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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________

FORM 10-Q
___________________________________

(Mark One) 
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended June 30, 2017 
OR 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For transition period from to 
Commission File Number 001-36773 
___________________________________

WORKIVA INC.
(Exact name of registrant as specified in its charter)
___________________________________

Delaware  47-2509828 
(State or other jurisdiction of incorporation or organization)  (I.R.S. Employer Identification Number) 
2900 University Blvd
Ames, IA 50010
(888) 275-3125 
(Address of principal executive offices and zip code) 
(888) 275-3125 
(Registrant's telephone number, including area code) 
___________________________________ 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the  Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o Accelerated filer  ý
Non-accelerated filer  o (Do not check if a smaller reporting company)  Smaller reporting company  o
Emerging growth company  ý

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No ý

As of August 1, 2017, there were approximately 31,106,464 shares of the registrant's Class A common stock and 10,719,888 shares of the registrant's Class B common stock outstanding. 
 
 
WORKIVA INC.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        Certain statements in this Quarterly Report on Form 10-Q are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical facts, including statements regarding our future results of operations and financial position, our business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016, in “Item 1A. Risk Factors” in Part II of this Quarterly Report on Form 10-Q and in any subsequent filing we make with the SEC, as well as in any documents incorporated by reference that describe risks and factors that could cause results to differ materially from those projected in these forward-looking statements.

        Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

        Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements or events and circumstances reflected in the forward-looking statements will occur. We are under no duty to update any of these forward-looking statements after completion of this Quarterly Report on Form 10-Q to conform these statements to actual results or revised expectations.

 
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Part I. Financial Information

 
Item 1. Financial Statements

 
WORKIVA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
  As of June 30, 2017    As of December 31, 2016 
  (unaudited)     
ASSETS       
Current assets       
Cash and cash equivalents  $ 59,986    $ 51,281 
Marketable securities  12,877    11,435 
Accounts receivable, net of allowance for doubtful accounts of $1,335 and $900 at June 30, 2017 and December 31, 2016, respectively  22,733    22,535 
Deferred commissions  2,021    1,864 
Other receivables  1,573    1,545 
Prepaid expenses  11,416    9,382 
Total current assets  110,606    98,042 
       
Property and equipment, net  41,138    42,590 
Intangible assets, net  1,056    1,012 
Other assets  1,393    1,499 
Total assets  $ 154,193    $ 143,143 
     

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WORKIVA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except share and per share amounts)
As of June 30, 2017    As of December 31, 2016 
(unaudited)     
LIABILITIES AND STOCKHOLDERS’ DEFICIT       
Current liabilities       
Accounts payable  $ 1,191    $ 849 
Accrued expenses and other current liabilities  17,286    20,695 
Deferred revenue  91,914    76,016 
Deferred government grant obligation  904    1,022 
Current portion of capital lease and financing obligations  1,242    1,285 
Current portion of long-term debt  21    20 
Total current liabilities  112,558    99,887 
       
Deferred revenue  24,342    21,485 
Deferred government grant obligation  405    1,000 
Other long-term liabilities  3,985    4,100 
Capital lease and financing obligations  18,999    19,743 
Long-term debt  32    53 
Total liabilities  160,321    146,268 
       
Stockholders’ deficit       
Class A common stock, $0.001 par value per share, 1,000,000,000 shares authorized, 30,939,112 and 30,369,199 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively  31    30 
Class B common stock, $0.001 par value per share, 500,000,000 shares authorized, 10,843,888 and 10,891,888 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively  11    11 
Preferred stock, $0.001 par value per share, 100,000,000 shares authorized, no shares issued and outstanding  —    — 
Additional paid-in-capital  230,568    217,454 
Accumulated deficit  (236,943)   (220,911)
Accumulated other comprehensive income  205    291 
Total stockholders’ deficit  (6,128)   (3,125)
Total liabilities and stockholders’ deficit  $ 154,193    $ 143,143 

See accompanying notes.

 
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WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
Three months ended June 30,  Six months ended June 30, 
  2017    2016    2017    2016 
Revenue               
Subscription and support  $ 40,980    $ 34,969    $ 80,520    $ 68,554 
Professional services  8,411    8,042    20,775    19,008 
Total revenue  49,391    43,011    101,295    87,562 
Cost of revenue               
Subscription and support  7,758    7,039    15,395    13,957 
Professional services  6,528    5,538    13,109    11,726 
Total cost of revenue  14,286    12,577    28,504    25,683 
Gross profit  35,105    30,434    72,791    61,879 
Operating expenses               
Research and development  16,239    14,047    31,775    28,563 
Sales and marketing  19,787    19,828    38,500    39,916 
General and administrative  8,943    7,882    18,364    16,835 
Total operating expenses  44,969    41,757    88,639    85,314 
Loss from operations  (9,864)   (11,323)   (15,848)   (23,435)
Interest expense  (475)   (468)   (930)   (958)
Other income, net  176    278    788    854 
Loss before provision for income taxes  (10,163)   (11,513)   (15,990)   (23,539)
Provision for income taxes  33    12    42    31 
Net loss  $ (10,196)   $ (11,525)   $ (16,032)   $ (23,570)
Net loss per common share:               
Basic and diluted  $ (0.25)   $ (0.28)   $ (0.39)   $ (0.58)
Weighted-average common shares outstanding - basic and diluted  41,429,691    40,593,908    41,270,038    40,522,790 

See accompanying notes.
 
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WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
Three months ended June 30,    Six months ended June 30, 
  2017    2016    2017    2016 
Net loss  $ (10,196)   $ (11,525)   $ (16,032)   $ (23,570)
Other comprehensive (loss) income, net of tax               
Foreign currency translation adjustment, net of income tax benefit of $0 and $21 for the three months ended June 30, 2017 and 2016, respectively, and net of income tax benefit of $2 and $21 for the six months ended June 30, 2017 and 2016, respectively  (52)   68    (86)   (33)
Unrealized gain on available-for-sale securities, net of income tax (expense) of $0 and ($33) for the three months ended June 30, 2017 and 2016, respectively, and net of income tax (expense) of ($2) and ($33) for the six months ended June 30, 2017 and 2016, respectively  (2)   (21)   —    54 
Other comprehensive (loss) income, net of tax  (54)   47    (86)   21 
Comprehensive loss  $ (10,250)   $ (11,478)   $ (16,118)   $ (23,549)

See accompanying notes.

 
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WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three months ended June 30,    Six months ended June 30, 
  2017    2016    2017    2016 
Cash flows from operating activities               
Net loss  $ (10,196)   $ (11,525)   $ (16,032)   $ (23,570)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities               
Depreciation and amortization  867    975    1,758    1,972 
Stock-based compensation expense  4,397    3,502    8,536    6,892 
Provision for doubtful accounts  146    48    432    170 
Realized gain on sale of available-for-sale securities, net  —    (4)   —    (6)
Amortization of premiums and discounts on marketable securities, net  28    36    59    75 
Recognition of deferred government grant obligation  (198)   (230)   (736)   (663)
Deferred income tax  —    (12)   —    (12)
Changes in assets and liabilities:               
Accounts receivable  (3,228)   (1,844)   (542)   (2,725)
Deferred commissions  (149)   (117)   (151)   (129)
Other receivables  (865)   142    (25)   (82)
Prepaid expenses and other  (2,830)   (1,327)   (2,026)   (1,513)
Other assets  36    (323)   13    (386)
Accounts payable  (678)   797    339    101 
Deferred revenue  14,398    5,399    18,494    2,184 
Accrued expenses and other liabilities  2,254    447    (3,557)   (5,422)
Net cash provided by (used in) operating activities  3,982    (4,036)   6,562    (23,114)
               
Cash flows from investing activities               
Purchase of property and equipment  (26)   (597)   (147)   (1,009)
Purchase of marketable securities  (2,259)   (802)   (6,350)   (802)
Maturities of marketable securities  1,850    —    4,851    — 
Sale of marketable securities  —    2,404    —    7,197 
Purchase of intangible assets  (58)   (59)   (89)   (114)
Net cash (used in) provided by investing activities  (493)   946    (1,735)   5,272 


