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 ~~March 31,~~September 30, 2019
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

(State or other jurisdiction of incorporation or organization)

47-2509828

(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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Class A common stock, par value $.001

New York Stock Exchange

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 every Interactive Data File required to be submitted 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 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 ý			Accelerated filer o

Non-accelerated filer o			Smaller reporting company o ☐

			Emerging growth company o ☐

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. o☐

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 ~~April 29,~~November 4, 2019, there were approximately ~~35,733,931~~37,820,028 shares of the registrant's Class A common stock and ~~9,425,596~~8,640,596 shares of the registrant's Class B common stock outstanding.

WORKIVA INC.

TABLE OF CONTENTS


		Page
	Part I. Financial Information
Item 1.	Unaudited Consolidated Financial Statements:	1
	Condensed Consolidated Balance Sheets as of ~~March 31,~~September 30, 2019 and December 31, 2018	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended ~~March 31,~~September 30, 2019 and 2018	3
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended ~~March 31,~~September 30, 2019 and 2018	4
	Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the Three and Nine Months Ended ~~March 31,~~September 30, 2019 and 2018	5
	Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended ~~March 31,~~September 30, 2019 and 2018	67
	Notes to Condensed Consolidated Financial Statements	89
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2024
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	3138
Item 4.	Controls and Procedures	3139

	Part II. Other Information
Item 1.	Legal Proceedings	3240
Item 1A.	Risk Factors	3240
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3343
Item 6.	Exhibits	3444
	Signatures	S-1

Table of Contents

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, 2018, 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.

Table of Contents

Part I. Financial Information

Item 1. Financial Statements


WORKIVA INC. CONDENSED CONSOLIDATED BALANCE SHEETS	WORKIVA INC. CONDENSED CONSOLIDATED BALANCE SHEETS									WORKIVA INC. CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)	(in thousands, except share and per share amounts)									(in thousands, except share and per share amounts)
		As of March 31, 2019		As of December 31, 2018			As of September 30, 2019		As of December 31, 2018
		(unaudited)					(unaudited)
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	78,736	$	77,584	Cash and cash equivalents	$	389,124	$	77,584
Marketable securities	Marketable securities	35,668		20,764		Marketable securities	95,644		20,764
Accounts receivable, net of allowance for doubtful accounts of $769 and $956 at March 31, 2019 and December 31, 2018, respectively		50,560		65,107
Accounts receivable, net of allowance for doubtful accounts of $890 and $956 at September 30, 2019 and December 31, 2018, respectively						Accounts receivable, net of allowance for doubtful accounts of $890 and $956 at September 30, 2019 and December 31, 2018, respectively	43,590		65,107
Deferred commissions	Deferred commissions	9,500		8,178		Deferred commissions	12,740		8,178
Other receivables	Other receivables	1,395		1,181		Other receivables	1,651		1,181
Prepaid expenses	Prepaid expenses	7,656		4,417		Prepaid expenses	8,148		4,417
Total current assets	Total current assets	183,515		177,231		Total current assets	550,897		177,231

Property and equipment, net	Property and equipment, net	41,049		41,468		Property and equipment, net	40,292		41,468
Operating lease right-of-use assets	Operating lease right-of-use assets	17,057		—		Operating lease right-of-use assets	15,917		—
Deferred commissions, non-current	Deferred commissions, non-current	11,296		10,569		Deferred commissions, non-current	13,940		10,569
Intangible assets, net	Intangible assets, net	1,322		1,266		Intangible assets, net	1,795		1,266
Other assets	Other assets	2,042		577		Other assets	3,920		577
Total assets	Total assets	$	256,281	$	231,111	Total assets	$	626,761	$	231,111

Table of Contents


WORKIVA INC. CONDENSED CONSOLIDATED BALANCE SHEETS (continued)	WORKIVA INC. CONDENSED CONSOLIDATED BALANCE SHEETS (continued)									WORKIVA INC. CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except share and per share amounts)	(in thousands, except share and per share amounts)									(in thousands, except share and per share amounts)

		As of March 31, 2019		As of December 31, 2018			As of September 30, 2019		As of December 31, 2018
		(unaudited)					(unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)					LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	3,182	$	5,461	Accounts payable	$	4,895	$	5,461
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	33,416		36,353		Accrued expenses and other current liabilities	47,302		36,353
Deferred revenue	Deferred revenue	149,943		148,545		Deferred revenue	156,352		148,545
Current portion of financing obligations	Current portion of financing obligations	1,253		1,222		Current portion of financing obligations	1,295		1,222
Total current liabilities	Total current liabilities	187,794		191,581		Total current liabilities	209,844		191,581

