Workiva's Spending Big to Win Large Contracts

Enterprise-software provider Workiva (NYSE: WK) reported its fourth-quarter results after the market closed on Feb. 22. The company's push to win larger contracts has slowed down revenue growth and pushed up losses, and those trends continued in the fourth quarter. Workiva's 2018 guidance calls for more of the same, with its enterprise strategy expected to show meaningful progress starting in the second half of the year. Here's what investors need to know about Workiva's fourth-quarter report.

Workiva results: The raw numbers

What happened with Workiva this quarter?

  • Subscription and support revenue increased by 18.8% year over year, to $45.5 million, while professional services revenue jumped 11.3%, to $9.0 million.
  • Workiva's total customer count reached 3,063, up 291 over the past year and up 72 since the end of the third quarter.
  • Workiva's revenue-retention rate was 96% excluding add-on revenue and 107.6% including add-on revenue. Those numbers are down from 96.5% and 108.6%, respectively, during the third quarter. Add-on revenue includes changes in seats purchased and seat prices for existing customers.
  • Workiva had 324 customers with an annual contract value of more than $100,000 and 146 customers with an annual contract value of more than $150,000 at the end of the fourth quarter, up 37% and 52%, respectively, year over year.

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

  • First-quarter revenue is expected between $57.3 million and $57.8 million, up from $51.9 million in the first quarter of 2017.
  • First-quarter non-GAAP net loss is expected between $0.19 and $0.20 per share, down from a loss of $0.04 per share in the first quarter of 2017.
  • Full-year revenue is expected between $234.0 million and $236.0 million, up from $207.9 million in 2017.
  • Full-year non-GAAP net loss is expected between $0.77 and $0.82 per share, down from a loss of $0.60 per share in 2017.

What management had to say

Workiva CEO Matt Rizai provided some data during the conference call on the company's efforts to diversify beyond SEC use cases:

CFO Stuart Miller explained the company's revenue-retention rate: "Customers being acquired or ceasing to file SEC reports, accounted for a majority of revenue attrition, consistent with our experience to date."

Miller also gave a timeline for when the company's strategy of winning enterprise customers should start to pay off: "As we discussed last fall, we expect to see progress from our enterprise strategy in bookings in the second half of 2018 and in revenue in 2019. We are encouraged by the growing number of customers with larger contracts and also by our pipeline of larger contracts."

Looking forward

As Workiva diversifies its customer base and goes after large contracts, expenses are growing faster than revenue. During the fourth quarter, operating expenses jumped 30.8% year over year, outpacing revenue growth by a substantial margin. Miller sees hiring slowing in 2018 as the company's enterprise strategy takes hold, but guidance calls for growing losses in both the first quarter and the full year.

"Our 2018 guidance reflects the fact that we're in the middle of executing our strategy," Miller said during the conference call. Investors may need to wait until 2019 before the outcome of that strategy becomes apparent.

10 stocks we like better than WorkivaWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Workiva wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of February 5, 2018

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