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WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
(unaudited)
Three months ended June 30,    Six months ended June 30, 
2017    2016    2017    2016 
Cash flows from financing activities               
Proceeds from option exercises  4,709    236    5,515    520 
Taxes paid related to net share settlements of stock-based compensation awards  —    —    (936)   (761)
Repayment of other long-term debt  (20)   (18)   (20)   (18)
Principal payments on capital lease and financing obligations  (490)   (476)   (787)   (908)
Proceeds from government grants  22    —    22    183 
Payments of issuance costs on line of credit  (10)   (33)   (10)   (33)
Net cash provided by (used in) financing activities  4,211    (291)   3,784    (1,017)
Effect of foreign exchange rates on cash  82    40    94    (6)
               
Net increase (decrease) in cash and cash equivalents  7,782    (3,341)   8,705    (18,865)
Cash and cash equivalents at beginning of period  52,204    43,226    51,281    58,750 
Cash and cash equivalents at end of period  $ 59,986    $ 39,885    $ 59,986    $ 39,885 
               
Supplemental cash flow disclosure               
Cash paid for interest  $ 448    $ 470    $ 747    $ 792 
Cash paid for income taxes, net of refunds  $ 27    $ 40    $ 40    $ 48 
               
Supplemental disclosure of noncash investing and financing activities               
Allowance for tenant improvements  $ —    $ 215    $ —    $ 401 
Purchases of property and equipment, accrued but not paid  $ —    $ 82    $ —    $ 82 

See accompanying notes.

 

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WORKIVA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Significant Accounting Policies

Organization

        Workiva Inc., a Delaware corporation, and its wholly-owned subsidiaries created Wdesk, a collaborative work management platform for organizations to collect, link, report and analyze their business data. Wdesk’s proprietary word processing, spreadsheet and presentation applications are integrated and built upon a data management engine, offering synchronized data, controlled collaboration, granular permissions and a full audit trail. We offer Wdesk solutions for a wide range of use cases in the following markets: finance and accounting, audit and internal controls, risk and compliance, and operations. Our operational headquarters are located in Ames, Iowa, with additional offices located in the United States, Europe, and Canada.

Basis of Presentation and Principles of Consolidation

        The financial information presented in the accompanying unaudited condensed consolidated financial statements has been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and in accordance with rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated balance sheet data as of December 31, 2016 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of our financial position and results of operations. The operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results expected for the full year ending December 31, 2017. Seasonality has affected our revenue, expenses and cash flow in the first and third quarters. Revenue from professional services has been higher in the first quarter as many of our customers file their Form 10-K in the first calendar quarter. Sales and marketing expense has been higher in the third quarter due to our annual user conference in September. Payment of cash bonuses in the first quarter affects operating cash flow. The condensed consolidated financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in this report and the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC on February 23, 2017.

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

Use of Estimates

        The preparation of consolidated financial statements in conformity with U.S. GAAP 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 determination
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of the relative selling prices of our services, health insurance claims incurred but not yet reported, collectability of accounts receivable, valuation of available-for-sale marketable securities, useful lives of intangible assets and property and equipment, income taxes 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.

Recently Adopted Accounting Pronouncements

        In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. Under this ASU, entities are permitted to make an accounting policy election to either 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 became effective for interim and annual periods beginning after December 15, 2016. Effective January 1, 2017, we adopted this standard. We elected to recognize forfeitures on share-based payment awards as they occur. The adoption, along with the remaining provisions of ASU 2016-09, did not have a material impact on our consolidated financial statements.

        In October 2016, the FASB issued ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new guidance is effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual reporting period. 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 Not Yet Adopted

        In May 2014, the Financial Accounting Standards Board (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 ASU 2014-09 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 believe the adoption of ASU 2014-09 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 may result in some acceleration of revenue recognition.

        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 ASU 2014-09 to result in revenue being recognized earlier for certain contracts.

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        In addition, ASU 2014-09 requires that all incremental costs of obtaining a contract with a customer be recognized as an asset. We expect this requirement will result in an increase in the costs that we capitalize. 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.

        Under ASU 2014-09, in addition to recording deferred revenue when the related cash payments are received, we will record deferred revenues when payments are due in advance of our performance, including amounts that are refundable. We expect this change will result in an offsetting increase in accounts receivable and deferred revenue.

        We are still evaluating the ASU for other potential impacts to our consolidated financial statements. We plan to adopt the guidance as of January 1, 2018 and expect to utilize the modified retrospective transition method. We have a project plan in place guiding our transition which includes the necessary changes to accounting processes, procedures, systems and internal controls.

        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 prospectively for the annual period ending December 31, 2018 and interim periods within that annual period. Early adoption is permitted. The implementation of this standard is not expected to have a significant impact on our consolidated financial statements.
 
2. Supplemental Consolidated Balance Sheet and Statement of Operations Information

Accrued Expenses and Other Current Liabilities

        Accrued expenses and other current liabilities consisted of (in thousands):

  June 30, 2017 December 31, 2016
Accrued vacation  $ 5,686    $ 4,368 
Accrued commissions  2,131    2,382 
Accrued bonuses  5,107    8,927 
Estimated health insurance claims  1,100    1,210 
Accrued other liabilities  3,262    3,808 
  $ 17,286    $ 20,695 


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Other Income, net

        Other income, net for the three and six months ended June 30, 2017 and 2016 consisted of (in thousands):

Three months ended June 30,    Six months ended June 30, 
  2017    2016  2017  2016 
Interest income  $ 129    $ 62    $ 220    $ 145 
Income from training reimbursement program  198    230    736    663 
Other  (151)   (14)   (168)   46 
  $ 176    $ 278    $ 788    $ 854 
 
3. Marketable Securities

        At June 30, 2017, marketable securities consisted of the following (in thousands):

  Amortized Cost  Unrealized Gains  Unrealized Losses  Aggregate Fair Value 
U.S. treasury debt securities  $ 2,701  $ —  $ (6) $ 2,695 
U.S. corporate debt securities  10,185  2  (5) 10,182 
Money market funds  53,903  —  —  53,903 
  $ 66,789  $ 2  $ (11) $ 66,780 
Included in cash and cash equivalents  $ 53,903    $ —    $ —    $ 53,903 
Included in marketable securities  $ 12,886    $ 2    $ (11)   $ 12,877 

        At December 31, 2016, marketable securities consisted of the following (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 



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        The following table presents gross unrealized losses and fair values for those marketable securities that were in an unrealized loss position as of June 30, 2017, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):

  As of June 30, 2017 
  Less than 12 months    12 months or greater 
  Fair Value    Unrealized Loss    Fair Value    Unrealized Loss 
U.S. treasury debt securities  $ 2,695    $ (6)   $ —    $ — 
U.S. corporate debt securities  6,023    (5)   —    — 
Total  $ 8,718    $ (11)   $ —    $ — 

        We do not believe any of the unrealized losses represented an other-than-temporary impairment based on our evaluation of available evidence, which includes our intent as of June 30, 2017 to hold these investments until the cost basis is recovered.
 
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 June 30, 2017, all of our
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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. 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 June 30, 2017  Fair Value Measurements as of December 31, 2016 
Description    Total    Level 1    Level 2    Total    Level 1    Level 2 
Money market funds    $ 53,903    $ 53,903    $ —    $ 43,496    $ 43,496    $ — 
U.S. treasury debt securities    2,695    —    2,695    3,498    —    3,498 
U.S. corporate debt securities    10,182    —    10,182    7,937    —    7,937 
    $ 66,780    $ 53,903    $ 12,877    $ 54,931    $ 43,496    $ 11,435 
                         
Included in cash and cash equivalents    $ 53,903            $ 43,496         
Included in marketable securities    $ 12,877            $ 11,435         

Other Fair Value Measurements

        At June 30, 2017, the fair value of our debt obligations approximated the carrying amount of $53,000. The estimated fair value was based in part on our consideration of incremental borrowing rates for similar types of borrowing arrangements. We have classified the fair value of our debt obligations as Level 3 due to the lack of relevant observable market data over fair value inputs.
 
5. Commitments and Contingencies

Lease Commitments

There have been no material changes in our future estimated minimum lease payments under non-cancelable operating, capital and financing leases, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

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.

 


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6. 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 and options to purchase Class A common stock.

