategic and political issues. The longer term economic, legal, political and social implications of Brexit are unclear at this stage. In particular, any such longer term impact from Brexit will depend, in part, on the outcome of the U.K.’s continuing negotiations on a number of matters not definitively addressed in the trade and cooperation agreement. Changes impacting our ability to conduct business in the U.K. or other E.U. countries, or changes to the regulatory regime applicable to our operations in those countries, may cause disruptions to and create uncertainty surrounding our business in the U.K. and E.U. Further, uncertainty around these and related issues could lead to adverse effects on the economy of the U.K. and the other economies in which we operate. Any of these events could have a material adverse effect on our business operations, results of operations and financial condition.
If we cannot maintain our corporate culture as we grow, we could lose the innovation, teamwork, passion and focus on execution that we believe contribute to our success, and our business may be harmed.success.
We believe our corporate culture is a critical component to our success. We have invested substantial time and resources in building our team. As we grow and develop the infrastructure of a public company, we may find it difficult to maintain our corporate culture. Any failure to preserve our culture could negatively affect our future success, including our ability to retain and recruit personnel and effectively focus on and pursue our corporate objectives.
We depend on our senior management team and other key employees, and the loss of one or more key employees could adversely affect our business.employees.
Our success depends largely upon the continued services of our key executive officers. We also rely on our leadership team and other mission-critical individuals in the areas of research and development, marketing, sales, services and general and administrative functions.key employees. From time to time, there may beare changes in our management team resulting from the hiring or departure of executives or other key employees, which could disrupt our business. Our senior management and key employees are generally employed on an at-will basis, which means that they could terminate their employment with us at any time. The loss of one or more of our executive officers or key employees could have a material adverse effect on our business.
Further, to attract, train and retain qualified employees is crucial to our results of operations and any future growth.
To execute our growth plan, we must attract and retain highly qualified personnel. Competition for these individuals is intense, especially for engineers with high levels of experience in designing and developing software and internet-related services, senior sales executives and professional services personnel with appropriate financial reporting experience. We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees have breached their legal obligations or that we have induced such breaches, resulting in a diversion of our time and resources. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be adversely affected.
The COVID-19 pandemic has impacted our business, and its ultimate impact on our business and financial results is uncertain.
The COVID-19 pandemic has significantly impacted the global economy, disrupted global supply chains and created significant volatility and disruption in financial markets, and increased unemployment levels. While it remains a developing situation, the pandemic and any quarantines, interruptions in travel and business disruptions with respect to us, our customers or partners have had and will continue to have an impact on our business. Although we are continuing to monitor and assess the effects of the COVID-19 pandemic, the ultimate impact of the COVID-19 pandemic on our business remains highly uncertain and will depend on certain developments, including the duration and spread of the outbreak, the emergence of new variants, the impact on our customers and our sales cycles, and the effect on our vendors, all of which are uncertain and cannot be predicted.
As a result of the work and travel restrictions relating to the ongoing COVID-19 outbreak, substantially all of our sales and operating activities are being conducted remotely or on a hybrid basis. This continuing global work-from-home operating environment may adversely impact the productivity of certain employees, and these conditions may persist and harm our business, including our future operating results. The pandemic and accompanying market volatility, uncertainty and economic disruption may also have the effect of heightening many of the other risks described in the “Risk Factors” set forth in this Annual Report on Form 10-K.
Our workforce is our primary operating expense and subjects us to risks associated with increases in the cost of labor as a result of increased competition for employees, higher employee turnover rates and required wage increases and health benefit coverage, lawsuits or labor union activity.labor.
Labor is our primary operating expense. As of December 31, 2017, we employed 1,318 full-time employees. For the fiscal year ended December 31, 2017, employee compensation and benefits accounted
for approximately 75% of our total operating expense. We may face labor shortages or increased labor costs because of increased competition for employees, higher employee turnover rates, or increases in employee benefit costs. If labor-related expenses increase, our operating expense could increase, which would adversely affect our business, financial condition and results of operations.
We are subject to the Fair Labor Standards Act (FLSA)(“FLSA”) and various federal and state laws governing such matters as minimum wage requirements, overtime compensation and other working conditions, citizenship requirements, discrimination and family and medical leave. In recent years, a number of companies have been subject to lawsuits, including class action lawsuits, alleging violations of federal and state law regarding workplace and employment matters, overtime wage policies, discrimination and similar matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Similar lawsuits may be threatened or instituted against us from time to time, and we may incur substantial damages and expenses resulting from lawsuits of this type, which could have a material adverse effect on our business, financial condition or results of operations.
There may be adverse tax and employment law consequences if
Operations outside the independent contractor statusUnited States expose us to risks inherent in international sales.
A key element of our consultants or the exempt statusgrowth strategy is to expand our international operations and develop a worldwide customer base. A growing portion of our employeesrevenue is successfully challenged.
We retain consultants from timecustomers headquartered outside the United States. Operating in international markets requires significant resources and management attention and subjects us to time as independent contractors. Although we believeregulatory, economic and political risks that we have properly classified these individuals as independent contractors, there is nevertheless a risk thatare different from those in the Internal Revenue Service (IRS)United States. Because of our limited experience with international operations, our international expansion efforts may not be successful in creating additional demand for our solutions outside of the United States or another federal, state, provincial or foreign authority will take a different view. Furthermore, the tests governing the determination of whether an individual is consideredin effectively selling subscriptions to be an independent contractor or an employee are typically fact sensitive and vary from jurisdiction to jurisdiction. Laws and regulations that govern the status and misclassification of independent contractors are subject to change or interpretation by various authorities. If a federal, state or foreign authority or court enacts legislation or adopts regulations that change the mannerour solutions in which employees and independent contractors are classified or makes any adverse determination with respect to some or all of our independent contractors,the international markets we could incur significant costs under such laws and regulations, including for prior periods,enter. In addition, we face risks in respect of tax withholding, social security taxes or payments, workers’ compensation and unemployment contributions, and recordkeeping, or we may be required to modify ourdoing business model, any of whichinternationally that could materially adversely affect our business, including:
•the need to localize and adapt our solutions for specific countries, including translation into foreign languages and associated expenses;
•increased management, travel, infrastructure, legal compliance and regulation costs associated with having multiple international operations;
•sales and customer service challenges associated with operating in different countries;
•data privacy laws that require customer data to be stored and processed in a designated territory;
•inadequate local infrastructure and difficulties in staffing and managing foreign operations;
•different pricing environments and longer sales and collection cycles;
•new and different sources of competition;
•difficulties in enforcing intellectual property and other rights outside of the United States;
•laws and business practices favoring local competitors;
•compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations;
•increased financial conditionaccounting and reporting burdens and complexities;
•restrictions on the transfer of funds;
•an uncertain trade environment;
•adverse tax consequences;
•unstable regional economic and political conditions, including political unrest and armed conflicts (such as the Russia and Ukraine conflict);
•liquidity issues, including due to political actions by sovereign nations with a controlled currency environment, which could result in decreased values of cash balances or potential difficulties protecting our foreign assets or satisfying local obligations;
•difficulties in obtaining export licenses for certain technology, tariffs, quotas and other trade barriers;
•issues resulting from operations in locations with a higher incidence of corruption and fraudulent business practices;
•challenges in integrating acquisitions with foreign operations; and
•natural disasters, acts of war, terrorism, security breaches, pandemics or other health crises, including the ongoing COVID-19 pandemic.
Some of our third-party business partners have international operations and are also subject to these risks and if our third-party business partners are unable to appropriately manage these risks, our business may be harmed.
A significant fluctuation between the U.S. Dollar and other currencies could adversely impact our operating results.
Although our financial results are reported in U.S. Dollars, a portion of our sales and operating costs are realized in other currencies, with the largest concentration of foreign sales occurring in Europe. We anticipate that over time, an increasing portion of our international contracts may be denominated in local currencies. Therefore, fluctuations in the value of the U.S. Dollar and foreign currencies may impact our operating results when translated into U.S. Dollars. Such fluctuations may be materially impacted by the ongoing COVID-19 pandemic, increases in inflation, fluctuations in interest rates, and any global events, wars or conflicts, including the current Russia and Ukraine conflict. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations. Significant long-term fluctuations in relative currency values, and in particular, an increase in the value of the U.S. Dollar against foreign currencies, has had and could continue to have an adverse effect on our operating results.
Geopolitical conflicts, including the conflict between Russia and Ukraine, may adversely affect our business and results of operations. There is also a risk that we may be subject to significant monetary liabilities arising from fines
We have operations or judgments asactivities in numerous countries and regions outside the United States, including in Europe. As a result, our global operations are affected by economic, political and other conditions in the foreign countries in which we do business. Specifically, the current conflict between Russia and Ukraine is creating substantial uncertainty about the future impact on global capital markets. Countries across the globe are instituting sanctions and other penalties against Russia. The retaliatory measures that have been taken, and could be taken in the future, by the U.S., NATO, and other countries have created global security concerns that could result in broader European military and political conflicts and otherwise have a substantial impact on regional and global economies, any or all of any such actual or alleged non-compliance with federal, state or foreign tax laws. Further, if it were determined that any ofwhich could adversely affect our independent contractors should be treated as employees, we could incur additional liabilities underbusiness, particularly our applicable employee benefit plans.
In addition, we have classified many of our U.S. employees as “exempt” under the FLSA. If it were determined that any of our U.S. employees who we have classified as “exempt” should be classified as “non-exempt” under the FLSA, we may incur costs and liabilities for back wages, unpaid overtime, fines or penalties and be subject to employee litigation.European operations.
Fixed-fee engagements with customers may not meet our expectations if we underestimate the cost of these engagements.
We provide certain professional services on a fixed-fee basis. When making proposals for fixed-fee engagements, we estimate the costs and timing for completing the engagements. We provide professional services on both SEC and non-SEC solutions, including our regulatedfinancial services, integrated risk, global statutory reporting and Sarbanes-Oxley complianceFERC reporting solutions. Professional services on non-SEC solutions usually involve a different mix of subscription, support and services than professional services on our SEC solution. The growthGrowth in professional services on non-SEC solutions may impact our gross margins in ways that we cannot predict. If we are required to spend more hours than planned to perform these services, our cost of services revenue could exceed the fees charged to our customers on certain engagements and could cause us to recognize a loss on a contract, which would adversely affect our operating results. In addition, if we are
unable to provide these professional services, we may lose sales or incur customer dissatisfaction, and our business and operating results could be significantly harmed.
Our sales cycle is unpredictable. As more
If we fail to continue to develop our brand, our business may suffer.
We believe that continuing to develop and maintain awareness of our sales effortsbrand is critical to achieving widespread acceptance of our solution and is an important element in attracting and retaining customers. Efforts to build our brand may involve significant expense and may not generate customer awareness or increase revenue at all, or in an amount sufficient to offset expenses we incur in building our brand.
Promotion and enhancement of our name and the brand names of our solutions depends largely on our success in being able to provide high quality, reliable and cost-effective solutions. If customers do not perceive our solutions as meeting their needs, or if we fail to market our solutions effectively, we will likely be unsuccessful in creating the brand awareness that is critical for broad customer adoption of our solutions. That failure could result in a material adverse effect on our business, financial condition and operating results.
Legislative and regulatory changes could adversely affect our business.
The market for our solutions depends in part on the requirements of the SEC, the Federal Reserve System, the Federal Deposit Insurance Corporation and other regulatory bodies. Any legislation or rulemaking substantially affecting the content or method of delivery of documents to be filed with these regulatory bodies could have an adverse effect on our business. Uncertainty caused by political change in the United States and Western Europe (including Brexit) heightens regulatory uncertainty in these areas. New legislation, or a significant change in rules, regulations, directives or standards could reduce demand for our products and services, increase expenses as we modify our products and services to comply with new requirements and retain relevancy, impose limitations on our operations, and increase compliance or litigation expense, each of which could have a material adverse effect on our business, financial condition and results of operations.
We may need to raise additional capital, which may not be available to us.
Our future liquidity and capital requirements are targeted at larger enterprise customers,difficult to predict as they depend upon many factors, including the success of our sales cyclesolutions and competing technological and market developments. In the future, we may become more time-consuming and expensive,require additional capital to respond to business opportunities, challenges, acquisitions or unforeseen circumstances, and we may encounter pricing pressure,not be able to timely secure additional debt or equity financing on favorable terms, or at all. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our Class A common stock.
We have acquired, and may continue to acquire, other companies or technologies, which could harmdivert our businessmanagement’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results.
We have acquired and may in the future seek to acquire or invest in businesses, applications or technologies that we believe could complement or expand our solutions, enhance our technical capabilities or otherwise offer growth opportunities. The costpursuit of potential acquisitions may divert the attention of management and length of our sales cycle varies by customercause us to incur various expenses in identifying, investigating and is unpredictable. Aspursuing suitable acquisitions, whether or not they are consummated. In addition, we target more of our sales efforts at selling additional solutions to larger enterprise customers,have limited experience in acquiring other businesses. For businesses we have acquired or may acquire, we may face greater costs, longernot be able to integrate the acquired customers, personnel, operations and technologies successfully or effectively manage the combined business following the acquisition.
Because we recognize revenue over the term of each subscription, downturns or upturns in sales cyclesmay not be immediately reflected in our operating results.
We generally recognize subscription and less predictability in completing somesupport revenue from customers ratably over the terms of our sales. These types of sales often require us to provide greater levels of education regarding the usetheir subscription agreements, which are typically on an annual cycle and benefits of our service. In addition, larger customers may demand more document setup services, training and other professional services.automatically renew for additional periods. As a result, a substantial portion of the revenue we report in each quarter will be derived from the recognition of deferred revenue relating to subscription agreements entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any one quarter may not be immediately reflected in our revenue results for that quarter. Accordingly, the effect of any significant downturns in sales, including changes as a result of the ongoing COVID-19 pandemic, may not be fully reflected in our results of operations until future periods.
We are subject to general litigation that may materially adversely affect us.
From time to time, we may be involved in disputes or regulatory inquiries that arise in the ordinary course of business. We expect that the number and significance of these factors,potential disputes may increase as our business expands and our company grows larger. While our agreements with customers limit our liability for damages arising from our solutions, we cannot assure you that these sales opportunitiescontractual provisions will protect us from liability for damages in the event we are sued. Although we carry general liability insurance coverage, our insurance may not cover all potential claims to which we are exposed or may not be adequate to indemnify us for all liability that may be imposed. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time, and result in the diversion of significant operational resources. Because litigation is inherently unpredictable, we cannot assure you that the results of any of these actions will not have a material adverse effect on our business, financial condition, results of operations and prospects.
A failure to maintain adequate internal controls over our financial and management systems could cause errors in our financial reporting.
We must maintain effective financial and management systems and internal controls to meet our public company reporting obligations. Moreover, SOX requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. If we have a material weakness or deficiency in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. Effective internal controls are necessary for us to devote greater sales supportproduce reliable financial reports and professional services resourcesare important to individual customers, driving up costsprevent fraud. As a result, our failure to maintain effective financial and time requiredmanagement systems and internal controls could result in errors in our financial reporting, us being subject to complete salesregulatory action and diverting sales and professional services resources to a smaller numberloss of larger transactions.investor confidence in the reliability of our financial statements.
Our quarterly results reflect seasonality in revenue from professional services, whichrelatively limited operating history makes it difficult to predict our future operating results.
We were founded in 2008 and have historically experienced seasonal variationsa relatively limited operating history. We began offering our first solution in 2010 and launched our revenue from professional services as manyplatform in 2013. As a result of our customers employlimited operating history, our professional services just before they file their Form 10-K in the first calendar quarter. As of December 31, 2017, approximately 78% of our SEC customers report their financials on a calendar year basis. While we expect our professional services revenueability to become less seasonal as our non-SEC offerings grow, a significant portion of our revenue may continue to reflect seasonality, which makes it difficult to predictforecast our future operating results. Asresults is limited and subject to a result,number of uncertainties, including our ability to plan for and model future growth. We have encountered and will encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described herein. If our assumptions regarding these risks and uncertainties (which we use to plan our business) are incorrect or change due to changes in our markets, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations and our business could suffer.
Risks Related to Technology and Intellectual Property
If we or our service providers fail to keep our customers’ information confidential or otherwise handle their information improperly, our business and reputation could be adversely affected.
Because data security is a critical competitive factor in our industry, we make numerous statements in our privacy policy and customer agreements, through our certifications to privacy standards and in our marketing materials, providing assurances about the security of our platform. If we fail to keep customers’ proprietary information and documentation confidential, we may lose existing customers and potential new customers and may expose them to significant damages based on the premature release of confidential information. While we have security measures in place to protect customer information and prevent data loss and other security breaches, these measures may be breached as a result of third-party action, employee error, malfeasance or otherwise. Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.
In addition, certain of our service providers (including, without limitation, hosting facilities, disaster recovery providers and software providers) have access to our customers’ data and could suffer security breaches or data losses that affect our customers’ information. If an actual or perceived security breach or premature release occurs, our reputation could be damaged and we may lose future sales and customers. We may also become subject to civil claims, including indemnity or damage claims in certain customer contracts, or criminal investigations by appropriate authorities, any of which could harm our business and operating results. Furthermore, while our errors and omissions insurance policies include liability coverage for these matters, if we experienced a widespread security breach that impacted a significant number of our customers for whom we have these indemnity obligations, we could be subject to indemnity claims that exceed such coverage or increased costs for such insurance.
The success of our cloud-based software largely depends on our ability to provide reliable solutions to our customers. If a customer were to experience a product defect, a disruption in its ability to use our solutions or a security flaw, demand for our solutions could be diminished, we could be subject to substantial liability and our business could suffer.
Because our solutions are complex and we continually release new features, our solutions could have errors, defects, viruses or security flaws that could result in unanticipated downtime for our subscribers and harm our reputation and our business. Internet-based software frequently contains undetected errors or security flaws when first introduced or when new versions or enhancements are released. We might from time to time find such defects in our solutions, the detection and correction of which could be time consuming and costly. Since our customers use our solutions for important aspects of their business, any errors, defects, disruptions in access, security flaws, viruses, data corruption or other performance problems associated with our solutions could hurt our reputation and may damage our customers’ businesses. If that occurs, customers could elect not to renew their subscriptions, could delay or withhold payment to us or may make warranty or other claims against us, which could result in an increase in our provision for doubtful accounts, an increase in collection cycles for accounts receivable or the expense and risk of litigation. We could also lose future sales.us. In addition, if the public becomes aware of a security breachesbreach of our solutions, our future business prospects could be adversely impacted.
Any failure to offer high-quality technical support services may adversely affect our relationships with our customers.
Once our solutions are deployed, our customers depend on our customer success organization to resolve technical issues relating to our solutions. We employ third-party licensed softwaremay be unable to respond quickly enough to accommodate short-term increases in customer demand for use insupport services without incurring additional expenses or withat all. Increased customer demand for these services, without corresponding revenue, could increase costs and adversely affect our operating results. In addition, our sales process is highly dependent on our solutions and business reputation and on positive recommendations from our existing customers.
Failure to establish and maintain partnerships that can provide complementary technology offerings and software integrations could limit our ability to grow our business.
Our growth strategy includes expanding the use of our platform through complementary technology offerings and software integrations, such as third-party application programming interfaces, or APIs. While we have established relationships with certain providers of complementary technology offerings and software integrations, we cannot assure you that we will be successful in maintaining partnerships with these providers or in establishing additional partnerships of this type. Third-party providers of complementary applications and APIs may decline to enter into partnerships with us or may later terminate their relationships with us, change the features of their applications and platforms, restrict our access to their applications and platforms or alter the terms governing use of their applications and APIs and access to those applications and platforms in an adverse manner. Such changes could functionally limit or terminate our ability to use these third-party applications and platforms with the Workiva platform. Further, if we fail to integrate the Workiva platform with new third-party applications and platforms that our customers use, or to adapt to the data transfer requirements of such third-party applications and platforms, we may not be able to offer the functionality that our customers need. In addition, we may benefit from these partners’ brand recognition, reputations, referrals and customer bases. Any losses or shifts in the referrals from or the market positions of these partners in general, in relation to one another or to new competitors or new technologies could lead to losses in our relationships or customers or our need to identify or transition to alternative channels for marketing our solutions.
If we do not keep pace with technological changes, our solutions may become less competitive.
Our market is characterized by rapid technological change, frequent product and service innovation and evolving industry standards. If we are unable to provide enhancements and new features for our existing solutions or new solutions that achieve market acceptance or that keep pace with these technological developments, our business could be adversely affected. For example, we focus on enhancing the features of our platform to improve its utility for larger customers with complex, dynamic and global operations. The success of enhancements, new features and solutions depends on several factors, including the timely completion, introduction and market acceptance of the enhancements or new features or solutions. If we fail to introduce platform enhancements, or if our customers experience difficulties using our platform as a result of the transition or of the implementation of these enhancements, our revenue retention and revenue growth may be adversely affected. In addition, because our solutions are designed to operate on a variety of systems, we will need to continuously modify and enhance our solutions to keep pace with changes in internet-related hardware, software, communication, browser and database technologies. We may not be successful in either developing these modifications and enhancements or in bringing them to market in a timely fashion. Furthermore, uncertainties about the timing and nature of new network platforms or technologies, or modifications to existing platforms or technologies, could increase our research and development expenses. Any failure of our solutions to keep pace with technological changes or operate effectively with future network platforms and technologies
could reduce the demand for our solutions, result in customer dissatisfaction and adversely affect our business.
If we fail to manage our technical operations infrastructure, our existing customers may experience service outages, and our new customers may experience delays in the deployment of our solutions.
We have experienced significant growth in the number of users, projects and data that our operations infrastructure supports. We seek to maintain sufficient excess capacity in our operations infrastructure to meet the needs of all of our customers. We also seek to maintain excess capacity to facilitate the rapid provision of new customer deployments and the expansion of existing customer deployments. In addition, we need to properly manage our technological operations infrastructure in order to support changes in hardware and software parameters and the evolution of our solutions, all of which require significant lead time. Our platform interacts with and depends on technology provided by Amazon Web Services, Google Cloud Platform and other third-party providers, and our data is hosted pursuant to service agreements with these providers. We do not control the operation of these providers or their facilities, and the facilities are vulnerable to damage, interruption or misconduct, which could result in interruptions in our services. We have experienced, and may in the future experience, website disruptions, outages and other performance problems. These problems may be caused by a variety of factors, including infrastructure changes, human or software errors, viruses, security attacks, fraud, spikes in customer usage and denial of service issues. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. If we do not accurately predict our infrastructure requirements, our existing customers may experience service outages that may subject us to financial penalties, financial liabilities and customer losses. If our operations infrastructure fails to keep pace with increased sales, customers may experience delays as we seek to obtain additional capacity, which could adversely affect our reputation and our revenue.
The inability to maintain thesesoftware licenses, or the existence of errors in the software we license could result in increased costs or reduced service levels, which would adversely affect our business.levels.
Our solutions incorporate certain third-party software including the Google Cloud Platform, that may be licensed to or hosted by or on behalf of Workiva, or may be hosted by a licensor and accessed by
Workiva on a software-as-a-serviceSoftware-as-a-Service basis. We anticipate that we will continue to rely on third-party software and development tools from third parties in the future. There may not be commercially reasonable alternatives to the third-party software we currently use, or it may be difficult or costly to replace. In addition, integration of the software used in our solutions with new third-party software may require significant work and require substantial investment of our time and resources. Also, to the extent that our solutions depend upon the successful operation of third-party software in conjunction with our software, anyAny undetected errors or defects in this third-party software could prevent the deployment or impair the functionality of our solutions, delay new solution introductions, result in a failure of our solutions and injure our reputation. Our use of additional
Interruptions in third-party services or alternative third-party software would requiremay damage our reputation, reduce our revenue, cause us to enter into license agreements with third parties.issue credits or pay penalties, cause customers to terminate their subscriptions and adversely affect our renewal rates and our ability to attract new customers. Our business would be harmed if our customers and potential customers believe our service is unreliable. Any inability to maintain or acquire third-party licensed software for use in our solutions could result in increased costs or reduced service levels, which would adversely affect our business.
Any failure or interruptions in the internet infrastructure, bandwidth providers, data center providers, other third parties or our own systems could negatively impact our business.
Our ability to deliver our solutions is dependent on the development and maintenance of the internet and other telecommunications services by third parties. Such services include maintenance of a
reliable network backbone with the necessary speed, data capacity and security for providing reliable internet access and services and reliable telecommunications systems that connect our operations. While our solutions are designed to operate without interruption, we may experience interruptions and delays in services and availability from time to time.
Further, we rely on third-party systems and vendors, including data center, bandwidth, and telecommunications equipment providers, to provide our solutions. Our platform has been developed with, and is based on, cloud computing technology. It is hosted pursuant to service agreements on servers by third-party service providers, including those with Amazon Web Services and Google Cloud Platform. We do not control the operation of these providers or their facilities, and the facilities are vulnerable to damage, interruption or misconduct. We also do not maintain redundant systems for some of these services. Unanticipated problems at these facilities could result in lengthy interruptions in our services. If the services of one or more of these providers are terminated, disrupted, interrupted or suspended for any reason, we could experience disruption in our ability to offer our solutions, or we could be required to retain the services of replacement providers. We may move or transfer our data and our customers’ data to other cloud hosting providers and any unsuccessful data transfers may impair the delivery of our service.
Changes in laws and regulations related to the internet or changes in the internet infrastructure itself may diminish the demand for our solutions and could have a negative impact on our business.solutions.
The future success of our business depends upon the continued use of the internet as a primary medium for commerce, communication and business solutions. Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the use of the internet as a commercial medium. Changes in these laws or regulations could require us to modify our solutions in order to comply with these changes. In addition, government agencies or private organizations may begin to impose taxes, fees or other charges for accessing the internet or commerce conducted via the internet. These laws or charges could limit the growth of internet-related commerce or communications generally or result in reductions in the demand for internet-based solutions such as ours.
In addition, the use of the internet as a business tool could be adversely affected due to delays in the development or adoption of new standards and protocols to handle increased demands of internet activity, security, reliability, cost, ease of use, accessibility and quality of service. The performance of the internet and its acceptance as a business tool has been adversely affected by “viruses,” “worms” and similar malicious programs, and the internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure. If the use of the internet is adversely affected by these issues, demand for our solutions could suffer.
We are subject to U.S. and foreign data privacy and protection laws and regulations as well as contractual privacy obligations, and our failure to comply could subject us to fines and damages and would harm our reputation and business.obligations.
We manage private and confidential information and documentation related to our customers’ finances and transactions, often prior to public dissemination. The use of insider information is highly regulated in the United States and abroad, and violations of securities laws and regulations may result in civil and criminal penalties. In addition, we are subject to the data privacy and protection laws and regulations adopted by federal, state and foreign legislatures and governmental agencies. Data privacy and protection is highly regulated and may become the subject of additional regulation in the future. Privacy laws restrict our storage, use, processing, disclosure, transfer and protection of non-public personal information that may be placed in Wdeskour platform by our customers or collected from visitors while visiting our websites. We strive to comply with all applicable laws, regulations, policies and legal obligations relating to privacy and data protection. However, it is possible that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure, or perceived failure, by us to comply with federal, state or international laws, including laws and regulations regulating privacy, payment card information, personal health information, data or consumer protection, could result in proceedings or actions against us by governmental entities or others.
The regulatory framework for privacy and data protection issues worldwide is evolving, and variousnew or proposed legislation and regulations could also significantly affect our business. These laws and regulations, as well as any associated inquiries or investigations or any other government actions, may be costly to comply with and consumer agenciesmay delay or impede the development of new products, result in negative publicity, increase our
operating costs, require significant management time and public advocacy groups have called for new regulationattention, and changes in industry practices, including some directed at providers of mobile and online resources in particular. Our obligations with respectsubject us to privacy and data protectionremedies that may become broader or more stringent. If we are required to changeharm our business, activitiesincluding fines or revisedemands or eliminate services,orders that we modify or to implement costly compliance measures, ourcease existing business and results of operations could be harmed.practices.
In addition, as we expand our operations internationally, compliance with regulations that differ from countryjurisdiction to countryjurisdiction may also impose substantial burdens on our business. In particular, the European Union orhas implemented the General Data Protection Regulation (“GDPR”), which came into force in May 2018. The GDPR includes more robust obligations on data processors and heavier documentation requirements for data protection compliance programs by companies that process personal data of residents of the E.U., has traditionally taken a broader view as to what is considered personal information and has imposed greater obligations under data privacy regulations. In addition, individual E.U. member countries have had discretion with respect to their interpretation and implementation of the regulations, which has resulted in variation of privacy standards from country to country. Complying with any additional or new regulatory requirements could force us to incur substantial costs or require us to change our business practices in a manner that could compromise our ability to effectively pursue our growth strategy.imposes significant penalties for non-compliance. Further, because our customers often use a WdeskWorkiva account across multiple jurisdictions, E.U. regulators could determine that we transfer data from the E.U. to the U.S., which could subject us to E.U. laws with respect to data privacy. Those laws and regulations are uncertain and subject to change. For example, in October 2015,July 2020, the European Court of Justice of the E.U. issued a decision that invalidated the European Commission's 2000 Safe Harbor Decision asE.U.-U.S. Privacy Shield framework, a legitimate basismechanism that companies had previously relied on which we could rely for theto transfer of data from the European Union to the United States. The E.U and U.S. recently agreed to an alternative transfer framework for data transferredpersonal information from the E.U. to the U.S., calledon the Privacy Shield, but this new framework is subject to an annual reviewbasis that could result insuch transfer mechanism does not comply with the level of protection required under the GDPR. These changes to our obligations and also may be challenged by national regulators or private parties. In addition, the other bases on which we rely to legitimize the transfer of data, such as standard Model Contractual Clauses (MCCs), have been subjected to regulatory or judicial scrutiny. If one or more of the legal bases for transferring data from EuropeE.U. to the United States is invalidated, or if we are unable to transfer personal data between and among countries and regions in which we operates, itU.S. could affect the manner in which we provide our services or adversely affect our financial results.
Proposed or new legislation and regulations could also significantly affect our business. There are currently a number of proposals pending before federal, state, and foreign legislative and regulatory bodies. In addition, the European Commission has approved a data protection regulation, known as the General Data Protection Regulation (GDPR), which has been finalized and is due to come into force in or around May 2018. The GDPR will include operational requirements for companies that receive or process personal data of residents of the European Union that are different than those currently in place in the European Union, and that will include significant penalties for non-compliance. In addition, some countries are considering or have passed legislation implementing data protection requirements or requiring local storage and processing of data or similar requirements that could increase the cost and complexity of delivering our services.
These laws and regulations, as well as any associated inquiries or investigations or any other government actions, may be costly to comply with and may delay or impede the development of new products, result in negative publicity, increase our operating costs, require significant management time and attention, and subject us to remedies that may harm our business, including fines or demands or orders that we modify or cease existing business practices.
In addition to government activity, the technology industry and other industries are considering various new, additional or different self-regulatory standards that may place additional burdens on us. If the processing of privatepersonal and confidential information were to be curtailed in this manner, our software solutions may be less effective or diminish the user experience, which may reduce demand for our solutions and adversely affect our business. Furthermore, government agencies may seek to access sensitive information that our customers upload to our service providers or restrict customers’ access to our service providers. Laws and
regulations relating to government access and restrictions are evolving, and compliance with such laws and regulations could limit adoption of our services by customers and create burdens on our business. Moreover, investigations into our compliance with privacy-related obligations could increase our costs and divert management attention.
We are also subject to the privacy and data protection-related obligations in our contracts with our customers and other third parties. We could be adversely affected by changes to these contracts in ways that are inconsistent with our practices or in conflict with the laws and regulations of the United States, foreign or international regulatory authorities. We may also be contractually liable to indemnify and hold harmless our clients from the costs or consequences of inadvertent or unauthorized disclosure of data that we store or handle as part of providing our services. Finally, we are also subject to contractual obligations and other legal restrictions with respect to our collection and use of data, and we may be liable to third parties in the event we are deemed to have wrongfully used or gathered data.
As our customers and prospects prepare to comply with frequently changing privacy legislation, and ultimatelyincluding GDPR, we are subject to our current and prospective customers’ enhanced due diligence prior to contract execution. Furthermore, the uncertainty of how regulators will apply privacy laws in different jurisdictions has caused many companies to adopt very broad and restrictive vendor policies, contract templates and pre-requisites. Many times, these policies are applied without consideration of the underlying intent of the vendor’s service or data that will be shared (e.g., a blanket policy that all vendors, regardless of services, are required to agree to a Data Protection Agreement).requirements. Due to the aforementioned changes to privacy law, our current and prospective customers have begun to require us to adopt standard contractual clauses, data processing agreements, or amendments to existing agreements regarding privacy and/or security compliance prior to conducting new (or any) business with us by virtue of negotiating new clauses and/or agreements.us. In addition, due diligence by current or prospective customers may take the form of onsite audits and questionnaires. Negotiating these clauses and satisfying customers’ concerns around privacy risk can slow down the overall sales cycle due to the coordination of so many subject matter experts. Slower sales cycles may limit our ability to grow and create focus on compliance points as opposed to new sales.
Any failure by us or a third-party contractor providing services to us to comply with applicable privacy and data protection laws, regulations, self-regulatory requirements or industry guidelines, our contractual privacy obligations or our own privacy policies, may result in fines, statutory or contractual damages, litigation or governmental enforcement actions. These proceedings or violations could force us to spend significant amounts in defense or settlement of these proceedings, result in the imposition of monetary liability, distract our management, increase our costs of doing business, and adversely affect our reputation and the demand for our solutions.
Our privacy policiesFurthermore, government agencies may seek to access sensitive information that our customers upload to our service providers or restrict customers’ access to our service providers. Laws and practices concerning the collection, useregulations relating to government access and disclosure of user datarestrictions are available on our websites. Any failure, or perceived failure, by us to complyevolving, and compliance with our posted privacy policies or with any regulatory requirements or orders or other federal, state or international privacy or consumer protection-relatedsuch laws and regulations could result in proceedings or actions against uslimit adoption of our services by governmental entities or others (e.g., class action privacy litigation), subject us to significant penaltiescustomers and negative publicity, require us to changecreate burdens on our business practices,business. Moreover, investigations into our compliance with privacy-related obligations could increase our costs and adversely affect our business. Data collection, privacy and security have become the subject of increasing public concern. If users were to reduce their use of our websites, products, and services as a result of these concerns, our business could be harmed.
If we or our service providers fail to keep our customers’ information confidential or otherwise handle their information improperly, our business and reputation could be significantly and adversely affected.
If we fail to keep customers’ proprietary information and documentation confidential, we may lose existing customers and potential new customers and may expose them to significant loss of revenue based on the premature release of confidential information. While we have security measures in place to
protect customer information and prevent data loss and other security breaches, these measures may be breached as a result of third-party action, employee error, malfeasance or otherwise. Because the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.
In addition, our service providers (including, without limitation, hosting facilities, disaster recovery providers and software providers) may have access to our customers’ data and could suffer security breaches or data losses that affect our customers’ information.
