# Workiva Inc: Form 10-Q for the period ended Sep 30, 2023

- Company: [Workiva Inc](/companies/wk.md) (CIK 1445305)
- Form: 10-Q
- Filed: 2023-10-30
- Accepted by EDGAR: Oct 30, 2023, 16:20 ET
- Period: 2023-09-30
- Accession: 0001445305-23-000166
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1445305/000144530523000166/wk-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1445305/000144530523000166/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $158.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $463.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $38.4m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $116.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $119.8m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $347.0m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $41.7m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $130.2m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$15.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$85.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $47.4m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $50.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $530.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $1.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$56.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$123.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$1.04 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$2.28 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$1.04 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$2.28 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 54,256,941 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 53,987,791 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-07-01 to 2023-09-30 | $15.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $46.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-07-01 to 2023-09-30 | $895.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $1.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $404.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $947.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $1.15bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $438.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $1.26bn | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | −$113.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 47,428 characters.

*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 21, 2023. 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, 2022, 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’s mission is to power transparent reporting for a better world. We believe that consumers, employees, shareholders, and other stakeholders today expect more from business – more action, transparency, and disclosure of financial and non-financial information. We build solutions to meet that demand and streamline processes, connect data and teams, and ensure consistency – all within the Workiva platform, the world’s leading cloud platform for assured integrated reporting. Additionally, we offer the only unified software-as-a-service (“SaaS”) platform that brings customers’ financial reporting, Environmental, Social, and Governance (“ESG”), and Governance, Risk, and Compliance (“GRC”) together in a controlled, secure, audit-ready platform.

The Workiva platform empowers customers by connecting and transforming data from hundreds of enterprise resource planning (“ERP”), human capital management (“HCM”), and customer relationship management (“CRM”) systems, as well as other third-party cloud and on-premise applications. Customers use our platform to create, review and publish data-linked documents and reports with greater control, consistency, accuracy, and productivity. Our platform is flexible and scalable, so customers can easily adapt it to define, automate, and change their business processes in real time.

Workiva provides more than 5,000 organizations across the globe with SaaS platform solutions to help solve some of the most complex reporting and disclosure challenges. While our customers use our platform for more than 100 different use cases, we organize our sales and marketing resources into four purpose-built solution groups focusing primarily on the office of the Chief Financial Officer (“CFO”): financial reporting, ESG, GRC, and industry verticals. Workiva also serves approximately 900 customers with non-platform, eXtensible Business Reporting Language ("XBRL")-tagging services, primarily through ParsePort, an XBRL conversion software company Workiva acquired in 2022.

We operate our business on a Software-as-a-Service (“SaaS”) model. Customers enter into annual and multi-year subscription contracts to gain access to our platform. Our subscription fee includes the use of our software and technical support. Our subscription pricing is based primarily on a solution-based licensing model. Under this model, operating metrics related to a customer’s expected use of each solution determine the price. We charge customers additional fees primarily for document setup and XBRL tagging services.

We generate sales primarily through our direct sales force and, to a lesser extent, our customer success and professional services teams. In addition, we augment our direct sales channel with partnerships. Our advisory and service partners offer a wider range of domain and functional expertise that broadens the capabilities of our platform, bringing scale and support to customers and prospects. Our technology partners enable more data and process integrations to help customers connect critical transactional systems directly to our platform.

We continue to invest in the development of our solutions, infrastructure and sales and marketing to drive long-term growth. Our full-time employee headcount increased to 2,519 at September 30, 2023 from 2,446 at September 30, 2022, an increase of 3.0%.

We have achieved significant revenue growth in recent periods. Our revenue grew to $158.2 million and $463.4 million during the three and nine months ended September 30, 2023, respectively from $132.8 million and $394.1 million during the three and nine months ended September 30, 2022, respectively. We incurred a net loss of $56.3 million and $123.3 million during the three and nine months ended September 30, 2023, respectively compared to $29.7 million and $77.0 million during the three and nine months ended September 30, 2022, respectively.

We continue to invest for future growth and are focused on several key drivers, including focusing on multi-solution adoption by new and existing customers, further developing our partner program, accelerating international expansion and developing our fit-for-purpose solutions. These growth drivers often require a more sophisticated go-to-market approach and, as a result, we may incur additional costs upfront to obtain new customers and expand our relationships with existing customers, including additional sales and marketing expenses.