As of June 30, 2017, awards outstanding under the 2009 Plan consisted of stock options, and awards outstanding under the 2014 Plan consisted of stock options, restricted stock awards and restricted stock units.

As of June 30, 2017, 2,600,554 shares of Class A common stock were available for grant under the 2014 Plan.

Stock-Based Compensation Expense

Stock-based compensation expense for the six months ended June 30, 2017 was $5.3 million, $1.2 million, and $2.0 million for options to purchase Class A common stock, restricted stock awards and restricted stock units, respectively. Stock-based compensation expense for the six months ended June 30, 2016 was $4.5 million, $1.6 million and $0.8 million for options to purchase Class A common stock, restricted stock awards and restricted stock units, respectively.

        Stock-based compensation expense associated with stock options, restricted stock awards, and restricted stock units was recorded in the following cost and expense categories consistent with the respective employee or service provider’s related cash compensation (in thousands):

Three months ended June 30,    Six months ended June 30, 
  2017    2016    2017    2016 
Cost of revenue               
Subscription and support  $ 178    $ 125    $ 318    $ 243 
Professional services  100    93    200    215 
Operating expenses               
Research and development  472    609    965    1,193 
Sales and marketing  694    449    1,353    904 
General and administrative  2,953    2,226    5,700    4,337 
Total  $ 4,397    $ 3,502    $ 8,536    $ 6,892 



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        The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected life of the options. The expected term represents the period of time the options are expected to be outstanding and 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 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. The fair value of our stock options was estimated assuming no expected dividends and the following weighted-average assumptions:

  Three months ended June 30,    Six months ended June 30, 
  2017    2016    2017    2016 
Expected term (in years)  6.1    6.1    6.0 - 6.1    6.0 - 6.1 
Risk-free interest rate  1.90% - 2.03%    1.41% - 1.54%    1.90% - 2.14%    1.41% - 1.90% 
Expected volatility  39.3% - 39.6%    44.7% - 45.1%    39.3% - 43.8%    44.7% - 45.3% 

Stock Options

        The following table summarizes the option activity under the Plans for the six months ended June 30, 2017:
  Options    Weighted-Average Exercise Price    Weighted-Average Remaining Contractual Term (Years)    Aggregate Intrinsic Value 
              (in thousands) 
Outstanding at December 31, 2016  7,532,455    $ 12.22    7.2   $ 19,988 
Granted  1,415,953    13.94         
Forfeited  (242,609)   14.47         
Exercised  (566,648)   9.73         
Outstanding at June 30, 2017  8,139,151    $ 12.64    7.2   $ 52,205 
               
Exercisable at June 30, 2017  4,520,224    $ 10.94    6.0   $ 36,672 

        Options to purchase Class A common stock generally vest over a three- or four-year period and are generally granted for a term of ten years. The total intrinsic value of options exercised during the six months ended June 30, 2017 and 2016 was $4.2 million and $1.5 million, respectively.

        The weighted-average grant-date fair value of options granted during the six months ended June 30, 2017 and 2016 was $6.05 and $6.53, respectively. The total fair value of options vested during the six months ended June 30, 2017 and 2016 was approximately $5.2 million and $4.1 million, respectively. Total unrecognized compensation expense of $20.8 million related to options will be recognized over a weighted-average period of 2.4 years.



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Restricted Stock Awards

        We have granted restricted stock awards to our executive officers that vest in three equal annual installments 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 six months ended June 30, 2017 and 2016 was approximately $2.4 million and $3.3 million, respectively.

        The following table summarizes the restricted stock award activity under the Plan for the six months ended June 30, 2017:

  Number of Shares    Weighted-Average Grant Date Fair Value 
       
Unvested at December 31, 2016  353,335    $ 13.40 
Granted  —    — 
Forfeited  —    — 
Vested  (176,670)   13.40 
Unvested at June 30, 2017  176,665    $ 13.40 

        Compensation expense associated with unvested restricted stock awards is recognized on a straight-line basis over the vesting period. At June 30, 2017, there was approximately $1.4 million of total unrecognized compensation expense related to restricted stock awards, which is expected to be recognized over a weighted-average period of 0.6 years.

Restricted Stock Units

        We have granted restricted stock units to our executive officers that vest in three equal annual installments from the date of grant and to non-employee members of our Board of Directors with one-year cliff vesting from the date of grant. The recipient of a restricted stock unit award under the Plan will have no rights as a stockholder until share certificates are issued by us, but, at the discretion of our Compensation Committee, has the right to receive a dividend equivalent payment in the form of additional restricted stock units. Additionally, until the shares are issued, they have no voting rights and may not be bought or sold. The fair value for restricted stock units is calculated based on the stock price on the date of grant. The total fair value of restricted stock units vested during the six months ended June 30, 2017 was approximately $2.5 million. No restricted stock units vested during the six months ended June 30, 2016.



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        The following table summarizes the restricted stock unit activity under the Plan for the six months ended June 30, 2017:

  Number of Shares    Weighted-Average Grant Date Fair Value 
       
Unvested at December 31, 2016  381,952    $ 15.11 
Granted  413,792    13.95 
Forfeited  —    — 
Vested(1) 
(174,211)   14.58 
Unvested at June 30, 2017  621,533    $ 14.48 
(1) As of June 30, 2017, recipients of 146,075 shares had elected to defer settlement of the vested restricted stock units in accordance with our Nonqualified Deferred Compensation Plan. 

        Compensation expense associated with unvested restricted stock units is recognized on a straight-line basis over the vesting period. At June 30, 2017, there was approximately $7.5 million of total unrecognized compensation expense related to restricted stock units, which is expected to be recognized over a weighted-average period of 2.0 years.

Employee Stock Purchase Plan

        Our Employee Stock Purchase Plan (“ESPP”) became effective on June 13, 2017. Under the ESPP, eligible employees are granted options to purchase shares 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 exercisable on or about the succeeding January 14 and July 14, respectively, of each year. As of June 30, 2017, 5,000,000 shares of Class A common stock were available for issuance under the ESPP. No participant may purchase more than $12,500 worth of the Company’s common stock in a six-month offering period. The ESPP's initial offering period began in July 2017. Accordingly, no shares of the Company's common stock had been purchased or distributed pursuant to the ESPP as of June 30, 2017.
 
7. 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 outstanding stock options and stock related to unvested restricted stock awards to the extent dilutive. 

The net loss per share is allocated based on the 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.

        We 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.


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        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):

  Three months ended 
  June 30, 2017   June 30, 2016
  Class A    Class B    Class A    Class B 
Numerator               
Net loss  $ (7,527)   $ (2,669)   $ (8,219)   $ (3,306)
               
Denominator               
Weighted-average common shares outstanding - basic and diluted  30,585,012    10,844,679    28,950,226    11,643,682 
Basic and diluted net loss per share  $ (0.25)   $ (0.25)   $ (0.28)   $ (0.28)

  Six months ended 
  June 30, 2017   June 30, 2016
  Class A    Class B    Class A    Class B 
Numerator               
Net loss  $ (11,814)   $ (4,218)   $ (16,718)   $ (6,852)
               
Denominator               
Weighted-average common shares outstanding - basic and diluted  30,413,156    10,856,882    28,742,233    11,780,557 
Basic and diluted net loss per share  $ (0.39)   $ (0.39)   $ (0.58)   $ (0.58)

        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 
  June 30, 2017   June 30, 2016
Shares subject to outstanding common stock options  8,139,151    7,433,402 
Shares subject to unvested restricted stock awards  176,665    353,335 

 
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Item 2. 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 condensed consolidated financial statements and related notes included elsewhere in this report and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2017. 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 “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016, in “Item 1A. Risk Factors” in Part II of this Quarterly Report on Form 10-Q and in any subsequent filing we make with the SEC.

 
Overview

        Workiva provides enterprises with cloud solutions for improving productivity, accountability and insight into business data. Workiva created Wdesk, a collaborative work management platform for organizations to collect, link, report and analyze their business data. Wdesk’s proprietary word processing, spreadsheet and presentation applications are integrated and built upon a data management engine, offering synchronized data, controlled collaboration, granular permissions and a full audit trail. Wdesk helps mitigate risk, improves productivity and gives users confidence to make decisions with real-time data. As of June 30, 2017, we provided our solutions to more than 2,900 enterprise customers, including over 70% of FORTUNE 500® companies(1).