Convertible senior notes, net						Convertible senior notes, net	278,422		—
Deferred revenue, non-current	Deferred revenue, non-current	25,933		25,171		Deferred revenue, non-current	31,467		25,171
Other long-term liabilities	Other long-term liabilities	969		6,891		Other long-term liabilities	1,387		6,891
Operating lease liabilities, non-current	Operating lease liabilities, non-current	20,846		—		Operating lease liabilities, non-current	19,273		—
Financing obligations, non-current	Financing obligations, non-current	16,883		17,208		Financing obligations, non-current	16,234		17,208
Total liabilities	Total liabilities	252,425		240,851		Total liabilities	556,627		240,851

Stockholders’ equity (deficit)	Stockholders’ equity (deficit)					Stockholders’ equity (deficit)
Class A common stock, $0.001 par value per share, 1,000,000,000 shares authorized, 35,695,049 and 34,498,391 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively		36		34
Class B common stock, $0.001 par value per share, 500,000,000 shares authorized, 9,425,596 and 9,545,596 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively		9		10
Preferred stock, $0.001 par value per share, 100,000,000 shares authorized, no shares issued and outstanding		—		—
Class A common stock, $0.001 par value per share, 1,000,000,000 shares authorized, 37,780,966 and 34,498,391 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively						Class A common stock, $0.001 par value per share, 1,000,000,000 shares authorized, 37,780,966 and 34,498,391 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively	38		34
Class B common stock, $0.001 par value per share, 500,000,000 shares authorized, 8,640,596 and 9,545,596 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively						Class B common stock, $0.001 par value per share, 500,000,000 shares authorized, 8,640,596 and 9,545,596 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively	9		10
Preferred stock, $0.001 par value per share, 100,000,000 shares authorized, 0 shares issued and outstanding						Preferred stock, $0.001 par value per share, 100,000,000 shares authorized, 0 shares issued and outstanding	—		—
Additional paid-in-capital	Additional paid-in-capital	318,151		297,145		Additional paid-in-capital	408,656		297,145
Accumulated deficit	Accumulated deficit	(314,490)		(307,027)		Accumulated deficit	(338,863)		(307,027)
Accumulated other comprehensive income	Accumulated other comprehensive income	150		98		Accumulated other comprehensive income	294		98
Total stockholders’ equity (deficit)	Total stockholders’ equity (deficit)	3,856		(9,740)		Total stockholders’ equity (deficit)	70,134		(9,740)
Total liabilities and stockholders’ equity (deficit)	Total liabilities and stockholders’ equity (deficit)	$	256,281	$	231,111	Total liabilities and stockholders’ equity (deficit)	$	626,761	$	231,111

See accompanying notes.

Table of Contents


WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (unaudited)	WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (unaudited)									WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (unaudited)
		Three months ended March 31,							Three months ended September 30,						Nine months ended September 30,
		2019		2018			2019		2018		2019		2018
Revenue	Revenue					Revenue
Subscription and support	Subscription and support	$	56,123	$	46,470	Subscription and support	$	63,022	$	51,306	$	179,617	$	146,613
Professional services	Professional services	13,840		13,436		Professional services	11,157		9,567		38,009		33,296
Total revenue	Total revenue	69,963		59,906		Total revenue	74,179		60,873		217,626		179,909
Cost of revenue	Cost of revenue					Cost of revenue
Subscription and support	Subscription and support	9,809		8,802		Subscription and support	10,924		8,139		30,935		25,578
Professional services	Professional services	9,727		7,709		Professional services	10,827		7,520		31,029		22,888
Total cost of revenue	Total cost of revenue	19,536		16,511		Total cost of revenue	21,751		15,659		61,964		48,466
Gross profit	Gross profit	50,427		43,395		Gross profit	52,428		45,214		155,662		131,443
Operating expenses	Operating expenses					Operating expenses
Research and development	Research and development	22,011		20,127		Research and development	22,899		19,984		66,705		60,829
Sales and marketing	Sales and marketing	25,365		21,006		Sales and marketing	32,990		24,068		86,568		67,326
General and administrative	General and administrative	10,383		11,768		General and administrative	12,017		11,864		33,626		45,286
Total operating expenses	Total operating expenses	57,759		52,901		Total operating expenses	67,906		55,916		186,899		173,441
Loss from operations	Loss from operations	(7,332)		(9,506)		Loss from operations	(15,478)		(10,702)		(31,237)		(41,998)
Interest income						Interest income	1,460		341		2,593		843
Interest expense	Interest expense	(440)		(450)		Interest expense	(1,959)		(448)		(2,832)		(1,347)
Other income, net		320		343
Other income (expense), net						Other income (expense), net	24		(138)		(259)		195
Loss before provision for income taxes	Loss before provision for income taxes	(7,452)		(9,613)		Loss before provision for income taxes	(15,953)		(10,947)		(31,735)		(42,307)
Provision for income taxes	Provision for income taxes	11		5		Provision for income taxes	98		17		101		43
Net loss	Net loss	$	(7,463)	$	(9,618)	Net loss	$	(16,051)	$	(10,964)	(31,836)		(42,350)
Net loss per common share:	Net loss per common share:					Net loss per common share:
Basic and diluted	Basic and diluted	$	(0.17)	$	(0.22)	Basic and diluted	$	(0.34)	$	(0.25)	$	(0.69)	$	(0.98)
Weighted-average common shares outstanding - basic and diluted	Weighted-average common shares outstanding - basic and diluted	45,229,279		42,858,756		Weighted-average common shares outstanding - basic and diluted	46,731,663		43,973,428		46,048,037		43,359,939