### Effects of Volatility in the IPO/SPAC Markets

In the United States, volatility in the public markets led to a decrease in the number of initial public offerings (“IPOs”) and special-purpose acquisition companies (“SPACs”) in 2022. New sales of our SEC and capital markets solutions were adversely affected by this decline in the IPO and SPAC markets. Reduced valuation multiples caused by higher interest rates, inflation, and geopolitical instability continue to negatively impact the number of IPOs and SPACs in fiscal year 2023. Accordingly, this volatility continues to apply pressure to new sales of our SEC and capital markets solutions. Whether and to what extent the IPO and SPAC markets will moderate cannot be accurately predicted.

### Key Factors Affecting Our Performance

*Generate Growth From Existing Customers.* The Workiva platform can exhibit a powerful network effect within an enterprise, meaning that the usefulness of our platform attracts additional users. Since solution-based licensing offers our customers an unlimited number of seats for each solution purchased, we expect customers to add more seats over time. As more employees in an enterprise use our platform, additional opportunities for collaboration and automation drive demand among their colleagues for additional solutions.

*Pursue New Customers*. We sell to organizations that manage large, complex processes with distributed teams of contributors and disparate sets of business data. We market our platform to professionals and executives in the areas of financial and non-financial reporting, including regulatory, multi-entity and performance reporting. In addition, we market to teams responsible for environmental, social and governance reporting, and governance, risk and compliance programs. We intend to continue to build our sales and marketing organization and leverage our brand equity to attract new customers.

*Offer More Solutions.* We intend to introduce new solutions to continue to meet growing demand for our platform. Our close and trusted relationships with our customers are a source for new use cases, features and solutions. We have a disciplined process for tracking, developing and releasing new solutions that are designed to have immediate, broad applicability; a strong value proposition; and a high return on investment for both Workiva and our customers. Our advance planning team assesses customer needs, conducts industry-based research and defines new markets. This vetting process involves our sales, product marketing, customer success, professional services, research and development, finance and senior management teams.

*Expand Across Enterprises.* Our success in delivering multiple solutions has created demand from customers for a broader-based, enterprise-wide Workiva platform. In response, we have been improving our technology and realigning sales and marketing to capitalize on our growing enterprise-wide opportunities. We believe this expansion will add seats and revenue and continue to support our high revenue retention rates. However, we expect that enterprise-wide deals will be larger and more complex, which tend to lengthen the sales cycle.

*Add Partners.* We continue to expand and deepen our relationships with global and regional partners, including consulting firms, system integrators, large and mid-sized independent software vendors, and implementation partners. Our advisory and service partners offer a wider range of domain and functional expertise that broadens our platform’s capabilities and promotes Workiva as part of the digital transformation projects they drive for their customers. Our technology partners enable powerful data and process integrations to help customers connect critical transactional systems directly to our platform, with powerful linking, auditability and control features. We believe that our partner ecosystem extends our global reach, accelerates the usage and adoption of our platform, and enables more efficient delivery of professional services.

*Investment in growth*. We plan to continue to invest in the development of our platform, fit-for-purpose solutions and application marketplace to enhance our current offerings and build new features. In addition, we expect to continue to invest in our sales, marketing, professional services and customer success organizations to drive additional revenue and support the needs of our growing customer base and to take advantage of opportunities that we have identified in Europe, the Middle East and Africa ("EMEA") and Asia-Pacific ("APAC") regions.

*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. Our sales and marketing expense also has some degree of seasonality. With the exception of September 2020 and September 2021 when we transitioned to a virtual event, sales and marketing expense has historically been higher in the third quarter due to our annual user conference in September. In addition, the timing of the payments of cash bonuses to employees during the first and fourth calendar quarters may result in some seasonality in operating cash flow.

### Key Performance Indicators

*(dollars in thousands)*

| Financial metrics | Three months ended September 30, 2023 | 2022 | Nine months ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Total revenue | $158,175 | $132,849 | $463,386 | $394,072 |
| Percentage increase in total revenue | 19.1% | 17.9% | 17.6% | 22.2% |
| Subscription and support revenue | $143,421 | $118,591 | $409,857 | $339,064 |
| Percentage increase in subscription and support revenue | 20.9% | 19.9% | 20.9% | 23.3% |
| Subscription and support as a percent of total revenue | 90.7% | 89.3% | 88.4% | 86.0% |

| Operating metrics | As of September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Number of customers | 5,945 | 5,541 |
| Subscription and support revenue retention rate | 97.7% | 98.1% |
| Subscription and support revenue retention rate including add-ons | 112.0% | 107.0% |
| Number of customers with annual contract value $100k+ | 1,561 | 1,257 |
| Number of customers with annual contract value $150k+ | 851 | 676 |
| Number of customers with annual contract value $300k+ | 296 | 214 |

*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. As of September 30, 2023 and 2022, our total customer count includes 926 and 895 ParsePort ESEF customers, respectively.