If an actual or perceived security breach or premature release occurs, our reputation could be damaged and we may lose future sales and customers. We may also become subject to civil claims, including indemnity or damage claims in certain customer contracts, or criminal investigations by appropriate authorities, any of which could harm our business and operating results. Furthermore, while our errors and omissions insurance policies include liability coverage for these matters, if we experienced a widespread security breach that impacted a significant number of our customers for whom we have these indemnity obligations, we could be subject to indemnity claims that exceed such coverage.divert management attention.
Any failure to protect our intellectual property rights or defend against accusations of infringement of third-party intellectual property rights could impair our ability to protect our proprietary technology and our brand.
Our success substantially depends upon our proprietary methodologies and other intellectual property rights. Unauthorized use of our intellectual property by third parties may damage our brand and our reputation. As of December 31, 2017,2022, we had 3068 issued patents and 1916 patent applications pending, in the United States, and we expect to seek additional patents in the future. In addition, we rely on a combination of copyright, trademark and trade secret laws, employee and third-party non-disclosure and non-competition agreements and other methods to protect our intellectual property. However, unauthorized parties may attempt to copy or obtain and use our technology to develop products with the same functionality as our solutions. We cannot assure you that the steps we take to protect our intellectual property will be adequate to deter misappropriation of our proprietary information or that we will be able to detect unauthorized use and take appropriate steps to protect our intellectual property. United States federal and state intellectual property laws offer limited protection, and the laws of some countries provide even less protection. Moreover, changes in intellectual property laws, such as changes in the law regarding the patentability of software, could also impact our ability to obtain protection for our solutions. In addition, patents may not be issued with respect to our pending or future patent applications. Those patents that are issued may not be upheld as valid, may be contested or circumvented, or may not prevent the development of competitive solutions.
Patent and other intellectual property disputes are common in our industry. We might be required to spend significant resources and divert the efforts of our technical and management personnel to monitor and protect our intellectual property. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Any failure to secure, protect and enforce our intellectual property rights could seriously adversely affect our brand and adversely impact our business.
In addition, our business and operating results.
Patent and other intellectual property disputes are common in our industry. Our success depends upon our ability to refrain from infringing upon the intellectual property rights of others. Some companies, including some of our competitors, own large numbers of patents, copyrights and trademarks, which they may use to assert claims against us. As we grow and enter new markets, we will face a
growing number of competitors. As the number of competitors in our industry grows and the functionality of products in different industry segments overlaps, we expect that software and other solutions in our industry may be subject to such claims by third parties. Third parties may in the future assert claims of infringement, misappropriation or other violations of intellectual property rights against us. We cannot assure you that infringement claims will not be asserted against us in the future, or that, if asserted, any infringement claim will be successfully defended. A successful claim against us could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms. We may also be obligated to indemnify our customers or business partners or pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, modify applications or refund fees, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations.
Some of our solutions utilize open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.
Some of our solutions include software covered by open source licenses, which may include, by way of example, GNU General Public License and the Apache License. The terms of various open source licenses have not been interpreted by United States courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our solutions. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software, and to make our proprietary software available under open source licenses, if we combine our proprietary software with open source software in a certain manner. In the event that portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, reengineerre-engineer all or a portion of our technologies, or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our technologies and services. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties, assurance of performance or title, or controls on the origin of, theor updates to, such software. Many of the risks associated with usage of open source software cannot be eliminated and could negatively affect our business.
If we failRisks Related to continue to develop our brand, our business may suffer.Taxes
We believe that continuing to develop and maintain awareness of our brand is critical to achieving widespread acceptance of our solution and is an important element in attracting and retaining customers. Efforts to build our brand may involve significant expense and may not generate customer awareness or increase revenue at all, or in an amount sufficient to offset expenses we incur in building our brand.
Promotion and enhancement of our name and the brand names of our solutions depends largely on our success in being able to provide high quality, reliable and cost-effective solutions. If customers do not perceive our solutions as meeting their needs, or if we fail to market our solutions effectively, we will likely be unsuccessful in creating the brand awareness that is critical for broad customerThe adoption of our solutions. That failure could result in a material adverse effect on our business, financial condition and operating results.
Legislative and regulatory changes can influence demand for our solutions andnew tax legislation could adversely affect our business.business and financial condition.
The market forChanges to U.S. tax laws could also impact how U.S. corporations are taxed. Although we cannot predict whether or in what form such changes will be issued or enacted, they could have a material impact on our solutions depends in part oneffective tax rate, income tax expense, deferred tax assets, results of operations, cash flows, and profitability. Additionally, as our employees continue to work remotely from geographic locations across the requirementsU.S. and internationally, we may become subject to additional taxes and our compliance burdens with respect to the tax laws of the SEC, the Federal Reserve System, the Federal Deposit Insurance Corporation and other regulatory bodies. Any legislation or rulemaking substantially affecting the content or method of delivery of documents toadditional jurisdictions may be filed with theseincreased.
regulatory bodies could have an adverse effect on our business. In addition, evolving market practices in light of regulatory developments could adversely affect the demand for our solutions. Uncertainty caused by political change in the United States and European Union (particularly Brexit) heightens regulatory uncertainty in these areas. For example, the White House and Congressional leadership have publicly announced a goal of repealing or amending parts of the Dodd Frank Act, as well as certain regulations affecting the financial services industry. New legislation, or a significant change in rules, regulations, directives or standards could reduce demand for our products and services, increase expenses as we modify our products and services to comply with new requirements and retain relevancy, impose limitations on our operations, and increase compliance or litigation expense, each of which could have a material adverse effect on our business, financial condition and results of operations.
We may need to raise additional capital, which may not be available to us.
We will require substantial funds to support the implementation of our business plan. Our future liquidity and capital requirements are difficult to predict as they depend upon many factors, including the success of our solutions and competing technological and market developments. In the future, we may require additional capital to respond to business opportunities, challenges, acquisitions, a decline in the level of customer prepayments or unforeseen circumstances and may determine to engage in equity or debt financings or enter into credit facilities for other reasons, and we may not be able to timely secure additional debt or equity financing on favorable terms, or at all. Any debt financing obtained by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our Class A common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.
Our credit facility contains restrictive covenants that may limit our operating flexibility.
Our credit facility contains certain restrictive covenants that limit our ability to transfer or dispose of assets, merge with other companies or consummate certain changes of control, acquire other companies, pay dividends, incur additional indebtedness and liens, experience changes in management and enter into new businesses. We therefore may not be able to engage in any of the foregoing transactions unless we obtain the consent of the lender or terminate the credit facility, which may limit our operating flexibility. In addition, our credit facility is secured by all of our assets, has first priority over our other debt obligations and requires us to satisfy certain financial covenants, including the maintenance of at least $5.0 million of cash on hand or unused borrowing capacity. There is no guarantee that we will be able to generate sufficient cash flow or sales to meet these financial covenants or pay the principal and interest on any such debt. Furthermore, there is no guarantee that future working capital, borrowings or equity financing will be available to repay or refinance any such debt. Any inability to make scheduled payments or meet the financial covenants on our credit facility would adversely affect our business.
U.S. federal income tax reform could adversely affect our business and financial condition
On December 22, 2017, the U.S. federal government enacted legislation commonly referred to as the “Tax Cuts and Jobs Act” (the “TCJA”). The TCJA makes widespread changes to the Internal Revenue Code, including, among other items, reduces the federal corporate tax rate to 21%, imposes significant additional limitations on the deductibility of interest, allows for the expensing of capital expenditures, imposes a one-time tax on unrepatriated earnings from certain foreign subsidiaries, taxes offshore earnings at reduced rates regardless of whether they are repatriated, and modifies or repeals many
business deductions and credits. We continue to examine the impact the TCJA may have on our business. Notwithstanding the reduction in the corporate income tax rate, we cannot yet conclude that the overall impact of the TCJA to us is positive. The TCJA could adversely affect our business, operating results and financial condition, as well as the value of an investment in our Class A common stock. Investors should consult with their own tax advisors with respect to the TCJA and the potential tax consequences of investing in common shares.
Determining our income tax rate is complex and subject to uncertainty.
The computation of provision for income tax is complex, as it is based on the laws of numerous taxing jurisdictions and requires significant judgment on the application of complicated rules governing accounting for tax provisions under U.S. generally accepted accounting principles. In addition, the application of federal, state, local and international tax laws to services provided electronically is evolving, and new tax requirements could be applied solely or disproportionately to services provided over the internet. Provision for income tax for interim quarters is based on a forecast of our U.S. and non-U.S. effective tax rates for the year, which includes forward-looking financial projections, including the expectations of profit and loss by jurisdiction, and contains numerous assumptions. Various items cannot be accurately forecasted and future events may be treated as discrete to the period in which they occur. Our provision for income tax can be materially impacted, for example, by the geographical mix of our profits and losses, changes in our business, such as internal restructuring and acquisitions, changes in tax laws and accounting guidance and other regulatory, legislative or judicial developments most recently the Tax Cuts and Jobs Act,changes in tax rates, tax audit determinations, changes in our uncertain tax positions, changes in our intent and capacity to permanently reinvest foreign earnings, changes to our transfer pricing practices, tax deductions attributed to equity compensation and changes in our need for a valuation allowance for deferred tax assets. For these reasons, our actual income taxes may be materially different than our provision for income tax.
Adverse tax laws or regulations could be enacted or existing laws could be applied to us or our customers, which could increase the costs of our services and adversely impact our business.
The application of federal, state, local and international tax laws to services provided electronically is evolving. New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time (possibly with retroactive effect), and could be applied solely or disproportionately to services provided over the internet. These enactments could adversely affect our sales activity due to the inherent cost increase the taxes would represent and ultimately result in a negative impact on our operating results.
In addition, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us (possibly with retroactive effect), which could require us or our customers to pay additional tax amounts, as well as require us or our customers to pay fines or penalties and interest for past amounts. If we are unsuccessful in collecting such taxes from our customers, we could be held liable for such costs, thereby adversely impacting our operating results.
We operate and offer our services in many jurisdictions and, therefore, may be subject to federal, state, local and foreign taxes that could harm our business.
As an organization that operates in many jurisdictions in the United States and around the world, we may be subject to taxation in several jurisdictions with increasingly complex tax laws, the application of which can be uncertain. The authorities in these jurisdictions in which we operate or otherwise conduct business, including state and local taxing authorities in the United States, could successfully assert that we are obligated to pay additional taxes, interest and penalties. In addition, the amount of taxes we pay could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, which could have a material adverse effect on our liquidity and operating results. The authorities could also claim that various withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties, tax holidays or government grants that we intend to utilize are not available to us or our subsidiaries, any of which could have a material impact on us and the results of our operations. In
addition, we may lose sales or incur significant costs should variousThe tax jurisdictions impose taxes on either a broader range of services or services that we have performedauthorities in the past. We may be subject to audits of the taxing authorities in any such jurisdictions that would require us to incur costs in responding to such audits. Imposition of such taxes onUnited States and other countries where we do business regularly examine our servicesincome and other tax returns, and these examinations could result in substantially unplanned costs, would effectively increase the costassessment of such services to our customers and could adversely affect our ability to retain existing customers or to gain new customers in the areas in which such taxes are imposed.
We operate service sales centers in multiple locations. Some of the jurisdictions in which we operate may give us the benefit of either relatively low tax rates, tax holidays or government grants, in each case that are dependent on how we operate or how many jobs we create and employees we retain. We plan on utilizing such tax incentives in the future as opportunities are made available to us. Any failure on our part to operate in conformity with applicable requirements to remain qualified for any such tax incentives or grants may result in an increase in ourmaterial additional taxes. In addition, jurisdictions may choose to increase rates at any time due to economic or other factors. Any such rate increase could harm our results of operations.
In addition, changes to U.S. tax laws recently enacted, referred to as the Tax Cuts and Jobs Act, will impact the tax treatment of our foreign earnings. Due to expansion of our international business activities, any changes in the U.S. taxation of such activities could increase our worldwide effective tax rate and adversely affect our financial position and results of operations.
We may have additional tax liabilities, which could harm our business, results of operations or financial position.
Significant judgments and estimates are required in determining the provision for income taxes and other tax liabilities. Our tax expense also may be impacted if our intercompany transactions, which are required to be computed on an arm’s-length basis, are challenged and successfully disputed by the tax authorities. Also,For these reasons, our tax expenseactual income taxes may be materially different from our provision for income tax.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
In general, under Section 382 of the Internal Revenue Code, as amended (the “Code”), a corporation that undergoes an ownership change within the meaning of Section 382 of the Code and the underlying regulations is subject to limitations on its ability to utilize its pre-change net operating losses (“NOLs”), to offset future taxable income. If our existing NOLs are subject to limitations arising from previous ownership changes, our ability to utilize NOLs could be impacted depending onlimited by Section 382 of the applicabilityCode. Future changes in our stock ownership, some of withholding taxes and indirect tax on software licenses and related intercompany transactions in certain jurisdictions. In determining the adequacywhich are outside of income taxes, we assess the likelihood of adverse outcomes thatour control, could result ifin an ownership change under Section 382 of the Code. Furthermore, our tax positions were challenged byability to utilize the IRS and other tax authorities. The tax authorities in the United States and other countries where we do business regularly examine our income and other tax returns. The ultimate outcomeNOLs of these examinations cannot be predicted with certainty. Should the IRS or other tax authorities assess additional taxes as a result of examinations, we may be required to record charges to operationscompanies that could have a material impact on our results of operations, or financial position.
Sales to customers outside the United States expose us to risks inherent in international sales.
A key element of our growth strategy is to expand our international operations and develop a worldwide customer base. To date, we have not realized a significant portion of our revenue from customers headquartered outside the United States. Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic and political risks that are different from those in the United States. Because of our limited experience with international operations, our international expansion effortsacquired or may not be successful in creating demand for our solutions outside of the United States or in effectively selling subscriptions to our solutions in all of the international markets we enter. In addition, we will face risks in doing business internationally that could adversely affect our business, including:
the need to localize and adapt our solutions for specific countries, including translation into foreign languages and associated expenses;increased management, travel, infrastructure, legal compliance and regulation costs associated with having multiple international operations;sales and customer service challenges associated with operating in different countries;
data privacy laws that require customer data to be stored and processed in a designated territory;difficulties in staffing and managing foreign operations;different pricing environments, longer sales cycles and longer accounts receivable payment cycles and collections issues;new and different sources of competition;weaker protection for intellectual property and other legal rights than in the United States and practical difficulties in enforcing intellectual property and other rights outside of the United States;laws and business practices favoring local competitors;compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including employment, tax, privacy and data protection laws and regulations;increased financial accounting and reporting burdens and complexities;restrictions on the transfer of funds;adverse tax consequences; andunstable regional and economic political conditions.
Currently, some of our international contracts are denominated in local currencies; however, the majority of our local costs are denominated in local currencies. We anticipate that over time, an increasing portion of our international contracts may be denominated in local currencies. Therefore, fluctuations in the value of the United States dollar and foreign currencies may impact our operating results when translated into United States dollars. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations.
We may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results.
We may in the future seekmay be subject to acquirelimitations. There is also a risk that under prior regulations or invest in businesses, applications or technologies that we believedue to other unforeseen reasons, our prior year NOLs could complement or expand our solutions, enhance our technical capabilitiesexpire or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause usbe unavailable to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.
In addition, we have limited experience in acquiring other businesses. If we acquire additional businesses,offset future income tax liabilities. For these reasons, we may not be able to integrate the acquired personnel, operations and technologies successfully or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefitsrealize a tax benefit from the acquired business due to a number of factors, including:
inability to integrate or benefit from acquired technologies or services in a profitable manner;unanticipated costs or liabilities associated with the acquisition;incurrence of acquisition-related costs;difficulty integrating the accounting systems, operations and personnel of the acquired business;difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business;
difficulty converting the customers of the acquired business onto our solutions and contract terms, including disparities in the revenue, licensing, support or professional services model of the acquired company;diversion of management’s attention from other business concerns;adverse effects to our existing business relationships with business partners and customers as a result of the acquisition;the potential loss of key employees;- use of
resources that are needed in other parts of our business; and use of substantial portions of our available cash to consummate the acquisition.
In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our results of operations.
Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial position could suffer.
We are subject to general litigation that may materially adversely affect us.
From time to time, we may be involved in disputes or regulatory inquiries that arise in the ordinary course of business. We expect that the number and significance of these potential disputes may increase as our business expands and our company grows larger. While our agreements with customers limit our liability for damages arising from our solutions, we cannot assure you that these contractual provisions will protect us from liability for damages in the event we are sued. Although we carry general liability insurance coverage, our insurance may not cover all potential claims to which we are exposed or may not be adequate to indemnify us for all liability that may be imposed. Any claims against us,NOLs, whether meritorious or not could be time consuming, result in costly litigation, require significant amounts of management time, and result in the diversion of significant operational resources. Because litigation is inherently unpredictable, we cannot assure you that the results of any of these actions will not have a material adverse effect on our business, financial condition, results of operations and prospects.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States, including those related to revenue recognition.
Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change.
In May 2014, the FASB issued guidance codified in ASC 606, Revenue Recognition – Revenue from Contracts with Customers (ASU 2014-09), which amends the guidance in former ASC 605, Revenue Recognition. We adopted this new standard on the effective date of January 1, 2018, utilizing the modified retrospective method. We are in the process of finalizing the impact the adoption of this standard will have on our financial statements and have implemented changes to our accounting processes, internal controls and disclosures to support the new standard. See Note 1 to our accompanying consolidated financial statements for information about ASU 2014-09.
attain profitability.
Any difficulties in implementing ASC 606 could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline, harm investors’ confidence in us, and adversely affect our stock price.
We have broad discretion in the use of the net proceeds from our initial public offering and may not use them effectively.
We cannot specify with any certainty the particular uses of the net proceeds that we have received from our initial public offering. We have broad discretion in the application of the net proceeds, including working capital, possible acquisitions, and other general corporate purposes, and we may spend or invest these proceeds in a way with which our stockholders disagree. A failure by our management to apply these funds effectively could adversely affect our business and financial condition. The net proceeds may be invested with a view towards long-term benefits for our stockholders, and this may not increase our operating results or market value. Pending their use, we may invest the net proceeds from our initial public offering in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.
Risks Related to Ownership of Our Class A Common StockSecurities
Our stock price has been and will likely continue to be volatile or may decline regardless of our operating performance, resulting in substantial losses for our investors.performance.
The trading price for shares of our Class A common stock has been, and is likely to continue to be, volatile for the foreseeable future. The market price of our Class A common stock may fluctuate in response to many risk factors listed in this section, and others beyond our control, including:
actual or anticipated fluctuations in our financial condition and operating results;changes in projected operational and financial results;addition or loss of significant customers;changes in laws or regulations applicable to our solutions;actual or anticipated changes in our growth rate relative to our competitors;announcements of technological innovations or new offerings by us or our competitors;announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments;additions or departures of key personnel;changes in our financial guidance or securities analysts’ estimates of our financial performance;discussion of us or our stock price by the financial press and in online investor communities;changes in accounting principles;announcements related to litigation;fluctuations in the valuation of companies perceived by investors to be comparable to us;sales of our Class A or Class B common stock by us or our stockholders;share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; andgeneral economic and market conditions.
Furthermore, the stock markets recently have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies, and technology companies in particular. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our Class A common stock. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could harm our business.
If there are substantial sales of shares of our Class A common stock or some or all of our convertible senior notes are converted and sold, the price of our Class A common stock could decline.
The price of our Class A common stock could decline if thereour convertible senior notes are substantial salesconverted. In addition, upon conversion of our Class A common stock, particularly sales by our directors, executive officers and significant stockholders,the convertible senior notes, we have the option to pay or if there is a large number ofdeliver, as the case may be, cash, shares of our Class A common stock, available for sale. Allor a combination of thecash and shares of our Class A common stock, sold in our initial public offering are freely tradeable without restrictions or further registration underand anticipated conversion of the Securities Act of 1933, as amended (Securities Act), except for any shares held by our affiliates as defined in Rule 144 under the Securities Act. Shares held by directors, executive officers and other affiliates are subject to volume limitations under Rule 144 under the Securities Act. In addition, theconvertible senior notes into shares of our Class A common stock subject to outstanding options undercould depress the price of our equity incentive plans andClass A common stock. Further, the shares reserved for future issuance under our equity incentive plans are eligible for sale toexistence of the public, subject to certain legal and contractual limitations. convertible senior notes may encourage short selling by market participants that engage in hedging or arbitrage activity.
The market price of the shares of our Class A common stock could decline as a result of the sale of a substantial number of our shares of common stock in the public market, including by us, our directors, executive officers and significant shareholders, or by the perceptionconversion of our convertible senior notes into shares of our Class A common stock and the subsequent sale of such shares in the market that thepublic market. New investors in subsequent transactions could gain rights, preferences and privileges senior to those of holders of a large number of shares intend to sell their shares.our Class A common stock.
The dual class structure of our common stock has the effect of concentratingconcentrates voting control with certain of our executives and their affiliates.executives.
Our Class B common stock has ten votes per share, and our Class A common stock has one vote per share. As of December 31, 2017,2022, the holders of shares of our Class B common stock collectively beneficially owned shares representingby certain of our current and former executive officers collectively represented approximately 76%44% of the voting power of our outstanding capital stock. Our executive officers collectively beneficially owned shares representing a substantial majorityThis significant concentration of the voting power of our outstanding capital stock as of that date. Because of the ten-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock and therefore be able to control all matters submitted to our stockholders for approval so long as the shares of Class B common stock represent at least 9.1% of all outstanding shares of our Class A and Class B common stock. This concentrated control willmay limit the ability of Class A common stockholders to influence corporate matters for the foreseeable future and may have the effect of delaying, deferring or preventing a change in control, impeding a merger, consolidation, takeover or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our business, even if such a transaction would benefit other stockholders. The holders of Class B common stock may also have interests that differ from those of Class A common stock holders and may vote in a way that may be adverse to the interests of holders of Class A common stock.
Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, subject to limited exceptions, such as certain transfers to family members and transfers effected for estate planning purposes. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term. If, for example, certain holders
of Class B common stock retain a significant portion of their holdings of Class B common stock for an extended period of time, and a significant portion of the Class B common stock initially held by other executives is converted to Class A common stock, the remaining holders of Class B common stock could, as a result, acquire control of a majority of the combined voting power. As directors and executive officers, the initial beneficial owners of Class B common stock owe a fiduciary duty to our stockholders and must act in good faith in a manner they reasonably believe to be in the best interests of our stockholders. As stockholders, even if one of them becomes a controlling stockholder, each beneficial owner of Class B common stock is entitled to vote his shares in his own interests, which may not always be in the interests of our stockholders generally.
Anti-takeover provisions in our charter documents, our convertible senior notes and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management and may negatively affect the market price of our Class A common stock.
Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our certificate of incorporation and bylaws include provisions that:
•establish that our board of directors is divided into three classes, with each class serving three-year staggered terms;
•provide that our directors may be removed only for cause;
•provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;
•require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;
•specify that special meetings of our stockholders can be called only by our board of directors, the chairman of our board of directors or our chief executive officer or president (in the absence of a chief executive officer);
•establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;
•authorize our board of directors to issue, without further action by the stockholders, up to 100,000,000 shares of undesignated preferred stock;
•require the approval of our board of directors or the holders of a supermajority of our outstanding shares of capital stock to amend our bylaws and certain provisions of our certificate of incorporation; and
•reflect two classes of common stock, as discussed above.
TheseIn addition, certain provisions in the indenture governing our convertible senior notes may frustrate or prevent any attempts by our stockholders to replace or remove our current management by makingmake it more difficult or expensive for stockholdersa third party to replace members of our board of directors, which is responsible for appointing the members of our management.acquire us. In addition, we are a Delaware corporation and governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder, in particular those owning 15% or more of our outstanding voting stock, for a period of three years following the date on which the stockholder became an “interested” stockholder.
Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to decline.
Our certificate of incorporation authorizes us to issue up to 1,000,000,000 shares of Class A common stock. Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders. We may sell Class A common stock, convertible securities and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, investors may be materially diluted. New investors in subsequent transactions could gain rights, preferences and privileges senior to those of holders of our Class A common stock.
We will continue to incur significantly increased costs and devote substantial management time as a result of operating as a public company.
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (Exchange Act), and are required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Act, as well as rules and regulations subsequently implemented by the SEC and the New York Stock Exchange, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Compliance with these requirements has increased our legal and financial compliance costs and made some activities more time consuming and costly. Many of these costs recur annually. We have incurred, and will continue to incur, significant expenses and devote substantial management effort toward ensuring compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and as a result, their application in practice may evolve over time as regulatory and governing bodies provide new guidance. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We will continue to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business could be adversely affected.
As a result of disclosure of information as a public company, our business and financial condition have become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If the claims are successful, our business operations and financial results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business operations and financial results. These factors could also make it more difficult for us to attract and retain qualified employees, executive officers and members of our board of directors.
Operating as a public company makes it more difficult and more expensive for us to obtain director and officer liability insurance on the terms that we would like. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.
A failure to maintain adequate internal controls over our financial and management systems could cause errors in our financial reporting, which could cause a loss of investor confidence and result in a decline in the price of our Class A common stock.
In order to meet our reporting obligations as a public company, we must maintain effective financial and management systems and internal controls. Moreover, the Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. If we have a material weakness or deficiency in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. Effective internal controls are necessary for us to produce reliable financial reports and are important to prevent fraud. As a result, our failure to maintain effective financial and management systems and internal controls could result in errors in our financial reporting, us being subject to regulatory action and a loss of investor confidence in the reliability of our financial statements, any of which in turn could cause the market value of our Class A common stock to decline and adversely affect our ability to raise capital.
We are an “emerging growth company,” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies make our Class A common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we are taking advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will cease to be an “emerging growth company” upon the earliest of (i) December 31, 2019, (ii) the last day of the first fiscal year in which our annual gross revenue is $1 billion or more, (iii) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in nonconvertible debt securities or (iv) the date on which we qualify as a “large accelerated filer” with at least $700 million of equity securities held by non-affiliates. We cannot determine whether investors find our Class A common stock less attractive or our company less comparable to certain other public companies because we rely on these exemptions.
We do not intend to pay dividends for the foreseeable future.
We may not declare or pay cash dividends on our capital stock in the near future. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. Consequently, stockholders must rely on sales of their Class A common stock after price appreciation as the only way to realize any future gains on their investment.
If securities or industry analysts do not regularly publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, or if our actual results differ significantly from our guidance, our stock price and trading volume could decline.Risks Related to Our Indebtedness
The trading market forconditional conversion feature of our Class A common stockconvertible senior notes may adversely affect our financial condition and operating results.
We completed an offering of convertible senior notes in August 2019. In the event the conditional conversion feature of our convertible senior notes is triggered, holders of such notes will depend in part onbe entitled to convert the research and reports that securities or industry analysts publish about us or our business. If few securities analysts maintain coverage of us, or if industry analysts cease coverage of us, the trading price for our Class A common stock would be negatively affected.convertible senior notes at any time during specified periods at their option. If one or more of the analysts who cover us downgradeholders elect to convert their convertible senior notes, unless we elect to satisfy our Class A common stock or publish inaccurate or unfavorable research about our business, the priceconversion obligation by delivering solely shares of our Class A common stock (other than paying cash in lieu of delivering any fractional share), we would likely decline. If one or more of these analysts cease coverage of us or failbe required to publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our Class A common stock price and trading volume to decline.
In addition, from time to time, we may release earnings guidance or other forward-looking statements in our earnings releases, earnings conference calls or otherwise regarding our future performance that represent our management’s estimates as of the date of release. Somesettle a portion or all of our conversion obligation through the assumptionspayment of any future guidance thatcash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their convertible senior notes, we furnish may not materializewould be required under applicable accounting rules to reclassify all or may vary significantly from actual future results. Any failure to meet guidance or analysts’ expectations could havea portion of the outstanding principal of the convertible senior notes as a current rather than long-term liability, which would result in a material adverse effectreduction of our net working capital.
Servicing our debt requires a significant amount of cash.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our current and future indebtedness, including our convertible senior notes, depends on our future performance. In addition, holders of the trading price or trading volumeconvertible senior notes will have the right to require us to repurchase their convertible senior notes for cash upon the occurrence of certain fundamental changes. Upon conversion of the convertible senior notes, unless we elect to deliver solely shares of our Class A common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the notes being converted. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and may result in shareholder litigation.make necessary capital expenditures.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters is located in Ames, Iowa, where we lease approximately 120,000 square feet of office space. We also lease office facilities in elevenseven U.S. cities located in Arizona, Colorado, Florida, Georgia, Illinois, Montana, New York, and South Carolina, and Texas.Carolina. Internationally, we lease offices in Ontario and Saskatchewan, Canada, the Netherlands, and the United Kingdom.Kingdom, Germany, France, Denmark, Hong Kong, Australia, Japan, and Singapore. We believe that our properties are generally suitable to meet our needs for the foreseeable future. In addition, to the extent we require additional space in the future, we believe that it would be readily available on commercially reasonable terms.
Item 3. 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 4. Mine Safety Disclosure
Not applicable.
Part II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our Class A common stock is listed on the NYSE under the symbol “WK”. The following table sets forth the range of high and low per share sales prices for our common stock as reported on the NYSE for the periods indicated.
| | | | | | | | | | | | | | |
| | Prices |
| | High | | Low |
Year ending December 31, 2017 | | | | |
Fourth quarter | | $ | 23.70 | | $ | 20.60 |
Third quarter | | $ | 21.05 | | $ | 18.35 |
Second quarter | | $ | 20.15 | | $ | 15.40 |
First quarter | | $ | 16.20 | | $ | 12.15 |
Year ending December 31, 2016 | | | | |
Fourth quarter | | $ | 18.11 | | $ | 12.65 |
Third quarter | | $ | 19.04 | | $ | 13.19 |
Second quarter | | $ | 14.05 | | $ | 11.14 |
First quarter | | $ | 17.48 | | $ | 10.92 |
Our Class B common stock is not listed or traded on any stock exchange.
Stockholders
As of December 31, 2017,2022, there were approximately 17568 stockholders of record of our Class A common stock, as well as 1310 stockholders of record of our Class B common stock.
Dividends
We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends on our capital stock. Any future determination to pay dividends on our capital stock will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements and other factors that our board of directors considers relevant. In addition, our credit facility with Silicon Valley Bank restricts our ability to pay dividends. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for a summary of the material terms of our credit facility.
Stock Performance Graph
The following shall not be deemed incorporated by reference into any of our other filings under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended.Act.
The graph below compares the cumulative total stockholder return on our Class A common stock with the cumulative total return on the Standard & Poor’s 500 Index and the Nasdaq Computer Index. The chart assumes $100 was invested at the close of market on December 12, 2014,31, 2017, in the Class A common stock of Workiva Inc., the S&P 500 Index and the Nasdaq Computer Index, and assumes the reinvestment of any dividends.
The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our Class A common stock.
Use of Proceeds from Public Offerings of Common Stock
On December 17, 2014, we closed our initial public offering of 7,200,000 shares of Class A common stock at a price to the public of $14.00 per share. The offer and sale of all of the shares in the initial public offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-199459), which was declared effective by the SEC on December 11, 2014.
There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on December 12, 2014. Pending the uses described in our prospectus, we have invested the net proceeds in money market funds and marketable securities. We have also repaid a $2.0 million forgivable loan with proceeds from our initial public offering, allowing us to cancel letters of credit in the amount that served as security for the forgivable loan.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Company/Index | | 12/31/2017 | | 12/31/2018 | | 12/31/2019 | | 12/31/2020 | | 12/31/2021 | | 12/31/2022 |
Workiva Inc. (WK) | | $ | 100.00 | | | $ | 167.71 | | | $ | 196.50 | | | $ | 428.13 | | | $ | 609.77 | | | $ | 392.38 | |
S&P 500 Index (SPX) | | 100.00 | | | 95.67 | | | 125.86 | | | 149.12 | | | 192.06 | | | 157.33 | |
NASDAQ Computer Index (IXK) | | 100.00 | | | 97.36 | | | 147.94 | | | 223.91 | | | 310.41 | | | 186.49 | |
Issuer Purchases of Equity Securities
The following table provides information about purchases of shares of our Class A common stockCommon Stock during the three months ended December 31, 20172022 related to shares withheld upon vesting of restricted stock awardsunits 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 |
October 2017 | | — | | — | | — | | — |
November 2017 | | 8,445 | | $ | 22.35 | | — | | — |
December 2017 | | — | | — | | — | | — |
Total | | 8,445 | | $ | 22.35 | | — | | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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 |
October 2022 | | 24,285 | | | $ | 77.80 | | | — | | | — | |
November 2022 | | — | | | — | | | — | | | — | |
December 2022 | | — | | | — | | | — | | | — | |
Total | | 24,285 | | | $ | 77.80 | | | — | | | — | |
(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 6. [Reserved]
Item 6. Selected Consolidated Financial Data
The following selected consolidated financial data for the years ended December 31, 2017, 2016 and 2015 and the selected consolidated balance sheet data as of December 31, 2017 and 2016 are derived from our audited consolidated financial statements included elsewhere in this Form 10-K. The following selected consolidated financial data for the years ended December 31, 2014 and 2013, and the selected consolidated balance sheet data as of December 31, 2015, 2014 and 2013 are derived from our audited consolidated financial statements not included in this Form 10-K. Our historical results are not necessarily indicative of the results to be expected in the future.