See accompanying notes.

Table of Contents

WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
Three months ended March 31,
2019 2018
Net loss $ (7,463) $ (9,618)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment, net of income tax benefit (expense) of ($3) and $0 for the three months ended March 31, 2019 and 2018, respectively 9 (11)
Unrealized gain (loss) on available-for-sale securities, net of income tax benefit (expense) of ($15) and $0 for the three months ended March 31, 2019 and 2018, respectively 43 (45)
Other comprehensive income (loss), net of tax 52 (56)
Comprehensive loss $ (7,411) $ (9,674)


WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) (unaudited)
	Three months ended September 30,						Nine months ended September 30,
	2019		2018		2019		2018
Net loss	$	(16,051)	$	(10,964)	$	(31,836)	$	(42,350)
Other comprehensive income, net of tax
Foreign currency translation adjustment, net of income tax expense of $11 and $5 for the three months ended September 30, 2019 and 2018, respectively, and net of income tax expense of $16 and $5 for the nine months ended September 30, 2019 and 2018, respectively	19		(10)		34		21
Unrealized gain (loss) on available-for-sale securities, net of income tax benefit (expense) of $(10) and $1 for the three months ended September 30, 2019 and 2018, respectively, and net of income tax benefit (expense) of $(51) and $1 for the nine months ended September 30, 2019 and 2018, respectively	43		22		162		(6)
Other comprehensive income, net of tax	62		12		196		15
Comprehensive loss	$	(15,989)	$	(10,952)	$	(31,640)	$	(42,335)

See accompanying notes.

Table of Contents

WORKIVA INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
(unaudited)
Three months ended March 31, 2019
Common Stock (Class A and B)
Shares Amount Additional Paid-in-Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders' Equity (Deficit)
Balances at December 31, 2018 44,044 $ 44 $ 297,145 $ 98 $ (307,027) $ (9,740)
Stock-based compensation expense — — 8,193 — — 8,193
Issuance of common stock upon exercise of stock options 961 1 11,054 — — 11,055
Issuance of common stock under employee stock purchase plan 101 — 2,149 — — 2,149
Issuance of restricted stock units 25 — — — — —
Tax withholdings related to net share settlements of stock-based compensation awards (10) — (390) — — (390)
Net loss — — — — (7,463) (7,463)
Other comprehensive income — — — 52 — 52
Balances at March 31, 2019 45,121 $ 45 $ 318,151 $ 150 $ (314,490) $ 3,856
Three months ended March 31, 2018
Common Stock (Class A and B)
Shares Amount Additional Paid-in-Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders' Deficit
Balances at December 31, 2017 42,369 $ 42 $ 248,289 $ 72 $ (265,337) $ (16,934)
Cumulative-effect adjustment in connection with the adoption of ASU 2014-09 — — — — 8,381 8,381
Stock-based compensation expense — — 5,905 — — 5,905
Issuance of common stock upon exercise of stock options 296 1 3,075 — — 3,076
Issuance of common stock under employee stock purchase plan 80 — 1,370 — — 1,370
Issuance of restricted stock units 9 — — — — —
Tax witholdings related to net share settlements of stock-based compensation awards (61) — (1,342) — — (1,342)
Net loss — — — — (9,618) (9,618)
Other comprehensive loss — — — (56) — (56)
Balances at March 31, 2018 42,693 $ 43 $ 257,297 $ 16 $ (266,574) $ (9,218)