*Subscription and support revenue retention rate*. We calculate our subscription and support revenue retention rate based on all customers that were active at the end of the same calendar quarter of the prior year (“base customers”). We begin by annualizing the subscription and support revenue recorded in the same calendar quarter of the prior year for those base customers who are still active at the end of the current quarter. We divide the result by the annualized subscription and support revenue in the same quarter of the prior year for all base customers.

Our subscription and support revenue retention rate was 97.7% as of September 30, 2023, down slightly from 98.1% as of September 30, 2022. 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 whose securities were deregistered due to merger or acquisition or financial distress accounted for just over half of our revenue attrition in the latest quarter.

*Subscription and support revenue retention rate including add-ons*. Add-on revenue includes the change in both solutions and 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 current quarter for our base customers that were active at the end of the current quarter. We divide the result by the annualized subscription and support revenue in the same quarter of the prior year for all base customers.

Our subscription and support revenue retention rate including add-ons was 112.0% as of the quarter ended September 30, 2023, up from 107.0% as of September 30, 2022.

*Annual contract value*. Our annual contract value (“ACV”) for each customer is calculated by annualizing the subscription and support revenue recognized during each quarter. We believe the increase in the number of larger contracts shows our progress in expanding our customers’ adoption of our platform.

|  | Three months ended September 30, 2023 | 2022 | Nine months ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Subscription and support revenue from customers with annual contract value of $100k+ as a percent of total subscription and support revenue | 67.1% | 62.3% | 65.6% | 61.6% |
| Subscription and support revenue from customers with annual contract value of $150k+ as a percent of total subscription and support revenue | 52.1% | 47.4% | 51.0% | 46.9% |
| Subscription and support revenue from customers with annual contract value of $300k+ as a percent of total subscription and support revenue | 32.6% | 27.6% | 31.2% | 27.1% |

### 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 nine months ended September 30, 2023 and 2022, no single customer represented more than 1% of our revenue, and our largest 10 customers accounted for less than 5% of our revenue in the aggregate.

We generate sales directly through our sales force and partners. We also identify some sales opportunities with existing customers through our customer success and professional services teams.

Our customer contracts typically range in length from twelve to 36 months. We typically invoice our customers for subscription fees annually in advance. For contracts with a two or three year term, customers sometimes elect to pay the entire multi-year subscription term in advance. Our arrangements do not contain general rights of return.

*Subscription and Support Revenue.* We recognize subscription and support revenue on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Amounts that are invoiced are initially recorded as deferred revenue.

*Professional Services Revenue.* We believe our professional services facilitate the sale of our subscription service to certain customers. To date, most of our professional services have consisted of document set up, XBRL tagging, and consulting to help our customers with business processes and best practices for using our platform. Our professional services are not required for customers to utilize our solution. We recognize revenue for document set ups when the service is complete and control has transferred to the customer. Revenues from XBRL tagging and consulting services are recognized as the services are performed.

### 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 Amazon Web Services.

### Sales and Marketing Expenses

Sales and marketing expenses consist primarily of personnel and related costs, including salaries, benefits, bonuses, commissions, travel, and stock-based compensation. Other costs included in this expense are marketing and promotional events, our annual user conference, online marketing, product marketing, information technology costs, and facility costs. We pay sales commissions for initial contracts and expansions of existing customer contracts. When the relevant amortization period is one year or less, we expense sales commissions as incurred. All other sales commissions are considered incremental costs of obtaining a contract with a customer and are deferred and amortized on a straight-line basis over a period of benefit that we have determined to be three years.

### Research and Development Expenses

Research and development expenses consist primarily of personnel and related costs, including salaries, benefits, bonuses, and stock-based compensation; costs of server usage by our developers; information technology costs; and facility costs.

### General and Administrative Expenses

General and administrative expenses consist primarily of personnel and related costs for our executive, finance and accounting, legal, human resources, and administrative personnel, including salaries, benefits, bonuses, and stock-based compensation; legal, accounting, and other professional service fees; other corporate expenses; information technology costs; and facility costs.