Consolidated Statement of Operations Data
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | | | | | | | |
| (in thousands, except share and per share information) |
Revenue | | | | | | | | | |
Subscription and support | $ | 169,283 | | $ | 143,120 | | $ | 116,288 | | $ | 91,317 | | $ | 65,164 |
Professional services | 38,586 | | 35,526 | | 28,984 | | 21,377 | | 19,987 |
Total revenue | 207,869 | | 178,646 | | 145,272 | | 112,694 | | 85,151 |
Cost of revenue | | | | | | | | | |
Subscription and support(1) | 32,646 | | 27,895 | | 22,559 | | 21,182 | | 15,129 |
Professional services(1) | 27,599 | | 23,730 | | 17,645 | | 12,696 | | 9,520 |
Total cost of revenue | 60,245 | | 51,625 | | 40,204 | | 33,878 | | 24,649 |
Gross profit | 147,624 | | 127,021 | | 105,068 | | 78,816 | | 60,502 |
Operating expenses | | | | | | | | | |
Research and development(1) | 68,172 | | 57,438 | | 50,466 | | 44,145 | | 34,116 |
Sales and marketing(1) | 84,161 | | 80,466 | | 69,569 | | 53,498 | | 41,067 |
General and administrative(1) | 39,594 | | 32,695 | | 28,716 | | 19,783 | | 14,601 |
Total operating expenses | 191,927 | | 170,599 | | 148,751 | | 117,426 | | 89,784 |
Loss from operations | (44,303) | | (43,578) | | (43,683) | | (38,610) | | (29,282) |
Interest expense | (1,845) | | (1,875) | | (2,025) | | (2,044) | | (366) |
Other income and (expense), net(2) | 1,783 | | 1,500 | | 2,302 | | (468) | | 104 |
Loss before provision for income taxes | (44,365) | | (43,953) | | (43,406) | | (41,122) | | (29,544) |
Provision (benefit) for income taxes | 61 | | 24 | | (7) | | 32 | | — |
Net loss | $ | (44,426) | | $ | (43,977) | | $ | (43,399) | | $ | (41,154) | | $ | (29,544) |
Net loss per common share: | | | | | | | | | |
Basic and diluted | $ | (1.07) | | $ | (1.08) | | $ | (1.09) | | $ | (1.28) | | $ | (0.94) |
Weighted-average common shares outstanding - basic and diluted | 41,618,838 | | 40,671,133 | | 39,852,624 | | 32,156,060 | | 31,376,603 |
(1) Stock-based compensation expense included in these line items is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (in thousands) |
Cost of revenue | | | | | | | | | |
Subscription and support | $ | 738 | | $ | 493 | | $ | 363 | | $ | 502 | | $ | 200 |
Professional services | 465 | | 411 | | 349 | | 337 | | 171 |
Operating expenses | | | | | | | | | |
Research and development | 2,224 | | 2,365 | | 1,924 | | 1,757 | | 762 |
Sales and marketing | 2,983 | | 2,075 | | 1,727 | | 1,241 | | 799 |
General and administrative | 13,066 | | 8,903 | | 6,637 | | 3,548 | | 1,438 |
Total stock-based compensation expense | $ | 19,476 | | $ | 14,247 | | $ | 11,000 | | $ | 7,385 | | $ | 3,370 |
(2) During December 2015, we resolved all contingencies associated with a government grant agreement resulting in higher government grant income recorded to “Other income and (expense), net” for the year ended December 31, 2015. See Note 5, Commitments and Contingencies, to the Consolidated Financial Statements.
Consolidated Balance Sheet Data
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| (in thousands) |
Cash and cash equivalents | $ | 60,333 | | $ | 51,281 | | $ | 58,750 | | $ | 101,131 | | $ | 15,515 |
Working capital, excluding deferred revenue and deferred government grant obligation | 90,852 | | 75,193 | | 70,520 | | 94,740 | | 19,926 |
Total assets | 157,715 | | 143,143 | | 143,895 | | 164,551 | | 73,944 |
Deferred revenue, current and long term | 127,393 | | 97,501 | | 63,338 | | 56,276 | | 36,385 |
Total current liabilities | 129,341 | | 99,887 | | 84,084 | | 66,730 | | 43,425 |
Total non-current liabilities | 45,308 | | 46,381 | | 34,092 | | 42,002 | | 37,306 |
Total stockholders’ (deficit) equity | (16,934) | | (3,125) | | 25,719 | | 55,819 | | — |
Total members’ (deficit) | — | | — | | — | | — | | (6,787) |
Item 7. 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 consolidated financial statements and related notes included elsewhere in this Annual Report. 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 “Section 1A. Risk Factors” included elsewhere in this Annual Report.
Overview
Workiva provides Wdesk, an intuitive cloud platform that modernizes how customerssimplifies complex work with business data atfor thousands of organizations. Wdeskorganizations worldwide. We are a leading provider of cloud-based compliance and regulatory reporting solutions that are designed to solve business challenges at the intersection of data, process and people.
Workiva changes the way enterprises manage and report business data. Our open, intelligent and intuitive platform is builtbased on asingle instance, multi-tenant software applications deployed in the cloud. Our platform connects data, management engine, offeringdocuments and teams, which results in improved efficiency, greater transparency and reduced risk of errors. We offer customers controlled collaboration, data connections,linking, data integrations, granular permissions, process management and a full audit trail. Wdesk helps mitigate risk,trail on our proprietary platform.
Customers use our platform to create, review and publish data-linked documents and reports with greater control, consistency, accuracy and productivity. Customers collaborate in the same document simultaneously, which improves productivityefficiency and gives users confidenceversion control. Our platform is flexible and scalable, so customers can easily adapt it to define, automate and change their business processes in their data-driven decisions. As of December 31, 2017, we provided our solutions to more than 3,000 enterprise customers, including more than 70% of Fortune 500 companies.(1)real time.
Our scalable, enterprise-gradeplatform lets our customers connect data engine enables users to collect, aggregatefrom Enterprise Resource Planning (“ERP”), Governance, Risk and manage their unstructuredCompliance (“GRC”), Human Capital Management (“HCM”) and structured data in Wdesk. AlthoughCustomer Relationship Management (“CRM”) systems, as well as other third-party cloud and on-premise applications.
While our Wdeskcustomers use our platform is used for hundredsdozens of different use cases, across public and private companies, state and local governments and universities, we are currently focusing our sales and marketing resources to expand the use of Wdesk inare organized into four areas: financesolution groups: Financial Reporting, ESG, GRC and accounting, audit and internal controls, risk and compliance and performance and management reporting.Industry Verticals.
We operate our business on a software-as-a-service (SaaS)Software-as-a-Service (“SaaS”) model. Customers enter into quarterly, annual and multi-year subscription contracts to gain access to Wdesk.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 number of corporate entities, number of users, level of customer support and length of contract. Our pricing model is scaled to the number of users, so the subscription price per user typically decreases as the number of users increases.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-salesdirect sales channel with partnerships. Our advisory and service partners offer a wider range of domain and functional expertise that broadens the capabilities of Wdesk,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 Wdesk, which becomes a central repository of trusted data, with powerful linking, auditability and control features.
Our integrated platform, subscription-based model and exceptional customer support have contributed to a low rate of customer turnover while achieving strong revenue growth. Our subscription and support revenue retention rate was 96.0% (excluding add-on seats) for the twelve months ended December 31, 2017.our platform.
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 expanded to 1,3182,447 at December 31, 20172022 from 1,1722,106 at December 31, 2016,2021, an increase of 12.5%16.2%.
We have achieved significant revenue growth in recent periods. Our revenue grew to $207.9$537.9 million in 20172022 from $178.6$443.3 million in 2016,2021, an increase of 16.4%21.3%. We incurred net losses of $44.4$90.9 million and $44.0$37.7 million in 20172022 and 2016,2021, respectively.
(1) Claim not confirmed by FORTUNE or Time Inc. FORTUNE 500 is a registered trademark of Time Inc. and is used under license. FORTUNE and Time Inc. are not affiliated with, and do not endorse products or services of, Workiva Inc.
While we continue to see growth in our total revenues, macroeconomic factors have impacted our business and our customers’ businesses in ways that are difficult to isolate and quantify. During the course of 2022, we have seen more measured buying behavior from our customers resulting in elongated sales cycles. Slower growth in new business in any given period could negatively affect our revenues or operating margins in future periods, particularly if experienced on a sustained basis.
In addition, the expanding international scope of our business and the heightened volatility of global markets, expose us to the risk of fluctuations in foreign currency markets. Foreign currency fluctuations have negatively impacted year over year revenue growth. Recently the United States Dollar has strengthened against certain foreign currencies in the markets in which we operate, particularly against the Euro and British Pound Sterling. If these conditions continue throughout fiscal 2023, they could have a material adverse impact on our near-term results and our ability to accurately predict our future results and earnings.
We adoptedcontinue 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 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.
Recent Business Developments
On April 1, 2022, we acquired all of the guidance codifiedissued and outstanding equity interests in ASC 606, Revenue Recognition - Revenue from ContractsParsePort ApS, a leading solution provider for the ESEF financial reporting mandate, which complements Workiva's cloud platform.
On December 29, 2021, we acquired all of the equity interest in Mark V Systems Limited, a California corporation (“Mark V Systems”) and owner of Arelle, the leading open-source XBRL validation engine. As the global standard, Arelle is used by a community of over 50 global regulators, banks and technology companies that depend on it for data quality and comparison. Workiva is committed to working with Customers (ASU 2014-09) effective January 1, 2018. We expect the applicationXBRL community to keep Arelle open-sourced and collaborating for the advancement of this guidance will result in timing and presentation changes affecting our consolidated balance sheet and statement of operations, including acceleration of our professional services revenue for certain contracts; longer deferralimportant validation engine.
On December 10, 2021, we acquired all of the incremental costs of obtainingmembership interests in AuditNet, LLC (“AuditNet”), a contract;global audit content and increases in accounts receivable, deferred revenueservices provider, which strengthens Workiva’s risk and accrued expenses and other current liabilities. We will record a one-time adjustment to the opening balance of our accumulated deficit as of January 1, 2018 to adjust for these items. We do not expect the adoption of this standard to impact our total cash flows from operations. Refer to Note 1assurance offerings.
On July 30, 2021, we acquired all of the notesequity interest in OneCloud, Inc., an integration platform as a service (“iPaaS”) company, in order to extend our integration and data preparation capabilities. See Note 12 to the consolidated financial statements for additional detailsmore information on our acquisitions.
Impact of COVID-19
Although the COVD-19 pandemic persists, we do not believe that it has adversely affected our evaluation of ASU 2014-09.
On December 22, 2017, the U.S. federal government enacted legislation commonly referredbusiness. We have been able to as the “Tax Cutsmaintain business continuity and Jobs Act” (the “TCJA”). The TCJA makes widespreadhave experienced no pandemic-related employee furloughs or layoffs. We have remote-work options available for most employees, while permitting in-person collaboration at our various offices. We continue to monitor and update our practices in response to changes to the Internal Revenue Code, including, among other items, the reduction in the federal corporate statutory tax rate from 35%COVID-19 workplace safety and health standards established by the Occupational Safety and Health Administration (“OSHA”) and guidance provided by the Centers for Disease Control and Prevention (“CDC”).
COVID-19 variants continue to 21%develop and spread, and there is therefore the possibility of future disruption to Workiva’s operations. The impact of any disruption is dependent upon a number of factors including the duration and severity of any COVID-19 resurgence, its impact on the overall economy and specific industry sectors, vaccination rates and the introductionlonger-term efficacy of a new international “Global Intangible Low-Taxed Income” (“GILTI”) regime, both effective January 1, 2018. Please refervaccinations. We will continue to Notes 1evaluate the nature and 11 of the notes to consolidated financial statements for additional detailsextent of the impact of the TCJA.COVID-19 pandemic on our business.
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. We expect reduced valuation multiples caused by higher interest rates, inflation, and geopolitical instability to continue to negatively impact the number of IPOs and SPACs in fiscal year 2023. Accordingly, we expect this volatility to continue 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. WdeskThe Workiva platform can exhibit a powerful network effect within an enterprise, meaning that the usefulness of our platform attracts additional users andusers. Since solution-based licensing offers our customers an unlimited number of seats for each solution purchased, we expect customers to add more data.seats over time. As more employees in an enterprise use Wdesk,our platform, additional opportunities for collaboration and automation drive demand among their colleagues for add-on seats. Expansion within current customers includes adding users for both existing solutions and new use cases.additional solutions.
Pursue New Customers.Customers Our first software solution enabled customers. We sell to streamline and automate their SEC regulatory filing process. In 2013, we began expanding into additional marketsorganizations that were faced with managingmanage large, complex processes with manydistributed teams of contributors and disparate sets of business data. We now sellmarket our platform to new customersprofessionals and executives in the areas of financefinancial and accounting,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 audit and internal controls and performance and management reporting.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 Wdesk 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 propositionproposition; 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.
Expand Across Enterprises.Our success in delivering multiple solutions has created demand from customers for a broader-based, enterprise-wide WdeskWorkiva 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. In 2017, we continuedWe continue to add moreexpand 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 consultingadvisory and accountingservice partners offer a broaderwider range of servicesdomain and functional expertise that leveragebroadens our platform’s capabilities and promotes Workiva as part of the capabilities of Wdesk.digital transformation projects they drive for their customers. Our technology partners enable powerful data connections and process integrations to further streamlinehelp customers connect critical business functions as we capitalize on growing Wdesk demand for broader-based, enterprise-wide opportunities.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.growth. We plan to continue to invest in the development of our Wdesk 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. Investmentsbase and to take advantage of opportunities that we makehave identified in our salesEMEA and marketing and research and development organizations will occur in advance of experiencing any benefits from such investments. As a result, we expect our total operating expenses to increase.APAC.
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. As of December 31, 2017, approximately 78%2022, the majority of our SEC customers reportreported their financials on a calendar-year basis. As our non-SEC offerings continue to grow, we expect our professional services revenue to continue to become less seasonal. Our sales and marketing expense also has some degree of seasonality. SalesWith the exception of September 2020 and September 2021 when we transitioned to a virtual event, sales and marketing expense is generallyhas historically been higher in the third quarter since we holddue to our annual user conference in September.September, which was held as a hybrid in-person/virtual event in 2022. 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.
Key Performance Indicators
| | | Year ended December 31, | | Year ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2022 | | 2021 | | 2020 |
| | (dollars in thousands) | | (dollars in thousands) |
Financial metrics | Financial metrics | | Financial metrics | |
Total revenue | Total revenue | $ | 207,869 | | $ | 178,646 | | $ | 145,272 | Total revenue | $ | 537,875 | | | $ | 443,285 | | | $ | 351,594 | |
Year-over-year percentage increase in total revenue | Year-over-year percentage increase in total revenue | 16.4 | % | | | 23.0 | % | | | 28.9 | % | Year-over-year percentage increase in total revenue | 21.3% | | | 26.1% | | | 18.0% | |
Subscription and support revenue | Subscription and support revenue | $ | 169,283 | | $ | 143,120 | | $ | 116,288 | Subscription and support revenue | $ | 464,935 | | | $ | 379,340 | | | $ | 295,877 | |
Year-over-year percentage increase in subscription and support revenue | Year-over-year percentage increase in subscription and support revenue | 18.3 | % | | | 23.1 | % | | | 27.3 | % | Year-over-year percentage increase in subscription and support revenue | 22.6% | | | 28.2% | | | 20.4% | |
Subscription and support as a percent of total revenue | Subscription and support as a percent of total revenue | 81.4 | % | | | 80.1 | % | | | 80.0 | % | Subscription and support as a percent of total revenue | 86.4% | | | 85.6% | | | 84.2% | |
| | | As of December 31, | | As of December 31, |
| | 2017 | | 2016 | | 2015 | | 2022 | | 2021 | | 2020 |
Operating metrics | Operating metrics | | | | | | Operating metrics | | | | | |
Number of customers | Number of customers | 3,063 | | 2,772 | | 2,524 | Number of customers | 5,664 | | | 4,315 | | | 3,723 | |
Subscription and support revenue retention rate | Subscription and support revenue retention rate | 96.0 | % | | | 95.4 | % | | | 95.8 | % | Subscription and support revenue retention rate | 97.8% | | | 97.0% | | | 95.0% | |
Subscription and support revenue retention rate including add-ons | Subscription and support revenue retention rate including add-ons | 107.6 | % | | | 107.4 | % | | | 112.5 | % | Subscription and support revenue retention rate including add-ons | 108.5% | | | 110.0% | | | 109.5% | |
Number of customers with annual contract value $100k+ | | Number of customers with annual contract value $100k+ | 1,345 | | | 1,121 | | | 847 | |
Number of customers with annual contract value $150k+ | | Number of customers with annual contract value $150k+ | 718 | | | 578 | | | 419 | |
Number of customers with annual contract value $300k+ | | Number of customers with annual contract value $300k+ | 236 | | | 183 | | | 119 | |
Total customers.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 listedpublicly-listed securities account for a substantial majority of our customers. As of December 31, 2022, our total customer count includes 922 ParsePort ESEF customers.
Subscription and support revenue retention rate.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 first monthsame calendar quarter of the measurement periodprior year for only those base customers in place throughoutwho are still active at the entire measurement period, thereby excluding any attrition.end of the current quarter. We divide the result by the annualized subscription and support revenue in the first monthsame quarter of the measurement periodprior year for all customers in place at the beginning of the measurement period. The measurement period is based on the trailing twelve months.base customers.
Our subscription and support revenue retention rate was 96.0% at the December 2017 measurement date, up from 95.4%97.8% as of December 2016.31, 2022, up from 97.0% as of December 31, 2021. 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 being acquiredwhose securities were deregistered due to merger or otherwise ceasing to file SEC reports have been the largest contributing factor toacquisition or financial distress accounted for just over half of our revenue attrition.attrition in the latest quarter. Our subscription and support revenue retention rate as of December 31, 2022 does not include ParsePort due to lack of comparable data in the prior year.
Subscription and support revenue retention rate including add-ons.add-ons. Add-on revenue includes the change in both seats purchasedsolutions and seat 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 last monthcurrent quarter for our base customers that were active at the end of the measurement period for only those customers in place throughout the entire measurement period.current quarter. We divide the result by the annualized subscription and support revenue in the first monthsame quarter of the measurement periodprior year for all customers in place at the beginning of the measurement period. The measurement period is based on the trailing twelve months.base customers.
Our subscription and support revenue retention rate including add-ons was 107.6% at108.5% as of the year ended December 2017 measurement date, up31, 2022, down from 107.4%110.0% as of December 2016.31, 2021. There has been downward pressure on this key performance indicator as the IPO/SPAC market slowed in 2022 and customers that purchased higher priced capital markets solutions throughout 2021 transitioned to more moderately priced ongoing solutions in 2022. Our subscription and support revenue retention rate including add-ons as of December 31, 2022 does not include ParsePort due to lack of comparable data in the prior year.
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. Our ACV metrics as of December 31, 2022 include information related to ParsePort.
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
Subscription and support revenue from customers with annual contract value of $100k+ as a percent of total subscription and support revenue | 62.1% | | 60.5% | | 53.3% |
Subscription and support revenue from customers with annual contract value of $150k+ as a percent of total subscription and support revenue | 47.4% | | 45.2% | | 37.3% |
Subscription and support revenue from customers with annual contract value of $300k+ as a percent of total subscription and support revenue | 27.6% | | 26.1% | | 19.3% |
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 each of the years ended December 31, 2017, 20162022, 2021 and 2015,2020, no single customer represented more than 1% of our revenue, and our largest ten10 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 threetwelve 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. We typically invoice our customers for subscription fees in advance on a quarterly, annual, two-year or three-year basis, with payment due at the start of the subscription term. We plan to convert a substantial majority of our remaining quarterly contracts to annual terms over the next twelve months. In addition, we continue to offer limited incentives for customers to enter into contract terms of more than one year, typically for terms of two or three years. Unpaid invoice amounts for services starting in future periods are excluded from accounts receivable and deferred revenue. Invoiced amounts are reflected as accounts receivable once we have initiated services with an offset to deferred revenue or revenue depending on whether the revenue recognition criteria have been met. At December 31, 2017, deferred revenue was $127.4 million. Estimated future recognition from deferred revenue at December 31, 2017 was $104.7 million in 2018, $18.3 million in 2019, and $4.4 million in 2020.
Subscription and Support Revenue. We recognize the aggregate minimum subscription and support fees ratablyrevenue on a straight-lineratable basis over the subscriptioncontract term providedbeginning on the date that an enforceable contract has been signed by both parties, access to our SaaS solutions has been grantedservice is made available to the customer, the fee for the subscription and support is fixed or determinable, and collection is reasonably assured.customer. Amounts that are invoiced are initially recorded as deferred revenue.
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 withto help our customers onwith business processes and best practices for using Wdesk.our platform. Our professional services are not required for customers to utilize our solution. We recognize revenue for our professionaldocument set ups when the service is complete and control has transferred to the customer. Revenues from XBRL tagging and consulting services contracts whenare 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 Google Cloud Platform and 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 capitalize and amortizepay sales commissions thatfor 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 directly attributable toconsidered incremental costs of obtaining a contract with a customer and are deferred and amortized on a straight-line basis over the lessera period of twelve months or the non-cancelable term of the customer contract based on the terms of our commission arrangements.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.
Results of Operations
The following table sets forth selected consolidated statement of operations data for each of the periods indicated: | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| (in thousands) |
Revenue | | | | | |
Subscription and support | $ | 464,935 | | | $ | 379,340 | | | $ | 295,877 | |
Professional services | 72,940 | | | 63,945 | | | 55,717 | |
Total revenue | 537,875 | | | 443,285 | | | 351,594 | |
Cost of revenue | | | | | |
Subscription and support(1) | 77,711 | | | 60,551 | | | 49,503 | |
Professional services(1) | 52,174 | | | 43,282 | | | 40,674 | |
Total cost of revenue | 129,885 | | | 103,833 | | | 90,177 | |
Gross profit | 407,990 | | | 339,452 | | | 261,417 | |
Operating expenses | | | | | |
Research and development(1) | 151,716 | | | 115,735 | | | 94,844 | |
Sales and marketing(1) | 245,260 | | | 178,785 | | | 144,687 | |
General and administrative(1) | 99,778 | | | 74,287 | | | 59,688 | |
Total operating expenses | 496,754 | | | 368,807 | | | 299,219 | |
Loss from operations | (88,764) | | | (29,355) | | | (37,802) | |
Interest income | 4,880 | | | 1,041 | | | 3,282 | |
Interest expense | (6,042) | | | (14,015) | | | (13,964) | |
Other income and (expense), net | 926 | | | 3,229 | | | (205) | |
Loss before provision for income taxes | (89,000) | | | (39,100) | | | (48,689) | |
Provision (benefit) for income taxes | 1,947 | | | (1,370) | | | (291) | |
Net loss | $ | (90,947) | | | $ | (37,730) | | | $ | (48,398) | |
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2017 | | 2016 | | 2015 |
| (in thousands) |
Revenue | | | | | |
Subscription and support | $ | 169,283 | | $ | 143,120 | | $ | 116,288 |
Professional services | 38,586 | | 35,526 | | 28,984 |
Total revenue | 207,869 | | 178,646 | | 145,272 |
Cost of revenue | | | | | |
Subscription and support(1) | 32,646 | | 27,895 | | 22,559 |
Professional services(1) | 27,599 | | 23,730 | | 17,645 |
Total cost of revenue | 60,245 | | 51,625 | | 40,204 |
Gross profit | 147,624 | | 127,021 | | 105,068 |
Operating expenses | | | | | |
Research and development(1) | 68,172 | | 57,438 | | 50,466 |
Sales and marketing(1) | 84,161 | | 80,466 | | 69,569 |
General and administrative(1) | 39,594 | | 32,695 | | 28,716 |
Total operating expenses | 191,927 | | 170,599 | | 148,751 |
Loss from operations | (44,303) | | (43,578) | | (43,683) |
Interest expense | (1,845) | | (1,875) | | (2,025) |
Other income, net | 1,783 | | 1,500 | | 2,302 |
Loss before provision for income taxes | (44,365) | | (43,953) | | (43,406) |
Provision (benefit) for income taxes | 61 | | 24 | | (7) |
Net loss | $ | (44,426) | | $ | (43,977) | | $ | (43,399) |
(1) Stock-based compensation expense included in these line items was as follows:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2017 | | 2016 | | 2015 |
| (in thousands) |
Cost of revenue | | | | | |
Subscription and support | $ | 738 | | $ | 493 | | $ | 363 |
Professional services | 465 | | 411 | | 349 |
Operating expenses | | | | | |
Research and development | 2,224 | | 2,365 | | 1,924 |
Sales and marketing | 2,983 | | 2,075 | | 1,727 |
General and administrative | 13,066 | | 8,903 | | 6,637 |
Total stock-based compensation expense | $ | 19,476 | | $ | 14,247 | | $ | 11,000 |
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
| (in thousands) |
Cost of revenue | | | | | |
Subscription and support | $ | 3,437 | | | $ | 2,868 | | | $ | 1,709 | |
Professional services | 2,128 | | | 1,729 | | | 1,434 | |
Operating expenses | | | | | |
Research and development | 12,554 | | | 9,590 | | | 8,100 | |
Sales and marketing | 19,323 | | | 13,901 | | | 11,062 | |
General and administrative | 33,218 | | | 20,545 | | | 23,466 | |
Total stock-based compensation expense | $ | 70,660 | | | $ | 48,633 | | | $ | 45,771 | |
The following table sets forth our consolidated statement of operations data as a percentage of revenue for each of the periods indicated:
Table of Contents | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2017 | | 2016 | | 2015 |
Revenue | | | | | |
Subscription and support | 81.4 | % | | | 80.1 | % | | | 80.0 | % |
Professional services | 18.6 | | | | 19.9 | | | | 20.0 | |
Total revenue | 100.0 | | | | 100.0 | | | | 100.0 | |
Cost of revenue | | | | | |
Subscription and support | 15.7 | | | | 15.6 | | | | 15.5 | |
Professional services | 13.3 | | | | 13.3 | | | | 12.1 | |
Total cost of revenue | 29.0 | | | | 28.9 | | | | 27.6 | |
Gross profit | 71.0 | | | | 71.1 | | | | 72.4 | |
Operating expenses | | | | | |
Research and development | 32.8 | | | | 32.2 | | | | 34.7 | |
Sales and marketing | 40.5 | | | | 45.0 | | | | 47.9 | |
General and administrative | 19.0 | | | | 18.3 | | | | 19.8 | |
Total operating expenses | 92.3 | | | | 95.5 | | | | 102.4 | |
Loss from operations | (21.3) | | | | (24.4) | | | | (30.0) | |
Interest expense | (0.9) | | | | (1.0) | | | | (1.4) | |
Other income and (expense), net | 0.9 | | | | 0.8 | | | | 1.6 | |
Loss before provision for income taxes | (21.3) | | | | (24.6) | | | | (29.8) | |
Provision for income taxes | — | | | | — | | | | — | |
Net loss | (21.3) | % | | | (24.6) | % | | | (29.8) | % |
| | | | | |
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
Revenue | | | | | |
Subscription and support | 86.4% | | | 85.6% | | | 84.2% | |
Professional services | 13.6 | | | 14.4 | | | 15.8 | |
Total revenue | 100.0 | | | 100.0 | | | 100.0 | |
Cost of revenue | | | | | |
Subscription and support | 14.4 | | | 13.7 | | | 14.1 | |
Professional services | 9.7 | | | 9.8 | | | 11.6 | |
Total cost of revenue | 24.1 | | | 23.5 | | | 25.7 | |
Gross profit | 75.9 | | | 76.5 | | | 74.3 | |
Operating expenses | | | | | |
Research and development | 28.2 | | | 26.1 | | | 27.0 | |
Sales and marketing | 45.6 | | | 40.3 | | | 41.2 | |
General and administrative | 18.6 | | | 16.8 | | | 17.0 | |
Total operating expenses | 92.4 | | | 83.2 | | | 85.2 | |
Loss from operations | (16.5) | | | (6.7) | | | (10.9) | |
Interest income | 0.9 | | | 0.2 | | | 0.9 | |
Interest expense | (1.1) | | | (3.2) | | | (4.0) | |
Other income and (expense), net | 0.2 | | | 0.7 | | | (0.1) | |
Loss before provision for income taxes | (16.5) | | | (9.0) | | | (14.1) | |
Provision (benefit) for income taxes | 0.4 | | | (0.3) | | | (0.1) | |
Net loss | (16.9) | % | | (8.7) | % | | (14.0) | % |
Revenue
Comparison of Years Ended December 31, 20172022 and 20162021
| | | Year ended December 31, | | Period-to-period change | | Year ended December 31, | | Period-to-period change |
| | 2017 | | 2016 | | Amount | | % Change | | 2022 | | 2021 | | Amount | | % Change |
| | (dollars in thousands) | | | | (dollars in thousands) | | |
Revenue | Revenue | | Revenue | |
Subscription and support | Subscription and support | $ | 169,283 | | $ | 143,120 | | $ | 26,163 | | 18.3% | | Subscription and support | $ | 464,935 | | | $ | 379,340 | | | $ | 85,595 | | | 22.6% |
Professional services | Professional services | 38,586 | | 35,526 | | 3,060 | | 8.6% | | Professional services | 72,940 | | | 63,945 | | | 8,995 | | | 14.1% |
Total revenue | Total revenue | $ | 207,869 | | $ | 178,646 | | $ | 29,223 | | 16.4% | | Total revenue | $ | 537,875 | | | $ | 443,285 | | | $ | 94,590 | | | 21.3% |
Total revenue increased $29.2$94.6 million in 20172022 compared to 20162021 due primarily to the increase in subscription and support revenue of $26.2$85.6 million. Of the total increaseGrowth in subscription and support revenue 27.7% represented revenue from new customers acquired after December 31, 2016in 2022 was attributable mainly to strong demand and 72.3% represented revenue from existing customers at or prior to December 31, 2016.continued solution expansion across our customer base. The total number of our customers increased 10.5%31.3% from December 31, 20162021 to December 31, 2017. The growth in professional services revenue was attributable primarily to increased XBRL services.2022. Professional services revenue increased at a slower rate than subscription and support$9.0 million due primarily to growth in revenue in 2017 compared to 2016. As our customers become familiar with our platform, they typically become more self sufficient and requirefrom XBRL professional services.
fewer professional services. We expect the revenue growth rate from subscription and support to continue to outpace revenue growth from professionals services on an annual basis.
Comparison of Years Ended December 31, 2016 and 2015
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Period-to-period change |
| 2016 | | 2015 | | Amount | | % Change |
| (dollars in thousands) | | |
Revenue | | | | | | | |
Subscription and support | $ | 143,120 | | $ | 116,288 | | $ | 26,832 | | 23.1% | |
Professional services | 35,526 | | 28,984 | | 6,542 | | 22.6% | |
Total revenue | $ | 178,646 | | $ | 145,272 | | $ | 33,374 | | 23.0% | |
Total revenue increased $33.4 million in 2016 compared to 2015 due primarily to the increase in subscription and support revenue of $26.8 million. The growth in professional services revenue was attributable mainly to increased consulting and services related to our non-SEC use cases. Of the total increase in subscription and support revenue, 23.5% represented revenue from new customers acquired after December 31, 2015 and 76.5% represented revenue from existing customers at or prior to December 31, 2015. The total number of our customers increased 9.8% from December 31, 2015 to December 31, 2016.
Cost of Revenue
Comparison of Years Ended December 31, 20172022 and 20162021
| | | Year ended December 31, | | Period-to-period change | | Year ended December 31, | | Period-to-period change |
| | 2017 | | 2016 | | Amount | | % Change | | 2022 | | 2021 | | Amount | | % Change |
| | (dollars in thousands) | | | | (dollars in thousands) | | |
Cost of revenue | Cost of revenue | | Cost of revenue | |
Subscription and support | Subscription and support | $ | 32,646 | | $ | 27,895 | | $ | 4,751 | | 17.0% | | Subscription and support | $ | 77,711 | | | $ | 60,551 | | | $ | 17,160 | | | 28.3% |
Professional services | Professional services | 27,599 | | 23,730 | | 3,869 | | 16.3% | | Professional services | 52,174 | | | 43,282 | | | 8,892 | | | 20.5% |
Total cost of revenue | Total cost of revenue | $ | 60,245 | | $ | 51,625 | | $ | 8,620 | | 16.7% | | Total cost of revenue | $ | 129,885 | | | $ | 103,833 | | | $ | 26,052 | | | 25.1% |
Cost of revenue increased $8.6$26.1 million in 20172022 compared to 2016,2021 due primarily to an$18.0 million in higher cash-based compensation and benefits due in part to increased headcount, $1.0 million of additional stock-based compensation, a $3.4 million increase in headcount, employee compensation, benefits and travel coststhe cost of $7.5cloud infrastructure services, a $1.4 million and an increase in server usagetravel expense, $0.8 million increase in outsourced service fees, and a $1.4 million increase in information technology and facility costs in support of $0.7 million to support our expanding customer base. Subscription and support expense rose 17.0% in the year ended December 31, 2017 compared to the prior year due primarily toemployees. The increases in headcount, employee compensation,cloud infrastructure services, and server expenses used tooutsourced service fees resulted primarily from our continued investment in and support of our expanding customer base. Professional services expense increased 16.3% in the year ended December 31, 2017 versus the prior year due primarily to anplatform and solutions. The increase in headcount, employee compensation and travel expense relatedwas due to fulfilling demand for XBRL servicesa return to travel as travel restrictions and non-SEC consulting services.
Comparison of Years Ended December 31, 2016 and 2015
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Period-to-period change |
| 2016 | | 2015 | | Amount | | % Change |
| (dollars in thousands) | | |
Cost of revenue | | | | | | | |
Subscription and support | $ | 27,895 | | $ | 22,559 | | $ | 5,336 | | 23.7% | |
Professional services | 23,730 | | 17,645 | | 6,085 | | 34.5% | |
Total cost of revenue | $ | 51,625 | | $ | 40,204 | | $ | 11,421 | | 28.4% | |
Cost of revenue increased $11.4 millioncompany policies originally implemented in 2016 compared to 2015, due primarily to an increase in headcount, employee compensation, benefits and travel costs of $9.1 million, an increase in other support costs of $1.3 million, and an increase in server usage costs of $1.3 million. Subscription and support expense rose 23.7% in the year ended December 31, 2016 comparedresponse to the prior year due primarily to increases in headcount, employee compensation, and server expenses used to support our expanding customer base. Professional services expense increased 34.5% in the year ended December 31, 2016 versus the prior year due primarily to an increase in headcount, employee compensation and travel expense related to fulfilling increased demand for our non-SEC consulting services.COVID-19 pandemic ease.
Operating Expenses
Comparison of Years Ended December 31, 20172022 and 20162021
| | | Year ended December 31, | | Period-to-period change | | Year ended December 31, | | Period-to-period change |
| | 2017 | | 2016 | | Amount | | % Change | | 2022 | | 2021 | | Amount | | % Change |
| | (dollars in thousands) | | | | (dollars in thousands) | | |
Operating expenses | Operating expenses | | Operating expenses | |
Research and development | Research and development | $ | 68,172 | | $ | 57,438 | | $ | 10,734 | | 18.7% | | Research and development | $ | 151,716 | | | $ | 115,735 | | | $ | 35,981 | | | 31.1% |
Sales and marketing | Sales and marketing | 84,161 | | 80,466 | | 3,695 | | 4.6% | | Sales and marketing | 245,260 | | | 178,785 | | | 66,475 | | | 37.2% |
General and administrative | General and administrative | 39,594 | | 32,695 | | 6,899 | | 21.1% | | General and administrative | 99,778 | | | 74,287 | | | 25,491 | | | 34.3% |
Total operating expenses | Total operating expenses | $ | 191,927 | | $ | 170,599 | | $ | 21,328 | | 12.5% | | Total operating expenses | $ | 496,754 | | | $ | 368,807 | | | $ | 127,947 | | | 34.7% |
Research and Development
Research and development expenses increased $10.7$36.0 million in 20172022 compared to 20162021 due primarily to $6.5$21.5 million in higher headcount, cash-based compensation and benefits, and travel costs and$3.0 million of additional stock-based compensation, a $3.1$2.8 million increase in professionalthe cost of cloud infrastructure services, a $2.8 million increase in travel expense, a $2.4 million increase related to the amortization of acquisition-related intangible assets, a $1.9 million increase in information technology and facility costs in support of our research development organization, and a $1.6 million increase related to consulting fees. The increase in cash-based compensation and stock-based compensation were due primarily to an increase in technology consultants. We continueemployee headcount. The increase in cloud infrastructure services and consulting fees resulted primarily from our continued investment in and support of our platform and solutions. The increase in travel expense was due to dedicate resourcesa return to developingtravel as travel restrictions and company policies originally implemented in response to the next generationCOVID-19 pandemic ease.