WORKIVA INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands) (unaudited)
	Common Stock (Class A and B)
	Shares	Amount		Additional Paid-in-Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders' Equity (Deficit)
Balances at December 31, 2018	44,044	$	44	$	297,145	$	98	$	(307,027)	$	(9,740)
Stock-based compensation expense	—	—		8,193		—		—		8,193
Issuance of common stock upon exercise of stock options	961	1		11,054		—		—		11,055
Issuance of common stock under employee stock purchase plan	101	—		2,149		—		—		2,149
Issuance of restricted stock units	25	—		—		—		—		—
Tax withholding related to net share settlements of stock-based compensation awards	(10)	—		(390)		—		—		(390)
Net loss	—	—		—		—		(7,463)		(7,463)
Other comprehensive income	—	—		—		52		—		52
Balances at March 31, 2019	45,121	$	45	$	318,151	$	150	$	(314,490)	$	3,856
Stock-based compensation expense	—	—		8,513		—		—		8,513
Issuance of common stock upon exercise of stock options	455	1		5,497		—		—		5,498
Issuance of restricted stock units	323	—		—		—		—		—
Net loss	—	—		—		—		(8,322)		(8,322)
Other comprehensive income	—	—		—		82		—		82
Balances at June 30, 2019	45,899	$	46	$	332,161	$	232	$	(322,812)	$	9,627
Stock-based compensation expense	—	—		9,223		—		—		9,223
Issuance of common stock upon exercise of stock options	401	1		5,939		—		—		5,940
Issuance of common stock under employee stock purchase plan	87	—		2,773		—		—		2,773
Issuance of restricted stock units	35	—		—		—		—		—
Equity component of convertible senior notes, net	—	—		58,560		—		—		58,560
Net loss	—	—		—		—		(16,051)		(16,051)
Other comprehensive income	—	—		—		62		—		62
Balances at September 30, 2019	46,422	$	47	$	408,656	$	294	$	(338,863)	$	70,134

Table of Contents

WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three months ended March 31,
2019 2018
Cash flows from operating activities
Net loss $ (7,463) $ (9,618)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 903 872
Stock-based compensation expense 8,193 5,905
(Recovery of) provision for doubtful accounts (187) 44
(Accretion) amortization of premiums and discounts on marketable securities, net (81) 18
Deferred income tax (18) —
Changes in assets and liabilities:
Accounts receivable 14,818 6,542
Deferred commissions (2,029) (1,649)
Operating lease right-of-use asset 668 —
Other receivables (214) 27
Prepaid expenses and other (3,236) 231
Other assets (1,464) (58)
Accounts payable (1,562) 2,677
Deferred revenue 1,987 (2,345)
Operating lease liability (655) —
Accrued expenses and other liabilities (4,541) (863)
Net cash provided by operating activities 5,119 1,783
Cash flows from investing activities
Purchase of property and equipment (1,743) (9)
Purchase of marketable securities (22,155) —
Maturities of marketable securities 7,390 500
Purchase of intangible assets (84) (64)
Net cash (used in) provided by investing activities (16,592) 427


WORKIVA INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)(continued)
(in thousands) (unaudited)
	Common Stock (Class A and B)
	Shares	Amount		Additional Paid-in-Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders' Deficit
Balances at December 31, 2017	42,369	$	42	$	248,289	$	72	$	(265,337)	$	(16,934)
Cumulative-effect adjustment in connection with the adoption of ASU 2014-09	—	—		—		—		8,381		8,381
Stock-based compensation expense	—	—		5,905		—		—		5,905
Issuance of common stock upon exercise of stock options	296	1		3,075		—		—		3,076
Issuance of common stock under employee stock purchase plan	80	—		1,370		—		—		1,370
Issuance of restricted stock units	9	—		—		—		—		—
Tax withholding related to net share settlements of stock-based compensation awards	(61)	—		(1,342)		—		—		(1,342)
Net loss	—	—		—		—		(9,618)		(9,618)
Other comprehensive loss	—	—		—		(56)		—		(56)
Balances at March 31, 2018	42,693	$	43	$	257,297	$	16	$	(266,574)	$	(9,218)
Stock-based compensation expense	—	—		10,465		—		—		10,465
Issuance of common stock upon exercise of stock options	328	—		3,317		—		—		3,317
Issuance of restricted stock units	64	—		—		—		—		—
Tax withholding related to net share settlements of stock-based compensation awards	(23)	—		(519)		—		—		(519)
Net loss	—	—		—		—		(21,768)		(21,768)
Other comprehensive income	—	—		—		59		—		59
Balances at June 30, 2018	43,062	$	43	$	270,560	$	75	$	(288,342)	$	(17,664)
Stock-based compensation expense	—	—		6,949		—		—		6,949
Issuance of common stock upon exercise of stock options	635	1		7,533		—		—		7,534
Issuance of common stock under employee stock purchase plan	99	—		1,846		—		—		1,846
Issuance of restricted stock units	4	—		—		—		—		—
Net loss	—	—		—		—		(10,964)		(10,964)
Other comprehensive income	—	—		—		12		—		12
Balances at September 30, 2018	43,800	$	44	$	286,888	$	87	$	(299,306)	$	(12,287)