(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.

        Our scalable, enterprise-grade data engine enables users to collect, aggregate and manage their unstructured and structured data in Wdesk. We offer Wdesk solutions for a wide range of use cases in the following markets: finance and accounting, audit and internal controls, risk and compliance and operations. Underlying these solutions is our scalable, enterprise-grade data engine that enables users to collect, aggregate and manage their unstructured and structured data in Wdesk.

        We operate our business on a software-as-a-service (SaaS) model. Customers enter into quarterly, annual and multi-year subscription contracts to utilize Wdesk. Our subscription fee includes the use of our service and technical support. Our pricing is based primarily on the number of corporate entities, number of users, Wdesk functionality, 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. 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, customer success and professional services teams and our partners. Over time, we expect our partners to include technology companies, consultants, service providers and accounting firms. We expect our partners to support our sales efforts through referrals and co-selling arrangements, as well as expand the use of Wdesk through complementary technology offerings and software integrations.

        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 96.1% (excluding add-on seats) for the twelve months ended June 30, 2017.

        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 1,195 at June 30, 2017 from 1,178 at June 30, 2016, an increase of 1.4%.

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Table of Contents
 
        We have achieved significant revenue growth in recent periods. Our revenue grew to $49.4 million and $101.3 million during the three and six months ended June 30, 2017 from $43.0 million and $87.6 million during the three and six months ended June 30, 2016. We incurred net losses of $10.2 million and $16.0 million during the three and six months ended June 30, 2017 compared to $11.5 million and $23.6 million during the three and six months ended June 30, 2016.

        We are an “emerging growth company,” as defined in the JOBS Act. 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.

Key Factors Affecting Our Performance

        New customers. We employ a “land-and-expand” sales strategy that focuses on acquiring new customers through our direct sales model and building our relationships with existing customers over time. Acquiring new customers is a key component of our continued success in the marketplace, growth opportunity and future revenue. We have aggressively invested in and intend to continue to invest in our direct sales force.

        Further penetration of existing customers. Our account management teams seek to generate additional revenue from our customers by adding seats to existing subscriptions and by signing new subscriptions for additional business solutions on our platform. We believe a significant opportunity exists for us to sell additional subscriptions to current customers as they become more familiar with our platform and adopt our solutions to address additional business use cases.

        Investment in growth. We plan to continue to increase our headcount and develop software to both enhance our current offerings and build new features. As a result, we expect our total operating expenses to increase. 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 growth of our customer base. Investments we make in our sales and marketing and research and development organizations will occur in advance of experiencing any benefits from such investments.

        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 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. Sales and marketing expense is generally higher in the third quarter since we hold our annual user conference in September. In addition, we typically pay cash bonuses to employees in the first quarter, resulting in some seasonality in operating cash flow.



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Key Performance Indicators

  Three months ended June 30,    Six months ended June 30, 
  2017    2016    2017    2016 
  (dollars in thousands) 
Financial metrics               
Total revenue  $ 49,391    $ 43,011    $ 101,295    $ 87,562 
Percentage increase in total revenue  14.8  %   26.6  %   15.7  %     26.7  %
Subscription and support revenue  $ 40,980    $ 34,969    $ 80,520    $ 68,554 
Percentage increase in subscription and support revenue  17.2  %     24.5  %     17.5  %     26.1  %
Subscription and support as a percent of total revenue  83.0  %     81.3  %     79.5  %     78.3  %

  As of June 30, 
  2017    2016 
Operating metrics       
Number of customers  2,908    2,622 
Subscription and support revenue retention rate  96.1  %     95.1  %
Subscription and support revenue retention rate including add-ons  106.0  %     110.2  %

Total 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 listed securities account for a substantial majority of our customers.

Subscription and support revenue retention rate. We calculate our subscription and support revenue retention rate by annualizing the subscription and support revenue recorded in the first month of the measurement period for only those customers in place throughout the entire measurement period, thereby excluding any attrition. We divide the result by the annualized subscription and support revenue in the first month of the measurement period for all customers in place at the beginning of the measurement period. The measurement period is based on the trailing twelve months.

Our subscription and support revenue retention rate was 96.1% at the June 2017 measurement date, up from 95.1% as of June 2016. 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 acquired or ceasing to file SEC reports has been the largest contributing factor to our revenue attrition.

Subscription and support revenue retention rate including add-ons. Add-on revenue includes the change in both seats purchased 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 month of the measurement period for only those customers in place throughout the entire measurement period. We divide the result by the annualized subscription and support revenue in the first month of the measurement period for all customers in place at the beginning of the measurement period. The measurement period is based on the trailing twelve months.

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Our subscription and support revenue retention rate including add-ons was 106.0% at the June 2017 measurement date, down from 110.2% as of June 2016. As we pursue larger opportunities, we are seeing lengthening and more complex sales cycles.

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 the six months ended June 30, 2017 and 2016, no single customer represented more than 1% of our revenue, and our largest ten customers accounted for less than 6% of our revenue in the aggregate.

We generate sales directly through our sales force and through our 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 three to 36 months. 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. In 2015, we began to move toward a standard minimum subscription term of one year and plan to convert a majority of our remaining quarterly contracts to annual terms over the next eighteen 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.

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 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 with our customers on business processes and best practices for using Wdesk.  Our professional services are not required for customers to utilize our solution. We recognize revenue for our professional services contracts when 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.



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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 amortize sales commissions that are directly attributable to a contract over the lesser of twelve months or the non-cancelable term of the customer contract based on the terms of our commission arrangements.

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.
 
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Results of Operations

The following table sets forth selected consolidated statement of operations data for each of the periods indicated:

  Three months ended June 30,    Six months ended June 30, 
  2017    2016    2017    2016 
  (in thousands) 
Revenue               
Subscription and support  $ 40,980    $ 34,969    $ 80,520    $ 68,554 
Professional services  8,411    8,042    20,775    19,008 
Total revenue  49,391    43,011    101,295    87,562 
Cost of revenue               
 Subscription and support(1) 
7,758    7,039    15,395    13,957 
 Professional services(1) 
6,528    5,538    13,109    11,726 
Total cost of revenue  14,286    12,577    28,504    25,683 
Gross profit  35,105    30,434    72,791    61,879 
Operating expenses               
 Research and development(1) 
16,239    14,047    31,775    28,563 
 Sales and marketing(1) 
19,787    19,828    38,500    39,916 
 General and administrative(1) 
8,943    7,882    18,364    16,835 
Total operating expenses  44,969    41,757    88,639    85,314 
Loss from operations  (9,864)   (11,323)   (15,848)   (23,435)
Interest expense  (475)   (468)   (930)   (958)
Other income, net  176    278    788    854 
Loss before provision for income taxes  (10,163)   (11,513)   (15,990)   (23,539)
Provision for income taxes  33    12    42    31 
Net loss  $ (10,196)   $ (11,525)   $ (16,032)   $ (23,570)

(1) Stock-based compensation expense included in these line items was as follows:

  Three months ended June 30,    Six months ended June 30, 
  2017  2016  2017  2016 
  (in thousands) 
Cost of revenue       
Subscription and support  $ 178    $ 125    $ 318    $ 243 
Professional services  100    93    200    215 
Operating expenses               
Research and development  472    609    965    1,193 
Sales and marketing  694    449    1,353    904 
General and administrative  2,953    2,226    5,700    4,337 
Total stock-based compensation expense  $ 4,397    $ 3,502    $ 8,536    $ 6,892 


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The following table sets forth our consolidated statement of operations data as a percentage of revenue for each of the periods indicated:

  Three months ended June 30,    Six months ended June 30, 
  2017    2016    2017    2016 
Revenue               
Subscription and support  83.0  %     81.3  %     79.5  %     78.3  %
Professional services  17.0        18.7        20.5        21.7   
Total revenue  100.0        100.0        100.0        100.0   
Cost of revenue                             
Subscription and support  15.7        16.4        15.2        15.9   
Professional services  13.2        12.9        12.9        13.4   
Total cost of revenue  28.9        29.3        28.1        29.3   
Gross profit  71.1        70.7        71.9        70.7   
Operating expenses                             
Research and development  32.9        32.7        31.4        32.6   
Sales and marketing  40.1        46.1        38.0        45.6   
General and administrative  18.1        18.3        18.1        19.2   
Total operating expenses  91.1        97.1        87.5        97.4   
Loss from operations  (20.0)       (26.4)       (15.6)       (26.7)  
Interest expense  (1.0)       (1.1)       (0.9)       (1.1)  
Other income, net  0.4        0.6        0.8        1.0   
Loss before provision for income taxes  (20.6)       (26.9)       (15.7)       (26.8)  
Provision for income taxes  0.1        —        —        —   
Net loss  (20.7) %     (26.9) %     (15.7) %     (26.8) %