Sales and Marketing
Sales and marketing expenses increased $3.7$66.5 million in 20172022 compared to 20162021 due primarily to $4.9$42.7 million in higher employeecash-based compensation and benefits, $5.4 million of additional stock-based compensation, a $5.5 million increase in the cost of marketing programs, a $5.7 million increase in travel expense, a $1.9 million increase related to the amortization of acquisition-related intangible assets, and travel costs.a $3.8 million increase in information technology and facility costs in support of sales and marketing. The increase in thesecash-based compensation was due primarily to an increase in employee headcount. During 2022, we recognized an additional $1.4 million in stock-based compensation pursuant to certain severance obligations. The increase in the cost of marketing programs was due to an increase in-person events as well as costs was offset partially by a decline in vendor fees of $0.6 million related to our annual user conference. The increase in travel expense was due to a reductionreturn to travel as travel restrictions and company policies originally implemented in consulting and vendor created content and a $0.3 million in software expenses.We expectresponse to continue to invest in sales and marketing employees for future revenue growth.
the COVID-19 pandemic ease. General and Administrative
General and administrative expenses rose $6.9increased $25.5 million in 20172022 compared to 20162021, due primarily to $3.4 million in higher headcount and additional cash-based compensation and benefits, and travel costs$12.5 million of $3.4 million and employeeadditional stock-based compensation, of $4.0 million. In the fourth quarter of 2017,a $1.8 million increase in travel expense, a $0.9 million increase in software expense, and a $4.9 million increase related to consulting, recruiting, and professional services fees. The increase in cash-based compensation was due to an increase in employee headcount. During 2022 we recordedrecognized an additional $400,000 and $1.5$3.8 million of cash-based and equity-basedin stock-based compensation respectively, frompursuant to certain severance arrangements. The remaining increase in personnel-related costs was driven primarily by a rise in headcount to support the growth of our business and regulatory compliance.agreements. The remaining increase in stock-based compensation was driven primarily by restricted stock grants to executive officers in February 2015, January 2016, and January 2017 with a vesting term of three years, as well as stock option grants to executive officers in February 2016 and 2017 with a vesting term of three years.
Comparison of Years Ended December 31, 2016 and 2015
| | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Period-to-period change |
| 2016 | | 2015 | | Amount | | % Change |
| (dollars in thousands) | | |
Operating expenses | | | | | | | |
Research and development | $ | 57,438 | | $ | 50,466 | | $ | 6,972 | | 13.8% | |
Sales and marketing | 80,466 | | 69,569 | | 10,897 | | 15.7% | |
General and administrative | 32,695 | | 28,716 | | 3,979 | | 13.9% | |
Total operating expenses | $ | 170,599 | | $ | 148,751 | | $ | 21,848 | | 14.7% | |
Research and Development
Research and development expenses increased $7.0 million in 2016 compared to 2015 due primarily to $6.7 million in higherincreased employee compensation, benefits, and travel costs. We continued to dedicate resources to enhance our Wdesk platform, which resulted in higher headcount in researchaddition to the issuance of performance-based stock units to our executives. The increases in software, consulting, recruiting and development.
Salesprofessional service fees were the result of our continued investment in and Marketing
Salessupport of our platform and marketing expenses increased $10.9 million in 2016 compared to 2015 due primarily to $11.5 million in higher employee compensation, benefits and travel costs.solutions. The increase in these costs was offset partially by a decline in professional service fees of $0.9 million related to consulting, recruiting and training.
General and Administrative
General and administrative expenses rose $4.0 million in 2016 compared to 2015 due primarily to higher employee cash-based compensation, benefits, and travel costs of $1.0 million and additional employee stock-based compensation of $2.8 million. The increase in personnel-related costs was driven primarily by a rise in headcount to support the growth of our business. Higher stock-based compensation expense was driven primarily by restricted stock grantsdue to executive officersa return to travel as travel restrictions and company policies originally implemented in February 2015 and January 2016 with a vesting term of three years, as well as stock option grantsresponse to executive officers in February 2016 with a vesting term of three years.
the COVID-19 pandemic ease. Non-Operating Income (Expenses)
Comparison of Years Ended December 31, 20172022 and 20162021
| | | Year ended December 31, | | Period-to-period change | | Year ended December 31, | | Period-to-period change |
| | 2017 | | 2016 | | Amount | | 2022 | | 2021 | | Amount |
| | (dollars in thousands) | | (dollars in thousands) |
Interest income | | Interest income | $ | 4,880 | | | $ | 1,041 | | | $ | 3,839 | |
Interest expense | Interest expense | $ | (1,845) | | $ | (1,875) | | $ | 30 | Interest expense | (6,042) | | | (14,015) | | | 7,973 | |
Other income, net | 1,783 | | 1,500 | | 283 | |
Other income and (expense), net | | Other income and (expense), net | 926 | | | 3,229 | | | (2,303) | |
Interest Expense and Other Income, Net
income increased $3.8 million in 2022 compared to 2021 due primarily to higher interest rates on investments. Interest expense remained relatively flat during the year ended December 31, 2017decreased $8.0 million in 2022 compared to the prior year.
Other income, net increased $0.3 million2021 due primarily to our adoption of ASU 2020-06 in 2017 compared to 2016 due to increases in interest income and2022 which resulted in the amount recognized related to our job training reimbursement program. These increases were partially offset by losses on foreign currency transactions.
Comparisonreduction of Years Ended December 31, 2016 and 2015
| | | | | | | | | | | | | | | | | |
| Year ended December 31, | | Period-to-period change |
| 2016 | | 2015 | | Amount |
| (dollars in thousands) |
Interest expense | $ | (1,875) | | $ | (2,025) | | $ | 150 |
Other income, net | 1,500 | | 2,302 | | (802) |
Interest Expense and Other Income, Net
Interest expense remained relatively flat during the year ended December 31, 2016 compared to the same period a year ago.
non-cash interest expense. Other income, net decreased $0.8$2.3 million in 20162022 compared to 20152021 due primarily to recognition in 2015a $3.7 million gain recognized upon the settlement of our deferred government grant obligation relating to our 2011 Iowa Economic Development award of $1.6 million. This decrease was partially offset by an increase of $0.4 millionequity interest in the amount recognized related to our job training reimbursement program resulting from the amounts diverted and paid to the community collegeOneCloud in the periods.
Quarterly Results of Operations
See “Unaudited Quarterly Results of Operations” included2021 which did not recur in Note 13 of this Annual Report on Form 10-K for the unaudited quarterly results of operations for the years ended December 31, 2017 and 2016.
2022.
Results of Operations for Fiscal 2021 Compared to 2020
For a comparison of our results of operations for the fiscal years ended December 31, 2021 and 2020, 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, 2021, filed with the SEC on February 22, 2022.
Liquidity and Capital Resources
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2017 | | 2016 | | 2015 |
| (in thousands) |
Cash flow provided by (used in) operating activities | $ | 5,520 | | $ | (10,369) | | $ | (21,592) |
Cash flow (used in) provided by investing activities | (6,473) | | 3,805 | | (19,777) |
Cash flow provided by (used in) financing activities | 9,822 | | (895) | | (1,102) |
Net increase (decrease) in cash and cash equivalents, net of impact of exchange rates | $ | 9,052 | | $ | (7,469) | | $ | (42,381) |
Overview of Sources and Uses of CashAs of December 31, 2017,2022, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaled $76.7 million. To date, wetotaling $430.8 million, which were held for working capital purposes. We have financed our operations primarily through the proceeds of our initial public offering, private placementsofferings of equity, convertible debt, that was settled in equity 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. WeWhile we expect to continue to incur operating losses and may incur negative cash flows from operations in the future. As a result,future, we may require additional capital resources to continue to grow our business. We believe that current cash and cash equivalents and cash flows from operating activities availability under our existing credit facility and the ability to offer and sell securities pursuant to our shelf registration statement will be sufficient to fund our operations for at least the next twelve months.months from the date of the issuance of the audited consolidated financial statements.
Convertible Debt
In August 2014,2019, we entered into a $15.0issued $345.0 million credit facility with Silicon Valley Bank. Borrowing capacity is equalaggregate principal amount of 1.125% convertible senior notes due 2026, including the exercise in full by the initial purchasers of their option to the most recent month’s subscription and support revenue multiplied by a percentage that adjusts based on the prior quarter’s customer retention rate.purchase an additional $45.0 million principal amount. The credit facility can be used to fund working capital and general business requirements. The credit facility is secured by all of our assets, has first priority over our other debtNotes are senior, unsecured obligations and requires us to maintain certain financial covenants, includingbear 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 maintenanceissuance of at least $5.0the Notes totaled $335.9 million, net of initial purchaser discounts and issuance costs.
Cash Flows
The following table summarizes cash on hand or unused borrowing capacity. The credit facility contains certain restrictive covenants that limit our ability to transfer or dispose of assets, merge with other companies or consummate certain changes of control, acquire other companies, pay dividends, incur additional indebtedness and liens, effect changes in management and enter into new businesses. The credit facility has a variable interest rate equal toflow activity during the bank’s prime lending rate with interest payable monthly and the principal balance due at maturity. The credit facility matures in August 2018, and no amount was outstanding under the credit facility as ofyears ended December 31, 2017.2022, 2021 and 2020 (in thousands):
We filed a universal shelf registration statement on Form S-3 with the SEC that became effective August 10, 2017. Under the shelf registration statement, we may offer and sell, from time to time in the future in one or more public offerings, our Class A common stock, preferred stock, debt securities, warrants, rights and units. The aggregate initial offering price | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
Cash flow provided by operating activities | $ | 11,334 | | | $ | 49,844 | | | $ | 33,243 | |
Cash flow used in investing activities | (68,012) | | | (68,631) | | | (103,750) | |
Cash flow (used in) provided by financing activities | (1,587) | | | (3,388) | | | 11,118 | |
Net decrease in cash and cash equivalents, net of impact of exchange rates | $ | (60,189) | | | $ | (22,445) | | | $ | (58,911) | |
Operating Activities
For the year ended December 31, 2017,2022, cash provided by operating activities was $5.5$11.3 million. The primary factors affecting our operating cash flows during the period were our net loss of $44.4$90.9 million, adjusted for non-cash charges of $3.5$10.2 million for depreciation and amortization of our property and equipment and intangible assets, $19.5$70.7 million of stock-based compensation and $1.6expense, $1.3 million for recognitionthe amortization of other income from government grants.our debt issuance costs, $1.1 million for the amortization of premiums and discounts on marketable securities, and an $18.3 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $5.5$28.9 million increase in accounts receivable, an $8.5 million increase in deferred costs, a $1.7 million increase in other receivables, a $2.9 million increase in prepaid expenses, a $2.4 million increase in other assets, and a $0.8$1.5 million decrease in accrued expenses and other liabilities offset by a $29.4$2.4 million increase in accounts payable and a $61.7 million increase in deferred revenue, a $3.0 million decrease in prepaid expenses, and a $2.2 million increase in accounts payable. Short-term deferred revenue from subscription and support contracts increased $28.1 million from December 31,
2016 to December 31, 2017. Long-term deferred revenue from subscription and support contracts increased by $1.2 million from December 31, 2016 to December 31, 2017. Short-term deferred revenue from professional services increased by $0.1 million from December 31, 2016 to December 31, 2017.revenue. Customer growth and contract renewals for longer terms accounted for most of the increase in deferred revenue. The increaseincreases in accounts receivable, wasprepaid expenses, other assets and account payable as well as the decrease in accrued expenses and other liabilities were attributable primarily to the timing of our billings, cash collections, and cash collections. The decrease in accrued expenses and other liabilities was due primarily to the timing of year-end bonus payments for 2017, as we moved the payment of bonuses to eligible non-executive employees from January to December. The decrease in prepaid expenses was due primarily to timing of payments relating to cloud infrastructure services and our annual user conference.payments. The increase in accounts payableother receivables was attributable primarily to an increase in our refundable research and development tax credit. The increase in deferred costs was primarily due to additional payments made to our sales force related to the timingdirect and incremental costs of our cash payments.obtaining a customer contract.
For the year ended December 31, 2016,2021, cash used inprovided by operating activities was $10.4$49.8 million. The primary factors affecting our operating cash flows during the period were our net loss of $44.0$37.7 million, adjusted for non-cash charges of $3.8$5.2 million for depreciation and amortization of our property and equipment and intangible assets, $14.2$48.6 million of stock-based compensation, and $1.1$9.2 million for recognitionthe amortization of otherour debt discount and issuance costs, $3.0 million for the amortization of premiums and discounts on marketable securities, and a $27.3 million net change in operating assets and liabilities partially offset by a gain on the settlement of equity securities of $3.7 million and deferred income from government grants.tax of $2.0 million. The primary drivers of the changes in operating assets and liabilities were a $7.1$19.2 million increase in deferred costs, a $7.7 million increase in accounts receivable, and a $0.7 million increase in other receivables, a $5.5$6.5 million increase in prepaid expenses and a $3.9 million decrease in accounts payable,other, offset by a $34.2$47.4 million increase in deferred revenue. Short-term deferred revenue from subscription and support contracts increased $18.9a $14.7 million from December 31, 2015 to December 31, 2016. Long-term deferred revenue from subscriptionincrease in accrued expenses and support contracts increased by $13.8 million from December 31, 2015 to December 31, 2016. Short-term deferred revenue from professional services increased by $1.4 million from December 31, 2015 to December 31, 2016.other liabilities. Customer growth and contract renewals for longer termsas well as the prior year impact of the COVID-19 pandemic accounted for most of the increase in deferred revenue. We offer limited incentives for customers to enter into contract terms for more than one year. The increaseincreases in accounts receivable wasand accrued expenses and other liabilities were attributable primarily to the timing of our billings, cash collections, and cash collections. The increase in other receivables was due primarily to timing of health care insurance reimbursements.payments. The increase in prepaid expenses was due to purchasing server capacity upfront, an upfront payment for our 2017 annual user conference and to the timing of rent and travel payments. The decrease in accounts payable was attributable primarily to the timing of annual contracts. The increase in deferred contract costs was primarily due to additional payments made to our cash payments.sales force related to the direct and incremental costs of obtaining a customer contract.
Investing Activities
Cash used in investing activities of $6.5$68.0 million for the year ended December 31, 20172022 was due primarily to $14.4$130.8 million in purchases of marketable securities, $99.2 million for the acquisition of ParsePort, and $3.5 million in purchases of fixed assets partially offset by $150.6 million from the 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.
Cash used in investing activities of $68.6 million for the year ended December 31, 2021 was due primarily to $170.1 million for the purchase of marketable securities, $37.5 million for acquisitions, net of cash acquired, and $1.2$3.5 million of capital expenditures, partially offset by $9.3$143.2 million from the maturities of marketable securities. Our capital expenditures were associated primarily with computer equipment and furniture and fixtures in support of expanding our infrastructure and work force.
Cash provided by investing activities of $3.8 million for the year ended December 31, 2016 was due primarily to $1.3 million for the purchase of marketable securities and $1.9 million of capital expenditures, more than offset by proceeds of $7.2 million from the sale of marketable securities. Our capital expenditures were associated primarily with leasehold improvements, computer equipment, and furniture and fixtures in support of expanding our infrastructure and work force.
Financing Activities
Cash provided byused in financing activities of $9.8$1.6 million for the year ended December 31, 20172022 was due primarily to $12.5 million in proceeds from option exercises, partially offset by an aggregate $1.5 million in repayments on long-term debt and payments on capital lease and financing obligations and $1.1 million in taxes paid related to the net share settlements of stock-based compensation awards.
Cash used in financing activities of $0.9 million for the year ended December 31, 2016 was due primarily to $0.8 million in taxes paid related to the net share settlements of stock-based compensation awards and an aggregate $1.9$1.6 million in repayments on long-term debt andprincipal payments on capitalfinance lease and financing obligations partially offset by $1.6$9.3 million in proceeds from shares issued in connection with our employee stock purchase plan and $3.3 million in proceeds from option exercises.
Cash used in financing activities of $3.4 million for the year ended December 31, 2021 was due primarily to $16.6 million in proceeds from option exercises and $8.9 million in proceeds from shares issued in connection with our employee stock purchase plan, offset by $27.1 million in taxes withheld related to net share settlement of our stock-based compensation awards and an aggregate $1.7 million in payments on finance lease obligations.
Contractual Obligations and Commitments
The following table represents our contractual obligations as of December 31, 2017,2022, aggregated by type: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Payments due by period |
| | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
| | (in thousands) |
Convertible senior notes | | $ | 360,525 | | | $ | 3,881 | | | $ | 7,763 | | | $ | 348,881 | | | $ | — | |
Operating leases including imputed interest | | 20,901 | | | 6,506 | | | 7,185 | | | 3,346 | | | 3,864 | |
Finance leases, including interest | | 23,921 | | | 1,315 | | | 2,630 | | | 2,630 | | | 17,346 | |
Other contractual commitments | | 39,974 | | | 27,198 | | | 12,776 | | | — | | | — | |
Total contractual obligations | | $ | 445,321 | | | $ | 38,900 | | | $ | 30,354 | | | $ | 354,857 | | | $ | 21,210 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Payments due by period |
| | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
| | (in thousands) |
Operating lease obligations relating to office facilities | | $ | 18,844 | | $ | 3,659 | | $ | 4,865 | | $ | 4,074 | | $ | 6,246 |
Capital lease obligations, including interest for technology and equipment | | 66 | | 66 | | — | | — | | — |
Financing obligations, including interest for building | | 39,382 | | 2,792 | | 5,584 | | 5,356 | | 25,650 |
Cloud infrastructure services | | 8,900 | | 4,100 | | 4,800 | | — | | — |
Total contractual obligations | | $ | 67,192 | | $ | 10,617 | | $ | 15,249 | | $ | 9,430 | | $ | 31,896 |
Total future payments related to our Convertible Senior Notes due 2026 shown in the table above includes $345.0 million principal amount and future interest payments of $15.5 million. For more information on our convertible senior notes, refer to Note 8 of our accompanying Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
We lease certain office space, residential space, buildings and land with various lease terms which are primarily accounted for as operating leases. We have entered into a lease agreement for land and an office building in Ames, Iowa, which was constructed in two phases.phases, and is accounted for as a finance lease. The lease term includes an initial 15-year term and three five-year extensions at our option because renewal was determined to be reasonably assured at the inception of the lease. As part of the lease agreement, the landlord was responsible for constructing the building in accordance with our specifications and agreed to fund $11.8 million for the first phase and $11.1 million for the second phase of construction. We were the developer of the project and responsible for construction costs in excess of these amounts. As a result of this involvement, we were required to capitalize the construction costs associated with the office building. The construction liability of $11.8 million was reclassified to a financing obligation and $17.1 million of costs capitalized during construction were placed in service during June 2013 for the first phase. Upon completion of the second phase of the project, the construction liability of $11.1 million was reclassified to a financing obligation, and $19.9 million of costs capitalized during construction were placed in service during 2014.
The lease contains purchase options to acquire the landlord’s interest in the land lease and building at any time beginning three years from June 2014 (the commencement date of the second phase of the lease). In addition, the lease requires us to purchase the building from the landlord upon certain events, such as a change in control. The purchase options were deemed to be fair value at
We enter into certain non-cancelable agreements with third-party providers in the inceptionordinary course of the lease.
In January 2018, we signed a new lease for approximately 30,000 square feet that will replace our existing offices in Denver and Boulder. The aggregate annual paymentsbusiness. Our total commitments under the new lease will be approximately $1.0these agreements are $40.0 million and are subject to annual increases overprimarily for cloud infrastructure and cloud services. These amounts are included in the lease term, which expires in February 2029.
Off-Balance Sheet Arrangements
During the years ended December 31, 2017, 2016 and 2015, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As a result, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships.
table above under “other contractual commitments”.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, provision for 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.
We believe that of our significant accounting policies, which are described in Note 1 to our consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of our operations.
Revenue Recognition
We commencegenerate revenue through the sale of our cloud-based software and the delivery of professional services. Revenues are recognized when control of these services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those services.
We determine revenue recognition for subscriptions to our cloud solutions and professional services when allthrough the following steps:
•Identification of the following criteria are met:contract, or contracts, with a customer
Persuasive evidence•Identification of an arrangement exists;the performance obligations in the contract
The service has been or is being provided•Determination of the transaction price
•Allocation of the transaction price to the customer;performance obligations in the contract
Collection•Recognition of the fees is reasonably assured; andThe amount of fees to be paid by the customer is fixedrevenue when, or determinable.Collectability is assessed based onas, we satisfy a number of factors, including past transaction history with the customer and the creditworthiness of the customer. Collateral is not requested from the customer. If it is determined that the collection of a fee is not probable, the revenue is deferred until collection becomes probable, which is generally upon the receipt of cash.performance obligation
Subscription and Support Revenue
We recognize the aggregate minimum subscription and support fees ratablyrevenue on a straight-lineratable basis over the contract term beginning on the date that our service is made available to the customer. Our subscription term, provided that an enforceable contract has been signed by both parties,contracts are generally twelve to 36 months in duration, are billed either annually or in advance and are non-cancelable. We consider the access to our SaaS solutions has been grantedplatform and related support services in a customer contract to be a series of distinct services which comprise a single performance obligation because they are substantially the customer,same and have the fee for the subscription and support is fixed or determinable, and collection is reasonably assured.same pattern of transfer.
Professional Services Revenue and Customer Options
OurProfessional services revenues primarily consist of fees for document set up, XBRL tagging, and consulting with our customers on business processes and best practices for using our platform. We have determined that an agreement to purchase these professional services constitutes an option to purchase services in accordance with ASC 606 rather than an agreement that creates enforceable rights and obligations because of the customer’s contractual right to cancel services that have not yet been used. In the limited case of agreements where we determined that the option provides the customer with a material right, we allocate a portion of the transaction price to the material right based upon the relative standalone selling price. Professional service agreements that do not contain a material right are not requiredaccounted for customerswhen the customer exercises its option to utilize our solution. We recognize revenuepurchase additional services.
Revenue is recognized for our professionaldocument set ups when the service is complete and control has transferred to the customer. Revenues from XBRL tagging and consulting services contracts whenare recognized as the services are performed.
Our professional services revenue is higher in the first calendar quarter because many of our customers employ our professional services just before they file their Form 10-K.
Contracts with Multiple Deliverable Arrangements Performance Obligations
Some of our contracts with customers contain multiple performance obligations. For arrangements with multiple deliverables, we evaluate whether the individual deliverables qualify as separate units of accounting. In order to treat deliverables in a multiple deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. For deliverables that have standalone value upon delivery,these contracts, we account for each deliverablethe individual performance obligations separately and recognize revenue for the respective deliverables asif they are delivered.
Subscription contracts have standalone value as we sell the subscriptions separately. In determining whether professional services can be accounted for separately from subscription services, we consider the availability of the professional services from other vendors, the nature of our professional services and whether we sell our solutions to new customers without professional services. We have
determined that we have established standalone value for our professional services. This determination was made due primarily to the ability of the customer to complete these tasks without assistance and the sale of services separate from the initial subscription order. Because we established standalone value for our professional services, such service arrangements are being accounted for separately from subscription services.
When multiple deliverables included in an arrangement are separable into different units of accounting, the arrangement considerationdistinct. The transaction price is allocated to the identified separate units of accounting basedperformance obligations on theira relative selling price. Multiple deliverable arrangements accounting guidance provides a hierarchy to use when determining the relativestandalone selling price for each unit of accounting. Vendor-specific objective evidence (VSOE) of selling price, based on the price at which the item is regularly sold by the vendor on a standalone basis, should be used if it exists. If VSOE of selling price is not available, third-party evidence (TPE) of selling price is used to establish the selling price if it exists. VSOE and TPE do not currently exist for any of our deliverables. Accordingly, for arrangements with multiple deliverables that can be separated into different units of accounting, we allocate the arrangement fee to the separate units of accounting based on our best estimate of selling price. The amount of arrangement fee allocated is limited by contingent revenue, if any.
basis. We determine our best estimate ofthe standalone selling price for our deliverablesprices based on our overall pricing objectives, taking into consideration market conditions and entity-specific factors. We evaluate our best estimate of selling price by reviewing historical data related to sales of our deliverables, including comparing the percentages of our contract prices to our list prices. We also may consider several other data points in our evaluation,factors, including the sizevalue of our arrangements, length of term, the cloud solutions sold, customer demographics and the numbers and types of users within our arrangements.
While changes in assumptions or judgments or changes to the elements of the arrangement could cause an increase or decrease in the amount of revenue that we report in a particular period, these changes have not historically been significant because our recurring revenue is primarily subscription and support revenue.
Stock-Based CompensationAcquisitions
We measureaccount for acquisitions under Accounting Standards Codification 805, Business Combinations. In general, the acquisition method of accounting requires companies to record assets acquired and recognize compensation expense for all stock-based awards granted to our employees, non-employee directors, and other service providers based on the estimatedliabilities assumed at their respective fair value of the award on the grant date or reporting date, if required to be remeasured under the guidance. We utilize stock-based compensation in the form of restricted stock awards, restricted stock units, options to purchase Class A common stock and ESPP purchase rights. The fair value of each stock option award and ESPP purchase right is determinedmarket values at the date of grant by applyingacquisition. Determining the Black-Scholes option pricing model. The fair value of each restricted stock award is basedassets acquired and liabilities assumed requires significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue, earnings before interest, tax, depreciation and amortization margins, and discount rates. We engage the assistance of third-party valuation specialists in concluding on the number of shares granted and the closing price of our Class A common stock as reported on the New York Stock Exchange on the date of grant. The fair value measurements in connection with determining fair values of these awards is recognized as an expense onassets acquired and liabilities assumed in a straight line basis over the requisite service period.
All stock-based awards made since the date of our initial public offering have been for Class A common stock. All references to common stock in this “Stock-Based Compensation” section are to our Class A common stock and Class B common stock, as applicable.
Our option pricing model requires the input of highly subjective assumptions, including the expected termbusiness combination. Any amount of the option, the expected volatilitypurchase price paid that is in excess of the priceestimated fair values of our common stock, risk-free interest rates, and the expected dividend yield of our common stock. The assumptions usednet assets acquired is recorded as goodwill in our option-pricing model represent management’s best estimates. Theseconsolidated balance sheets. Transaction costs, as well as costs to reorganize acquired companies, are expensed as incurred in our consolidated statement of operations. Although we believe that the judgments and estimates involve inherent uncertaintiesdiscussed herein are reasonable, actual results could differ, and the application of management’s judgment. If factors change and different assumptionswe may be exposed to an impairment charge if we are used, our stock-based compensation expense could be materially different inunable to recover the future.
These assumptions are estimated as follows:
Fair Value of Our Common Stock: The fair value of our common stock is based on the closing price of our Class A common stock on the New York Stock Exchange.Risk-Free Interest Rate: We base the risk-free interest rate used in the Black-Scholes option pricing model on the implied yield available on U.S. Treasury STRIPS with remaining terms similar to the expected term on the options.Expected Term: We estimate the expected term using the simplified method due to the lack of historical exercise activity for our company. The simplified method calculates the expected term as the mid-point between the vesting date and the contractual expiration date of the award.Volatility: Due to the limited trading history of our common stock, we estimate volatility for option grants by evaluating the average historical volatility of a peer group of companies for the period immediately preceding the option grant for a term that is approximately equal to the options’ expected life.Dividend yield: We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.
Please refer to Note 8 of the notes to consolidated financial statements for additional information on our estimates related to stock-based compensation.recorded net assets.
Recent Accounting Pronouncements
Refer to Note 1 of the notes to consolidated financial statements for a full description of recent accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency rates, although we also have some exposure due to potential changes in inflation or interest rates. We do not hold financial instruments for trading purposes.
Foreign Currency Risk
Our sales contracts are denominated predominantly in U.S. dollars and, to a lesser extent, the Canadian dollar, Euro, and British Pound Sterling.Sterling, and Danish krone. Consequently, our customer billings denominated in foreign currency are subject to foreign currency exchange risk. A portion of our operating expenses isare incurred outside the United States and isare denominated in foreign currencies. These operating expenses are also subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Canadian dollar, Euro, British pound, Danish krone, Singapore dollar, Australian dollar, Hong Kong dollar and British pound.Japanese yen. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statement of operations. To date, we have not entered into derivatives or hedging transactions as our exposure to foreign currency exchange rates has not been material to our historical operating results, but we may do so in the future if our exposure to foreign currency should become more significant. Foreign currency transaction gains (losses) are included in net loss and were $(372,000)$835,000, $(503,000), $67,000 and $(293,000)$(329,000) in the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively.
Inflation Risk
Inflationary factors, such as increases in our operating expenses, may adversely affect our results of operations, as our customers typically purchase services from us on a subscription basis over a period of time. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, an increase in the rate of inflation in the future may have an adverse effect on our levels of operating expenses as a percentage of revenue if we are unable to increase the prices for our subscription-based solutions to keep pace with these increased expenses.
Interest Rate Risk
As part of our build-to-suit lease arrangement, in addition to the base rent amount, we are responsible for the underlying mortgage held by the lessor, which is subject to a variable interest rate equal to the prime lending rate plus 1%. In addition, in August 2014, we entered into a $15.0 million credit facility. The credit facility is denominated in U.S. dollars and borrowings are subject to a variable interest rate equal to the prime lending rate. A hypothetical 10% increase or decrease in interest rates after December 31, 2017 would not have a material impact on our results of operations, our cash flows or the fair values of our outstanding debt or financing obligations.
Interest Rate Sensitivity
We had cash, cash equivalents and marketable securities totaling $76.7$430.8 million as of December 31, 2017.2022. The cash, cash equivalents and marketable securities are held for working capital purposes. Our investments are made primarily for capital preservation purposes. We do not enter into investments for trading or speculative purposes.
Our cash and cash equivalents consist primarily of cash and money market funds. Our exposure to market risk for changes in interest rates is limited because our cash and cash equivalents have a short-term maturity and are used primarily for working capital purposes.
Our portfolio of marketable securities was invested primarily in U.S. corporate and U.S. treasury debt securities and is subject to market risk due primarily to changes in interest rates. Fixed rate securities may have their market value adversely affected due to a rise in interest rates. Accordingly, our future
investment income may fluctuate as a result of changes in interest rates, or we may suffer losses in principal if we are forced to sell securities that decline in market value as a result of changes in interest rates. However, because we classify our marketable securities as “available for sale,” no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary.caused by expected credit losses.
An immediate increase of 100-basis points in interest rates would have resulted in an $166,000$1.3 million market value reduction in our investment portfolio as of December 31, 2017.2022. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur. Fluctuations in the value of our investment securities caused by a change in interest rates (gains or losses on the carrying value) are recorded in other comprehensive income, and are realized only if we sell the underlying securities.
In August 2019, we issued $345.0 million aggregate principal amount of 1.125% convertible senior notes due 2026. As these Notes have a fixed annual interest rate, we have no financial or economic interest exposure associated with changes in interest rates. However, the fair value of fixed rate debt instruments fluctuates when interest rates change. Additionally, the fair value can be affected when the market price of our common stock fluctuates. We carry the Notes at face value less unamortized discount on our balance sheet, and we present the fair value for required disclosure purposes only.
Item 8. Consolidated Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors and Stockholders of Workiva Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Workiva Inc. (the Company) as of December 31, 20172022 and 2016, and2021, the related consolidated statements of operations, comprehensive loss, stockholders’stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2017,2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20172022 and 2016,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sCompany’s internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 22, 201821, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company'sCompany’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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| Revenue Recognition |
Description of the Matter | As described in Note 1 to the consolidated financial statements, the Company recognizes revenue upon transfer of control of cloud-based software and professional services in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. |
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| | | | | |
| The Company assessed the terms and conditions associated with customer contracts to identify whether the services constitute an agreement that creates enforceable rights and obligations or an option to purchase. In addition, the Company identified the performance obligations and whether they were distinct. The transaction price was allocated to the separate performance obligations on a relative standalone selling price basis. The assessment of terms and conditions for the identification of performance obligations may involve judgment. |
| |
| Auditing the Company’s accounting for revenue recognition was challenging given the significant audit effort to evaluate the terms and conditions in the customer contracts and the identification and determination of distinct performance obligations in customer contracts. |
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How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over the Company’s revenue recognition process, including management’s review of terms and conditions and the identification of distinct performance obligations in customer contracts. |
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| To test the Company’s accounting for revenue recognition, we performed audit procedures that included, among others, reperforming management’s assessment of the distinct performance obligations within the arrangement based on its terms and conditions for a sample of customer contracts. We tested the application of the revenue recognition accounting requirements for each of the significant service offerings to determine whether the performance obligations identified by the Company were distinct. We also assessed the appropriateness of the related disclosures in the consolidated financial statements. |
| |
| Acquisition of ParsePort ApS |
Description of the Matter | As described in Note 12 to the consolidated financial statements, the Company completed its acquisition of ParsePort ApS for net consideration of approximately $99 million, net of cash acquired, on April 1, 2022. The transaction was accounted for as a business combination. |
| Auditing the Company's accounting for its acquisition of ParsePort ApS was complex due to the significant estimation used by management to determine the fair value of identified intangible assets of approximately $24 million, which principally consisted of customer-related and technology. The significant estimation was primarily due to the complexity of the valuation models used by management to measure the fair value of the intangible assets and the sensitivity of the respective fair value to the significant underlying assumptions. The Company used a discounted cash flow model to measure the customer-related and technology intangible assets. The significant assumptions used to estimate the fair value of the intangible assets included discount rates and certain assumptions that form the basis for the forecasted results (e.g., revenue growth rates and earnings before interest, taxes, depreciation and amortization margin). These significant assumptions are forward-looking and could be affected by future economic and market conditions. |
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How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's controls over accounting for the acquisition of ParsePort ApS, including controls over the recognition and measurement of the consideration transferred and customer-related and technology intangible assets, including the underlying assumptions used in the valuation models. |
| To test the estimated fair value of the customer-related and technology intangible assets, we performed audit procedures that included, among others, evaluating the Company's selection of the valuation methodology, evaluating the methods and significant assumptions used by the Company's valuation specialist, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. For example, we compared the significant assumptions of revenue growth rates and earnings before interest, taxes, depreciation and amortization margin, to current industry, market and economic trends, to historical results and to guidelines of companies within the similar industry. We involved our specialist to assist with our evaluation of the methodologies used by the Company and significant assumptions included in the fair value estimates. We performed sensitivity analyses to evaluate the changes in the fair value of the customer-related and technology intangible assets that would result from changes in the significant assumptions. We also assessed the appropriateness of the related disclosures in the consolidated financial statements. |
/s/ Ernst & Young LLP
We have served as the Company'sCompany’s auditor since 2010.