See accompanying notes.

Table of Contents

WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
(unaudited)
Three months ended March 31,
2019 2018
Cash flows from financing activities
Proceeds from option exercises 11,055 3,075
Taxes paid related to net share settlements of stock-based compensation awards (390) (1,342)
Proceeds from shares issued in connection with employee stock purchase plan 2,149 1,370
Principal payments on capital lease and financing obligations (294) (298)
Net cash provided by financing activities 12,520 2,805
Effect of foreign exchange rates on cash 105 (92)
Net increase in cash and cash equivalents 1,152 4,923
Cash and cash equivalents at beginning of period 77,584 60,333
Cash and cash equivalents at end of period $ 78,736 $ 65,256
Supplemental cash flow disclosure
Cash paid for interest $ 464 $ 433
Cash paid for income taxes, net of refunds $ 233 $ 2
Supplemental disclosure of noncash investing and financing activities
Allowance for tenant improvements $ — $ 22
Purchases of property and equipment, accrued but not paid $ — $ 175


WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
	Three months ended September 30,						Nine months ended September 30,
	2019		2018		2019		2018
Cash flows from operating activities
Net loss	$	(16,051)	$	(10,964)	$	(31,836)	$	(42,350)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	1,058		1,133		2,932		2,881
Stock-based compensation expense	9,223		6,949		25,929		23,319
(Recovery of) provision for doubtful accounts	(104)		128		(58)		311
Amortization (accretion) of premiums and discounts on marketable securities, net	15		(66)		(89)		(63)
Amortization of debt discount and issuance costs	1,083		—		1,083		—
Deferred income tax	(21)		(4)		(67)		(4)
Changes in assets and liabilities:
Accounts receivable	3,579		(1,691)		21,530		4,615
Deferred commissions	(2,106)		(1,939)		(7,968)		(5,608)
Operating lease right-of-use asset	581		—		1,805		—
Other receivables	(417)		(591)		(470)		(416)
Prepaid expenses and other	(191)		2,501		(3,737)		712
Other assets	(943)		(389)		(2,349)		(557)
Accounts payable	516		616		160		1,999
Deferred revenue	3,830		8,630		14,112		15,032
Operating lease liability	(758)		—		(2,226)		—
Accrued expenses and other liabilities	5,403		3,269		9,828		6,948
Net cash provided by operating activities	4,697		7,582		28,579		6,819

Cash flows from investing activities
Purchase of property and equipment	(663)		(523)		(2,860)		(742)
Purchase of marketable securities	(54,749)		(6,441)		(95,466)		(17,724)
Sale of marketable securities	498		—		498		—
Maturities of marketable securities	1,500		4,600		20,390		9,000
Purchase of intangible assets	(51)		(46)		(712)		(174)
Other investments	(1,000)		—		(1,000)		—
Net cash used in investing activities	(54,465)		(2,410)		(79,150)		(9,640)

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WORKIVA INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands) (unaudited)
	Three months ended September 30,						Nine months ended September 30,
	2019		2018		2019		2018

Cash flows from financing activities
Proceeds from option exercises	5,940		7,534		22,493		13,927
Taxes paid related to net share settlements of stock-based compensation awards	—		—		(390)		(1,861)
Proceeds from shares issued in connection with employee stock purchase plan	2,773		1,846		4,922		3,216
Proceeds from the issuance of convertible senior notes, net of issuance costs	335,899		—		335,899		—