Comparison of Three and Six Months Ended June 30, 2017 and 2016

Revenue

  Three months ended June 30,    Six months ended June 30, 
  2017  2016  % Change  2017  2016  % Change 
  (dollars in thousands) 
Revenue           
Subscription and support  $ 40,980    $ 34,969    17.2  %     $ 80,520    $ 68,554    17.5  %
Professional services  8,411    8,042      4.6  %     20,775      19,008      9.3  %
Total revenue  $ 49,391    $ 43,011    14.8  %     $ 101,295    $ 87,562    15.7  %

Total revenue increased $6.4 million for the three months ended June 30, 2017 compared to the same quarter a year ago due primarily to a $6.0 million increase in subscription and support revenue. Of the total gain in subscription and support revenue, 57.3% represented revenue from new customers acquired after June 30, 2016 and 42.7% represented revenue from existing customers at or prior to June 30, 2016. The total number of our customers expanded 10.9% from June 30, 2016 to June 30, 2017.

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Total revenue increased $13.7 million for the six months ended June 30, 2017 compared to the same period a year ago due primarily to a $12.0 million increase in subscription and support revenue. Of the total gain in subscription and support revenue, 47.1% represented revenue from new customers acquired after June 30, 2016 and 52.9% represented revenue from existing customers at or prior to June 30, 2016.

Cost of Revenue

  Three months ended June 30,        Six months ended June 30,     
  2017    2016    % Change    2017    2016    % Change 
  (dollars in thousands) 
Cost of revenue                       
Subscription and support  $ 7,758    $ 7,039    10.2  %   $ 15,395    $ 13,957    10.3  %
Professional services  6,528    5,538    17.9  %   13,109    11,726    11.8  %
Total cost of revenue  $ 14,286    $ 12,577    13.6  %   $ 28,504    $ 25,683    11.0  %

Cost of revenue increased $1.7 million during the three months ended June 30, 2017 versus the same quarter a year ago, attributable primarily to an aggregate increase in headcount, employee compensation, benefits, and travel costs of $1.7 million.

Cost of revenue increased $2.8 million during the six months ended June 30, 2017 compared to the same period a year ago due primarily to an aggregate increase in employee compensation, benefits and travel costs of $2.7 million. Subscription and support expense rose 10.3% in the six months ended June 30, 2017 compared to the same period a year ago due primarily to increases in headcount and employee compensation. Professional services expense increased 11.8% in the six months ended June 30, 2017 versus the same period a year ago due primarily to an increase in headcount, employee compensation and travel expense related to fulfilling our services.

Operating Expenses

  Three months ended June 30,        Six months ended June 30,     
  2017    2016    % Change    2017    2016    % Change 
  (dollars in thousands) 
Operating expenses                       
Research and development  $ 16,239    $ 14,047    15.6  %   $ 31,775    $ 28,563    11.2  %
Sales and marketing  19,787    19,828    (0.2) %   38,500    39,916    (3.5) %
General and administrative  8,943    7,882    13.5  %   18,364    16,835    9.1  %
Total operating expenses  $ 44,969    $ 41,757    7.7  %   $ 88,639    $ 85,314    3.9  %

        

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Research and Development

Research and development expenses increased $2.2 million in the three months ended June 30, 2017 compared to the same quarter a year ago due primarily to $1.4 million in higher cash-based compensation, benefits, and travel costs and a $0.6 million increase in professional services expense related to an increase in technology consultants.

Research and development expenses increased $3.2 million in the six months ended June 30, 2017 compared to the same period a year ago due primarily to $2.1 million in higher employee cash-based compensation, benefits, and travel costs and a $0.9 million increase in professional services. We continue to dedicate resources to developing the next generation of Wdesk, which has resulted in higher headcount and additional consultants in research and development.

Sales and Marketing

Despite revenue growth, sales and marketing expenses remained relatively flat during the three months ended June 30, 2017 compared to the three months ended June 30, 2016, due primarily to the simplification of the sales and marketing organization.
        
Sales and marketing expenses decreased $1.4 million during the six months ended June 30, 2017 compared to the same period a year ago. Of this decrease in expense, $0.8 million was due to reductions in headcount and an aggregate decrease in employee cash-based compensation, benefits and travel costs. In addition, a $0.5 million decrease in professional services was largely due to the simplification of the sales and marketing organization.

General and Administrative

General and administrative expenses increased $1.1 million during the three months ended June 30, 2017 compared to the same quarter a year ago, due principally to additional employee stock-based compensation of $0.7 million.

General and administrative expenses rose $1.5 million during the six months ended June 30, 2017 compared to the six months ended June 30, 2016 due primarily to additional employee stock-based compensation of $1.3 million. Higher stock-based compensation expense 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.

Non-Operating Income (Expenses)

  Three months ended June 30,    Six months ended June 30, 
  2017    2016    2017    2016 
  (dollars in thousands) 
Interest expense  $ (475)   $ (468)   $ (930)   $ (958)
Other income, net  176    278    788    854 
        
Interest Expense and Other Income, Net

Both interest expense and other income, net remained relatively flat during the three and six months ended June 30, 2017 compared to the same period a year ago.

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Liquidity and Capital Resources

  Three months ended June 30,    Six months ended June 30, 
  2017    2016    2017    2016 
  (in thousands) 
Cash flow provided by (used in) operating activities  $ 3,982    $ (4,036)   $ 6,562    $ (23,114)
Cash flow (used in) provided by investing activities  (493)   946    (1,735)   5,272 
Cash flow provided by (used in) financing activities  4,211    (291)   3,784    (1,017)
Net increase (decrease) in cash and cash equivalents, net of impact of exchange rates  $ 7,782    $ (3,341)   $ 8,705    $ (18,865)

As of June 30, 2017, our cash, cash equivalents and marketable securities totaled $72.9 million. To date, we have financed our operations primarily through the proceeds of our initial public offering, private placements of equity, 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. We expect to continue to incur operating losses and may incur negative cash flows from operations in the future. As a result, we may require additional capital resources to continue to grow our business. We believe that current cash and cash equivalents, cash flows from operating activities, and availability under our existing credit facility will be sufficient to fund our operations for at least the next twelve months.

In August 2014, we entered into a $15.0 million credit facility with Silicon Valley Bank. Borrowing capacity is equal 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. 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 debt obligations, and requires us to maintain certain financial covenants, including the maintenance 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, effect 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 matures in August 2018, and no amount was outstanding under the credit facility as of June 30, 2017.

Operating Activities

For the three months ended June 30, 2017, cash provided by operating activities was $4.0 million. The primary factors affecting our operating cash flows during the period were our net loss of $10.2 million, adjusted for non-cash charges of $0.9 million for depreciation and amortization of our property and equipment and intangible assets and $4.4 million of stock-based compensation. The primary drivers of the changes in operating assets and liabilities were a $14.4 million increase in deferred revenue and a $2.3 million increase in accrued expenses and other liabilities partially offset by a $3.2 million increase in accounts receivable, a $0.9 million increase in other receivables, a $2.8 million increase in prepaid expenses and a $0.7 million decrease in accounts payable. Short-term deferred revenue from subscription and support contracts increased $12.2 million from March 31, 2017 to June 30, 2017. Long-term deferred revenue from subscription and support contracts increased by $1.6 million from March 31, 2017 to
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June 30, 2017. In addition, deferred revenue from professional services increased by $0.8 million from March 31, 2017 to June 30, 2017. New and existing customer sales along with contract renewals for longer terms accounted for most of the increase in deferred revenue. The conversion of quarterly contracts to annual terms positively impacts our operating cash flow. We expect the conversion of the majority of our remaining quarterly contracts to annual terms over the next eighteen months. The increase in accrued expenses and other liabilities was attributable to the timing of our payment of annual bonuses resulting in an increase of $2.5 million partially offset by a payment of sales tax of $0.4 million. The increase in accounts receivable and decrease in accounts payable were primarily attributable to the timing of our billings, cash collections, and cash payments. The increase in other receivables was primarily due to advance payments of sales taxes. The increase in prepaid expenses was attributable primarily to an upfront payment for our annual user conference.