Chicago, Illinois
February 22, 201821, 2023
Report of Independent Registered Public Accounting Firm
TheTo the Stockholders and the Board of Directors and Stockholders ofWorkiva Inc.
Opinion on Internal Control overOver Financial Reporting
We have audited Workiva Inc.'s (the Company)’s internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, the CompanyWorkiva Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20172022 and 2016, and2021, the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 20172022, and the related notes and our report dated February 22, 201821, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Chicago, Illinois
February 22, 2018
21, 2023
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WORKIVA INC.
CONSOLIDATED BALANCE SHEETS |
(in thousands, except share and per share amounts) |
| As of December 31, |
| 2022 | | 2021 |
| | | |
ASSETS | | | |
| | | |
Current assets | | | |
Cash and cash equivalents | $ | 240,197 | | | $ | 300,386 | |
Marketable securities | 190,595 | | | 230,060 | |
Accounts receivable, net of allowance for doubtful accounts of $744 and $591 at December 31, 2022 and 2021, respectively | 106,316 | | | 76,848 | |
Deferred costs | 38,350 | | | 31,152 | |
Other receivables | 6,674 | | | 3,538 | |
Prepaid expenses and other | 17,957 | | | 15,108 | |
Total current assets | 600,089 | | | 657,092 | |
| | | |
Property and equipment, net | 27,096 | | | 28,821 | |
Operating lease right-of-use assets | 13,932 | | | 17,760 | |
Deferred costs, non-current | 33,682 | | | 33,091 | |
Goodwill | 109,740 | | | 34,556 | |
Intangible assets, net | 28,234 | | | 10,434 | |
Other assets | 6,847 | | | 5,005 | |
Total assets | $ | 819,620 | | | $ | 786,759 | |
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| | | |
Current liabilities | | | |
Accounts payable | $ | 6,174 | | | $ | 4,114 | |
Accrued expenses and other current liabilities | 83,999 | | | 84,126 | |
Deferred revenue | 316,263 | | | 258,023 | |
Convertible senior notes, current | — | | | 298,661 | |
Finance lease obligations | 504 | | | 1,575 | |
Total current liabilities | 406,940 | | | 646,499 | |
| | | |
Convertible senior notes, non-current | 340,257 | | | — | |
Deferred revenue, non-current | 38,237 | | | 34,181 | |
Other long-term liabilities | 1,518 | | | 1,605 | |
Operating lease liabilities, non-current | 12,102 | | | 16,408 | |
Finance lease obligations, non-current | 14,583 | | | 15,087 | |
Total liabilities | 813,637 | | | 713,780 | |
| | | |
Stockholders’ equity | | | |
Class A common stock, $0.001 par value per share, 1,000,000,000 shares authorized, 48,761,804 and 47,293,775 shares issued and outstanding at December 31, 2022 and 2021, respectively | 49 | | | 47 | |
Class B common stock, $0.001 par value per share, 500,000,000 shares authorized, 3,890,583 and 4,150,583 shares issued and outstanding at December 31, 2022 and 2021, respectively | 4 | | | 4 | |
Preferred stock, $0.001 par value per share, 100,000,000 shares authorized, no shares issued and outstanding | — | | | — | |
Additional paid-in-capital | 537,732 | | | 525,646 | |
Accumulated deficit | (525,116) | | | (452,430) | |
Accumulated other comprehensive loss | (6,686) | | | (288) | |
Total stockholders’ equity | 5,983 | | | 72,979 | |
Total liabilities and stockholders’ equity | $ | 819,620 | | | $ | 786,759 | |
See accompanying notes.
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WORKIVA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
Revenue | | | | | |
Subscription and support | $ | 464,935 | | | $ | 379,340 | | | $ | 295,877 | |
Professional services | 72,940 | | | 63,945 | | | 55,717 | |
Total revenue | 537,875 | | | 443,285 | | | 351,594 | |
Cost of revenue | | | | | |
Subscription and support | 77,711 | | | 60,551 | | | 49,503 | |
Professional services | 52,174 | | | 43,282 | | | 40,674 | |
Total cost of revenue | 129,885 | | | 103,833 | | | 90,177 | |
Gross profit | 407,990 | | | 339,452 | | | 261,417 | |
Operating expenses | | | | | |
Research and development | 151,716 | | | 115,735 | | | 94,844 | |
Sales and marketing | 245,260 | | | 178,785 | | | 144,687 | |
General and administrative | 99,778 | | | 74,287 | | | 59,688 | |
Total operating expenses | 496,754 | | | 368,807 | | | 299,219 | |
Loss from operations | (88,764) | | | (29,355) | | | (37,802) | |
Interest income | 4,880 | | | 1,041 | | | 3,282 | |
Interest expense | (6,042) | | | (14,015) | | | (13,964) | |
Other income and (expense), net | 926 | | | 3,229 | | | (205) | |
Loss before provision (benefit) for income taxes | (89,000) | | | (39,100) | | | (48,689) | |
Provision (benefit) for income taxes | 1,947 | | | (1,370) | | | (291) | |
Net loss | $ | (90,947) | | | $ | (37,730) | | | $ | (48,398) | |
Net loss per common share: | | | | | |
Basic and diluted | $ | (1.72) | | | $ | (0.74) | | | $ | (1.00) | |
Weighted-average common shares outstanding - basic and diluted | 52,954,079 | | | 51,126,510 | | | 48,448,166 | |
See accompanying notes.
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WORKIVA INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
Net loss | $ | (90,947) | | | $ | (37,730) | | | $ | (48,398) | |
Other comprehensive loss | | | | | |
Foreign currency translation adjustment | (4,304) | | | 266 | | | (137) | |
Unrealized (loss) gain on available-for-sale securities | (2,094) | | | (784) | | | 80 | |
| | | | | |
| | | | | |
Other comprehensive loss | (6,398) | | | (518) | | | (57) | |
Comprehensive loss | $ | (97,345) | | | $ | (38,248) | | | $ | (48,455) | |
See accompanying notes.
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WORKIVA INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands) |
| Common Stock (Class A and B) | | Additional Paid-in-Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Stockholders' Equity |
| Shares | | Amount | | | | |
Balances at December 31, 2019 | 46,639 | | | $ | 47 | | | $ | 420,170 | | | $ | 287 | | | $ | (366,302) | | | $ | 54,202 | |
Stock-based compensation expense | — | | | — | | | 45,771 | | | — | | | — | | | 45,771 | |
Issuance of common stock upon exercise of stock options | 1,398 | | | 2 | | | 19,187 | | | — | | | — | | | 19,189 | |
Issuance of common stock under employee stock purchase plan | 187 | | | — | | | 7,227 | | | — | | | — | | | 7,227 | |
Issuance of restricted stock units | 796 | | | — | | | — | | | — | | | — | | | — | |
Tax withholdings related to net share settlements of stock-based compensation awards | (231) | | | — | | | (13,657) | | | — | | | — | | | (13,657) | |
Net loss | — | | | — | | | — | | | — | | | (48,398) | | | (48,398) | |
Other comprehensive loss | — | | | — | | | — | | | (57) | | | — | | | (57) | |
Balances at December 31, 2020 | 48,789 | | | $ | 49 | | | $ | 478,698 | | | $ | 230 | | | $ | (414,700) | | | $ | 64,277 | |
Stock-based compensation expense | — | | | — | | | 48,633 | | | — | | | — | | | 48,633 | |
Issuance of common stock upon exercise of stock options | 1,141 | | | 2 | | | 16,598 | | | — | | | — | | | 16,600 | |
Issuance of common stock under employee stock purchase plan | 149 | | | — | | | 8,861 | | | — | | | — | | | 8,861 | |
Issuance of restricted stock units | 1,578 | | | — | | | — | | | — | | | — | | | — | |
Tax withholdings related to net share settlements of stock-based compensation awards | (213) | | | — | | | (27,144) | | | — | | | — | | | (27,144) | |
Net loss | — | | | — | | | — | | | — | | | (37,730) | | | (37,730) | |
Other comprehensive loss | — | | | — | | | — | | | (518) | | | — | | | (518) | |
Balances at December 31, 2021 | 51,444 | | | $ | 51 | | | $ | 525,646 | | | $ | (288) | | | $ | (452,430) | | | $ | 72,979 | |
Adoption of ASU 2020-06 | — | | | — | | | (58,560) | | | — | | | 18,261 | | | (40,299) | |
Stock-based compensation expense | — | | | — | | | 70,660 | | | — | | | — | | | 70,660 | |
Issuance of common stock upon exercise of stock options | 239 | | | 1 | | | 3,272 | | | — | | | — | | | 3,273 | |
Issuance of common stock under employee stock purchase plan | 131 | | | 1 | | | 9,255 | | | — | | | — | | | 9,256 | |
Issuance of restricted stock units | 958 | | | — | | | — | | | — | | | — | | | — | |
Tax withholdings related to net share settlements of stock-based compensation awards | (120) | | | — | | | (12,541) | | | — | | | — | | | (12,541) | |
Net loss | — | | | — | | | — | | | — | | | (90,947) | | | (90,947) | |
Other comprehensive loss | — | | | — | | | — | | | (6,398) | | | — | | | (6,398) | |
Balances at December 31, 2022 | 52,652 | | | $ | 53 | | | $ | 537,732 | | | $ | (6,686) | | | $ | (525,116) | | | $ | 5,983 | |
See accompanying notes.
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WORKIVA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(in thousands) |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
Cash flows from operating activities | | | | | |
Net loss | $ | (90,947) | | | $ | (37,730) | | | $ | (48,398) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 10,212 | | | 5,244 | | | 4,296 | |
Stock-based compensation expense | 70,660 | | | 48,633 | | | 45,771 | |
Provision for (recovery of) doubtful accounts | 156 | | | (125) | | | (159) | |
Amortization of premiums and discounts on marketable securities, net | 1,079 | | | 3,024 | | | 668 | |
Amortization of debt discount and issuance costs | 1,298 | | | 9,171 | | | 8,889 | |
| | | | | |
| | | | | |
Gain on settlement of equity securities | — | | | (3,698) | | | — | |
Deferred income tax | 538 | | | (1,973) | | | — | |
Changes in assets and liabilities: | | | | | |
Accounts receivable | (28,893) | | | (7,683) | | | (8,028) | |
Deferred costs | (8,496) | | | (19,207) | | | (15,953) | |
Operating lease right-of-use asset | 5,153 | | | 4,197 | | | 3,906 | |
Other receivables | (1,655) | | | (391) | | | (680) | |
Prepaid expenses and other | (2,913) | | | (6,522) | | | (2,492) | |
Other assets | (2,441) | | | (1,222) | | | (215) | |
Accounts payable | 2,438 | | | 972 | | | (4,106) | |
Deferred revenue | 61,657 | | | 47,419 | | | 37,479 | |
Operating lease liability | (5,055) | | | (4,934) | | | (4,525) | |
Accrued expenses and other liabilities | (1,457) | | | 14,669 | | | 16,790 | |
Net cash provided by operating activities | 11,334 | | | 49,844 | | | 33,243 | |
| | | | | |
Cash flows from investing activities | | | | | |
Purchase of property and equipment | (3,458) | | | (3,534) | | | (1,873) | |
Purchase of marketable securities | (130,754) | | | (170,070) | | | (175,926) | |
Maturities of marketable securities | 150,565 | | | 143,159 | | | 62,922 | |
Sale of marketable securities | 14,981 | | | 250 | | | 11,423 | |
Acquisitions, net of cash acquired | (99,186) | | | (37,467) | | | — | |
Purchase of intangible assets | (160) | | | (219) | | | (296) | |
Other investments | — | | | (750) | | | — | |
Net cash used in investing activities | (68,012) | | | (68,631) | | | (103,750) | |
| | | | | |
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WORKIVA INC. |
CONSOLIDATED BALANCE SHEETS |
(in thousands, except share and per share amounts) |
| As of December 31, |
| 2017 | | 2016 |
ASSETS | | | |
| | | |
Current assets | | | |
Cash and cash equivalents | $ | 60,333 | | $ | 51,281 |
Marketable securities | 16,364 | | 11,435 |
Accounts receivable, net of allowance for doubtful accounts of $388 and $900 at December 31, 2017 and December 31, 2016, respectively | 28,800 | | 22,535 |
Deferred commissions | 2,376 | | 1,864 |
Other receivables | 975 | | 1,545 |
Prepaid expenses | 6,444 | | 9,382 |
Total current assets | 115,292 | | 98,042 |
| | | |
Property and equipment, net | 40,444 | | 42,590 |
Intangible assets, net | 1,118 | | 1,012 |
Other assets | 861 | | 1,499 |
Total assets | $ | 157,715 | | $ | 143,143 |
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WORKIVA INC. |
CONSOLIDATED BALANCE SHEETS (continued) |
(in thousands, except share and per share amounts) |
| As of December 31, |
| 2017 | | 2016 |
| | | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
| | | |
Current liabilities | | | |
Accounts payable | $ | 3,060 | | $ | 849 |
Accrued expenses and other current liabilities | 20,212 | | 20,695 |
Deferred revenue | 104,684 | | 76,016 |
Deferred government grant obligation | 217 | | 1,022 |
Current portion of capital lease and financing obligations | 1,168 | | 1,285 |
Current portion of long-term debt | — | | 20 |
Total current liabilities | 129,341 | | 99,887 |
| | | |
Deferred revenue | 22,709 | | 21,485 |
Deferred government grant obligation | 278 | | 1,000 |
Other long-term liabilities | 3,896 | | 4,100 |
Capital lease and financing obligations | 18,425 | | 19,743 |
Long-term debt | — | | 53 |
Total liabilities | 174,649 | | 146,268 |
| | | |
Stockholders’ deficit | | | |
Class A common stock, $0.001 par value per share, 1,000,000,000 shares authorized, 32,165,407 and 30,369,199 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively | 32 | | 30 |
Class B common stock, $0.001 par value per share, 500,000,000 shares authorized, 10,203,371 and 10,891,888 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively | 10 | | 11 |
Preferred stock, $0.001 par value per share, 100,000,000 shares authorized, no shares issued and outstanding | — | | — |
Additional paid-in-capital | 248,289 | | 217,454 |
Accumulated deficit | (265,337) | | (220,911) |
Accumulated other comprehensive income | 72 | | 291 |
Total stockholders’ deficit | (16,934) | | (3,125) |
Total liabilities and stockholders’ deficit | $ | 157,715 | | $ | 143,143 |
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WORKIVA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) |
(in thousands) |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
Cash flows from financing activities | | | | | |
Proceeds from option exercises | 3,273 | | | 16,600 | | | 19,189 | |
Taxes paid related to net share settlements of stock-based compensation awards | (12,541) | | | (27,144) | | | (13,657) | |
Proceeds from shares issued in connection with employee stock purchase plan | 9,256 | | | 8,861 | | | 7,227 | |
| | | | | |
| | | | | |
Principal payments on finance lease obligations | (1,575) | | | (1,705) | | | (1,641) | |
| | | | | |
| | | | | |
Net cash (used in) provided by financing activities | (1,587) | | | (3,388) | | | 11,118 | |
Effect of foreign exchange rates on cash | (1,924) | | | (270) | | | 478 | |
| | | | | |
Net decrease in cash and cash equivalents | (60,189) | | | (22,445) | | | (58,911) | |
Cash and cash equivalents at beginning of year | 300,386 | | | 322,831 | | | 381,742 | |
Cash and cash equivalents at end of year | $ | 240,197 | | | $ | 300,386 | | | $ | 322,831 | |
| | | | | |
Supplemental cash flow disclosure | | | | | |
Cash paid for interest | $ | 4,742 | | | $ | 4,837 | | | $ | 5,067 | |
Cash paid for income taxes, net of refunds | $ | 1,429 | | | $ | (41) | | | $ | 679 | |
| | | | | |
Supplemental disclosure of noncash investing and financing activities | | | | | |
| | | | | |
Allowance for tenant improvements | $ | — | | | $ | — | | | $ | 149 | |
Purchases of property and equipment, accrued but not paid | $ | — | | | $ | 350 | | | $ | 263 | |
See accompanying notes.
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WORKIVA INC. |
CONSOLIDATED STATEMENTS OF OPERATIONS |
(in thousands, except share and per share amounts) |
| Year ended December 31, |
| 2017 | | 2016 | | 2015 |
Revenue | | | | | |
Subscription and support | $ | 169,283 | | $ | 143,120 | | $ | 116,288 |
Professional services | 38,586 | | 35,526 | | 28,984 |
Total revenue | 207,869 | | 178,646 | | 145,272 |
Cost of revenue | | | | | |
Subscription and support | 32,646 | | 27,895 | | 22,559 |
Professional services | 27,599 | | 23,730 | | 17,645 |
Total cost of revenue | 60,245 | | 51,625 | | 40,204 |
Gross profit | 147,624 | | 127,021 | | 105,068 |
Operating expenses | | | | | |
Research and development | 68,172 | | 57,438 | | 50,466 |
Sales and marketing | 84,161 | | 80,466 | | 69,569 |
General and administrative | 39,594 | | 32,695 | | 28,716 |
Total operating expenses | 191,927 | | 170,599 | | 148,751 |
Loss from operations | (44,303) | | (43,578) | | (43,683) |
Interest expense | (1,845) | | (1,875) | | (2,025) |
Other income, net | 1,783 | | 1,500 | | 2,302 |
Loss before provision (benefit) for income taxes | (44,365) | | (43,953) | | (43,406) |
Provision (benefit) for income taxes | 61 | | 24 | | (7) |
Net loss | $ | (44,426) | | $ | (43,977) | | $ | (43,399) |
Net loss per common share: | | | | | |
Basic and diluted | $ | (1.07) | | $ | (1.08) | | $ | (1.09) |
Weighted-average common shares outstanding - basic and diluted | 41,618,838 | | 40,671,133 | | 39,852,624 |
See accompanying notes.
| | | | | | | | | | | | | | | | | |
WORKIVA INC. |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS |
(in thousands) |
| Year ended December 31, |
| 2017 | | 2016 | | 2015 |
Net loss | $ | (44,426) | | $ | (43,977) | | $ | (43,399) |
Other comprehensive (loss) income, net of tax | | | | | |
Foreign currency translation adjustment, net of income tax (expense) of ($2), ($13) and ($101) for the years ended December 31, 2017, 2016 and 2015, respectively | (159) | | 18 | | 133 |
Unrealized gain (loss) on available-for-sale securities, net of income tax (expense) benefit of $2, ($19), and $25 for the years ended December 31, 2017, 2016 and 2015, respectively | (60) | | 32 | | (39) |
| | | | | |
| | | | | |
Other comprehensive (loss) income, net of tax | (219) | | 50 | | 94 |
Comprehensive loss | $ | (44,645) | | $ | (43,927) | | $ | (43,305) |
See accompanying notes.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
WORKIVA INC. |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) |
(in thousands) |
| Common Stock (Class A and B) | | Additional Paid-in-Capital | | Accumulated Other Comprehensive Income | | Accumulated Deficit | | Total Stockholders' Equity (Deficit) |
| Shares | | Amount | | | | |
Balances at December 31, 2014 | 39,641 | | $ | 39 | | $ | 189,168 | | $ | 147 | | $ | (133,535) | | $ | 55,819 |
Stock-based compensation expense | — | | — | | 11,000 | | — | | — | | 11,000 |
Grant of restricted stock award | 600 | | — | | — | | — | | — | | — |
Issuance of common stock upon exercise of stock options | 707 | | 2 | | 2,242 | | — | | — | | 2,244 |
Net loss | — | | — | | — | | — | | (43,399) | | (43,399) |
Distribution to members | — | | — | | (35) | | — | | — | | (35) |
Cost of offering | — | | — | | (4) | | — | | — | | (4) |
Other comprehensive income | — | | — | | — | | 94 | | — | | 94 |
Balances at December 31, 2015 | 40,948 | | $ | 41 | | $ | 202,371 | | $ | 241 | | $ | (176,934) | | $ | 25,719 |
Stock-based compensation expense | — | | — | | 14,247 | | — | | — | | 14,247 |
Issuance of common stock upon exercise of stock options | 374 | | — | | 1,597 | | — | | — | | 1,597 |
Tax withholdings related to net share settlements of stock-based compensation awards | (61) | | — | | (761) | | — | | — | | (761) |
Net loss | — | | — | | — | | — | | (43,977) | | (43,977) |
Other comprehensive income | — | | — | | — | | 50 | | — | | 50 |
Balances at December 31, 2016 | 41,261 | | $ | 41 | | $ | 217,454 | | $ | 291 | | $ | (220,911) | | $ | (3,125) |
Stock-based compensation expense | — | | — | | 19,476 | | — | | — | | 19,476 |
Issuance of common stock upon exercise of stock options | 1,159 | | 1 | | 12,484 | | — | | — | | 12,485 |
Issuance of restricted stock units | 30 | | — | | — | | — | | — | | — |
Tax withholdings related to net share settlements of stock-based compensation awards | (81) | | — | | (1,125) | | — | | — | | (1,125) |
Net loss | — | | — | | — | | — | | (44,426) | | (44,426) |
Other comprehensive loss | — | | — | | — | | (219) | | — | | (219) |
Balances at December 31, 2017 | 42,369 | | $ | 42 | | $ | 248,289 | | $ | 72 | | $ | (265,337) | | $ | (16,934) |
See accompanying notes.
| | | | | | | | | | | | | | | | | |
WORKIVA INC. |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(in thousands) |
| Year ended December 31, |
| 2017 | | 2016 | | 2015 |
Cash flows from operating activities | | | | | |
Net loss | $ | (44,426) | | $ | (43,977) | | $ | (43,399) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities | | | | | |
Depreciation and amortization | 3,546 | | 3,820 | | 4,410 |
Stock-based compensation expense | 19,476 | | 14,247 | | 11,000 |
(Recovery of) provision for doubtful accounts | (517) | | 185 | | 449 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Realized gain on sale of available-for-sale securities, net | — | | (6) | | (13) |
Amortization of premiums and discounts on marketable securities, net | 101 | | 147 | | 77 |
Recognition of deferred government grant obligation | (1,578) | | (1,141) | | (2,383) |
Deferred income tax | — | | (32) | | (76) |
Changes in assets and liabilities: | | | | | |
Accounts receivable | (5,546) | | (7,101) | | (5,080) |
Deferred commissions | (498) | | (497) | | (520) |
Other receivables | 577 | | (732) | | (523) |
Prepaid expenses | 2,952 | | (5,513) | | (734) |
Other assets | 618 | | (654) | | 81 |
Accounts payable | 2,206 | | (3,930) | | 2,331 |
Deferred revenue | 29,367 | | 34,211 | | 7,297 |
Accrued expenses and other liabilities | (758) | | 604 | | 5,390 |
Change in restricted cash | — | | — | | 101 |
Net cash provided by (used in) operating activities | 5,520 | | (10,369) | | (21,592) |
| | | | | |
Cash flows from investing activities | | | | | |
Purchase of property and equipment | (1,188) | | (1,901) | | (1,843) |
Purchase of marketable securities | (14,369) | | (1,301) | | (24,069) |
Maturities of marketable securities | 9,281 | | — | | — |
Sale of marketable securities | — | | 7,197 | | 6,521 |
Purchase of intangible assets | (197) | | (190) | | (386) |
Net cash (used in) provided by investing activities | (6,473) | | 3,805 | | (19,777) |
| | | | | | | | | | | | | | | | | |
WORKIVA INC. |
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) |
(in thousands) |
| Year ended December 31, |
| 2017 | | 2016 | | 2015 |
Cash flows from financing activities | | | | | |
Payment of equity issuance costs | — | | — | | (1,346) |
Proceeds from option exercises | 12,485 | | 1,597 | | 2,244 |
Taxes paid related to net share settlements of stock-based compensation awards | (1,125) | | (761) | | — |
Changes in restricted cash | — | | — | | 300 |
Repayment of other long-term debt | (73) | | (18) | | (84) |
Principal payments on capital lease and financing obligations | (1,435) | | (1,863) | | (2,282) |
Distributions to members | — | | — | | (381) |
Proceeds from government grants | 51 | | 183 | | 548 |
Deferred financing costs | (81) | | (33) | | — |
Repayment of government grant | — | | — | | (101) |
Net cash provided by (used in) financing activities | 9,822 | | (895) | | (1,102) |
Effect of foreign exchange rates on cash | 183 | | (10) | | 90 |
| | | | | |
Net increase (decrease) in cash and cash equivalents | 9,052 | | (7,469) | | (42,381) |
Cash and cash equivalents at beginning of year | 51,281 | | 58,750 | | 101,131 |
Cash and cash equivalents at end of year | $ | 60,333 | | $ | 51,281 | | $ | 58,750 |
| | | | | |
Supplemental cash flow disclosure | | | | | |
Cash paid for interest | $ | 1,627 | | $ | 1,835 | | $ | 2,048 |
Cash paid for income taxes, net of refunds | $ | 42 | | $ | 47 | | $ | 64 |
| | | | | |
Supplemental disclosure of noncash investing and financing activities | | | | | |
Fixed assets acquired through capital lease arrangements | $ | — | | $ | — | | $ | 527 |
Government grant recorded against property and equipment, net | $ | — | | $ | — | | $ | 908 |
Allowance for tenant improvements | $ | — | | $ | 481 | | $ | 698 |
Purchases of property and equipment, accrued but not paid | $ | — | | $ | — | | $ | 354 |
See accompanying notes.
WORKIVA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Organization
Workiva Inc., a Delaware corporation, and its wholly-owned subsidiaries (the "Company"“Company” or "we"“we” or "us"“us”) created Wdesk, an intuitive cloud platform that modernizes how peoplesimplifies complex work withinfor thousands of organizations. Wdesk is built onorganizations worldwide. We are a data management engine, offering controlled collaboration, data connections, granular permissions and a full audit trail. We offer Wdesk solutions for a wide rangeleading provider of use cases in the following markets: finance and accounting, audit and internal controls, risk andcloud-based compliance and performanceregulatory reporting solutions that are designed to solve business challenges at the intersection of data, process and management reporting.people. 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
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and include the accounts of Workiva Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Seasonality affects our revenue, expenses and cash flows from operations. Revenue from professional services is generally 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, which was held as a hybrid in-person/virtual event in 2022. In addition, the timing of cash bonus payments to employees during the first and fourth calendar quarters may result in some seasonality in operating cash flow.
Segments
Our chief operating decision maker reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. There are no segment managers who are held accountable by the chief operating decision maker, or anyone else, for operations, operating results and planning for levels or components below the consolidated unit level. Accordingly, we determined we have one operating and reportable segment.
Foreign Currency
We translate the financial statements of our foreign subsidiaries, which have a functional currency in the respective country’s local currency, to U.S. dollars using month-end exchange rates for assets and liabilities and average exchange rates for revenue, costs and expenses. Translation gains and losses are recorded in accumulated other comprehensive income as a component of stockholders’ equity. Gains and losses resulting from foreign currency transactions that are denominated in currencies other than the entity's functional currency are included within “Otherother income net”and (expense), net on the consolidated statements of operations. We recorded $(372,000), $67,000 and $(293,000)
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and various other assumptions believed to be reasonable. These estimates include, but are not limited to, the allowance for doubtful accounts, the determination of the relative selling prices of our services, the measurement of material rights, health insurance claims incurred but not yet reported, collectability of accounts receivable, valuation of available-for-sale marketable securities, useful lives of deferred contract costs, intangible assets and property and equipment, goodwill, income taxes, discount rates used in the valuation of right-of-use assets and lease liabilities, and certain assumptions used in the valuation of equity awards. While these estimates are based on our best knowledge of current events and actions that may affect us in the future, actual results may differ materially from these estimates.
Cash and Cash Equivalents
Cash consists of cash on deposit with banks that is stated at cost, which approximates fair value. We invest our excess cash primarily in highly liquid money market funds and marketable securities. We classify all highly liquid investments with stated maturities of three months or less from date of purchase as cash equivalents and all highly liquid investments with stated maturities of greater than three months as marketable securities.
Marketable Securities
Our marketable securities consist of U.S. corporate debt securities, and U.S. treasury debt securities and foreign government debt securities. We classify our marketable securities as available-for-sale at the time of purchase and reevaluate such classification as of each balance sheet date. We may sell these securities at any time for use in current operations even if they have not yet reached maturity. As a result, we classify our investments, including securities with maturities beyond twelve months as current assets in the accompanying consolidated balance sheets. Available-for-sale securities are recorded at fair value each reporting period. Unrealized gains and losses are excluded from earnings and recorded as a separate component within “Accumulatedaccumulated other comprehensive income”income on the consolidated balance sheets until realized. Dividend income is reported within “Otherother income net”and (expense), net on the consolidated statements of operations. We evaluate our investments to assess whether those withthe amortized cost basis is in excess of estimated fair value and determine what amount of that difference, if any, is caused by expected credit losses. Allowance for credit losses are recognized as a charge in other income and (expense), net on the consolidated statements of operations, and any remaining unrealized losses are included in accumulated other comprehensive loss positions are other than temporarily impaired.on the consolidated balance sheets. There were no credit losses recorded for the years ended December 31, 2022, 2021 and 2020. We consider impairments to be other than temporary if they are related to deterioration in credit risk or if it is likely we will sell the securities before the recovery of their cost basis. Realizeddetermine realized gains and losses and declines in value judged to be other than temporary are determined basedon the sale of marketable securities on the specific identification method and are reportedrecord such gains and losses in “Otherother income net”and (expense), net on the consolidated statements of operations.
Fair Value of Financial Instruments
Our financial assets, which include cash equivalents and marketable securities, are measured and recorded at fair value on a recurring basis. Our other current financial assets and our other current financial liabilities have fair values that approximate their carrying value due to their short-term maturities.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. We place our cash and cash equivalents with high credit-quality financial institutions. Such deposits may be in excess of federally insured limits. To date, we have not experienced any losses on our cash and cash equivalents. We perform periodic evaluations of the relative credit standing of the financial institutions.
Our accounts receivable are derived primarily from customers located in North America. We perform ongoing credit evaluations of our customers’ financial condition and require no collateral from our customers. We maintain an allowance for doubtful accounts receivable based upon the expected collectability of accounts receivable balances. We did not have a significant concentration of accounts receivable from any single customer or from customers in any single country outside of the United States at December 31, 20172022 or 2016.2021.
Deferred Costs
We pay sales commissions for initial contracts and expansions of existing contracts with customers. These commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions paid where the amortization period is one year or less are expensed as incurred. All other sales commissions are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be three years. We determined the period of benefit by taking into consideration our standard contract terms and conditions, rate of technological change and other factors. Amortization expense is included in sales and marketing expense in the accompanying consolidated statements of operations.
Property and Equipment, net
Property and equipment is stated at cost, net of accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, generally three to ten years. We amortize leasehold improvements and assets under capitalfinance leases or financing arrangements over the lesser of the term of the lease including renewal options that are reasonably assured or the estimated useful life of the assets. Depreciation and amortization expense related to property and equipment totaled $3.4$4.8 million, $3.7$4.1 million and $4.4$3.8 million for the years ended December 31, 2017, 20162022, 2021 and 2015, respectively, and included $1.6 million, $2.1 million and $2.4 million of amortization of assets recorded under capital leases during the years ended December 31, 2017, 2016 and 2015,2020, respectively.
Revenue Recognition
We generate revenue through the sale of subscriptions to our cloud-based software and the delivery of professional services. Our customer contracts typically rangeWe recognize revenue when control of these services is transferred to our customers in length from threean amount that reflects the consideration we expect to 36 months. Our arrangements do not contain general rights of return. Our subscription contracts do not provide customers withbe entitled to in exchange for those services.
We determine revenue recognition through the right to take possessionfollowing steps:
•Identification of the software supportingcontract, or contracts, with a customer
•Identification of the applications and,performance obligations in the contract
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, we satisfy a result, are accounted for as service contracts.performance obligation
We commencereport revenue recognition for subscriptions to our cloud applications and professional services when all of the following criteria are met:
There is persuasive evidence of an arrangement;The service has been or is being provided to the customer;Collection of the fees is reasonably assured; andThe amount of fees to be paid by the customer is fixed or determinable.
Collectability is assessed based on a number of factors, including past transaction history with the customer and the creditworthiness of the customer. Collateral is not requested from the customer. If it is determined that the collection of a fee is not probable, the revenue is deferred until collection becomes probable, which is generally upon the receipt of cash.
Revenue is reported net of sales and other taxes collected from customers to be remitted to government authorities.
Subscription and Support Revenue
We recognize the aggregate minimum subscription and support fees ratably on a straight-line basis over the subscription term, provided that an enforceable contract has been signed by both parties, access to our SaaS solutions has been granted to the customer, the fee for the subscription and support is fixed or determinable, and collection is reasonably assured.
Professional Services Revenue
We recognize revenue for our professional services contracts when the services are performed.
Multiple Deliverable Arrangements
For arrangements with multiple deliverables, we evaluate whether the individual deliverables qualify as separate units of accounting. In order to treat deliverables in a multiple deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. For deliverables that have standalone value upon delivery, we account for each deliverable separately and recognize revenue for the respective deliverables as they are delivered.
Subscription contracts have standalone value as we sell the subscriptions separately. In determining whether professional services can be accounted for separately from subscription services, we consider the availability of the professional services from other vendors, the nature of our professional services and whether we sell our applications to new customers without professional services. In the years ended December 31, 2017, 2016 and 2015, we determined that we had established standalone value for our professional services. This determination was made due primarily to the ability of the customer to complete these tasks without assistance and the sale of services separate from the initial subscription order. Because we established standalone value for our professional services in the years ended December 31, 2017, 2016 and 2015, such service arrangements are being accounted for separately from subscription services.
When multiple deliverables included in an arrangement are separable into different units of accounting, the arrangement consideration is allocated to the identified separate units of accounting based
Subscription and Support Revenue
We recognize subscription and support revenue on theira ratable basis over the contract term beginning on the date that our service is made available to the customer. Our subscription contracts are generally twelve to 36 months in duration, are billed either annually or in advance and are non-cancelable. We consider the access to our platform and related support services in a customer contract to be a series of distinct services which comprise a single performance obligation because they are substantially the same and have the same pattern of transfer.
Professional Services Revenue and Customer Options
Professional services revenues primarily consist of fees for document set up, XBRL tagging, and consulting with our customers on business processes and best practices. We have determined that an agreement to purchase these professional services constitutes an option to purchase services in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification No. 606, Revenue from Contracts with Customers, (ASC 606) rather than an agreement that creates enforceable rights and obligations because of the customer's contractual right to cancel services that have not yet been used. In the limited case of agreements where we determined that the option provides the customer with a material right, we allocate a portion of the transaction price to the material right based upon the relative standalone selling price. Professional service agreements that do not contain a material right are accounted for when the customer exercises its option to purchase additional services. Revenue is recognized 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.