Principal payments on capital lease and financing obligations	(306)		(287)		(901)		(879)
Proceeds from government grants	—		—		—		22


Net cash provided by financing activities	344,306		9,093		362,023		14,425
Effect of foreign exchange rates on cash	(127)		83		88		(94)

Net increase in cash and cash equivalents	294,411		14,348		311,540		11,510
Cash and cash equivalents at beginning of period	94,713		57,495		77,584		60,333
Cash and cash equivalents at end of period	$	389,124	$	71,843	$	389,124	$	71,843

Supplemental cash flow disclosure
Cash paid for interest	$	408	$	436	$	1,294	$	1,304
Cash paid for income taxes, net of refunds	$	80	$	—	$	341	$	56

Supplemental disclosure of noncash investing and financing activities
Allowance for tenant improvements	$	—	$	1,153	$	—	$	1,280
Purchases of property and equipment, accrued but not paid	$	—	$	105	$	—	$	105

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 (the “Company” or “we” or “us”) is a leading provider of cloud-based solutions for connected ~~data,~~ reporting and compliance. Our platform, Wdesk, is used by thousands of public and private companies, government agencies and higher-education institutions. Wdesk offers controlled collaboration, data linking, data integrations, granular permissions, process management and a full audit trail. We sell to customers in the areas of: finance and accounting; risk and controls; regulatory reporting; financial close, management and performance reporting; and statutory and corporate tax reporting. Our operational headquarters are located in Ames, Iowa, with additional offices located in the United States, Europe, the Asia-Pacific region and Canada.

We updated our accounting policies on the use of estimates, impairment of long-lived assets and leases as a result of our adopting Financial Accounting Standards Board (FASB) guidance issued in accounting standards codification (ASC) 842, Leases, under the Accounting Standards Update (ASU) 2016-02 (collectively the new lease standard). Otherwise, there have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 20, 2019, that have had a material impact on our condensed consolidated financial statements and related notes.

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, 2018 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 nine months ended ~~March 31,~~September 30, 2019 are not necessarily indicative of the results expected for the full year ending December 31, 2019.

Seasonality has affected our revenue, expenses and cash flows from operations. 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. 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. 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, 2018 filed with the SEC on February 20, 2019.

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. Additionally, certain prior period amounts have been reclassified for consistency with the current year presentation. The reclassification of the prior period amounts were not material to the previously reported consolidated financial statements.

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Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and various other assumptions believed to be reasonable. These estimates include, but are not limited to, the allowance for doubtful accounts, the determination of the relative selling prices of our services, the measurement of material rights, health insurance claims incurred but not yet reported, valuation of available-for-sale marketable securities, useful lives of deferred contract costs, intangible assets and property and equipment, income taxes, discount rates used in the valuation of right-of-use assets and lease liabilities, the fair value of the liability and equity components of the convertible senior notes, 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.

Impairment of Long-Lived Assets

Long-lived assets, such as property, equipment, right-of-use assets and software and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. If circumstances require that a long-lived asset or asset group be tested for possible impairment, we first compare the undiscounted cash flows expected to be generated by that long-lived asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ~~("ROU"~~(“ROU”) assets, other current liabilities, and operating lease liabilities on our condensed consolidated balance sheets. We currently have no finance leases.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Our variable lease payments consist of non-lease services related to the lease. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components. We have elected to account for these lease and non-lease components as a single lease component. We are also electing not to apply the recognition requirements to short-term leases of 12 months or less and instead will recognize lease payments as expense on a straight-line basis over the lease term.

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Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) issued guidance codified in ASC 842, Leases, which supersedes the guidance in former ASC 840, Leases, to increase transparency and comparability among organizations by requiring recognition of right-of-use assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements (with the exception of short-term leases).

In July 2018, the FASB issued an update (ASU 2018-11) to the existing transition guidance that allows entities to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Effective January 1, 2019, we adopted ASC 842 using this new transition guidance. The comparative information has not been restated and continues to be reported under the accounting standard in effect for those periods.

We have elected to use the package of practical expedients, which allows us to not (1) reassess whether any expired or existing contracts are considered or contain leases; (2) reassess the lease classification for any expired or existing leases; and (3) reassess the initial direct costs for any existing leases. We did not elect the hindsight practical expedient, which permits entities to use hindsight in determining the lease term and assessing impairment.

Adoption of the new standard had a material impact on our condensed consolidated balance sheets. The most significant impacts related to the recognition of right-of-use assets and lease liabilities for operating leases. The adoption of ASC 842 had no impact on our condensed consolidated statements of operations or total cash flows from operations.