### Results of Operations

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

*(in thousands)*

| Revenue | Three months ended September 30, 2023 | 2022 | Nine months ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Subscription and support | $143,421 | $118,591 | $409,857 | $339,064 |
| Professional services | 14,754 | 14,258 | 53,529 | 55,008 |
| Total revenue | 158,175 | 132,849 | 463,386 | 394,072 |
| Cost of revenue |  |  |  |  |
| Subscription and support(1) | 24,864 | 19,235 | 74,080 | 56,683 |
| Professional services(1) | 13,491 | 13,184 | 42,297 | 38,846 |
| Total cost of revenue | 38,355 | 32,419 | 116,377 | 95,529 |
| Gross profit | 119,820 | 100,430 | 347,009 | 298,543 |
| Operating expenses |  |  |  |  |
| Research and development(1) | 41,747 | 38,583 | 130,235 | 113,644 |
| Sales and marketing(1) | 72,576 | 64,560 | 215,168 | 184,879 |
| General and administrative(1) | 21,022 | 27,405 | 86,660 | 75,507 |
| Total operating expenses | 135,345 | 130,548 | 432,063 | 374,030 |
| Loss from operations | (15,525) | (30,118) | (85,054) | (75,487) |
| Interest income | 7,294 | 1,440 | 15,546 | 2,325 |
| Interest expense | (47,437) | (1,510) | (50,437) | (4,540) |
| Other (expense) income, net | (71) | 964 | (1,450) | 1,467 |
| Loss before provision for income taxes | (55,739) | (29,224) | (121,395) | (76,235) |
| Provision for income taxes | 530 | 467 | 1,934 | 810 |
| Net loss | $(56,269) | $(29,691) | $(123,329) | $(77,045) |

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

*(in thousands)*

| Cost of revenue | Three months ended September 30, 2023 | 2022 | Nine months ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Subscription and support | $1,247 | $855 | $3,732 | $2,557 |
| Professional services | 623 | 533 | 1,923 | 1,578 |
| Operating expenses |  |  |  |  |
| Research and development | 4,155 | 3,399 | 13,677 | 9,272 |
| Sales and marketing | 7,108 | 4,657 | 20,769 | 14,388 |
| General and administrative | 6,244 | 10,853 | 37,928 | 26,258 |
| Total stock-based compensation expense | $19,377 | $20,297 | $78,029 | $54,053 |

28

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

| Revenue | Three months ended September 30, 2023 | 2022 | Nine months ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Subscription and support | 90.7% | 89.3% | 88.4% | 86.0% |
| Professional services | 9.3 | 10.7 | 11.6 | 14.0 |
| Total revenue | 100.0 | 100.0 | 100.0 | 100.0 |
| Cost of revenue |  |  |  |  |
| Subscription and support | 15.7 | 14.5 | 16.0 | 14.4 |
| Professional services | 8.5 | 9.9 | 9.1 | 9.9 |
| Total cost of revenue | 24.2 | 24.4 | 25.1 | 24.3 |
| Gross profit | 75.8 | 75.6 | 74.9 | 75.7 |
| Operating expenses |  |  |  |  |
| Research and development | 26.4 | 29.0 | 28.1 | 28.8 |
| Sales and marketing | 45.9 | 48.6 | 46.4 | 46.9 |
| General and administrative | 13.3 | 20.6 | 18.7 | 19.2 |
| Total operating expenses | 85.6 | 98.2 | 93.2 | 94.9 |
| Loss from operations | (9.8) | (22.6) | (18.3) | (19.2) |
| Interest income | 4.6 | 1.1 | 3.4 | 0.6 |
| Interest expense | (30.0) | (1.1) | (10.9) | (1.2) |
| Other (expense) income, net | — | 0.7 | (0.3) | 0.4 |
| Loss before provision for income taxes | (35.2) | (21.9) | (26.1) | (19.4) |
| Provision for income taxes | 0.3 | 0.4 | 0.4 | 0.2 |
| Net loss | (35.5)% | (22.3)% | (26.5)% | (19.6)% |

### Comparison of Three and Nine Months Ended September 30, 2023 and 2022

### Revenue

*(dollars in thousands)*

| Revenue | Three months ended September 30, 2023 | 2022 | % Change | Nine months ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Subscription and support | $143,421 | $118,591 | 20.9% | $409,857 | $339,064 | 20.9% |
| Professional services | 14,754 | 14,258 | 3.5% | 53,529 | 55,008 | (2.7)% |
| Total revenue | $158,175 | $132,849 | 19.1% | $463,386 | $394,072 | 17.6% |

29

Total revenue increased $25.3 million for the three months ended September 30, 2023 compared to the same quarter a year ago due primarily to a $24.8 million increase in subscription and support revenue. Growth in subscription and support revenue in the third quarter was attributable mainly to strong demand and continued solution expansion across our customer base. Revenue from professional services increased slightly during the three months ended September 30, 2023 compared to the same quarter a year ago. The increase in revenue from professional services was due primarily to an increase in revenue from XBRL professional services partially offset by a decrease in revenue from other services as we continue to transition consulting and other services to our partners. We expect the revenue growth rate from subscription and support to continue to outpace revenue growth from professional services on an annual basis.