For the three months ended June 30, 2016, cash used in operating activities was $4.0 million. The primary factors affecting our operating cash flows during the period were our net loss of $11.5 million, adjusted for non-cash charges of $1.0 million for depreciation and amortization of our property and equipment and intangible assets, and $3.5 million of stock-based compensation. The primary drivers of the changes in operating assets and liabilities were a $5.4 million increase in deferred revenue and a $0.8 million increase in accounts payable partially offset by a $1.8 million increase in accounts receivable and a $1.3 million increase in prepaid expenses. Short-term deferred revenue from subscription and support contracts increased $3.9 million from March 31, 2016 to June 30, 2016. Long-term deferred revenue from subscription and support contracts increased by $1.2 million from March 31, 2016 to June 30, 2016. In addition, short-term deferred revenue from professional services increased by $0.3 million from March 31, 2016 to June 30, 2016. The increase in accounts receivable and accounts payable was primarily attributable to the timing of our billings, cash collections, and cash payments. The increase in prepaid expenses was attributable primarily to an upfront payment for our annual user conference.

For the six months ended June 30, 2017, cash provided by operating activities was $6.6 million. The primary factors affecting our operating cash flows during the period were our net loss of $16.0 million, adjusted for non-cash charges of $1.8 million for depreciation and amortization of our property and equipment and intangible assets, $8.5 million of stock-based compensation, and $0.7 million for recognition of other income from government grants. The primary drivers of the changes in operating assets and liabilities were a $18.5 million increase in deferred revenue partially offset by a $0.5 million increase in accounts receivable, a $2.0 million increase in prepaid expenses and a $3.6 million decrease in accrued expenses and other liabilities. Short-term deferred revenue from subscription and support contracts increased $16.7 million from December 31, 2016 to June 30, 2017. Long-term deferred revenue from subscription and support contracts increased by $2.6 million from December 31, 2016 to June 30, 2017. Deferred revenue from professional services decreased by $0.5 million from December 31, 2016 to June 30, 2017. The increase in accounts receivable was attributable primarily to the timing of our billings and cash collections. The increase in prepaid expenses was attributable primarily to an upfront payment for our annual user conference. The decrease in accrued expenses and other liabilities was attributable primarily to the timing of our cash payments, including payment of annual bonuses.

For the six months ended June 30, 2016, cash used in operating activities was $23.1 million. The primary factors affecting our operating cash flows during the period were our net loss of $23.6 million, adjusted for non-cash charges of $2.0 million for depreciation and amortization of our property and equipment and intangible assets, $6.9 million of stock-based compensation, and $0.7 million for recognition of other income from government grants. The primary drivers of the changes in operating assets and liabilities were a $2.7 million increase in accounts receivable, a $1.5 million increase in prepaid expenses and a $5.4 million decrease in accrued expenses and other liabilities partially offset by a $2.2 million increase in deferred revenue. Short-term deferred revenue from subscription and support contracts increased $3.6 million from December 31, 2015 to June 30, 2016. Long-term deferred revenue
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from subscription and support contracts increased by $0.7 million from December 31, 2015 to June 30, 2016. Short-term deferred revenue from professional services decreased by $2.1 million from December 31, 2015 to June 30, 2016. The increase in accounts receivable was attributable primarily to the timing of our billings and cash collections. The increase in prepaid expenses was attributable primarily to an upfront payment for our annual user conference. The decrease in accrued expenses and other liabilities was attributable primarily to the timing of our cash payments, including payment of annual bonuses.

Investing Activities

Cash used in investing activities of $0.5 million for the three months ended June 30, 2017 was due primarily to $2.3 million for the purchase of marketable securities partially offset by proceeds of $1.9 million from maturities of marketable securities.

Cash provided by investing activities of $0.9 million for the three months ended June 30, 2016 was due primarily to proceeds of $2.4 million from the sale of marketable securities, which was partially offset by $0.8 million of purchases of marketable securities and $0.6 million of capital expenditures. Our capital expenditures were associated primarily with leasehold improvements, computer equipment and furniture and fixtures in support of expanding our infrastructure and work force.

Cash used in investing activities of $1.7 million for the six months ended June 30, 2017 was due primarily to $6.4 million for the purchase of marketable securities partially offset by proceeds of $4.9 million from maturities of marketable securities.

Cash provided by investing activities of $5.3 million for the six months ended June 30, 2016 was due primarily to proceeds of $7.2 million from the sale of marketable securities, which was partially offset by $0.8 million of purchases of marketable securities and $1.0 million of capital expenditures. 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 by financing activities of $4.2 million for the three months ended June 30, 2017 was due primarily to $4.7 million in proceeds from option exercises, partially offset by $0.5 million in payments on capital lease and financing obligations.

Cash used in financing activities of $0.3 million for the three months ended June 30, 2016 was due primarily to $0.5 million in repayments on long-term debt and payments on capital lease and financing obligations.

Cash provided by financing activities of $3.8 million for the six months ended June 30, 2017 was due primarily to $5.5 million in proceeds from option exercises, partially offset by $0.9 million in taxes paid related to the net share settlements of stock-based compensation awards and an aggregate $0.8 million in repayments on long-term debt and payments on capital lease and financing obligations.

Cash used in financing activities of $1.0 million for the six months ended June 30, 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 $0.9 million in repayments on long-term debt and payments on capital lease and financing obligations, partially offset by $0.5 million in proceeds from option exercises.

 

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Contractual Obligations and Commitments

There were no material changes in our contractual obligations and commitments from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on February 23, 2017.

 
Off-Balance Sheet Arrangements

During all periods presented, 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.

 
Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, 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.

During the six months ended June 30, 2017, there were no significant changes to our critical accounting policies and estimates as described in financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on February 23, 2017.

 
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Item 3. Quantitative and Qualitative Disclosures about Market Risk 

For quantitative and qualitative disclosures about market risk, see “Item 7A., Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2016. Our exposures to market risk have not changed materially since December 31, 2016.

 
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Item 4. 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.

Changes in Internal Control Over Financial Reporting

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recently completed fiscal quarter. Based on that evaluation, our principal executive officer and principal financial officer concluded that there has not been any material change in our internal control over financial reporting during the quarter covered by this report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 
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Part II. Other Information
 
Item 1. 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 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2016 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. There have been no material changes during fiscal 2017 to the risk factors that were included in the Form 10-K.

 
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Item 2. Unregistered Sales of Securities and Use of Proceeds

Sales of Unregistered Securities

Not applicable.

Use of Proceeds from Public Offerings of Common Stock

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.
 
Item 6. Exhibits

See the Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q.

 
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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 3rd day of August, 2017.

WORKIVA INC. 
   
By:  /s/ Matthew M. Rizai, Ph.D. 
Name:  Matthew M. Rizai, Ph.D. 
Title:  Chairman and Chief Executive Officer 
   
By:  /s/ J. Stuart Miller 
Name:  J. Stuart Miller 
Title:  Executive Vice President and Chief Financial Officer 
   
By:  /s/ Jill Klindt 
Name:  Jill Klindt 
Title:  Senior Vice President, Treasurer and Chief Accounting Officer 
   

 
S-1 
Table of Contents
 
EXHIBIT INDEX

Exhibit Number    Description 
10.1 
 
31.1 
 
31.2 
 
32.1 
 
32.2 
 
101.INS    XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 
101.SCH    XBRL Taxonomy Extension Schema Document. 
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document. 
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document. 
101.LAB    XBRL Taxonomy Extension Label Linkbase Document. 
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document. 
 