The cumulative effect of the changes made to our consolidated January 1, 2019 balance sheet for the adoption of ASC 842 were as follows (in thousands):


	As of December 31, 2018		Adjustments due to ASC 842 adoption		As of January 1, 2019
Assets
Operating right-of-use asset	$	—	$	15,694	$	15,694

Liabilities
Accrued expenses and other current liabilities	36,353		2,319		38,672
Other long-term liabilities	6,891		(6,007)		884
Operating lease liabilities, non-current	—		19,382		19,382

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting for implementation costs in cloud computing arrangements. The update will become effective for interim and annual periods beginning after December 15, 2019 and may be adopted either retrospectively or prospectively. Early adoption is permitted. We adopted this standard prospectively effective April 1, 2019. The adoption of this new guidance did not have a material impact on our consolidated financial statements.

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New Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the current accounting guidance and requires the measurement of all expected losses based on historical experience, current conditions and reasonable and supportable forecasts. For trade receivables, loans, and other financial instruments, we will be required to use a forward-looking expected loss model that reflects probable losses rather than the incurred loss model for recognizing credit losses. The standard will become effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. We plan to adopt this standard on the effective date and are currently evaluating the impact of this new standard on our consolidated financial statements.

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~~In August 2018, the FASB issued ASU 2018-15,~~ ~~Intangibles - Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,~~ which clarifies the accounting for implementation costs in cloud computing arrangements. The update will become effective for interim and annual periods beginning after December 15, 2019 and may be adopted either retrospectively or prospectively. Early adoption is permitted. We plan to adopt this standard prospectively. We are currently evaluating the impact that adoption of this ASU will have on our consolidated financial statements and whether or not to early adopt.

2. Supplemental Consolidated Balance Sheet ~~and Statement of Operations~~ Information

Accrued Expenses and Other Current Liabilities

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


		March 31, 2019		December 31, 2018			As of September 30, 2019		As of December 31, 2018
Accrued vacation	Accrued vacation	$	7,592	$	6,906	Accrued vacation	$	8,095	$	6,906
Accrued commissions	Accrued commissions	3,704		7,265		Accrued commissions	4,574		7,265
Accrued bonuses	Accrued bonuses	3,729		5,643		Accrued bonuses	11,348		5,643
Estimated health insurance claims	Estimated health insurance claims	1,050		1,100		Estimated health insurance claims	1,150		1,100
ESPP employee contributions	ESPP employee contributions	1,510		2,156		ESPP employee contributions	2,026		2,156
Customer deposits	Customer deposits	7,364		7,395		Customer deposits	10,814		7,395
Operating lease liabilities	Operating lease liabilities	2,740		—		Operating lease liabilities	2,827		—
Accrued other liabilities	Accrued other liabilities	5,727		5,888		Accrued other liabilities	6,468		5,888
		$	33,416	$	36,353		$	47,302	$	36,353

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3. Cash Equivalents and Marketable Securities

At ~~March 31,~~September 30, 2019, marketable securities consisted of the following (in thousands):


		Amortized Cost		Unrealized Gains		Unrealized Losses		Aggregate Fair Value			Amortized Cost		Unrealized Gains		Unrealized Losses		Aggregate Fair Value
Money market funds	Money market funds	$	55,217	$	—	$	—	$	55,217	Money market funds	$	368,634	$	—	$	—	$	368,634
Commercial paper		7,483		—		—		7,483

U.S. treasury debt securities	U.S. treasury debt securities	3,917		1		—		3,918		U.S. treasury debt securities	10,284		2		(1)		10,285
U.S. corporate debt securities	U.S. corporate debt securities	24,278		19		(30)		24,267		U.S. corporate debt securities	85,216		148		(5)		85,359
		$	90,895	$	20	$	(30)	$	90,885		$	464,134	$	150	$	(6)	$	464,278
Included in cash and cash equivalents	Included in cash and cash equivalents	$	55,217	$	—	$	—	$	55,217	Included in cash and cash equivalents	$	368,634	$	—	$	—	$	368,634
Included in marketable securities	Included in marketable securities	$	35,678	$	20	$	(30)	$	35,668	Included in marketable securities	$	95,500	$	150	$	(6)	$	95,644

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At December 31, 2018, marketable securities consisted of the following (in thousands):