Total revenue increased $69.3 million for the nine months ended September 30, 2023 compared to the same period a year ago due primarily to a $70.8 million increase in subscription and support revenue. Growth in subscription and support revenue was attributable mainly to strong demand and continued solution expansion across our customer base. Professional services revenue decreased $1.5 million during the nine months ended September 30, 2023 compared to the same period a year ago. The decrease was driven primarily by the continued transition of consulting and other services to our partners and the timing of performance of XBRL services. We expect the revenue growth rate from subscription and support to continue to outpace revenue growth from professional services on an annual basis.

### Cost of Revenue

*(dollars in thousands)*

| Cost of revenue | Three months ended September 30, 2023 | 2022 | % Change | Nine months ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Subscription and support | $24,864 | $19,235 | 29.3% | $74,080 | $56,683 | 30.7% |
| Professional services | 13,491 | 13,184 | 2.3% | 42,297 | 38,846 | 8.9% |
| Total cost of revenue | $38,355 | $32,419 | 18.3% | $116,377 | $95,529 | 21.8% |

Cost of revenue increased $5.9 million during the three months ended September 30, 2023 compared to the same quarter a year ago due primarily to $4.2 million in higher cash-based compensation and benefits costs due in part to increased headcount, $0.5 million of additional stock-based compensation, and a $0.8 million increase in the cost of cloud infrastructure services. The increases in headcount and cloud infrastructure services resulted primarily from our continued investment in and support of our platform and solutions.

Cost of revenue increased $20.8 million during the nine months ended September 30, 2023 compared to the same period a year ago due primarily to $13.4 million in higher cash-based compensation and benefits costs due in part to increased headcount, $1.5 million of additional stock-based compensation, a $1.0 million increase in travel expense, a $3.1 million increase in the cost of cloud infrastructure services, a $0.6 million increase in software expense, and a $0.5 million increase in outsourced service fees. The increases in headcount, cloud infrastructure services, software expense, and outsourced service fees resulted primarily from our continued investment in and support of our platform and solutions. The increase in travel expense was due to a modest continued return to travel.

### Operating Expenses

*(dollars in thousands)*

| Operating expenses | Three months ended September 30, 2023 | 2022 | % Change | Nine months ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and development | $41,747 | $38,583 | 8.2% | $130,235 | $113,644 | 14.6% |
| Sales and marketing | 72,576 | 64,560 | 12.4% | 215,168 | 184,879 | 16.4% |
| General and administrative | 21,022 | 27,405 | (23.3)% | 86,660 | 75,507 | 14.8% |
| Total operating expenses | $135,345 | $130,548 | 3.7% | $432,063 | $374,030 | 15.5% |

#### Research and Development

Research and development expenses increased $3.2 million during the three months ended September 30, 2023 compared to the same quarter a year ago due primarily to $2.4 million in higher cash-based compensation and benefits and $0.8 million of additional stock-based compensation. The increase in compensation was primarily driven by continued investment in our employees in support of our platform and solutions.

Research and development expenses increased $16.6 million during the nine months ended September 30, 2023 compared to the same period a year ago due primarily to $11.6 million in higher cash-based compensation and benefits, $4.4 million of additional stock-based compensation, and a $0.7 million increase in travel expense. The increase in compensation was the result of our continued investment in and support of our platform and solutions. During the first nine months of 2023, we recognized an additional $1.6 million in stock-based compensation pursuant to certain severance obligations. The increase in travel expense was primarily due to our annual internal research and development event and a modest continued return to travel.

#### Sales and Marketing

Sales and marketing expenses increased $8.0 million during the three months ended September 30, 2023 compared to the same quarter a year ago due primarily to $5.2 million in higher cash-based compensation and benefits and $2.5 million of additional stock-based compensation. The increase in compensation was primarily due to an increase in employee headcount and sales commissions as we continue to invest in our go-to-market activities.

Sales and marketing expenses increased $30.3 million during the nine months ended September 30, 2023 compared to the same period a year ago due primarily to $17.7 million in higher cash-based compensation and benefits, $6.4 million of additional stock-based compensation, a $3.7 million increase in travel expense, a $1.0 million increase in professional service fees, and a $0.8 million increase in software expense. During the first nine months of 2023, we recognized an additional $1.9 million in cash-based and stock-based compensation pursuant to certain severance obligations. The remaining increase in compensation was primarily due to an increase in employee headcount and sales commissions as we continue to invest in our go-to-market activities. The increases in professional service fees and software expense were the result of our continued investment in and support of our platform and solutions. The increase in travel expense was primarily due to a modest continued return to travel and our annual internal sales and marketing event which was held in person in the first half of 2023. The event was held virtually in the prior year.