E-1 
CONSENT AND FIFTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT

This Consent and Fifth Amendment to Loan and Security Agreement (this “Amendment”) is entered into this 30th day of June, 2017, by and between (i) SILICON VALLEY BANK (“Bank”) and (ii) WORKIVA INC., a Delaware corporation (f/k/a Workiva LLC, “Workiva”) and WORKIVA INTERNATIONAL LLC, a Delaware limited liability company (“International”, and together with Workiva, each and together, jointly and severally, “Borrower”) whose address is 55 West Monroe Street, Suite 3490, Chicago, Illinois 60603.

RECITALS

A. Bank and Borrower have entered into that certain Loan and Security Agreement dated as of August 22, 2014, as affected by a First Amendment to Loan and Security Agreement, dated as of October 16, 2014, as further affected by a Second Amendment to Loan and Security Agreement dated as of November 25, 2014, as further affected by a Third Amendment to Loan and Security Agreement dated as of February 26, 2015, and as further affected by a Consent and Fourth Amendment to Loan and Security Agreement dated April 5, 2016 (as the same may from time to time be further amended, modified, supplemented or restated, the “Loan Agreement”).

B. Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.

C. Borrower has requested that Bank amend the Loan Agreement to make certain revisions to the Loan Agreement as more fully set forth herein.

D. Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

AGREEMENT

        NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

2. Amendments to Loan Agreement.

2.1 Section 3.2 (Conditions Precedent to all Credit Extensions).
Subsections (a) and (b) of Section 3.2 are amended in their entirety and replaced with the following:


“(a) timely receipt of the Credit Extension request and any materials and documents required by Section 3.4;

(b) the representations and warranties in this Agreement shall be true, accurate, and complete in all material respects on the date of the proposed Credit Extension and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in this Agreement remain true, accurate, and complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and”

2.2 Section 3.4 (Procedures for Borrowing). Section 3.4 is amended in its entirety and replaced with the following:

“3.4 Procedures for Borrowing. Subject to the prior satisfaction of all other applicable conditions to the making of an Advance (other than Advances under Sections 2.2.2) set forth in this Agreement, to obtain an Advance, Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail by 2:00 p.m. Eastern time on the Funding Date of the Advance. Such notice shall be made by Borrower through Bank’s online banking program, provided, however, if Borrower is not utilizing Bank’s online banking program, then such notice shall be in a written format acceptable to Bank that is executed by an Authorized Signer. As to any Authorized Signer providing such notices and requesting Advances, Bank shall rely on the Borrower’s Borrowing Resolution last delivered to Bank by Borrower. In connection with any such notification, Borrower must promptly deliver to Bank by electronic mail or through Bank’s online banking program such reports and information as Bank may request in its sole discretion. Bank shall credit proceeds of an Advance to the Designated Deposit Account. Bank may make Advances under this Agreement based on instructions from an Authorized Signer or without instructions if the Advances are necessary to meet Obligations which have become due.”

2.3 Section 6.2 (Financial Statements, Reports, Certificates). Subsection (a) of Section 6.2 is amended in its entirety and replaced with the following:

“(a) a Borrowing Base Report (and any schedules related thereto and including any other information requested by Bank with respect to Borrower’s Accounts, including,
without limitation, details of Annualized Customer Retention Rate, Borrowing Base, Quarterly Churn and Recurring Revenue) (i) with each request for an Advance, and (ii) within forty-five (45) days after the end of each fiscal quarter (thirty (30) days after the end of each month when there are Credit Extensions outstanding);”

2.4 Section 6.2(k) (Financial Statements, Reports, Certificates). The following new subsection (k) is hereby inserted in Section 6.2 immediately following subsection (j) thereof:

“(k) within ten (10) days after the end of each fiscal quarter, account statements from Bankers Trust as of the end of each month in the immediately preceding fiscal quarter in respect of the Controlled Cash Collateral Account and all other Collateral Accounts in the name of the Borrower maintained at Bankers Trust.”

2.5 Section 6.3 (Accounts Receivable). Subsection (c) of Section 6.3 is amended in its entirety and replaced with the following:

“(c) Collection of Accounts. Borrower shall have the right to collect all Accounts unless and until a Default or an Event of Default has occurred and is continuing. Borrower shall direct Account Debtors to deliver or transmit all proceeds of Accounts into a lockbox account, or such other “blocked account” subject to a Control Agreement in form and substance reasonably satisfactory to Bank, including, without limitation, the Deposit Accounts subject to the Bankers Trust DACA (such accounts, the “Controlled Cash Collateral Account”). Whether or not an Event of Default has occurred and is continuing, Borrower shall deliver all payments on and proceeds of Accounts to the Controlled Cash Collateral Account. Borrower shall maintain at all times a “blocked account” at Bank (the “SVB Cash Collateral Account”). Following the occurrence and continuance of an Event of Default, Bank shall have the right to apply the funds in the Controlled Cash Collateral Account or the SVB Cash Collateral Account pursuant to Section 9.4. Borrower hereby authorizes Bank to transfer to the SVB Cash Collateral Account amounts, if any, received by Bank that Bank reasonably determines are proceeds of the Accounts (provided that Bank is under no obligation to do so and this allowance shall in no event relieve Borrower of its obligations hereunder).”

2.6 Section 6.3 (Accounts Receivable). Subsection (e) of Section 6.3 is deleted in its entirety and replaced with the following:

“(e) Verifications; Confirmations; Credit Quality; Notifications. Bank may (i) prior to the occurrence and continuance of an Event of Default, verify and confirm directly with the respective Account Debtors the validity, amount and other matters relating to the Accounts, either in the name of Borrower or Bank or such other name as Bank may choose, and upon the occurrence and during the continuance of an Event of Default, notify any Account Debtor of Bank’s security interest in such Account and/or (ii) upon the occurrence and during the
continuance of an Event of Default, conduct a credit check of any Account Debtor to approve any such Account Debtor’s credit.”

2.7 Section 6.14 (Online Banking). Section 6.14 is hereby inserted immediately following Section 6.14:

“6.14 Online Banking. Utilize Bank’s online banking platform for all matters requested by Bank which shall include, without limitation (and without request by Bank for the following matters), uploading information pertaining to Accounts and Account Debtors, requesting approval for exceptions, and requesting Credit Extensions (provided, that Borrowing Base Reports, Monthly Financial Statements, Compliance Certificates, and certain other financial reports required to be delivered pursuant to Section 6.2 of this Agreement shall be delivered to Bank by electronic mail).”

2.8 Section 8.2(a) (Covenant Default). Section 8.2(a) is amended in its entirety and replaced with the following:

“(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.5, 6.7, 6.8, 6.9, 6.10(b), 6.12, 6.13, or violates any covenant in Section 7; or”

2.9 Section 13 (Definitions). The following new terms and their definitions are inserted alphabetically in Section 13.1:
 
“Bankers Trust DACA” means that certain Deposit Account Control Agreement dated as of November 24, 2014, as such agreement may be amended, modified, amended and restated, or replaced from time to time, by and among Borrower, Bank, and Bankers Trust with respect to Borrower’s accounts identified therein.

“Borrowing Base Report” is that certain report of the value of certain Collateral in the form attached hereto as Exhibit C.

“Controlled Cash Collateral Account” has the meaning set forth in Section 6.3(c).

“SVB Cash Collateral Account” has the meaning set forth in Section 6.3(c).

2.10 Section 13 (Definitions). The following defined terms set forth in Section 13.1 are deleted in their entirety:

“Cash Collateral Account” is defined in Section 6.3(c).

“Transaction Report” is that certain report of transactions and schedule of collections on the Bank’s standard form.

2.11 Compliance Certificate (Exhibit B). The Compliance Certificate
attached to the Loan Agreement as Exhibit B is amended in its entirety and replaced with the Compliance Certificate in the form of Exhibit B attached hereto.

2.12 Borrowing Base Report (Exhibit C). The Borrowing Base Report in the form of Exhibit C attached hereto is inserted in the Loan Agreement immediately following Exhibit B thereof.