Contracts with Multiple deliverable arrangements accounting guidance provides a hierarchy to use when determiningPerformance Obligations
Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for the relative selling price for each unit of accounting. Vendor-specific objective evidence (VSOE) of selling price, based on the price at which the item is regularly sold by the vendor on a standalone basis, should be usedindividual performance obligations separately if it exists. If VSOE of sellingthey are distinct. The transaction price is not available, third-party evidence (TPE) of selling price is used to establish the selling price if it exists. VSOE and TPE do not currently exist for any of our deliverables. Accordingly, for arrangements with multiple deliverables that can be separated into different units of accounting, we allocate the arrangement feeallocated to the separate units of accounting basedperformance obligations on our best estimate ofa relative standalone selling price. The amount of arrangement fee allocated is limited by contingent revenue, if any.
price basis. We determine our best estimate ofthe standalone selling price for our deliverablesprices based on our overall pricing objectives, taking into consideration market conditions and entity-specific factors. We evaluate our best estimate of selling price by reviewing historical data related to sales of our deliverables, including comparing the percentages of our contract prices to our list prices. We also may consider several other data points in our evaluation,factors, including the sizevalue of our arrangements, length of term, the cloud applications sold, customer demographics and the numbers and types of users within our arrangements.
Deferred Revenue
We typically invoice our customers for subscription and support fees annually in advance on one- to three-year contract terms. For contracts with a quarterly, annual, two-two or three-year basis, with payment due atthree year term, customers sometimes elect to pay the start of theentire multi-year subscription term. Unpaid invoice amounts for services startingterm in future periods are excluded from accounts receivable and deferred revenue. Invoiced amounts are reflected as accounts receivable once we have initiated services with an offset to deferred revenue or revenue depending on whether the revenue recognition criteria have been met. Deferred revenue also includes certain deferred professional service fees that are recognized upon completion of the service.advance. The portion of deferred revenue that we anticipate will be recognized after the succeeding twelve-month period is recorded as non-current deferred revenue, and the remaining portion is recorded as current deferred revenue.
Customer Deposits
As an agreement to purchase professional services constitutes a customer option, fees received in advance of these services being performed are considered customer deposits and are included in accrued expenses and other current liabilities on the consolidated balance sheets. Unpaid invoice amounts for these professional services starting in future periods are excluded from accounts receivable and accrued expenses and other current liabilities.
Cost of Revenue
Cost of revenue consists primarily of personnel and related costs directly associated with the professional services and 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.
Sales and Marketing Expenses and Deferred Commissions
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 amortize sales commissions that are directly attributable to a contract over the lesser of 12 months or the non-cancelable term of the customer contract based on the terms of our commission arrangements.
Advertising costs are charged to sales and marketing expense as incurred. Advertising expense totaled $2.7$6.1 million, $2.7$5.6 million and $2.8$3.8 million for the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively.
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, 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.
Leases
We categorizedetermine whether an arrangement contains a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities on our consolidated balance sheets. Finance leases are included in property and equipment, net, finance lease obligations, and finance lease obligations, non-current on our consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at their inception as either operatingthe commencement date. Our variable lease payments consist of non-lease services related to the lease. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We do not include options to extend or capital leases and may receive renewal or expansion options, rent holidays, and leasehold improvement and other incentives onterminate the lease term unless it is reasonably certain lease agreements.that we will exercise any such options. We recognize rent expense under our operating leases on a straight-line basis. For finance leases, we record interest expense on the lease costsliability in addition to amortizing the right-of-use asset (generally straight-line) over the shorter of the lease term or the useful life of the right-of-use asset.
We have lease agreements with lease and non-lease components. We have elected to account for these lease and non-lease components as a single lease component. We do not recognize right-of-use assets or lease liabilities for short-term leases, which have a lease term of twelve months or less, and instead will recognize lease payments as expense on a straight-line basis taking into account adjustments for free or escalating rental payments, renewals at our option that are reasonably assured and deferred payment terms. Additionally, lease incentives are accounted for as a reduction of lease costs over the termlease term.
Acquisitions
When we acquire a business, the purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the agreement. Leasehold improvements are capitalized at costacquisition date. During the measurement period, which may be up to one year from the acquisition date, adjustments to the fair value of assets acquired and amortized overliabilities assumed may be recorded, with the shorter of their useful life orcorresponding offset to goodwill. Upon the termconclusion of the lease.
Government Grants
Government grants receivedmeasurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statement of operations.
Goodwill
Goodwill represents the cost in excess of the fair value of the net assets acquired in a business combination. Goodwill is tested for impairment at the reporting unit level on an annual basis and on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. We perform our annual goodwill impairment test as of October 1. For the years ended December 31, 2022 and 2021, we determined there were no events or circumstances which indicated that the carrying value of a liability onreporting unit exceeded the balance sheet until all contingencies are resolved and the grant is determined to be realized. fair value.
Intangible Assets
We account for intangible assets under Accounting Standards Codification (ASC) 350, Goodwill and Other. Intangible assets consist of legal fees incurred for patents and intangible assets acquired in a business combination or asset acquisition, primarily technology, customer-related assets, and trade names. Patents are recorded at cost to obtain and amortized over the useful lives of the assets of ten years, using the straight-line method.lives. Certain patents are in the legal application process and therefore are not currently being amortized.
Accumulated amortizationIntangible assets acquired in a business combination or an asset acquisition are recorded at fair value on the date of patents as of December 31, 2017acquisition and 2016 was approximately $218,000 and $127,000, respectively. Future amortization expense for legally approved patents isamortized over their estimated at $94,000 per year through 2022 and approximately $211,000 thereafter.useful lives.
Impairment of Long-Lived Assets
Long-lived assets, such as property, equipment, and softwareright-of-use assets, and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. If circumstances require that a long-lived asset or asset group be tested for possible impairment, we first compare the undiscounted cash flows expected to be generated by that long-lived asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. There were no impairment losses related to long-lived assets in any of the periods presented.
Stock-Based Compensation
We measure all share-based payments, including grants of options to purchase common stock and the issuance of restricted stock or restrictedunits and performance stock units to employees, service providers and board members, using a fair-value based method. We record forfeitures as they occur. The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized in the consolidated statement of operations based on the estimated fair value of those awards on the grant date or reporting date, if required to be remeasured, and amortized on a straight-line basis over the requisite service period. We use the Black-Scholes option-pricing model to determine the fair values of stock option awards.shares to be issued pursuant to our Employee Stock Purchase Plan (“ESPP”). For restricted stock units and performance restricted stock units, fair value is based on the closing price of our common stock on the grant date.
Income Taxes
We record current income taxes based on our estimates of current taxable income and provide for deferred income taxes to reflect estimated future income tax payments and receipts. We are subject to U.S. federal income taxes as well as state taxes. In addition, we are subject to taxes in the foreign jurisdictions where we operate.
We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment rate.
On December 22, 2017, the U.S. federal government enacted legislation commonly referred to as the “Tax Cuts and Jobs Act” (the “TCJA”). The TCJA makes widespread changes to the Internal Revenue Code, including, among other items, the introduction of a new international "Global Intangible Low-Taxed Income" ("GILTI") regime effective January 1, 2018. Companies may adopt one of two views in regards to establishing deferred taxes in accordance with the new ("GILTI") regime under ASC 740. Companies mayWe account for the effects of GILTI either (1)Global Intangible Low-Taxed Income in the period the entity becomes subject to GILTI, or (2) establish deferred taxes (similar to the guidance that currently exists with respect to basis differences that will reverse under current Subpart F rules) for basis differences that upon reversal will be subject to GILTI. We have elected to account for GILTI in the period we become subject to GILTI.incurred.
We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
We record uncertain tax positions in accordance with ASC 740, Income Taxes,, on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
We recognize interest and penalties related to unrecognized tax benefits on the (benefit) provision for income tax expensetaxes line in the accompanying consolidated statementstatements of operations. Interest and penalties were not significant during the years ended December 31, 2022, 2021 and 2020. Accrued interest and penalties are included on the related tax liabilityaccrued expenses and other current liabilities line in the consolidated balance sheet. sheets.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount net of an allowance for doubtful accounts. The allowance for doubtful accounts is based on our assessment of the collectability of customer accounts. We regularly review our receivables that remain outstanding past their applicable payment terms and established an allowance for potential write-offs by considering factors such as historical experience, credit quality, age of the accounts receivable balances, and current and forecasted economic conditions that may affect a customer’s ability to pay. Accounts receivable deemed uncollectible are charged against the allowance once collection efforts have been exhausted.
Recently Adopted Accounting Pronouncements
In March 2016,October 2021, the FASBFinancial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends the accounting related to contract assets and liabilities acquired in business combinations. This ASU 2016-09,requires that entities recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment AccountingRevenue from Contracts with Customers. Under this ASU, entities are permitted to make an accounting policy election either to estimate forfeitures on share-based payment awards, as required by current guidance, or to recognize forfeitures as they occur in addition to other changes. The guidance becameThis update is effective for interim and annual periodsfiscal years beginning after December 15, 2016.2022 with early adoption permitted. We adopted this standard effectiveon January 1, 2017. We elected to recognize forfeitures on share-based payment awards as they occur.2022. The adoption along with the remaining provisions of ASU 2016-09,this standard did not have a material impact on our consolidated financial statements.
In October 2016,August 2020, the FASB issued ASU 2016-16,2020-06, Income Taxes - Intra-Entity Transfers of Assets Other Than InventoryAccounting for Convertible Instruments and Contracts in an Entity's Own Equit, which requires entitiesy. Under ASU 2020-06, embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to recognizebe accounted for as derivatives, or that do not result in substantial premiums accounted for as paid-in capital. The convertible debt instruments are now accounted for as a single liability measured at amortized cost. This resulted in the income tax consequences of an intra-entity transfer of an asset other than inventory wheninterest expense recognized for convertible debt instruments to be closer to the transfer occurs.coupon interest rate. The new guidance is effectivealso required the if-converted method to be applied for annual reporting periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual reporting period.all convertible instruments when calculating earnings per share. The new standard must be adopted using a modified retrospective transition method, with the cumulative effect recognized as of the date of initial adoption. Effective January 1, 2017, we adopted this standard. The adoption of this new guidance did not have a material impact on our consolidated financial statements.
New Accounting Pronouncements
In May 2014, the FASB issued guidance codified in ASC 606, Revenue Recognition - Revenue from Contracts with Customers (ASU 2014-09), which amends the guidance in former ASC 605, Revenue Recognition. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB has issued several amendments and updates to the new revenue standard, including guidance related to when an entity should recognize revenue gross as a principal or net as an agent and how an entity should identify performance obligations. As amended, ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted for all entities only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
We adopted this guidance as of January 1, 2018, utilizing the modified retrospective transition method only with respect to contracts that were not completed as of January 1, 2018. This transition adjustment will be recorded as a one-time decrease to the opening balance of our accumulated deficit as of January 1, 2018 and will be comprised of the following revenue and cost items.
The adoption of ASC 606 will require us to recognize revenue from certain of our professional services over time rather than upon completion of the services. We expect this change will result in some acceleration of revenue recognition.
We have determined that an agreement to purchase our professional services constitutes an option to purchase services in accordance with ASC 606-10-55-41 rather than an agreement that creates enforceable rights and obligations because of the customer’s contractual right to cancel the unused services. We have determined that certain of our professional service agreements do not contain a material right and are only accounted for in accordance with ASC 606 when the customer exercises its option to purchase additional goods or services. In the case of agreements where we have determined that the option provides the customer with a material right, we will be required to allocate a portion of the transaction price to the material right. The treatment of customer options under ASC 606 may result in a different allocation of the transaction price than under current guidance.
In addition, under current guidance, the amount that is allocated to, and recognized as revenue related to, a delivered service is limited to the amount that is not contingent on completion of the remaining performance obligations. We expect the removal of this limitation on contingent revenue under ASC 606 to result in revenue being recognized earlier for certain contracts.
In addition, ASU 2014-09 requires that all incremental costs of obtaining a contract with a customer be recognized as an asset. The guidance also requires that these costs be deferred over a term that is consistent with the transfer of services related to the asset. Based on our preliminary analysis, we believe this term will be approximately three years compared to one year or less under current guidance. We elected to apply this guidance to the incremental costs related to open contracts as of January 1, 2018. We expect to record a $5.3 million adjustment to the opening balance of our accumulated deficit to capitalize additional costs of obtaining a contract as of January 1, 2018.
Under ASC 606, in addition to recording deferred revenue when the related cash payments are received for noncancellable services, we will record deferred revenue when payments are due in advance of our performance of those services. We expect this change will result in an offsetting increase in accounts receivable and deferred revenue.
In the fourth quarter of 2017, we substantially completed our project plan to apply the necessary changes to accounting processes, procedures, systems and internal controls, and we plan to finalize our transition adjustment under ASU 2014-09 in the first quarter of 2018.
In February 2016, the FASB issued guidance codified in ASC 842, Leases, which supersedes the guidance in former ASC 840, Leases, to increase transparency and comparability among organizations by requiring recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The standard will becomewas effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The guidance is required to2021 and could be adopted at the earliest period presented usingon either a modified retrospective approach. or full retrospective basis.
We planadopted this standard on January 1, 2022 using the modified retrospective method under which financial results reported in prior periods were not adjusted. Adoption of the new standard resulted in a decrease to adopt this guidanceaccumulated deficit of $18.3 million, a decrease to additional paid-in capital of $58.6 million, and an increase to convertible senior notes, non-current of $40.3 million on the effective date. We are currently evaluatingconsolidated balance sheet. See Note 8 to the impact the provisions will have on our consolidated financial statements.statements for more information.
In November 2016, the FASB issued ASU 2016-18, Statement ofNew Accounting Pronouncements Not Yet Adopted
None
2. Cash Flows (Topic 230): Restricted Cash. This ASU requires that companies include amounts generally described as restricted cashEquivalents and restrictedMarketable Securities
At December 31, 2022, cash equivalents along with cash and cash equivalents, when reconciling the beginning-of-period and end-of-period amounts shown on the statement of cash flows. The ASU is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. We are adopting this guidance asmarketable securities consisted of the effective date. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.following (in thousands):
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The ASU is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. Early adoption is permitted. We are adopting this guidance as of the effective date. The implementation of this standard is not expected to have a significant impact on our consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Aggregate Fair Value |
Money market funds | | $ | 182,878 | | | $ | — | | | $ | — | | | $ | 182,878 | |
| | | | | | | | |
U.S. treasury debt securities | | 72,151 | | | 1 | | | (899) | | | 71,253 | |
Corporate debt securities | | 120,081 | | | 62 | | | (1,771) | | | 118,372 | |
Foreign government debt securities | | 993 | | | — | | | (23) | | | 970 | |
| | $ | 376,103 | | | $ | 63 | | | $ | (2,693) | | | $ | 373,473 | |
Included in cash and cash equivalents | | $ | 182,878 | | | $ | — | | | $ | — | | | $ | 182,878 | |
Included in marketable securities | | $ | 193,225 | | | $ | 63 | | | $ | (2,693) | | | $ | 190,595 | |
2. Marketable Securities
At December 31, 2017,2021, cash equivalents and marketable securities consisted of the following (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Aggregate Fair Value |
Money market funds | | $ | 259,754 | | | $ | — | | | $ | — | | | $ | 259,754 | |
Commercial paper | | 10,479 | | | — | | | — | | | 10,479 | |
U.S. treasury debt securities | | 54,809 | | | 2 | | | (206) | | | 54,605 | |
Corporate debt securities | | 161,792 | | | 3 | | | (334) | | | 161,461 | |
Foreign government debt securities | | 5,014 | | | 1 | | | — | | | 5,015 | |
| | $ | 491,848 | | | $ | 6 | | | $ | (540) | | | $ | 491,314 | |
Included in cash and cash equivalents | | $ | 261,254 | | | $ | — | | | $ | — | | | $ | 261,254 | |
Included in marketable securities | | $ | 230,594 | | | $ | 6 | | | $ | (540) | | | $ | 230,060 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Aggregate Fair Value |
U.S. treasury debt securities | | $ | 3,083 | | $ | — | | $ | (8) | | $ | 3,075 |
U.S. corporate debt securities | | 13,350 | | — | | (61) | | 13,289 |
Money market funds | | 49,452 | | — | | — | | 49,452 |
| | $ | 65,885 | | $ | — | | $ | (69) | | $ | 65,816 |
Included in cash and cash equivalents | | $ | 49,452 | | $ | — | | $ | — | | $ | 49,452 |
Included in marketable securities | | $ | 16,433 | | $ | — | | $ | (69) | | $ | 16,364 |
At December 31, 2016,The contractual maturities of the investments classified as marketable securities consisted of the followingare as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Aggregate Fair Value |
U.S. treasury debt securities | | $ | 3,503 | | $ | — | | $ | (5) | | $ | 3,498 |
U.S. corporate debt securities | | 7,943 | | 1 | | (7) | | 7,937 |
Money market funds | | 43,496 | | — | | — | | 43,496 |
| | $ | 54,942 | | $ | 1 | | $ | (12) | | $ | 54,931 |
Included in cash and cash equivalents | | $ | 43,496 | | $ | — | | $ | — | | $ | 43,496 |
Included in marketable securities | | $ | 11,446 | | $ | 1 | | $ | (12) | | $ | 11,435 |
| | | | | |
| As of December 31, 2022 |
Due within one year | $ | 127,081 | |
Due in one to two years | 63,514 | |
Due in three to five years | — | |
| $ | 190,595 | |
The following table presents gross unrealized losses and fair values for those cash equivalents and marketable securities that were in an unrealized loss position as of December 31, 2017,2022, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):
| | | As of December 31, 2017 | | As of December 31, 2022 |
| | Less than 12 months | | 12 months or greater | | Less than 12 months | | 12 months or greater |
| | Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss | | Fair Value | | Unrealized Loss |
U.S. treasury debt securities | U.S. treasury debt securities | | $ | 1,976 | | $ | (7) | | $ | 1,099 | | $ | (1) | U.S. treasury debt securities | | $ | 31,927 | | | $ | (258) | | | $ | 35,575 | | | $ | (641) | |
U.S. corporate debt securities | | 13,289 | | (61) | | — | | — | |
Corporate debt securities | | Corporate debt securities | | 59,535 | | | (949) | | | 39,823 | | | (822) | |
Foreign government debt securities | | Foreign government debt securities | | 970 | | | (23) | | | — | | | — | |
Total | Total | | $ | 15,265 | | $ | (68) | | $ | 1,099 | | $ | (1) | Total | | $ | 92,432 | | | $ | (1,230) | | | $ | 75,398 | | | $ | (1,463) | |
We do not believe any of the unrealized losses represented an other-than-temporary impairmentrepresent credit losses based on our evaluation of available evidence which includes our intent as of December 31, 20172022, which includes an assessment of whether it is more likely than not we will be required to hold these investments untilsell the investment before recovery of the investment’s amortized cost basis is recovered.
basis.
3. Supplemental Consolidated Balance Sheet and Statement of Operations Information
Property and Equipment, net
Property and equipment, net as of December 31, 20172022 and 20162021 consisted of (in thousands):
| | | As of December 31, | | As of December 31, |
| | 2017 | | 2016 | | 2022 | | 2021 |
Buildings | $ | 36,608 | | $ | 36,603 | |
Building under finance lease | | Building under finance lease | $ | 21,574 | | | $ | 21,574 | |
Computers, equipment and software | Computers, equipment and software | 6,277 | | 5,954 | Computers, equipment and software | 13,221 | | | 10,856 | |
Furniture and fixtures | Furniture and fixtures | 8,428 | | 8,283 | Furniture and fixtures | 8,308 | | | 8,373 | |
Vehicles | Vehicles | 97 | | 97 | Vehicles | 97 | | | 97 | |
Leasehold improvements | Leasehold improvements | 4,669 | | 4,682 | Leasehold improvements | 8,045 | | | 7,907 | |
| | 56,079 | | 55,619 | |
| | | 51,245 | | | 48,807 | |
Less: accumulated depreciation and amortization | Less: accumulated depreciation and amortization | (15,635) | | (13,029) | Less: accumulated depreciation and amortization | (24,149) | | | (19,986) | |
| | $ | 40,444 | | $ | 42,590 | | $ | 27,096 | | | $ | 28,821 | |
The following assets included in propertyAccumulated amortization related to finance leases was $3.6 million and equipment, net were acquired under capital$2.7 million as of December 31, 2022 and financing leases (see Note 5) (in thousands):
| | | | | | | | | | | |
| As of December 31, |
| 2017 | | 2016 |
Buildings | $ | 36,608 | | $ | 36,603 |
Computers and equipment | 666 | | 1,747 |
| 37,274 | | 38,350 |
Less: accumulated amortization | (5,891) | | (5,134) |
| $ | 31,383 | | $ | 33,216 |
2021, respectively.Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities as of December 31, 20172022 and 20162021 consisted of (in thousands):
| | | As of December 31, | | As of December 31, |
| | 2017 | | 2016 | | 2022 | | 2021 |
Accrued vacation | Accrued vacation | $ | 6,087 | | $ | 4,368 | Accrued vacation | $ | 12,939 | | | $ | 11,221 | |
Accrued commissions | Accrued commissions | 3,297 | | 2,382 | Accrued commissions | 10,841 | | | 11,122 | |
Accrued bonuses | Accrued bonuses | 4,419 | | 8,927 | Accrued bonuses | 5,597 | | | 8,292 | |
Accrued payroll | | Accrued payroll | 5,318 | | | 4,494 | |
Estimated health insurance claims | Estimated health insurance claims | 1,090 | | 1,210 | Estimated health insurance claims | 1,841 | | | 1,814 | |
Accrued interest | | Accrued interest | 1,455 | | | 1,455 | |
ESPP employee contributions | ESPP employee contributions | 1,419 | | — | ESPP employee contributions | 5,661 | | | 5,349 | |
Customer deposits | | Customer deposits | 25,520 | | | 26,517 | |
Operating lease liabilities | | Operating lease liabilities | 5,720 | | | 6,008 | |
Accrued other liabilities | Accrued other liabilities | 3,900 | | 3,808 | Accrued other liabilities | 9,107 | | | 7,854 | |
| | $ | 20,212 | | $ | 20,695 | | $ | 83,999 | | | $ | 84,126 | |
Other Income, net
Other income, net for the years ended December 31, 2017, 2016 and 2015 consisted of (in thousands):
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| 2017 | | 2016 | | 2015 |
Interest income | $ | 586 | | $ | 286 | | $ | 151 |
Recognition of IEDA government grant | — | | — | | 1,638 |
Income from training reimbursement program | 1,578 | | 1,141 | | 744 |
(Losses) gains on foreign currency transactions | (372) | | 67 | | (293) |
Other | (9) | | 6 | | 62 |
| $ | 1,783 | | $ | 1,500 | | $ | 2,302 |
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.
Financial Assets
Cash equivalents primarily consist of AAA-rated money market funds with overnight liquidity and no stated maturities. We classified cash equivalents as Level 1 due to the short-term nature of these instruments and measured the fair value based on quoted prices in active markets for identical assets.
When available, our marketable securities are valued using quoted prices for identical instruments in active markets. If we are unable to value our marketable securities using quoted prices for identical instruments in active markets, we value our investments using broker reports that utilize quoted market prices for comparable instruments. We validate, on a sample basis, the derived prices provided by the brokers by comparing their assessment of the fair values of our investments against the fair values of the portfolio balances of another third-party professional pricing service. As of December 31, 20172022 and 2016,2021, all of our marketable securities were valued using quoted prices for comparable instruments in active markets and are classified as Level 2.
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.2. 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 December 31, 2017 | | Fair Value Measurements as of December 31, 2016 |
Description | | Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 |
Money market funds | | $ | 49,452 | | $ | 49,452 | | $ | — | | $ | 43,496 | | $ | 43,496 | | $ | — |
U.S. treasury debt securities | | 3,075 | | — | | 3,075 | | 3,498 | | — | | 3,498 |
U.S. corporate debt securities | | 13,289 | | — | | 13,289 | | 7,937 | | — | | 7,937 |
| | $ | 65,816 | | $ | 49,452 | | $ | 16,364 | | $ | 54,931 | | $ | 43,496 | | $ | 11,435 |
| | | | | | | | | | | | |
Included in cash and cash equivalents | | $ | 49,452 | | | | | | $ | 43,496 | | | | |
Included in marketable securities | | $ | 16,364 | | | | | | $ | 11,435 | | | | |
5. Commitments and Contingencies
Lease Commitments
We lease certain office and residential space under non-cancelable operating leases with various lease terms through June 2043. Rent expense for the years ended December 31, 2017, 2016 and 2015 was $4.7 million, $3.9 million and $3.7 million, respectively.
In January 2018, we signed a new lease for approximately 30,000 square feet that will replace our existing offices in Denver and Boulder. The aggregate annual payments under the new lease will be approximately $1.0 million and are subject to annual increases over the lease term, which expires in February 2029.
We lease computer equipment under capital lease agreements that expire through September 2018. The total amount financed under these capital leases was $0.5 million during the year ended December 31, 2015. No new assets were financed under capital leases during the years ended December 31, 2017 and 2016.
Build to Suit
We entered into a lease agreement for land and an office building in Ames, Iowa, which was constructed in two phases. As part of the lease agreement, the landlord was responsible for constructing the building in accordance with our specifications and agreed to fund $11.8 million for the first phase and $11.1 million for the second phase of construction. We were the developer of the project and responsible for construction costs in excess of these amounts. As a result of this involvement, we were deemed the “owner” for accounting purposes during the construction period and were required to capitalize the construction costs associated with the office building. Upon completion of each phase of the project, we performed a sale-leaseback analysis pursuant to ASC 840, Leases, to determine if the building could be removed from the balance sheet. We determined there was continuing involvement, which precluded derecognition of the building. The construction liability of $11.8 million was reclassified to a financing obligation, and $17.1 million of costs capitalized during construction was placed in service during June 2013 for the initial phase. Upon completion of the second phase of the project, the construction liability of $11.1 million was reclassified to a financing obligation, and $19.9 million of costs capitalized during construction was placed in service during 2014.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements as of December 31, 2022 | | Fair Value Measurements as of December 31, 2021 |
Description | | Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 |
Money market funds | | $ | 182,878 | | | $ | 182,878 | | | $ | — | | | $ | 259,754 | | | $ | 259,754 | | | $ | — | |
Commercial paper | | — | | | — | | | — | | | 10,479 | | | — | | | 10,479 | |
U.S. treasury debt securities | | 71,253 | | | — | | | 71,253 | | | 54,605 | | | — | | | 54,605 | |
Corporate debt securities | | 118,372 | | | — | | | 118,372 | | | 161,461 | | | — | | | 161,461 | |
Foreign government debt securities | | 970 | | | — | | | 970 | | | 5,015 | | | — | | | 5,015 | |
| | $ | 373,473 | | | $ | 182,878 | | | $ | 190,595 | | | $ | 491,314 | | | $ | 259,754 | | | $ | 231,560 | |
| | | | | | | | | | | | |
Included in cash and cash equivalents | | $ | 182,878 | | | | | | | $ | 261,254 | | | | | |
Included in marketable securities | | $ | 190,595 | | | | | | | $ | 230,060 | | | | | |
Total cash payments due under the arrangement were allocated on a relative fair value basis between rent related to the land lease and debt service payments related to the financing obligation. The portion of the lease payments allocated to the land is expensed on a straight-line basis over the term of the lease from the point we took possession of the land and including renewal periods where renewal was deemed reasonably assured at the inception of the lease. The lease contains purchase options to acquire the landlord’s interest in the land lease and building at any time beginning three years from the commencement date of the lease. In addition, the lease requires us upon certain events, such as a change in control, to purchase the building from the landlord. The purchase options were deemed to be fair value at the inception of the lease.
As of December 31, 2017, future estimated minimum lease payments under non-cancelable operating, capital and financing leases were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Operating Leases | | Capital Leases | | Financing Obligations |
2018 | | $ | 3,659 | | $ | 66 | | $ | 2,792 |
2019 | | 2,630 | | — | | 2,792 |
2020 | | 2,235 | | — | | 2,792 |
2021 | | 2,187 | | — | | 2,792 |
2022 | | 1,887 | | — | | 2,564 |
Thereafter | | 6,246 | | — | | 25,650 |
Total minimum lease payments | | $ | 18,844 | | 66 | | 39,382 |
Less: Amount representing interest | | | | (2) | | (19,853) |
Present value of capital lease and financing obligations | | | | $ | 64 | | $ | 19,529 |
Government Grants
Since 2009, we have participated in a program with a local area community college, enlisted by the state of Iowa, that provides reimbursement of training dollars spent on employees hired in Iowa. The community college funds training through the sale of certificates for the amount of anticipated training expenses to be incurred and an estimate of the costs to administer the program. At each payroll date, the state allows us to divert a specified portion of employee state income tax withholdings for the qualified employees to the community college. The community college uses the funds to pay for the program and principal and interest on the certificates. In the event that the funds generated from withholding taxes are insufficient to pay the principal and interest on the certificates, we would be liable for any shortfall. To date, we have entered into five agreements under this program. In addition, we have been reimbursed for training costs incurred for a total of 410 employees.
During the years ended December 31, 2017, 2016 and 2015, we were reimbursed $52,000, $83,000 and $0, respectively. We have concluded that the realization of these amounts is contingent on continuing employment levels. Therefore, in accordance with ASC 450, the amounts received are recorded on the balance sheet as a liability until all contingencies have been resolved. We release the liability to “Other income, net” on our statement of operations once the amounts diverted and paid to the community college have reduced the total principal and interest due on the certificates to a level below the amounts reimbursed to date. The amount recognized in other income is measured as the excess of the reimbursements received as of each balance sheet date over the total principal and interest due on the certificates, net of amounts diverted. To the extent we have not diverted amounts sufficient to reduce the principal and interest on the certificates to a level below the reimbursements received for each of the programs, there is no benefit recorded in the statement of operations.
During the years ended December 31, 2017, 2016 and 2015, the total benefit recorded on the statement of operations was $1.6 million, $1.0 million and $744,000, respectively. At December 31, 2017 and 2016, there was $261,000 and $1.8 million included in “Deferred government grant obligation” on the consolidated balance sheet, respectively. The deferred liability is classified as current or non-current based on the estimated timing of when the amounts will be recorded as income. At December 31, 2017 and 2016, there was $217,000 and $1.0 million classified as a current liability, respectively.
In February 2011, we received financing from the Iowa Economic Development Authority (IEDA) that provided for a grant in the form of a forgivable loan totaling $2.3 million. In December 2015, after completing the project close out procedures, IEDA determined that 10 of the 251 positions originally hired under this grant did not meet minimum wage requirements resulting in a repayment of $88,000. The remaining balance under the forgivable loan portion of this government grant of $2.2 million was recognized during the fourth quarter of 2015, with $608,000 recorded as a reduction of our property and equipment and $1.6 million included in “Other income, net” on the consolidated statement of operations. At December 31, 2017 and 2016, there were no amounts outstanding related to the forgivable loan included in “Deferred government grant obligation” on the consolidated balance sheet.
Other Purchase Commitments
In November 2017, we entered into an agreement with a third party provider of cloud infrastructure services for a period of two years beginning December 1, 2017. The agreement provides that we are committed to pay $4.1 million and $4.8 millioncompleted acquisitions during the years ended December 31, 20182022 and 2019,2021. The values of the net assets acquired and any resulting goodwill were recorded at fair value using Level 3 inputs. The majority of the related current assets acquired and liabilities assumed were recorded at their carrying values as of the date of acquisition, as their carrying values approximated their fair values due to their short-term nature. The fair values of goodwill and definite-lived intangible assets acquired in the acquisition was externally estimated primarily based on the income approach. The income approach estimates fair value based on the present value of the cash flows that the assets are expected to generate in the future. We developed internal estimates for the expected cash flows and discount rates used in the present value calculations.
Convertible Senior Notes
As of December 31, 2022, the fair value of our convertible senior notes was $425.0 million. 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 8 to the consolidated financial statements for more information.
5. Deferred Costs
Deferred costs, which primarily consist of costs to obtain contracts with customers, were $72.0 million and $64.2 million for the years ended December 31, 2022 and 2021, respectively. Amortization expense for the deferred costs was $44.0 million, $34.1 million and $21.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. There were no material impairment losses in relation to the costs capitalized for the periods presented.
6. Commitments and Contingencies
Purchase Commitments
We enter into certain non-cancelable agreements with third-party providers primarily for our use of cloud services and cloud infrastructure services in the ordinary course of business. Under these agreements, we are committed to purchase $27.2 million in fiscal year 2023 and $12.7 million in fiscal year 2024.
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.
Other Long-Term Debt7. Leases
In August 2014, we entered into a $15.0 million credit facilityWe lease certain office space, residential space, buildings and land with Silicon Valley Bank, which was subsequently amended.various lease terms through May 2043. Certain office leases include one or more options to renew, with renewal terms that can extend the lease term from 2 to 5 years. The credit facility can be usedexercise of lease renewal options is at our sole discretion and are assessed whether to fund working capital and general business requirements and matures in August 2018. The credit facility is secured by allfactor as part of our assets, has first priority over our other debt obligations, and requiresthe lease term at lease inception. Our leases generally require us to maintain certain financial covenants, includingpay a proportionate share of real estate taxes, insurance, common area maintenance, and other operating costs in addition to a base or fixed rent.
The components of lease expense recognized in the maintenanceconsolidated statements of at least $5.0 million of cash on hand or unused borrowing capacity. The credit facility contains certain restrictive covenants that limit our ability to transfer or dispose of assets, merge with other companies or consummate certain changes of control, acquire other companies, pay dividends, incur additional indebtedness and liens, experience changes in management and enter into new businesses. The credit facility has a variable interest rate equal to the bank’s prime lending rate with interest payable monthly and the principal balance due at maturity. The credit facility’s interest rate was 4.5% at December 31, 2017. We recorded no interest expense for the years ended December 31, 2017, 2016 and 2015 related to such debt agreement. No amountsoperations were outstanding under the credit facility as of December 31, 2017 and 2016.follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
Operating lease cost | $ | 5,778 | | | $ | 4,750 | | | $ | 4,475 | |
Finance lease cost: | | | | | |
Amortization of right-of-use assets | 880 | | | 880 | | | 922 | |
Interest on lease obligations | 861 | | | 956 | | | 1,197 | |
Short-term lease cost | 3,045 | | | 1,667 | | | 1,727 | |
Variable lease cost | 1,189 | | | 1,163 | | | 1,214 | |
| $ | 11,753 | | | $ | 9,416 | | | $ | 9,535 | |
Supplemental cash flow information related to leases was as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | |
Operating cash flows from operating leases | $ | 6,876 | | | $ | 6,028 | | | $ | 5,350 | |
Finance cash flows from finance leases | 1,575 | | | 1,705 | | | 1,641 | |
Right-of-use assets obtained in exchange for lease obligations: | | | | | |
Operating leases | $ | 1,816 | | | $ | 6,299 | | | $ | 4,121 | |
Finance leases | — | | | — | | | — | |
Other supplemental information related to leases was as follows:
| | | | | | | | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 | | 2020 |
Weighted Average Remaining Lease Term (in years) | | | | | |
Operating leases | 5.4 | | 5.7 | | 6.5 |
Finance leases | 20.4 | | 21.4 | | 22.4 |
Weighted Average Discount Rate | | | | | |
Operating leases | 5.4 | % | | 4.9 | % | | 5.5 | % |
Finance leases | 5.5 | % | | 5.5 | % | | 5.5 | % |
7. Stockholders’As of December 31, 2022, the aggregate annual lease obligations were as follows (in thousands):
| | | | | | | | | | | |
| Operating Leases | | Finance Leases |
2023 | $ | 6,506 | | | $ | 1,315 | |
2024 | 4,416 | | | 1,315 | |
2025 | 2,769 | | | 1,315 | |
2026 | 1,743 | | | 1,315 | |
2027 | 1,603 | | | 1,315 | |
Thereafter | 3,864 | | | 17,346 | |
Total lease obligations | 20,901 | | | 23,921 | |
Less: Amount representing interest | (3,079) | | | (8,834) | |
Net lease obligations | $ | 17,822 | | | $ | 15,087 | |
8. Debt
Convertible Senior Notes
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 “Notes”). The Notes were issued pursuant to an indenture and are senior, unsecured obligations of the Company. The 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 Notes totaled $335.9 million, net of initial purchaser discounts and issuance costs.