#### General and Administrative

General and administrative expenses decreased $6.4 million during the three months ended September 30, 2023 compared to the same quarter a year ago due primarily to a $0.4 million decrease in cash-based compensation and benefits, a $4.7 million decrease in stock-based compensation, and a $1.0 million decrease related to recruiting and professional service fees. The decrease in stock-based compensation during the third quarter of 2023 is primarily due to the recognition of $3.5 million in stock-based compensation pursuant to certain severance agreements during the third quarter of 2022 which did not recur in 2023. The remaining decrease in compensation was primarily due to a decrease in employee headcount.

General and administrative expenses increased $11.2 million during the nine months ended September 30, 2023 compared to the same period a year ago due primarily to $2.2 million in higher cash-based compensation and benefits, $11.6 million of additional stock-based compensation, a $0.5 million increase in public relations expense, partially offset by a $2.7 million decrease related to recruiting and professional service fees and a $1.4 million decrease in goods and service tax expense. In addition, during 2023 we recorded one-time fees of $0.6 million related to the cancellation of certain events. During the first nine months of 2023, we recognized an additional $1.4 million and $18.1 million in cash-based compensation and stock-based compensation, respectively, pursuant to certain transition agreements with former executives. Public relations expense increased during 2023 as we continue to execute on our brand strategy. The decrease in sales tax expense was related to a goods and services tax refund which is not expected to recur.

### Non-Operating Income (Expenses)

*(dollars in thousands)*

|  | Three months ended September 30, 2023 | 2022 | % Change | Nine months ended September 30, 2023 | 2022 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest income | $7,294 | $1,440 | 406.5% | $15,546 | $2,325 | 568.6% |
| Interest expense | (47,437) | (1,510) | 3041.5% | (50,437) | (4,540) | 1010.9% |
| Other (expense) income, net | (71) | 964 | \* | (1,450) | 1,467 | \* |

(\*) Percentage is not meaningful.

#### Interest Income, Interest Expense and Other (Expense) Income, Net

During the three months ended September 30, 2023, interest income increased $5.9 million compared to the same quarter a year ago due primarily to an increase in our investment balance, facilitated by the issuance of our 2028 convertible notes, coupled with higher interest rates. Interest expense increased compared to the same quarter a year ago due primarily to a $45.1 million loss on induced conversion from the partial repurchase of our convertible senior notes due in 2026. Other (expense) income, net decreased $1.0 million compared to the same quarter a year ago due primarily to losses on foreign currency transactions.

During the nine months ended September 30, 2023, interest income increased $13.2 million compared to the same period a year ago due primarily to larger investment balances coupled with higher interest rates. Interest expense increased compared to the same period a year ago due primarily to a $45.1 million loss on induced conversion from the partial repurchase of convertible senior notes due in 2026. Other (expense) income, net decreased $2.9 million compared to the same period a year ago due primarily to losses on the sale of available-for-sale securities and losses on foreign currency transactions.

### Results of Operations for Fiscal 2022 Compared to 2021

For a comparison of our results of operations for the fiscal years ended December 31, 2022 and 2021, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our annual report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 21, 2023.

### Liquidity and Capital Resources

### Overview of Sources and Uses of Cash

As of September 30, 2023, our principal sources of liquidity were cash, cash equivalents and marketable securities totaling $782.4 million, which were held for working capital purposes. We have financed our operations primarily through the proceeds of offerings of equity, convertible debt, 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. While we expect to continue to incur operating losses and may incur negative cash flows from operations in the future, we believe that current cash and cash equivalents and cash flows from operating activities will be sufficient to fund our operations for at least the next twelve months.

### Convertible Debt

In August 2023, we issued $702.0 million aggregate principal amount of 1.250% convertible senior notes due 2028 (the "2028 Notes"). Proceeds from the issuance of the 2028 Notes totaled $691.1 million, net of initial purchaser discounts and issuance costs. We used $396.9 million of the net proceeds from the 2028 Notes offering to repurchase $273.8 million principal amount, together with accrued and unpaid interest thereon, of our 1.125% convertible senior notes due 2026 (the "2026 Notes") in separate and individually negotiated transactions with certain holders. As of September 30, 2023, we had outstanding debt relating to our 2026 Notes and 2028 Notes of $70.5 million and $691.4 million, with corresponding maturity dates of August 15, 2026 and August 15, 2028, respectively.