3. Consent to Transactions. Borrower has notified Bank that Borrower has formed Workiva Holdings Limited, a company formed under the laws of England and Wales with registration number 10739503 (“UK Holdco”), and a wholly-owned Subsidiary of Workiva (the “Subsidiary Formation”). Borrower has also notified Bank that Workiva intends to transfer all of its ownership interest in each of Workiva Canada ULC, Workiva Netherlands B.V., and Workiva UK Limited, to UK Holdco whereupon each such entity will be a wholly-owned subsidiary of UK Holdco (collectively, the “Transfer”). In addition, Borrower has notified Bank that it intends to dissolve Workiva Brasil Relatorios Empresarias Online LTDA, a wholly-owned Subsidiary of Workiva, and transfer its assets to a Borrower (the “Dissolution”; the Subsidiary Formation, the Transfer and the Dissolution are collectively referred to as the “Transactions”). Borrower acknowledges that the Transactions are prohibited under the terms of the Loan Agreement and require Bank consent. Accordingly, notwithstanding anything to the contrary contained in Section 6.12 (Formation or Acquisition of Subsidiaries), Section 7.1 (Dispositions), or Section 7.7 (Distributions; Investments) of the Loan Agreement, subject to the terms and conditions set forth in Section 10 of this Agreement, Bank consents to the Transactions; provided, however, as a condition to such consent, (i) no Default or Event of Default shall have occurred prior to or immediately after the consummation of the Transactions; and (ii) Borrower shall provide Bank with evidence of the Dissolution, and in connection therewith, the transfer of assets to a Borrower. The following consent applies only to the Transactions and is not a consent to or waiver of any subsequent application of the same provisions of the Loan Agreement, nor is it a waiver of any breach of any other provision of the Loan Agreement and the other Loan Documents. The foregoing consent does not establish a course of dealing upon which Borrower may rely on in the future.

4. Limitation of Amendments.

4.1 The amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

4.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

5. Representations and Warranties. To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows:

5.1 Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;

5.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

5.3 The organizational documents of Borrower delivered to Bank on the Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

5.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

5.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

5.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on either Borrower, except as already has been obtained or made; and

5.7 This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

6. Ratification of Perfection Certificate. Except as affected by the terms of the Transaction, Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate dated as of April 5, 2016, and acknowledges, confirms and agrees that the disclosures and information Borrower provided to Bank in such Perfection Certificate have not changed, as of the date hereof.

7. No Defenses of Borrower. Borrower hereby acknowledges and agrees that Borrower has no offsets, defenses, claims, or counterclaims against Bank with respect to the
Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims, or counterclaims against Bank, whether known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Bank from any liability thereunder.

8. Integration. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.

9. Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

10. Effectiveness. This Amendment shall be deemed effective upon the following:

10.1 the due execution and delivery to Bank of this Amendment by each party hereto;

10.2 an amendment to that certain Amended and Restated Stock Pledge Agreement dated as of the Effective Date to incorporate the pledge by Borrower of the equity interests of the UK Holdco owned by Workiva, together with the original share certificate issued to Workiva and a stock power or similar instrument in connection therewith;

10.3 Borrower’s payment of Bank’s legal fees and expenses incurred in connection with this Amendment; and

10.4 such other documents as Bank may reasonably request.


[Signature page follows.]
 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.


BANK  BORROWER 
Silicon Valley Bank  Workiva Inc. 
By: /s/ Heather LaFreniere 
By:  /s/ Martin J. Vanderploeg 
Name: Heather LaFreniere 
Name: Martin J. Vanderploeg 
Title: Director 
Title: Chief Operating Officer 
  Workiva International LLC 
By: /s/ Martin J. Vanderploeg 
Name: Martin J. Vanderploeg 
 
Title: Vice President 






















 
[Signature page to Consent and Fifth Amendment to Loan and Security Agreement]


 
 
EXHIBIT B
COMPLIANCE CERTIFICATE

TO:  SILICON VALLEY BANK     Date:
__________________   
FROM:  WORKIVA INC. and WORKIVA INTERNATIONAL LLC

The undersigned authorized officer of Workiva Inc. and Workiva International LLC (each and together, jointly and severally, “Borrower”) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (as amended, the “Agreement”), (1) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below, (2) there are no Events of Default, (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries, if any, relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank. Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

1 
 
Please indicate compliance status by circling Yes/No under “Complies” column. 
     
Reporting Covenant  Required  Complies 
     
Quarterly financial statements with Compliance Certificate  Quarterly within 45 days  Yes No 
Annual financial statement (CPA Audited) + CC  FYE within 150 days  Yes No 
10-Q, 10-K and 8-K Within 5 days after filing with SEC  Yes No 
A/R & A/P Agings & Deferred Revenue  Quarterly within 45 days  Yes No 
Borrowing Base Report  Monthly within 30 days (Quarterly within 45 days if no outstanding Credit Extensions)  Yes No 
Projections  FYE within 60 days  Yes No 
 
The following Intellectual Property was registered after the Effective Date (if no registrations, state “None”)______________________________________________________________________ 
Financial Covenant  Required  Actual  Complies 
       
Maintain as indicated:       
Minimum Liquidity  $ 5,000,000  $  Yes No 
Minimum Recurring Revenue  See Sec 6.9(b)  $  Yes No 

        The following are the exceptions with respect to the certification above: (If no exceptions exist, state “No exceptions to note.”)

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

WORKIVA INC.  BANK USE ONLY  
WORKIVA INTERNATIONAL LLC  Received by: _____________________ 
  AUTHORIZED SIGNER 
  Date: _________________________ 
By: _________________________   
Name: _________________________  Verified: ________________________ 
Title: _________________________  AUTHORIZED SIGNER 
Date: _________________________ 
 
Compliance Status: Yes No 
 
2 
 
Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.

I. Liquidity (Section 6.9(a))

Required: $5,000,000


A.  Unrestricted cash and Cash Equivalents at Bank or in Deposit Accounts or Securities Accounts subject to a Control Agreement in favor of Bank  $_ 
B.  Availability Amount  $_ 
C.  Liquidity (line A plus line B)  $_ 

Is line C equal to or greater than $5,000,000?

_______ No, not in compliance     _______ Yes, in compliance

 
1 
 
II. Minimum Recurring Revenue to Plan (Section 6.9 (b))

Required: As of the last day of each quarter on a trailing three (3) month basis, Borrower’s and its Subsidiaries’ consolidated Recurring Revenue for such quarter shall not be less than the greater of (i) eighty percent (80%) of Borrower’s and its Subsidiaries’ consolidated Recurring Revenue for such quarter as outlined in Borrower’s business plan approved by its board of directors or (ii) Borrower’s and its Subsidiaries’ consolidated Recurring Revenue for the prior quarter.


Actual:

A.  Recurring Revenue  $_ 

Is the value of line A at least equal to the greater of (i) eighty percent (80%) of the value projected for consolidated Recurring Revenue in Borrower’s and its Subsidiaries business plan or (ii) Borrower’s and its Subsidiaries’ consolidated Recurring Revenue for the prior quarter?

_______ No, not in compliance     _______ Yes, in compliance
 
 
 
EXHIBIT C

Form of Borrowing Base Report

[To be provided by Bank]

 
 
CERTIFICATION UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Matthew M. Rizai, Ph.D., certify that:

1.  I have reviewed this Quarterly Report on Form 10-Q of Workiva Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c.  Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.  Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.  The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: August 3, 2017    /s/ Matthew M. Rizai, Ph.D.  
Matthew M. Rizai, Ph.D.  
Chairman and Chief Executive Officer  
(Principal Executive Officer) 
 
CERTIFICATION UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, J. Stuart Miller, certify that:

1.  I have reviewed this Quarterly Report on Form 10-Q of Workiva Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c.  Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.  Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.  The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: August 3, 2017    /s/ J. Stuart Miller 
    J. Stuart Miller 
Executive Vice President and Chief Financial Officer 
    (Principal Financial Officer) 
 
CERTIFICATION UNDER SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

I, Matthew M. Rizai, Chairman and Chief Executive Officer of Workiva Inc. (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.  the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.  the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.


Date: August 3, 2017    /s/ Matthew M. Rizai, Ph.D.  
Matthew M. Rizai, Ph.D.  
Chairman and Chief Executive Officer  
(Principal Executive Officer) 
 
CERTIFICATION UNDER SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

I, J. Stuart Miller, Chief Financial Officer of Workiva Inc. (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.  the Quarterly Report on Form 10-Q of the Company for the period ended June 30, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented therein.


Date: August 3, 2017    /s/ J. Stuart Miller 
J. Stuart Miller  
Executive Vice President and Chief Financial Officer 
(Principal Financial Officer)