The initial conversion rate is 12.4756 shares of our common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $80.16 per share, subject to adjustment upon the occurrence of specified events.
Holders of the Notes may convert all or a portion of their Notes prior to the close of business on May 15, 2026, in multiples of $1,000 principal amount, only under the following circumstances:
•during any calendar quarter commencing after the calendar quarter ending on September 30, 2019 (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;
•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 indenture.
On or after May 16, 2026, 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. It is our current intent to settle conversions through a combination settlement of cash and shares of our Class A common stock with a specified dollar amount per $1,000 principal amount of Notes of $1,000.
If we undergo a fundamental change (as defined in the indenture), holders may require us to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events that occur prior to the maturity date or if we deliver a notice of redemption, we will increase, in certain circumstances, the conversion rate for a holder who elects to convert its Notes in connection with such corporate event or notice of redemption, as the case may be.
The Company may redeem for cash all or any portion of the Notes, at its option, on or after August 21, 2023, 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 redemption date.
During the fourth quarter of 2021 one of the conversion conditions was met, specifically, the last reported sale price of our Class A common stock exceeded 130% of the conversion price of the Notes for more than 20 trading days during the 30 consecutive trading days ended December 31, 2021. As a result, the Notes were classified as current liabilities on the consolidated balance sheet as of December 31, 2021.
As of December 31, 2022 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 consolidated balance sheet as of December 31, 2022. As of December 31, 2022 we have not received any conversion requests for the Notes.
As discussed in Note 1, we adopted ASU 2020‑06 on January 1, 2022 and the Notes are now accounted for as a single liability measured at amortized cost. Upon adoption, interest expense representing the amortization of the issuance costs as well as contractual interest expense is amortized to interest expense at an effective interest rate of 1.5% over the term of the notes. Prior to the adoption of ASU 2020-06, interest expense representing the amortization of the debt discount and issuance costs as well as contractual interest expense was amortized to interest expense at an effective interest rate of 4.3%. As of December 31, 2022 the if-converted value of the Notes exceeded the principal amount by $16.4 million.
As of December 31, 2022, the remaining life of the Notes is approximately 3.8 years.
The net carrying amount of the liability and equity components of the Notes was as follows (in thousands):
| | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 |
Liability component: | | | |
Principal | $ | 345,000 | | | $ | 345,000 | |
Unamortized discount | — | | (41,193) |
Unamortized issuance costs | (4,743) | | | (5,146) | |
Net carrying amount | $ | 340,257 | | | $ | 298,661 | |
| | | |
Equity component, net of purchase discounts and issuance costs | $ | — | | | $ | 58,560 | |
Interest expense related to the Notes is as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
Contractual interest expense | $ | 3,880 | | | $ | 3,881 | | | $ | 3,880 | |
Amortization of debt discount | — | | | 8,153 | | | 7,901 | |
Amortization of issuance costs | 1,298 | | | 1,018 | | | 988 | |
Total interest expense | $ | 5,178 | | | $ | 13,052 | | | $ | 12,769 | |
9. Stockholders' Equity (Deficit)
We have two classes of authorized common stock: Class A common stock and Class B common stock. The rights of the holders of our Class A common stock and our Class B common stock are identical, except with respect to voting and conversion. Each share of our Class A common stock is entitled to one vote per share and is not convertible into any other shares of our capital stock. Each share of our Class B common stock is entitled to ten votes per share and is convertible into one share of our Class A common stock at any time. Our Class B common stock also will automatically convert into shares of our Class A common stock upon certain transfers and other events.
8.10. 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 awards, restricted stock units, options to purchase Class A common stock and ESPP purchase rights. Prior to our corporate conversion in December 2014, awards were provided under the 2009 Unit Incentive Plan (the(“the 2009 Plan)Plan”). Immediately prior to our IPO, theThe 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(“the 2014 PlanPlan” and, together with the 2009 Plan, the Plans)“the Plans”).
As of December 31, 2017,2022, awards granted under the 2009 Plan consisted of stock options and awards granted under the 2014 Plan consisted of stock options, restricted stock awardsunits, and performance restricted stock units. There were no other grants of any other award types under the Plans.
In On June 2016,1, 2022, stockholders approved an amendment to the 2014 Plan that increased the number of shares
available for grant by 3,900,000.3,000,000. As of December 31, 2017, 1,999,4152022, 3,273,308 shares of Class A common stock were available for grant under the 2014 Plan.
Our Employee Stock Purchase Plan (“ESPP”)ESPP became effective on June 13, 2017.2017 and was amended and restated on October 28, 2022. Under the ESPP, eligible employees are granted options to purchase shares of Class A common stock at the lower of 85% of the fair market value of the stock at the time of grant or 85% of the fair market value at the time of exercise. Options to purchase shares are granted twice yearly on or about July 15 and January 15 and are exercisable on or about the succeeding January 14 and July 14, respectively, of each year. As of December 31, 2017, 5,000,0002022, 4,165,047 shares of Class A common stock were available for issuance under the ESPP. No participant may purchase more than $12,500 worth of Class A common stock in a six-monthsix-month offering period. The ESPP’s initial offering period began in July 2017. As of December 31, 2017, we held employee contributions of approximately $1.4 million for future purchases under the ESPP included within accrued expenses and other current liabilities on the consolidated balance sheet. Accordingly, no shares of Class A common stock had been purchased or distributed pursuant to the ESPP as of December 31, 2017.
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):
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2017 | | 2016 | | 2015 |
Cost of revenue | | | | | |
Subscription and support | $ | 738 | | $ | 493 | | $ | 363 |
Professional services | 465 | | 411 | | 349 |
Operating expenses | | | | | |
Research and development | 2,224 | | 2,365 | | 1,924 |
Sales and marketing | 2,983 | | 2,075 | | 1,727 |
General and administrative | 13,066 | | 8,903 | | 6,637 |
Total | $ | 19,476 | | $ | 14,247 | | $ | 11,000 |
The fair value of each option grant and ESPP purchase right is estimated on the date of grant using the Black-Scholes option-pricing model. For stock options, expected volatility is based on the historical volatility of our Class A common stock and historical volatilities for publicly traded stock of comparable companies over the estimated expected life of the options. For the ESPP purchase rights, expected volatility is based on the historical volatility of our Class A common stock. The expected term represents the period of time the options and the ESPP purchase rights are expected to be outstanding. For stock options, the expected term is based on the “simplified method” as defined by SEC Staff Accounting Bulletin No. 110 (Topic 14.D.2). We use the “simplified method” due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the options. The expected term for the ESPP purchase rights approximates the offering period. The risk-free interest rate is based on yields on U.S. Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) with a maturity similar to the estimated expected term of the options and ESPP purchase rights.
The fair value of our stock options and ESPP purchase rights was estimated assuming no expected dividends and the following weighted-average assumptions:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2017 | | 2016 | | 2015 |
Stock Options | | | | | |
Expected term (in years) | 0.2 - 6.1 | | 6.0 - 6.1 | | 6.1 |
Risk-free interest rate | 1.5% - 2.2% | | 1.2% - 2.1% | | 1.4% - 1.9% |
Expected volatility | 23.7% - 43.8% | | 43.0% - 45.3% | | 42.4% - 47.1% |
| | | | | |
ESPP | | | | | |
Expected term (in years) | 0.5 | | — | | — |
Risk-free interest rate | 1.2% | | | —% | | | —% | |
Expected volatility | 28.5% | | | —% | | | —% | |
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
Cost of revenue | | | | | |
Subscription and support | $ | 3,437 | | | $ | 2,868 | | | $ | 1,709 | |
Professional services | 2,128 | | | 1,729 | | | 1,434 | |
Operating expenses | | | | | |
Research and development | 12,554 | | | 9,590 | | | 8,100 | |
Sales and marketing | 19,323 | | | 13,901 | | | 11,062 | |
General and administrative | 33,218 | | | 20,545 | | | 23,466 | |
Total | $ | 70,660 | | | $ | 48,633 | | | $ | 45,771 | |
Stock Options
The following table summarizes the option activity under the Plans for the year ended December 31, 2017:2022:
| | | Options | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
| Options | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value |
| | | | | | | | (in thousands) | | | | | | | | (in thousands) |
Outstanding at December 31, 2016 | 7,532,455 | | $ | 12.22 | | 7.2 | | $ | 19,988 | |
Outstanding at December 31, 2021 | | Outstanding at December 31, 2021 | 1,755,180 | | | $ | 14.42 | | | 4.0 | | $ | 203,720 | |
Granted | Granted | 2,111,253 | | 16.10 | | Granted | — | | | — | | |
Forfeited | Forfeited | (339,111) | | 14.93 | | Forfeited | (3,095) | | | 13.26 | | |
Expired | | Expired | (2,970) | | | 3.92 | | |
Exercised | Exercised | (1,158,820) | | 10.77 | | Exercised | (239,943) | | | 13.64 | | |
Outstanding at December 31, 2017 | 8,145,777 | | $ | 13.33 | | 7.0 | | $ | 65,913 | |
Outstanding at December 31, 2022 | | Outstanding at December 31, 2022 | 1,509,172 | | | $ | 14.57 | | | 3.2 | | $ | 104,737 | |
| | | | | | | | |
Exercisable at December 31, 2017 | 4,607,812 | | $ | 11.49 | | 5.7 | | $ | 45,653 | |
Exercisable at December 31, 2022 | | Exercisable at December 31, 2022 | 1,509,172 | | | $ | 14.57 | | | 3.2 | | $ | 104,737 | |
Options to purchase Class A common stock generally vest over a three- or four-yearfour-year period and are generally granted for a term of ten years. The total intrinsic value of options exercised during the years ended December 31, 2017, 20162022, 2021 and 20152020 was $9.8$17.0 million, $3.9$123.4 million and $8.4$55.8 million, respectively.
The weighted-average grant-date fair value ofNo options were granted during the years ended December 31, 2017, 20162022, 2021 and 2015 was $6.79, $6.79 and $6.53, respectively.2020. As of December 31, 2021, all outstanding options have vested. The total fair value of options vested during the years ended December 31, 2017, 20162021 and 20152020 was approximately $10.2 million, $9.3$0.9 million and $8.7$3.5 million, respectively. TotalAs of December 31, 2022 there was no unrecognized compensation expense of $19.7 million related to options will be recognized over a weighted-average period of 2.5 years.options.
Restricted Stock AwardsUnits and Performance Restricted Stock Units
We haveRestricted stock units granted restricted stock awards to our executive officers thatemployees generally vest inover a three- or four-year period in equal, annual installments from the date of grant andor with three-year cliff vesting. Restricted stock units granted to non-employee members of our Board of Directors with one-yeargenerally have one-year cliff vesting from the date of grant. The recipient of an award of restricted stock under the Plan may vote and receive dividends on the shares of restricted stock covered by the award. The fair value for restricted stock awards is calculated based on the stock price on the date of grant. The total fair value of restricted stock awards vested during the years ended December 31, 2017, 2016, and 2015 was approximately $2.7 million, $3.3 million, and $750,000 respectively.
The following table summarizes the restricted stock award activity under the Plan for the year ended December 31, 2017:
| | | | | | | | | | | |
| Number of Shares | | Weighted-Average Grant Date Fair Value |
| | | |
Unvested at December 31, 2016 | 353,335 | | $ | 13.40 |
Granted | — | | — |
Forfeited | — | | — |
Vested | (190,003) | | 13.40 |
Unvested at December 31, 2017 | 163,332 | | $ | 13.40 |
Compensation expense associated with unvested restricted stock awards is recognized on a straight-line basis over the vesting period. At December 31, 2017, there was approximately $0.2 million of total unrecognized compensation expense related to restricted stock awards, which is expected to be recognized over a weighted-average period of 0.1 years.
Restricted Stock Units
We have grantedPerformance restricted stock units to our executive officers thatgenerally vest in three equal annual installments from the date of grant and to non-employee members of our Board of Directors with onetranches over a three-year period.-year cliff vesting from the date of grant.
The recipient of a restricted stock unit award or performance restricted stock unit award under the 2014 Plan will have no rights as a stockholder until share certificates are issued by us, but, atus. At the discretionAnnual Meeting of Stockholders on June 1, 2022, our Compensation Committee, hasstockholders approved the rightamendment and restatement of the Workiva Inc. Amended and Restated 2014 Equity Incentive Plan which prohibits payment of dividends or dividend equivalents on full-value awards prior to receive a dividend equivalent payment in the formvesting of additional restricted stock units.such award. Additionally, until the shares are issued, they have no voting rights and may not be bought or sold. The fair value for restricted stock unit awards isand performance restricted stock unit awards are calculated based on the stock price on the date of grant. Total performance restricted stock units earned may vary based on the attainment of company-specific performance targets during the vesting period. The total fair value of restricted stock units vested during the year ended December 31, 2017 was approximately $3.6 million. No restricted stock units vested during the years ended December 31, 2016 or 2015.2022, 2021, and 2020 was approximately $57.7 million, $54.9 million, and $27.7 million, respectively.
The following table summarizes the restricted stock unit and performance restricted stock unit activity under the Plan for the year ended December 31, 2017:2022:
| | | Number of Shares | | Weighted-Average Grant Date Fair Value | | Number of Shares | | Weighted-Average Grant Date Fair Value |
| | | | | | | | |
Unvested at December 31, 2016 | 381,952 | | $ | 15.11 | |
Unvested at December 31, 2021 | | Unvested at December 31, 2021 | 1,891,699 | | | $ | 73.04 | |
Granted | Granted | 413,792 | | 13.95 | Granted | 1,101,832 | | | 101.61 | |
Forfeited | Forfeited | — | | — | Forfeited | (123,841) | | | 92.36 | |
Vested(1) | Vested(1) | (221,672) | | 14.48 | Vested(1) | (947,763) | | | 60.66 | |
Unvested at December 31, 2017 | 574,072 | | $ | 14.51 | |
Unvested at December 31, 2022 | | Unvested at December 31, 2022 | 1,921,927 | | | $ | 93.80 | |
(1) As ofDuring the year ended December 31, 2017,2022, in accordance with our Nonqualified Deferred Compensation Plan, recipients of 191,48518,491 shares had elected to defer settlement of the vested restricted stock units and 27,916 were released from deferral. This resulted in accordance with our Nonqualified Deferred Compensation Plan.total deferred units of 686,444 as of December 31, 2022.
Compensation expense associated with unvested restricted stock units and performance restricted stock units is recognized on a straight-line basis over the vesting period. At December 31, 2017,2022, there was approximately $5.0$132.8 million of total unrecognized compensation expense related to restricted stock units and performance restricted stock units, which is expected to be recognized over a weighted-average period of 1.62.6 years.
Employee Stock Purchase Plan
The fair value of each option grant issued under the ESPP is estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility is based on the historical volatility of our Class A common stock, and the expected term represents the period of time the ESPP purchase rights are expected to be outstanding and approximates the offering period. The risk-free interest rate is based on yields on U.S. Treasury STRIPS (“Separate Trading of Registered Interest and Principal of Securities”) with a maturity similar to the estimated expected term of the ESPP purchase rights.
The fair value of our ESPP purchase rights was estimated assuming no expected dividends and the following weighted-average assumptions:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2022 | | 2021 | | 2020 |
ESPP | | | | | |
Expected term (in years) | 0.5 | | 0.5 | | 0.5 |
Risk-free interest rate | 0.6% - 3.1% | | 0.1% | | 0.2% - 1.5% |
Expected volatility | 45.7% - 58.7% | | 41.8% - 45.0% | | 40.6% - 61.0% |
The following table summarizes the ESPP activity under the Plan for the years ended December 31, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | |
| | For the year ended December 31, |
| | 2022 | | 2021 | | 2020 |
Shares issued | | 131,467 | | | 148,864 | | | 186,855 | |
Weighted-average purchase price | | $ | 70.41 | | | $ | 59.52 | | | $ | 38.68 | |
Total proceeds (in thousands) | | $ | 9,256 | | | $ | 8,861 | | | $ | 7,227 | |
Employee Stock Purchase Plan
Compensation expense associated with ESPP purchase rights is recognized on a straight-line basis over the vesting period. At December 31, 2017,2022, there was approximately $27,000$156,000 of total unrecognized compensation expense related to the ESPP, which is expected to be recognized over a weighted-average period of 0.03 years.
14 days.
9.11. Accumulated Other Comprehensive Income
The following table summarizes the activity of accumulated other comprehensive income during the years ended December 31, 2017, 20162022, 2021 and 20152020 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Accumulated translation adjustment | | Accumulated unrealized holding gains (losses) on available-for-sale securities | | Accumulated other comprehensive income |
Balance at December 31, 2014 | | $ | 147 | | $ | — | | $ | 147 |
Other comprehensive income (loss) | | 133 | | (39) | | 94 |
Balance at December 31, 2015 | | 280 | | (39) | | 241 |
Other comprehensive income | | 18 | | 32 | | 50 |
Balance at December 31, 2016 | | 298 | | (7) | | 291 |
Other comprehensive loss | | (159) | | (60) | | (219) |
Balance at December 31, 2017 | | $ | 139 | | $ | (67) | | $ | 72 |
| | | | | | | | | | | | | | | | | | | | |
| | Accumulated translation adjustment | | Accumulated unrealized holding gains (losses) on available-for-sale securities | | Accumulated other comprehensive income (loss) |
Balance at December 31, 2019 | | $ | 178 | | | $ | 109 | | | $ | 287 | |
Other comprehensive (loss) income | | (137) | | | 80 | | | (57) | |
Balance at December 31, 2020 | | 41 | | | 189 | | | 230 | |
Other comprehensive income (loss) | | 266 | | | (784) | | | (518) | |
Balance at December 31, 2021 | | 307 | | | (595) | | | (288) | |
Other comprehensive loss | | (4,304) | | | (2,094) | | | (6,398) | |
Balance at December 31, 2022 | | $ | (3,997) | | | $ | (2,689) | | | $ | (6,686) | |
10. Segments12. Acquisitions
Our chief operating decision maker reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. There are no segment managers who are held accountable by the chief operating decision maker, or anyone else, for operations, operating results and planning for levels or components below the consolidated unit level. Accordingly,Fiscal Year 2022
ParsePort ApS
On April 1, 2022, we determined we have one operating and reportable segment. During the years ended December 31, 2017, 2016 and 2015, 92.1%, 93.8% and 94.3% of our revenue, respectively, and substantiallyacquired all of our long-livedthe issued and outstanding equity interests in Denmark-based ParsePort ApS (“ParsePort”), a leading solution provider for the European Single Electronic Format (“ESEF”) financial reporting mandate, which complements Workiva's cloud platform, for $99.2 million net of cash acquired of $1.6 million.
The transaction has been accounted for as a business combination and the purchase price has been allocated to the assets wereacquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill. The goodwill recognized was primarily attributable to operations in the United States.
assembled workforce, operational synergies, and strategic benefits that are expected to be achieved and is not deductible for income tax purposes.
11.The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed at the date of acquisition (in thousands):
| | | | | |
Cash consideration | $ | 100,744 | |
Total consideration | $ | 100,744 | |
| |
Cash | $ | 1,558 | |
Accounts receivable, net | 1,403 | |
Intangible assets | 24,000�� | |
Goodwill | 78,225 | |
Other assets | 440 | |
Accounts payable | (29) | |
Accrued liabilities | (1,444) | |
Deferred revenue | (3,299) | |
Other liabilities | (110) | |
Fair value of assets and liabilities | $ | 100,744 | |
We incurred costs related to the acquisition of approximately $0.6 million during the year ended December 31, 2022. Substantially all acquisition related costs were expensed as incurred and have been recorded in general and administrative expenses in our consolidated statements of operations.
The amount of revenues and net loss from the ParsePort acquisition included in our consolidated statements of operations for the year ended December 31, 2022 was insignificant.
Fiscal Year 2021
Mark V Systems Limited
On December 29, 2021, we acquired all of the stock in Mark V Systems Limited, the author of the only open source eXtensible Business Reporting Language validation engine, which ensures the continued accessibility of the open source validation engine. The acquisition was not material to the consolidated financial statements.
AuditNet, LLC
On December 10, 2021, we acquired all of the membership interests in AuditNet, LLC, a global audit content and services provider, which strengthens Workiva’s risk and assurance offerings. The acquisition was not material to the consolidated financial statements.
OneCloud, Inc.
On July 30, 2021, we acquired all of the equity interest in OneCloud, Inc. (“OneCloud”), an iPaaS company, in order to extend our integration and data preparation capabilities, for $35.1 million, net of cash acquired of $1.5 million.
We previously held an investment in OneCloud which was accounted for as an investment in equity securities. Prior to performing purchase accounting we remeasured the previous ownership interest to fair value, increasing the value to $4.7 million, which resulted in a gain of $3.7 million recorded in other income (expense), net in the consolidated statement of operations.
The transaction has been accounted for as a business combination and the purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill. The goodwill recognized was primarily attributable to the assembled workforce and strategic benefits that are expected to be achieved and is not deductible for income tax purposes.
The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed at the date of acquisition (in thousands):
| | | | | |
Cash consideration | $ | 36,564 | |
Previously held equity interest | 4,698 | |
Total consideration | $ | 41,262 | |
| |
Cash | $ | 1,497 | |
Intangible assets | 7,000 | |
Goodwill | 34,556 | |
Other assets | 548 | |
Deferred revenue | (900) | |
Deferred tax liability | (1,265) | |
Other liabilities | (174) | |
Fair value of assets and liabilities | $ | 41,262 | |
We incurred costs related to the acquisition of approximately $0.4 million during the year ended December 31, 2021. All acquisition related costs were expensed as incurred and have been recorded in general and administrative expenses in our consolidated statements of operations.
The amount of revenues and net loss from the OneCloud acquisition included in our consolidated statements of operations for the years ended December 31, 2022 and December 31, 2021 were insignificant.
13. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill were as follows (in thousands):
| | | | | |
December 31, 2020 | $ | — | |
Acquisition and purchase accounting adjustment | 34,556 | |
December 31, 2021 | 34,556 | |
Acquisition | 78,225 | |
Foreign currency translation adjustments | (3,041) | |
December 31, 2022 | $ | 109,740 | |
Intangible Assets
The following table presents the components of net intangible assets (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Weighted Average Useful Life (Years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Acquired technology | 4.5 | | $ | 15,705 | | | $ | (3,849) | | | $ | 11,856 | | | $ | 7,920 | | | $ | (701) | | | $ | 7,219 | |
Acquired customer-related | 10.0 | | 14,969 | | | (1,169) | | | 13,800 | | | 360 | | | (14) | | | 346 | |
Acquired trade names | 2.9 | | 2,151 | | | (861) | | | 1,290 | | | 1,478 | | | (21) | | | 1,457 | |
Patents | 10.0 | | 2,916 | | | (1,628) | | | 1,288 | | | 2,740 | | | (1,328) | | | 1,412 | |
Total | 7.1 | | $ | 35,741 | | | $ | (7,507) | | | $ | 28,234 | | | $ | 12,498 | | | $ | (2,064) | | | $ | 10,434 | |
Amortization expense related to intangible assets was $5.3 million, $1.1 million and $0.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, expected remaining amortization expense of intangible assets by fiscal year is as follows (in thousands):
| | | | | |
2023 | $ | 6,132 | |
2024 | 5,368 | |
2025 | 4,639 | |
2026 | 3,331 | |
2027 | 2,048 | |
Thereafter | 6,716 | |
Total expected amortization expense | $ | 28,234 | |
14. Geographic Information
Revenues by geographical region consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| 2022 | | 2021 | | 2020 |
Subscription and support revenue | | | | | |
Americas | $ | 408,838 | | | $ | 342,673 | | | $ | 273,574 | |
Other | 56,097 | | | 36,666 | | | 22,303 | |
Professional services revenue | | | | | |
Americas | 67,309 | | | 58,312 | | | 51,142 | |
Other | 5,631 | | | 5,634 | | | 4,575 | |
| $ | 537,875 | | | $ | 443,285 | | | $ | 351,594 | |
Revenues by geography are generally based on the country of the customer as specified in our subscription order. Total Americas revenue attributed to the United States was approximately 93%, 93%, and 94% during each of the years ended December 31, 2022, 2021, and 2020, respectively. No other country represented more than 10% of total revenue during the years presented.
Our long-lived assets, which primarily consist of property and equipment and operating lease right-of-use assets, are attributed to a country based on the physical location of the assets. Aggregate long-lived assets by geographical region consisted of the following (in thousands):
| | | | | | | | | | | |
| For the year ended December 31, |
| 2022 | | 2021 |
United States | $ | 35,790 | | | $ | 40,585 | |
United Kingdom | 2,681 | | | 4,437 | |
Other | 2,557 | | | 1,559 | |
| $ | 41,028 | | | $ | 46,581 | |
15. Revenue Recognition
Disaggregation of Revenue
The following table presents our revenues disaggregated by industry as derived from leading software providers (in thousands):
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| 2022 | | 2021 | | 2020 |
Industrials | $ | 76,970 | | | $ | 59,797 | | | $ | 46,764 | |
Diversified financials | 71,975 | | | 57,470 | | | 44,326 | |
Information technology | 62,114 | | | 47,697 | | | 34,878 | |
Banks | 54,973 | | | 46,702 | | | 39,630 | |
Consumer discretionary | 51,961 | | | 41,826 | | | 34,029 | |
Healthcare | 47,892 | | | 39,394 | | | 30,676 | |
Insurance | 32,421 | | | 27,206 | | | 21,993 | |
Real estate | 23,815 | | | 21,042 | | | 18,070 | |
Energy | 23,363 | | | 21,093 | | | 18,380 | |
Utilities | 22,306 | | | 21,319 | | | 13,561 | |
Materials | 21,454 | | | 19,357 | | | 16,321 | |
Consumer staples | 16,829 | | | 13,146 | | | 10,683 | |
Public administration | 15,064 | | | 13,719 | | | 11,433 | |
Other | 16,738 | | | 13,517 | | | 10,850 | |
Total revenues | $ | 537,875 | | | $ | 443,285 | | | $ | 351,594 | |
The following table presents our revenues disaggregated by type of good or service (in thousands):
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| 2022 | | 2021 | | 2020 |
Subscription and support | $ | 464,935 | | | $ | 379,340 | | | $ | 295,877 | |
XBRL professional services | 54,896 | | | 44,763 | | | 38,032 | |
Other services | 18,044 | | | 19,182 | | | 17,685 | |
Total revenues | $ | 537,875 | | | $ | 443,285 | | | $ | 351,594 | |
Deferred Revenue
During the year ended December 31, 2022, we recognized $244.4 million of revenue that was included in the deferred revenue balance at the beginning of the period.
Transaction Price Allocated to the Remaining Performance Obligations
As of December 31, 2022, revenue of approximately $761.6 million is expected to be recognized from remaining performance obligations for subscription contracts. We expect to recognize approximately $420.8 million of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.
16. Income Taxes
Loss before income tax provision (benefit) consisted of the following (in thousands):
| | | For the year ended December 31, | | For the year ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2022 | | 2021 | | 2020 |
United States | United States | $ | (44,246) | | $ | (43,952) | | $ | (42,788) | United States | $ | (91,210) | | | $ | (41,567) | | | $ | (50,193) | |
Foreign | Foreign | (119) | | (1) | | (618) | Foreign | 2,210 | | | 2,467 | | | 1,504 | |
Total | Total | $ | (44,365) | | $ | (43,953) | | $ | (43,406) | Total | $ | (89,000) | | | $ | (39,100) | | | $ | (48,689) | |
The provision (benefit) for income taxes consisted of the following (in thousands):
| | | For the year ended December 31, | | For the year ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2022 | | 2021 | | 2020 |
Current | Current | | | | | | Current | | | | | |
Federal | | Federal | $ | — | | | $ | — | | | $ | — | |
State | State | $ | 42 | | $ | 12 | | $ | 69 | State | 327 | | | 98 | | | 120 | |
Foreign | Foreign | 19 | | 44 | | — | Foreign | 1020 | | | 479 | | | (148) | |
Total Current | Total Current | $ | 61 | | $ | 56 | | $ | 69 | Total Current | $ | 1347 | | | $ | 577 | | | $ | (28) | |
| | | | | | | | | | | | |
Deferred | Deferred | | Deferred | |
Federal | Federal | $ | — | | $ | (32) | | $ | (76) | Federal | $ | — | | | $ | (1,252) | | | $ | — | |
State | | State | — | | | (374) | | | — | |
Foreign | | Foreign | 600 | | | (321) | | | (263) | |
Total Deferred | Total Deferred | $ | — | | $ | (32) | | $ | (76) | Total Deferred | $ | 600 | | | $ | (1,947) | | | $ | (263) | |
| | | | | | | | | | | | |
Total | Total | $ | 61 | | $ | 24 | | $ | (7) | Total | $ | 1,947 | | | $ | (1,370) | | | $ | (291) | |
During the years ended December 31, 2022, 2021 and 2020, we recorded a federal income tax benefit of $0, $1.3 million, and $0, respectively. The prior year benefit was related to the OneCloud acquisition. As the reversal of the acquired net deferred tax liabilities will be recognized on future tax returns, these provide an objective source of taxable income. Therefore, a corresponding portion of our valuation allowance has been released to reflect this availability, resulting in a federal and state tax benefit reflected in the table above.
In response to the COVID-19 pandemic, the Canada Revenue Agency extended the filing due dates allowing for the Scientific Research and Experimental Development (“SR&ED”) reporting deadlines to be extended for six months, but no later than December 31, 2020. We were able to leverage this deadline extension and amended our 2018 Canadian return for the SR&ED credit thus generating a current and deferred foreign tax benefit for the year ended December 31, 2020.
The items accounting for the difference between income taxes computed at the federal statutory income tax rate and the provision for income taxes consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| 2022 | | 2021 | | 2020 |
Federal statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
Effect of: | | | | | |
Tax benefit at federal statutory rate | $ | (18,690) | | | $ | (8,211) | | | $ | (10,225) | |
State taxes, net of federal benefit | (5,722) | | | (15,350) | | | (3,394) | |
Revaluation of deferred tax items due to tax rate change (state) | — | | | — | | | (404) | |
Section 162(m) limitations | 6,083 | | | 9,008 | | | 6,682 | |
Stock-based compensation | (9,768) | | | (49,020) | | | (12,665) | |
Global intangible low-taxed income inclusion | 2,850 | | | 2,023 | | | 1,855 | |
Permanent items | 866 | | | (601) | | | 146 | |
Tax benefit of federal R&D credit | (6,406) | | | (3,694) | | | (3,509) | |
Valuation allowance | 32,896 | | | 64,602 | | | 21,887 | |
Other | (162) | | | (127) | | | (664) | |
Total income tax provision | $ | 1,947 | | | $ | (1,370) | | | $ | (291) | |
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, |
| 2017 | | 2016 | | 2015 |
Federal statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
Effect of: | | | | | |
Tax benefit at federal statutory rate | $ | (15,528) | | $ | (15,384) | | $ | (15,192) |
State taxes, net of federal benefit | (1,802) | | (1,377) | | (1,833) |
Revaluation of deferred tax items due to tax rate change (federal and state) | 22,880 | | — | | — |
Revaluation of deferred tax asset for current year net operating loss due to tax rate change | 4,134 | | — | | — |
Permanent differences including section 162(m) limitations, stock compensation, gain on foreign restructuring, and meals & entertainment | 5,141 | | 1,292 | | 636 |
Tax benefit of federal R&D credit | (2,366) | | (1,781) | | (1,270) |
| | | | | |
Recognition of excess tax benefits related to share-based payments | (3,606) | | — | | — |
Valuation allowance | (8,586) | | 17,013 | | 17,697 |
Other | (206) | | 261 | | (45) |
Total income tax provision | $ | 61 | | $ | 24 | | $ | (7) |
The components of deferred tax assets and liabilities were as follows (in thousands):
| | | | | | | | | | | |
| As of December 31, |
| 2017 | | 2016 |
Deferred tax assets: | | | |
Property and equipment | $ | 15 | | $ | 12 |
Accruals and reserves | 199 | | 1,104 |
Deferred rent | 931 | | 1,565 |
Compensation and benefits | 11,973 | | 16,048 |
Deferred revenue | 4,762 | | 3,255 |
Net operating loss and credits | 41,108 | | 45,625 |
Other | 167 | | 180 |
Total deferred tax assets | 59,155 | | 67,789 |
Valuation allowance | (58,639) | | (67,225) |
Total deferred tax assets | 516 | | 564 |
Deferred tax liabilities: | | | |
Property and equipment | (440) | | (403) |
Other deferred tax liabilities | (76) | | (161) |
Deferred tax liabilities | (516) | | (564) |
Total | $ | — | | $ | — |
On December 22, 2017, the U.S. federal government enacted legislation commonly referred to as the "Tax Cuts and Jobs Act" (the "TCJA"). The TCJA makes widespread changes to the Internal Revenue Code, including, among other items, a reduction in the federal corporate tax rate from 35% to 21%, effective January 1, 2018. The carrying value of our deferred tax assets and liabilities is also determined by the enacted U.S. corporate income tax rate. Consequently, any changes in the U.S. corporate income tax rate will impact the carrying value of our deferred tax assets and liabilities. Under the new corporate income tax rate of 21%, deferred income tax assets, net have decreased by $22.9 million and the valuation allowance has decreased by $22.9 million. There was no net effect of the tax reform enactment on the financial statements as of December 31, 2017.
We continue to evaluate the impacts of the TCJA and will consider additional guidance from the U.S. Treasury Department, IRS or other standard-setting bodies. Further adjustments, if any, will be recorded by us during the measurement period in 2018 as permitted by SEC Staff Accounting Bulletin 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act.