### Cash Flows

*(in thousands)*

|  | Three months ended September 30, 2023 | 2022 | Nine months ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Cash flow provided by operating activities | $14,991 | $4,855 | $46,533 | $12,602 |
| Cash flow used in investing activities | (109,026) | (2,632) | (182,044) | (79,246) |
| Cash flow provided by (used in) financing activities | 301,220 | 3,471 | 300,281 | (143) |
| Net increase (decrease) in cash and cash equivalents, net of impact of exchange rates | $205,946 | $3,244 | $164,688 | $(70,889) |

#### Operating Activities

For the three months ended September 30, 2023, cash provided by operating activities was $15.0 million. The primary factors affecting our operating cash flows during the period were our net loss of $56.3 million, adjusted for non-cash charges of $2.7 million for depreciation and amortization of our property and equipment and intangible assets, $19.4 million of stock-based compensation expense, $1.9 million for the accretion of premiums and discounts on marketable securities, $0.5 million for the amortization of our debt discount and issuance costs, a $45.1 million loss on induced conversion from the partial repurchase of our convertible senior notes due in 2026, and a $5.5 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $15.2 million increase in accounts receivable, and a $1.6 million increase in other receivables offset by a $3.5 million decrease in prepaid expenses, a $3.1 million decrease in deferred costs, a $1.0 million decrease in other assets, a $11.1 million increase in deferred revenue, and a $3.5 million increase in accrued expenses and other liabilities. Customer growth and contract renewals for longer terms accounted for most of the increase in deferred revenue. Deferred costs decreased primarily due to the amortization of direct and incremental costs of obtaining a customer contract. The increases in accounts receivable, other receivables and accrued expenses and other liabilities as well as the decreases in prepaid expenses and other assets were attributable primarily to the timing of our billings, cash collections, and cash payments.

For the three months ended September 30, 2022, cash provided by operating activities was $4.9 million. The primary factors affecting our operating cash flows during the period were our net loss of $29.7 million, adjusted for non-cash charges of $2.7 million for depreciation and amortization of our property and equipment and intangible assets, $20.3 million of stock-based compensation expense and a $11.0 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $7.9 million increase in accounts receivable, a $1.4 million increase in deferred costs, and a $1.1 million increase in other assets offset by a $3.6 million decrease in prepaid expenses, a $3.9 million increase in accounts payable and a $14.8 million increase in deferred revenue. Deferred costs increased primarily due to payments made to our sales force related to the direct and incremental costs of obtaining a customer contract. Customer growth accounted for most of the increase in deferred revenue. The increases in accounts receivable, other assets, and accounts payable as well as the decrease in prepaid expenses were attributable primarily to the timing of our billings, cash collections, and cash payments.

For the nine months ended September 30, 2023, cash provided by operating activities was $46.5 million. The primary factors affecting our operating cash flows during the period were our net loss of $123.3 million, adjusted for non-cash charges of $8.4 million for depreciation and amortization of our property and equipment and intangible assets, $78.0 million of stock-based compensation expense, $4.5 million for the accretion of premiums and discounts on marketable securities, $0.7 million in realized losses on the sale of available-for-sale securities, $1.1 million for the amortization of our debt discount and issuance costs, a $45.1 million loss on induced conversion from the partial repurchase of our convertible senior notes due in 2026, and a $41.0 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $4.0 million increase in prepaid expenses, a $1.8 million increase in other receivables, and a $1.3 million decrease in accounts payable offset by a $7.2 million decrease in accounts receivable, a $6.2 million decrease in deferred costs, a $1.5 million decrease in other assets, a $22.2 million increase in deferred revenue, and a $10.2 million increase in accrued expenses and other liabilities. Customer growth accounted for most of the increase in deferred revenue. Deferred costs decreased primarily due to the amortization of direct and incremental costs of obtaining a customer contract. The increases in other receivables, prepaid expenses and accrued expenses and other liabilities as well as the decreases in accounts receivable and accounts payable were attributable primarily to the timing of our billings, cash collections, and cash payments.

For the nine months ended September 30, 2022, cash provided by operating activities was $12.6 million. The primary factors affecting our operating cash flows during the period were our net loss of $77.0 million, adjusted for non-cash charges of $7.4 million for depreciation and amortization of our property and equipment and intangible assets, $54.1 million of stock-based compensation expense, $1.0 million for the amortization of our debt discount and issuance costs, $1.2 million for the amortization of premiums and discounts on marketable securities, and a $26.0 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $6.2 million increase in accounts receivable, a $2.7 million increase in deferred costs, and a $1.1 million increase in other assets offset by a $0.9 million decrease in prepaid expenses, a $6.0 million increase in accounts payable, and a $28.6 million increase in deferred revenue. Deferred costs increased due primarily to payments made to our sales force related to the direct and incremental costs of obtaining a customer contract. Customer growth accounted for most of the increase in deferred revenue. The increases in accounts receivable, other assets, and accounts payable as well as the decrease in prepaid expenses were attributable primarily to the timing of our billings, cash collections, and cash payments.