Effective July 1, 2017, the Company completed a restructuring of its foreign operations. A newly formed holding company was set up in the United Kingdom, Workiva Holdings Limited, which will be treated as a controlled foreign corporation from a U.S. income tax perspective. The outstanding stock ownership of the existing foreign subsidiaries were contributed to Workiva Holdings Limited, effective July 1, 2017, which triggered a taxable gain for the difference in fair market value compared to the tax basis in the entities for U.S. income tax purposes. The estimated gain recorded is $13.9 million which is included as a permanent book-tax difference. The gain is expected to be fully offset by current year net operating losses. | | | | | | | | | | | |
| As of December 31, |
| 2022 | | 2021 |
Deferred tax assets: | | | |
Property and equipment | $ | 2,931 | | | $ | 2,770 | |
Accruals and reserves | 79 | | | 48 | |
Lease liability | 7,726 | | | 9,014 | |
Compensation and benefits | 15,031 | | | 15,266 | |
Deferred revenue | 31,497 | | | 21,709 | |
Net operating loss and credits | 138,517 | | | 150,448 | |
Interest expense | 386 | | | 4,035 | |
IRC 174 Capitalization | 38,923 | | | — | |
Other | 2,198 | | | 546 | |
Total deferred tax assets | 237,288 | | | 203,836 | |
Valuation allowance | (220,016) | | | (174,771) | |
Total deferred tax assets | 17,272 | | | 29,065 | |
Deferred tax liabilities: | | | |
Property and equipment | (104) | | | (48) | |
Right-of-use asset | (7,389) | | | (8,275) | |
Convertible notes | — | | | (10,916) | |
Acquired intangibles | (1,310) | | | (2,022) | |
Deferred commissions | (8,212) | | | (6,761) | |
Other deferred tax liabilities | (179) | | | (321) | |
Deferred tax liabilities | (17,194) | | | (28,343) | |
Total | $ | 78 | | | $ | 722 | |
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2017.2022. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, we recognized a full valuation allowance against our net US deferred tax asset at December 31, 2017,2022, because we believe it is more likely than not that these benefits will not be realized.
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) amended Internal Revenue Code Section 174 to require specific research and experimental (“R&E”) expenditures be capitalized and amortized over five years (U.S. R&E) or fifteen years (non-U.S. R&E). Because of this amendment, we generated U.S. taxable income resulting in a deferred tax asset related to the Section 174 amortization of $38.9 million at December 31, 2022. We were able to utilize pre-TCJA NOL carryforwards and state credits to offset this income.
As of December 31, 2017,2022, we have federal and state net operating loss carryforwards of approximately $133.8$408.7 million and $101.2$373.6 million, respectively, available to reduce any future taxable income. The federal net operating loss carryforwards will expire in varying amounts between years 2034beginning in 2035. Federal and 2037.some state net operating losses incurred after 2017 will have an indefinite carryforward. The state net operating loss carryforwards will expire in varying amounts between years 2021 and 2037.beginning in 2023. Additionally, we
have total net operating loss carryforwards from international operations of $480,000$2.9 million that will expire in varying amounts beginning in 2033.do not expire. We also have approximately $6.0$26.2 million of federal and $1.3$4.5 million of state tax credit carryforwards as of December 31, 2017.2022. The federal credits will expire in varying amounts between the years 2034 and 2037.2042. The state credits expire beginning in 2021.
our net operating loss and tax credit carryforwards may be subject to substantial annual limitations due to the ownership change limitations provided by Section 382 of the Internal Revenue Code, as amended, and similar state provisions. A reconciliation of the gross unrecognized tax benefits is as follows (in thousands):
| | | For the year ended December 31, | | For the year ended December 31, |
| | 2017 | | 2016 | | 2022 | | 2021 | | 2020 |
Unrecognized tax benefits-beginning of period | Unrecognized tax benefits-beginning of period | $ | 168 | | $ | — | Unrecognized tax benefits-beginning of period | $ | 180 | | | $ | 195 | | | $ | 178 | |
Additions for tax positions related to prior year | Additions for tax positions related to prior year | — | | 168 | Additions for tax positions related to prior year | 1,400 | | — | | — |
Reductions for tax positions related to prior year | Reductions for tax positions related to prior year | — | | — | Reductions for tax positions related to prior year | — | | — | | — |
Foreign currency adjustments | Foreign currency adjustments | 23 | | — | Foreign currency adjustments | (10) | | (15) | | 17 |
Additions for tax positions related to current year | Additions for tax positions related to current year | — | | — | Additions for tax positions related to current year | 300 | | — | | — |
Unrecognized tax benefits-end of period | Unrecognized tax benefits-end of period | $ | 191 | | $ | 168 | Unrecognized tax benefits-end of period | $ | 1,870 | | | $ | 180 | | | $ | 195 | |
We have analyzed our inventory of tax positions taken with respect to all applicable income tax issues for all open tax years. The gross unrecognized tax benefits, if recognized, would not materially affect the effective tax rate as of December 31, 2017, due to the availability of net operating losses.
We do not expect our gross unrecognized tax benefits to change significantly over the next 12 months. Our policy is to classify interest and penalties associated with uncertain tax positions, if any, as a component of our income tax provision. Interest and penalties were not significant during the years ended December 31, 2017, 2016 and 2015.
2022.
We are subject to taxation in the United States and various states and foreign jurisdictions. As of December 31, 2017,2022, tax years for 20142018 through 20172021 are subject to examination by the tax authorities. With few exceptions,Generally, as of December 31, 2017,2022, we are no longer subject to U.S. federal, state, local or foreign examinations by tax authorities for years before 2014. 2018. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss or credit carryforward.
17. 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 our convertible senior notes, outstanding stock options, stock related to unvested restricted stock, awards, 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 contractual 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.
WeAt the Annual Meeting of Stockholders on June 1, 2022, our stockholders approved the amendment and restatement of the Workiva Inc. Amended and Restated 2014 Equity Incentive Plan which prohibits payment of dividends or dividend equivalents on full-value awards prior to the vesting of such award. As such, we no longer consider unvested restricted stock awards granted under the 2014 Equity Incentive Plan to be participating securities because holders of such shares have non-forfeitable dividend rights in the event of our declaration of a dividend for common shares. In future periods to the extent we are profitable, we will subtract earnings allocated to these participating securities from net income to determine net income attributable to common stockholders.
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):
| | | Year ended | | Year ended |
| | December 31, 2017 | | December 31, 2016 | | December 31, 2015 | | December 31, 2022 | | December 31, 2021 | | December 31, 2020 |
| | Class A | | Class B | | Class A | | Class B | | Class A | | Class B | | Class A | | Class B | | Class A | | Class B | | Class A | | Class B |
Numerator | Numerator | | | | | | | | | | | | Numerator | | | | | | | | | | | |
Net loss | Net loss | $ | (33,016) | | $ | (11,410) | | $ | (31,644) | | $ | (12,333) | | $ | (30,075) | | $ | (13,324) | Net loss | $ | (84,210) | | | $ | (6,737) | | | $ | (32,724) | | | $ | (5,006) | | | $ | (39,966) | | | $ | (8,432) | |
| | |
Denominator | Denominator | | Denominator | |
Weighted-average common shares outstanding - basic and diluted | Weighted-average common shares outstanding - basic and diluted | 30,929,899 | | 10,688,939 | | 29,265,605 | | 11,405,528 | | 27,617,350 | | 12,235,274 | Weighted-average common shares outstanding - basic and diluted | 49,031,441 | | | 3,922,638 | | | 44,343,177 | | | 6,783,333 | | | 40,007,839 | | | 8,440,327 | |
Basic and diluted net loss per share | Basic and diluted net loss per share | $ | (1.07) | | $ | (1.07) | | $ | (1.08) | | $ | (1.08) | | $ | (1.09) | | $ | (1.09) | Basic and diluted net loss per share | $ | (1.72) | | | $ | (1.72) | | | $ | (0.74) | | | $ | (0.74) | | | $ | (1.00) | | | $ | (1.00) | |
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 December 31, | | As of December 31, |
| | 2017 | | 2016 | | 2015 | | 2022 | | 2021 | | 2020 |
Shares subject to outstanding common stock options | Shares subject to outstanding common stock options | 8,145,777 | | 7,532,455 | | 6,969,133 | Shares subject to outstanding common stock options | 1,509,172 | | | 1,755,180 | | | 2,903,167 | |
Shares subject to unvested restricted stock awards | 163,332 | | 353,335 | | 600,025 | |
Shares subject to unvested restricted stock units and performance restricted stock units | | Shares subject to unvested restricted stock units and performance restricted stock units | 1,921,927 | | | 1,891,699 | | | 2,904,616 | |
Shares issuable pursuant to the ESPP | Shares issuable pursuant to the ESPP | 85,509 | | — | | — | Shares issuable pursuant to the ESPP | 112,522 | | | 53,877 | | | 94,390 | |
Additionally, approximately 4.3 million shares of our Class A common stock underlying the conversion option in the Notes, are not considered in the calculation of diluted net loss per share as the effect would be anti-dilutive. Upon adoption of ASU 2020-06 on January 1, 2022, we use the if-converted method for calculating any potential dilutive effect of the Notes on diluted net income per share, if applicable. Prior to adoption of ASU 2020-06 we used the treasury stock method.
13. Unaudited Quarterly Results of Operations18. Employee Benefit Plans
The following tables set forth selected unaudited quarterly consolidated statement of operations data for eachWe have a qualified defined contribution plan under Section 401(k) of the quarters indicated as well as theInternal Revenue Code. In 2022, we began matching a certain percentage of total revenueemployee contributions. Both employee and employer contributions vest immediately upon contribution. During the year ended December 31, 2022, our contribution to the 401(k) plan was $5.3 million.
We also maintain a number of defined contribution plans for each line item shown. The unaudited information should be read in conjunction with our financial statementscertain non-U.S. locations. Total employer contributions under these plans were $2.5 million, $1.8 million, and related notes included elsewhere in this report. We believe that the following unaudited information reflects all normal recurring adjustments necessary for a fair presentation of the information$1.1 million for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended |
| Dec 31, 2017 | | Sep 30, 2017 | | Jun 30, 2017 | | Mar 31, 2017 | | Dec 31, 2016 | | Sep 30, 2016 | | Jun 30, 2016 | | Mar 31, 2016 |
| (in thousands) |
Revenue | | | | | | | | | | | | | | | |
Subscription and support | $ | 45,549 | | $ | 43,214 | | $ | 40,980 | | $ | 39,540 | | $ | 38,329 | | $ | 36,237 | | $ | 34,969 | | $ | 33,585 |
Professional services | 8,957 | | 8,854 | | 8,411 | | 12,364 | | 8,045 | | 8,473 | | 8,042 | | 10,966 |
Total revenue | 54,506 | | 52,068 | | 49,391 | | 51,904 | | 46,374 | | 44,710 | | 43,011 | | 44,551 |
Cost of revenue | | | | | | | | | | | | | | | |
Subscription and support | 8,779 | | 8,472 | | 7,758 | | 7,637 | | 7,244 | | 6,694 | | 7,039 | | 6,918 |
Professional services | 7,310 | | 7,180 | | 6,528 | | 6,581 | | 5,964 | | 6,040 | | 5,538 | | 6,188 |
Total cost of revenue | 16,089 | | 15,652 | | 14,286 | | 14,218 | | 13,208 | | 12,734 | | 12,577 | | 13,106 |
Gross profit | 38,417 | | 36,416 | | 35,105 | | 37,686 | | 33,166 | | 31,976 | | 30,434 | | 31,445 |
Operating expenses | | | | | | | | | | | | | | | |
Research and development | 18,870 | | 17,527 | | 16,239 | | 15,536 | | 14,533 | | 14,342 | | 14,047 | | 14,516 |
Sales and marketing | 21,949 | | 23,712 | | 19,787 | | 18,713 | | 18,196 | | 22,354 | | 19,828 | | 20,088 |
General and administrative (1) | 12,271 | | 8,959 | | 8,943 | | 9,421 | | 7,845 | | 8,015 | | 7,882 | | 8,953 |
Total operating expenses | 53,090 | | 50,198 | | 44,969 | | 43,670 | | 40,574 | | 44,711 | | 41,757 | | 43,557 |
Loss from operations | (14,673) | | (13,782) | | (9,864) | | (5,984) | | (7,408) | | (12,735) | | (11,323) | | (12,112) |
Interest expense | (451) | | (464) | | (475) | | (455) | | (455) | | (462) | | (468) | | (490) |
Other income, net | 797 | | 198 | | 176 | | 612 | | 348 | | 298 | | 278 | | 576 |
Loss before (benefit) provision for income taxes | (14,327) | | (14,048) | | (10,163) | | (5,827) | | (7,515) | | (12,899) | | (11,513) | | (12,026) |
(Benefit) provision for income taxes | (6) | | 25 | | 33 | | 9 | | 1 | | (8) | | 12 | | 19 |
Net loss | $ | (14,321) | | $ | (14,073) | | $ | (10,196) | | $ | (5,836) | | $ | (7,516) | | $ | (12,891) | | $ | (11,525) | | $ | (12,045) |
Net loss per common share: | | | | | | | | | | | | | | | |
Basic and diluted | $ | (0.34) | | $ | (0.34) | | $ | (0.25) | | $ | (0.14) | | $ | (0.18) | | $ | (0.32) | | $ | (0.28) | | $ | (0.30) |
Weighted-average common shares outstanding - basic and diluted | 42,108,764 | | 41,815,139 | | 41,429,691 | | 41,108,611 | | 40,872,772 | | 40,762,960 | | 40,593,908 | | 40,451,668 |
(1) During the fourth quarter of 2017, we recorded an additional $1.9 million to generalyears ended December 31, 2022, 2021 and administrative expense due to certain severance arrangements.
2020, respectively.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our principal executive officer and principal financial officer, our management conducted an evaluation of 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 Exchange Act, as of the end of the period covered by this report. Our disclosure controls and procedures are intended 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 Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure 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 must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management’s evaluation, our principal executive officer and principal financial officer concluded that 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 Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Based on that assessment, management has concluded that its internal control over financial reporting was effective as of December 31, 20172022 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Our independent registered public accounting firm, Ernst & Young LLP, has issued an audit report with respect to our internal control over financial reporting, which appears in Part II, Item 8 of this Annual Report on Form 10-K, and is incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
In October 2017, we implemented a new financial accounting module to our accounting system to support revenue recognition in accordance with ASC 606. In addition, we have made enhancements and modifications to existing internal controls and procedures to ensure compliance with the new guidance. These changes to our control environment were substantially completed in the fourth quarter of 2017.
Other than the items noted above, thereChanges in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended December 31, 20172022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures and Internal Control over Financial Reporting
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.
Item 9B. Other Information
Employment Agreements
On February 19, 2018, we entered into executive employment agreements with Scott Ryan, Executive Vice President, Global Sales, and Mithun Banarjee, Executive Vice President, Global Operations. These agreements provide for at-will employment and include an initial base salary, an indication of eligibility for an annual cash incentive award opportunity, and equity awards at the discretion of our board of directors. These agreements also contain restrictions on non-competition and non-solicitation for the six-month period following termination. In addition, each of Messrs. Ryan and Banarjee has executed our standard confidential information and invention assignment agreement.
The employment agreements with Messrs. Ryan and Banarjee provide that certain payments and benefits would be due upon a termination of employment or a change in control.
If the employment of either Mr. Ryan or Mr. Banarjee is terminated by us for “cause” or by him without “good reason,” we will pay him (i) accrued but unpaid salary and benefits and (ii) any earned but unpaid bonus from the prior year.
If the employment of either Mr. Ryan or Mr. Banarjee is terminated due to his death or disability we will pay to him (i) accrued but unpaid salary and benefits, (ii) any earned but unpaid bonus from the prior year, (iii) a pro-rated bonus for the current year and (iv) a lump-sum payment equal to his annual base salary plus his target bonus for the current year.
If the employment of either Mr. Ryan or Mr. Banarjee is terminated by us without cause or by him for good reason, we will pay to him (i) accrued but unpaid salary and benefits, (ii) any earned but unpaid bonus from the prior year, (iii) a pro-rated bonus for the current year and (iv) a severance payment equal to two times his annual base salary plus his target bonus for the current year. In addition, the vesting of his outstanding equity awards will be accelerated, and he will be released from his non-competition and non-solicitation restrictions.
If the employment of either Mr. Ryan or Mr. Banarjee is terminated by us without cause or by him for good reason in the three months prior to or twelve months following a change in control, we will pay to him (i) accrued but unpaid salary and benefits, (ii) any earned but unpaid bonus from the prior year, (iii) his target bonus for the year in which the termination occurs (or if greater, the year in which the change in control occurs) and (iv) a severance payment equal to three times his annual base salary plus target bonus. In addition, the vesting of his outstanding equity awards will be accelerated, and he will be released from his non-competition and non-solicitation restrictions.
Short-Term Incentive Plan
On February 16, 2018,17, 2023, the Compensation Committee of our Board of Directors approved the 20182023 Short-Term Incentive Plan applicable to our executive officers for the fiscal year ending December 31, 2018.2023. The Plan provides executive officers with the opportunity to earn cash bonuses based upon the achievement of pre-established performance metrics determined by the Committee, which may include one or more of revenue growth, operating cash flow, or operating loss excluding stock compensation. The Committee sets the target award for each participating executive as a percentage of base salary. Following the end of fiscal 2018,2023, the Committee will review our attainment of the metrics and determine actual payouts, subject to upward or downward adjustment in its discretion.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Part III.
Item 10. Directors, Executive Officers and Corporate Governance
a) Directors of the Company.
This information is included in our definitive proxy statement for the 20182023 Annual Meeting of Stockholders under the heading “Election of Directors” and is incorporated herein by reference.
b) Executive Officers of the Company.
Matthew M. Rizai, Ph.D. 61, has served as our Chairman and Chief Executive Officer since December 2014 and served as the Chief Executive Officer and a Managing Director of Workiva LLC from 2009 to December 2014. He has over 20 years of experience as a Mechanical Engineer and nearly 15 years of experience leading technology companies. Prior to founding Workiva, Mr. Rizai was the Chairman and Chief Executive Officer of Engineering Animation, Inc. (NASDAQ: EAII) (EAI) from 1990 to 2000, when it was acquired by Unigraphics Solutions (now part of Siemens USA). Prior to EAI, Mr. Rizai was a senior research engineer at General Motors Research Laboratories, an analyst at Arch Development Corporation, and a development engineer at Ford Motor Company. He also co-founded Computer Aided Design Software, Inc. From 2003 to 2013, Mr. Rizai was a board member of Stafford Development Company, a real estate, hospitality, restaurant and health care services company based in Tifton, GA. Mr. Rizai earned a B.S., M.S. and Ph.D. in Mechanical Engineering from Michigan State University and an M.B.A. from the University of Chicago Booth School of Business.
Martin J. Vanderploeg, Ph.D., 61,66, has served as our Chief Executive Officer since March 2022. He served as President and Chief Executive Officer from June 2018 to March 2022, and as President and Chief Operating Officer sincefrom December 2014 andto June 2018. Prior to that, Mr. Vanderploeg served as the Chief Operating Officer and a Managing Director of Workiva LLC from 2008 tothrough December 2014. He has over 20 years of experience in mechanical engineering and advising early stage technology companies. Prior to founding Workiva in 2008, Mr. Vanderploeg was a founder of EAI and served as EAI’sEAI's Executive Vice President from 1993 until EAI was acquired by Unigraphics Solutions in 2000. Mr. Vanderploeg served as Chief Technology Officer of EAI from 1989 to 1999. Following the acquisition of EAI, Mr. Vanderploeg continued to be an advisor to various technology start-up companies. Prior to EAI, Mr. Vanderploeg was a tenured professor of mechanical engineering at Iowa State University from 1985 to 1993 and was the founder and director of the Iowa State University Visualization Laboratory. Mr. Vanderploeg earned a B.S., M.S. and Ph.D. in mechanical engineering from Michigan State University.
Jeffrey D. Trom, Ph.D.Julie Iskow, 57,61, has served as our President and Chief Operating Officer since March 2022. She served as Executive Vice President and Chief TechnologyOperating Officer since December 2014 andfrom October 2019 to March 2022. Prior to joining Workiva, Ms. Iskow served as a Managing Director and Chief Technology Officer of Medidata Solutions, Inc. since April 2015, as well as its Executive Vice President of Product Development since July 2016. Ms. Iskow served as Senior Vice President of Global Product Development at Medidata from April 2015 to July 2016. From December 2013 to March 2015, Ms. Iskow served as Chief Information Officer and Senior Vice President at WageWorks, Inc., and prior to that as its Senior Vice President of Product Development and Vice President of Product Development. Ms. Iskow has also served as Vice President of Engineering at Asyst Technologies and GW Associates, Inc. Before joining GW Associates, she was a member of the faculty at the University of Vermont. Ms. Iskow earned a B.S. degree from University of California, Berkeley and an M.S. degree from University of California, Davis.
Jill Klindt, 46, has served as Senior Vice President, Chief Financial Officer, Chief Accounting Officer and Treasurer since February 2021. She served as Senior Vice President, Chief Accounting Officer and Treasurer from March 2017 to February 2021; as Chief Accounting Officer and Vice President from December 2014 to March 2017, and Senior Director of Finance and Accounting of Workiva LLC from 2008 to December 2014. He has over 20 years of experience working with information technology and development. Prior to foundingjoining Workiva, Mr. Trom was a founder of EAI andMs. Klindt served as EAI’s Vice President from 1990 and as Chief Technology Officer in charge of software architecture, development and deployment from 1999 until EAI was acquired by Unigraphics Solutions in 2000. Thereafter, Mr. Trom servedFinancial Analysis Manager at Financial Intelligence, LLC; as a technical consultant for various technology companies, including Electronic Data Systems from 2000 to 2002. HeFinancial Consultant at Wells Fargo Financial; as a Senior Financial Analyst at CitiMortgage; and a Financial Accounting Analyst at Principal Residential Mortgage. She was also an Accountant of both Prairie iNet and EAI. Ms. Klindt is president of the board of Middle Creek Montessori, a non-profit school in Bozeman, Montana. Mr. Trom earnedCertified Public Accountant (inactive) with a B.S. and M.S. in Mechanical Engineering from University of Iowa and a Ph.D. in Mechanical EngineeringAccounting from Iowa State University.
Joseph H. Howell, 65, has served as our Executive Vice President for Strategic Initiatives since December 2014 and served as a Managing Director of Workiva LLC from 2008 to December 2014. He has over 25 years of experience in senior financial management and SEC reporting experience, including with early stage companies. Prior to founding Workiva in 2008, Mr. Howell was the Managing Director of Financial Intelligence, LLC from 2007 until 2008. From 2002 to 2004, Mr. Howell served as Chief Financial Officer of Eid Passport, and, from 2000 to 2002, he was the Chief Financial Officer of
Webridge, Inc., which was acquired by Click Commerce. He was also the Chief Financial Officer from 1998 to 2000 of EMusic.com (NASDAQ: EMUS), which was acquired by Universal Music Group. In addition, Mr. Howell served as the Chief Financial Officer of Merix Corporation (NASDAQ: MERX) from 1995 to 1998, Acting Chief Financial Officer for Borland Software (NASDAQ: BORL) from 1994 to 1995, and the Chief Accounting Officer for Borland Software from 1988 to 1995. Mr. Howell is a certified public accountant (inactive), and he earned a B.A. from the University of Michigan and an M.S. in Accounting from Eastern Michigan University.
J. Stuart MillerBrandon E. Ziegler, 57, has served as our Executive Vice President and Chief Financial Officer since December 2014. He also served as our Treasurer from December 2014 to June 2017 and served as Chief Financial Officer of Workiva LLC from April 2014 to December 2014. He has over 25 years of experience advising on mergers and acquisitions and capital raising for various companies. Prior to joining Workiva in April 2014, Mr. Miller was a Managing Director of Colonnade Advisors, a mergers and acquisitions advisory firm that he founded in 1999. Previously, he was a Managing Director in the Investment Banking Department of J.P. Morgan. Mr. Miller joined J.P. Morgan from Credit Suisse First Boston, where he had worked in the Investment Banking Department. He earned a B.A. from Washington & Lee University and an M.B.A. from Harvard Business School.
Troy M. Calkins, 51, Mr. Calkins49, has served as our Executive Vice President, Chief Legal and Administrative Officer and Corporate Secretary since November 2017, after previously servingMarch 2022. He served as our Executive Vice President, Chief Legal Officer and Corporate Secretary from March 2021 to March 2022. Prior to that, Mr. Ziegler was Senior Vice President and General Counsel from March 2020 to March 2021. Mr. Ziegler was previously Senior Vice President, Deputy General Counsel and Assistant Corporate Secretary since December 2014. He also servedat Medidata Solutions, a leading technology and data platform for life sciences from July 2016 to March 2020. Prior to Medidata, Mr. Ziegler was head of ADP’s legal department for multinational corporations as Vice President and Assistant General Counsel of Workiva LLC from February 20142007 to December 2014. Prior to joining Workiva, he was a partner at Drinker Biddle & Reath LLP, where he spent 19 yearsJuly 2016. Before moving in-house, Mr. Ziegler worked in the firm’s Corporateprivate practice in New York and Securities Practice Group. His practice focused onhas extensive legal experience counseling bothpublic and private and public companies on legal strategy,in global corporate compliance anddevelopment, corporate governance and private and public securities offerings.commercial transactions. He earned a B.A. (cum laude) from Michigan StateDuke University and a J.D. from the University of MichiganBrooklyn Law School.School where he was an international business law fellow.
Scott RyanMichael D. Hawkins, 46, Mr. Ryan47, has served as our Executive Vice President, of Global Sales since March 2017.August 2021. Previously, heMr. Hawkins served as our Senior Vice President of Global Sales from August 2016 to March 2017. Prior to Workiva, Mr. Ryan was employed by IBM in various sales leadership positions from April 20052019 to August 2016, most recently as the2021, Vice President of North America Cyber Security Sales. Prior to IBM, he held software sales and leadership positions at various levels at Interwoven and SAS Institute. Mr. Ryan also served as a U.S. Army officer. He earned a B.S. in System Engineering from the U.S. Military Academy at West Point and an M.B.A. from the Darden School of Business at the University of Virginia.
Mitz Banarjee, 39, Mr. Banarjee has served as our Executive Vice President of Global Operations since September 2017. Previously, Mr. Banarjee served as our Executive Vice President of Global Client Services from March to August 2017, Vice President of Global Client ServicesSales from March 2015 to August 2019, Director of Sales from January 2013 through March 20172015, Area Sales Manager from January 2012 to December 2012, and Regional Sales Director from August 2010 to December 2011. Prior to joining Workiva, Mr. Hawkins was Business Development Manager at ExactTarget from July 2008 to August 2010, as Account Executive at OnForce from May 2006 to September 2007, and as Account Executive and Director of Customer First CultureSales at Truist (formerly CreateHope, Inc.) from December 2014May 2001 to February 2015. He also served Workiva LLC as Director of Customer First Culture from March 2012 to December 2014 and Director of Customer Operations from March 2010 to February 2012. Prior to Workiva,April 2006. Mr. Banarjee was Director of Client Services at Yodle (acquired by Web.com in 2016). Previously, he managed customer relationship teams at AT&T and AOL. HeHawkins earned a B.A. in Information Systems from theMiami University of Lincoln in England, UK.and a J.D. from George Washington University Law School.
c) Delinquent Section 16(a) Beneficial Ownership Reporting Compliance.Reports.
This information is included in our definitive proxy statement for the 20182023 Annual Meeting of Stockholders under the heading “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” and is incorporated herein by reference.
d) Code of Ethics.
This information is included in our definitive proxy statement for the 20182023 Annual Meeting of Stockholders under the heading “Corporate Governance” and is incorporated herein by reference.
e) Information regarding our Audit Committee and Nominating and Governance Committee is set forth in our definitive proxy statement for the 20182023 Annual Meeting of Stockholders under the heading “Corporate Governance” and is incorporated herein by reference.
Item 11. Executive Compensation
This information is included in our definitive proxy statement for the 20182023 Annual Meeting of Stockholders under the headings “Executive Compensation” and “Director Compensation” and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
This information is included in our definitive proxy statement for the 20182023 Annual Meeting of Stockholders under the headings “Ownership of Common Stock” and “Equity Compensation Plan Information” and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions and Director Independence
This information is included in our definitive proxy statement for the 20182023 Annual Meeting of Stockholders under the headings “Certain Relationships and Related-Party and Other Transactions” and “Corporate Governance” and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Our independent registered public accounting firm is Ernst & Young LLP, Chicago, Illinois.
This information is included in our definitive proxy statement for the 20182023 Annual Meeting of Stockholders under the heading “Ratification of the Appointment of Independent Registered Public Accounting Firm” and is incorporated herein by reference.
Part IV.
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this Form 10-K:10-K or incorporated by reference herein:
1.All financial statements. See Index to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
2.Financial Statement Schedules. Financial statement schedules are omitted as they are either not required or the information is otherwise included in the consolidated financial statements.
3.Exhibits:
| | | | | | | | |
Exhibit Number | | Description |
| |
3.01 | |
3.1 | | |
| | |
3.2 3.02 | | Bylaws of Workiva Inc.,as amendedJanuary 9, 2023, incorporated by reference from Exhibit 3.23.1 to the Company’s Current Report on Form 8-K filed on December 16, 2014.January 10, 2023. |
| |
4.1 4.01 | | |
| | |
4.2 4.02 | | |
| | |
4.3 4.03 | | |
| | |
10.1* 4.04 | | Description of Capital Stock, incorporated by reference from Exhibit 4.06 to the Company's Annual Report on Form 10-K for the year ended December 31, 2019. |
| | |
10.01* | | |
| |
10.2* 10.02* | | |
| |
10.3* 10.03* | | |
| |
10.4* 10.04* | | |
| |
10.5* 10.05* | | |
| | |
10.6* 10.06* | | Form of Employment Agreement, incorporated by reference from Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on November 3, 2021. |
| | |
| | | | | | | | |
Exhibit Number | | Description |
| |
10.7* 10.07* | | |
| | |
10.8 10.08 | | |
| | | | | | | | |
Exhibit Number 10.09* | | Description |
| | |
10.9 | | |
| | |
10.10 | | |
| |
10.12 | | |
| | |
10.13* | | |
| | |
10.14* 10.10* | | |
| | |
10.15 10.11* | | |
| | |
10.16* | | |
| | |
10.17* 10.12* | | |
| | |
10.18 10.13* | | |
| | |
10.14* | | |
| | |
10.15* | | |
| | |
10.16* | | |
| | |
12.1 10.17* | | |
| | |
21.1 10.18* | | |
| | |
10.19* | | |
| | |
21.01 | | |
| |
23.1 23.01 | | |
| | |
24.1 24.01 | | Power of attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K). |
| | |
| | | | | | | | |
Exhibit Number | | Description |
| |
31.01 | | |
31.1 | | |
| | |
31.2 31.02 | | |
| | |
| | | | | | | | |
Exhibit Number 32.01# | | Description |
| | |
32.1# | | |
| | |
32.2# 32.02# | | |
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101.INS 101 | | The following financial information from Workiva Inc.'s Annual Report on Form 10-K for the year ended December 31, 2022 formatted in Inline XBRL (Extensible Business Reporting Language) includes: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Loss, (iv) the Statements of Changes in Stockholders Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to the Consolidated Financial Statements. |
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104 | | XBRL Instance Document - the instance document does not appear in theCover Page Interactive Data File because its XBRL tags are embedded within the- (formatted as Inline XBRL document. and contained in Exhibit 101) |
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101.SCH | | XBRL Taxonomy Extension Schema Document. |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |
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* Indicates a management contract or compensatory plan.
# As contemplated by SEC Release No. 33-8212, these exhibits are furnished with this Annual Report on Form 10-K and are not deemed filed with the Securities and Exchange Commission and are not incorporated by reference in any filing of Workiva Inc. under the Securities Act of 1933 or the Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in such filings.
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 22nd21st day of February, 2018.2023.
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| WORKIVA INC. |
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| By: | /s/ Martin J. Vanderploeg, Ph.D. |
| Name: | Martin J. Vanderploeg, Ph.D. |
| Title: | Chief Executive Officer |
By: | /s/ Matthew M. Rizai, Ph.D. |
Name: | Matthew M. Rizai, Ph.D. |
Title: | Chairman and Chief Executive Officer |
POWER OF ATTORNEY
The undersigned officers and directors of Workiva Inc. hereby severally constitute Matthew M. RizaiMartin J. Vanderploeg our true and lawful attorney, with full power to him, to sign for us in our names in the capacities indicated below the Annual Report on Form 10-K filed herewith and any and all amendments thereto, and generally do all such things in our name and on our behalf in our capacities as officers and directors to enable Workiva Inc. to comply with the provisions of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any one of them on the Annual Report on Form 10-K and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated and on the dates indicated.
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Signature | | Title | | Date |
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/s/ Matthew M. Rizai,Martin J. Vanderploeg, Ph.D. | | Chairman of the board and Chief Executive Officer and Director
(Principal Executive Officer) | | February 22, 2018 |
Matthew M. Rizai, Ph.D. | | | |
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/s/ J. Stuart Miller | | Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
| | February 22, 2018 |
J. Stuart Miller | | | |
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/s/ Jill Klindt | | Senior Vice President, Treasurer and Chief Accounting Officer
(Principal Accounting Officer)
| | February 22, 2018 |
Jill Klindt | | | |
| | | | |
/s/ Eugene S. Katz | | Director | | February 22, 2018 |
Eugene S. Katz | | | |
| | | | |
/s/ Michael M. Crow, Ph.D. | | Director | | February 22, 2018 |
Michael M. Crow, Ph.D. | | | |
| | | | |
/s/ Robert H. Herz | | Director | | February 22, 2018 |
Robert H. Herz | | | |
| | | | |
/s/ David S. Mulcahy | | Director | | February 22, 2018 |
David S. Mulcahy | | | |
| | | | |
/s/ Suku Radia | | Director | | February 22, 2018 |
Suku Radia | | | |
| | | | |
/s/ Martin J. Vanderploeg, Ph.D. | | Director | | February 22, 201821, 2023 |
Martin J. Vanderploeg, Ph.D. | | | |
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/s/ Jill Klindt | | Senior Vice President, Chief Financial Officer, Chief Accounting Officer and Treasurer (Principal Financial Officer) | | February 21, 2023 |
Jill Klindt | | | |
| | | | |
/s/ Brigid A. Bonner | | Director | | February 21, 2023 |
Brigid A. Bonner | | | |
| | | | |
/s/ Michael M. Crow, Ph.D. | | Director | | February 21, 2023 |
Michael M. Crow, Ph.D. | | | |
| | | | |
/s/ Robert H. Herz | | Director | | February 21, 2023 |
Robert H. Herz | | | |
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/s/ Julie Iskow | | Director | | February 21, 2023 |
Julie Iskow | | | |
| | | | |
/s/ David S. Mulcahy | | Director | | February 21, 2023 |
David S. Mulcahy | | | |
| | | | |
/s/ Suku Radia | | Director | | February 21, 2023 |
Suku Radia | | | |