#### Investing Activities

Cash used in investing activities of $109.0 million for the three months ended September 30, 2023 was due primarily to $145.0 million in purchases of marketable securities and $0.9 million in purchases of fixed assets partially offset by $36.9 million from maturities of marketable securities. Our capital expenditures were associated primarily with computer equipment in support of expanding our infrastructure and work force.

Cash used in investing activities of $2.6 million for the three months ended September 30, 2022 was due primarily to $41.6 million in purchases of marketable securities and $1.0 million in purchases of fixed assets partially offset by $40.1 million from maturities of marketable securities. Our capital expenditures were associated primarily with computer equipment in support of expanding our infrastructure and work force.

Cash used in investing activities of $182.0 million for the nine months ended September 30, 2023 was due primarily to $322.0 million in purchases of marketable securities and $1.7 million in purchases of fixed assets partially offset by $65.1 million from the sale of marketable securities and $76.8 million from maturities of marketable securities. Our capital expenditures were associated primarily with computer equipment in support of expanding our infrastructure and work force.

Cash used in investing activities of $79.2 million for the nine months ended September 30, 2022 was due primarily to $99.2 million for the acquisition of ParsePort, $99.6 million in purchases of marketable securities, and $2.2 million in purchases of fixed assets partially offset by $106.9 million from maturities of marketable securities as well as $15.0 million from the sale of marketable securities. Our capital expenditures were associated primarily with computer equipment in support of expanding our infrastructure and work force.

#### Financing Activities

Cash provided by financing activities of $301.2 million for the three months ended September 30, 2023 was due primarily to $691.1 million in proceeds from the issuance of convertible senior notes due in 2028, net of issuance costs, $1.1 million in proceeds from option exercises, and $7.0 million in proceeds from shares issued in connection with our employee stock purchase plan partially offset by $396.9 million paid for the partial repurchase of our convertible senior notes due in 2026 and $1.0 million in taxes paid related to net share settlements of stock-based compensation awards.

Cash provided by financing activities of $3.5 million for the three months ended September 30, 2022 was due primarily to $0.6 million in proceeds from option exercises and $4.0 million in proceeds from shares issued in connection with our employee stock purchase plan partially offset by $0.7 million in taxes paid related to net share settlements of stock-based compensation awards.

Cash provided by financing activities of $300.3 million for the nine months ended September 30, 2023 was due primarily to $691.1 million in proceeds from the issuance of convertible senior notes due in 2028, net of issuance costs, $3.3 million in proceeds from option exercises, and $12.5 million in proceeds from shares issued in connection with our employee stock purchase plan partially offset by $396.9 million paid for the partial repurchase of our convertible senior notes due in 2026 and $9.4 million in taxes paid related to net share settlements of stock-based compensation awards.

Cash used in financing activities of $0.1 million for the nine months ended September 30, 2022 was due primarily to $10.7 million in taxes paid related to net share settlements of stock-based compensation awards and $1.3 million in principal payments on finance lease obligations partially offset by $2.6 million in proceeds from option exercises and $9.3 million in proceeds from shares issued in connection with our employee stock purchase plan.

### 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, 2022 filed with the SEC on February 21, 2023.

### Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. 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 nine months ended September 30, 2023, there were no significant changes to our critical accounting policies and estimates as described in the financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 21, 2023.

## Market risk

As filed, 292 characters.

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, 2022. Our exposures to market risk have not changed materially since December 31, 2022.

## Controls and procedures

As filed, 2,203 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated 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 Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q.

Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, 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 principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on the Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

## Risk factors

As filed, 1,239 characters.

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 2022 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 2023 to the risk factors that were included in the Form 10-K, other than what is set forth immediately below.

*Recent events affecting the financial services industry could have an adverse impact on the Company's business operations, financial condition and results of operations.*

Silicon Valley Bank and Signature Bank closed in March of 2023 which created bank-specific and broader financial institution liquidity risks and concerns. The future effect of these events on the financial services industry and broader economy are unknown and difficult to predict but could include failures of other financial institutions to which we or our customers face direct or more significant exposure, as well as other risks not yet identified. Any of these effects could have material adverse impacts on our liquidity, our current and/or projected business operations and financial condition and our results of operations.

Filed Oct 30, 2023.
Source: SEC EDGAR, the filing index for accession 0001445305-23-000166. Last ingested by Listed: Nov 5, 2026, 17:44 ET. No prices; not investment advice.