	Amortized Cost		Unrealized Gains		Unrealized Losses		Aggregate Fair Value
Money market funds	$	52,068	$	—	$	—	$	52,068
Commercial paper	7,448		—		—		7,448
U.S. treasury debt securities	2,494		—		(1)		2,493
U.S. corporate debt securities	10,890		—		(67)		10,823
	$	72,900	$	—	$	(68)	$	72,832
Included in cash and cash equivalents	$	52,068	$	—	$	—	$	52,068
Included in marketable securities	$	20,832	$	—	$	(68)	$	20,764

The following table presents gross unrealized losses and fair values for those marketable securities that were in an unrealized loss position as of ~~March 31,~~September 30, 2019, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):


		As of March 31, 2019															As of September 30, 2019
		Less than 12 months						12 months or greater							Less than 12 months				12 months or greater
		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. treasury debt securities	U.S. treasury debt securities	$	—	$	—	$	—	$	—	U.S. treasury debt securities	$	6,339	$	(1)	$	—	$	—
U.S. corporate debt securities	U.S. corporate debt securities	4,980		(1)		5,479		(29)		U.S. corporate debt securities	7,691		(3)		3,000		(2)
Total	Total	$	4,980	$	(1)	$	5,479	$	(29)	Total	$	14,030	$	(4)	$	3,000	$	(2)

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 ~~March 31,~~September 30, 2019 to hold these investments until the cost basis is recovered.

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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.

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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 ~~March 31,~~September 30, 2019, all of our marketable securities were valued using quoted prices for comparable instruments in active markets and are classified as Level 2.

Based on our valuation of our money market funds and marketable securities, we concluded that they are classified in either Level 1 or Level 2, and we have no financial assets measured using Level 3 inputs. 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 March 31, 2019										Fair Value Measurements as of December 31, 2018											Fair Value Measurements as of September 30, 2019				Fair Value Measurements as of December 31, 2018
Description	Description	Total		Level 1		Level 2		Total		Level 1		Level 2		Description	Total		Level 1		Level 2		Total		Level 1		Level 2
Money market funds	Money market funds	$	55,217	$	55,217	$	—	$	52,068	$	52,068	$	—	Money market funds	$	368,634	$	368,634	$	—	$	52,068	$	52,068	$	—
Commercial paper	Commercial paper	7,483		—		7,483		7,448		—		7,448		Commercial paper	—		—		—		7,448		—		7,448
U.S. treasury debt securities	U.S. treasury debt securities	3,918		—		3,918		2,493		—		2,493		U.S. treasury debt securities	10,285		—		10,285		2,493		—		2,493
U.S. corporate debt securities	U.S. corporate debt securities	24,267		—		24,267		10,823		—		10,823		U.S. corporate debt securities	85,359		—		85,359		10,823		—		10,823
		$	90,885	$	55,217	$	35,668	$	72,832	$	52,068	$	20,764		$	464,278	$	368,634	$	95,644	$	72,832	$	52,068	$	20,764

Included in cash and cash equivalents	Included in cash and cash equivalents	$	55,217					$	52,068					Included in cash and cash equivalents	$	368,634					$	52,068
Included in marketable securities	Included in marketable securities	$	35,668					$	20,764					Included in marketable securities	$	95,644					$	20,764

Convertible Senior Notes

As of September 30, 2019, the fair value of our convertible senior notes was $314.2 million. The fair value was determined based on the quoted price of the convertible senior notes in an over-the-counter market on the last trading day of the reporting period and has been classified as Level 2 in the fair value hierarchy. See Note 6 to the condensed consolidated financial statements for more information.

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5. Leases

Operating Leases

We lease certain office and residential space under non-cancelable operating leases with various lease terms through June 2043. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Certain office leases include ~~one~~1 or more options to renew, with renewal terms that can extend the lease term from 3 to 5 years. The exercise of lease renewal options is at our sole discretion and is generally excluded from the lease term at lease inception. Our leases generally require us to pay a proportionate share of real estate taxes, insurance, common area maintenance, and other operating costs in addition to a base or fixed rent.

The components of lease expense were as follows (in thousands):

~~Three months ended March 31, 2019~~


	Three months ended September 30, 2019		Nine months ended September 30, 2019
Operating lease cost	$	837	$	2,600
Short-term lease cost	347		885
Variable lease cost	259		691
	$	1,443	$	4,176

Supplemental cash flow information related to leases was as follows (in thousands):


	Three months ended September 30, 2019		Nine months ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,031	$	3,111
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	—	$	2,033

~~Operating lease cost~~

~~925~~

~~Short-term lease cost~~

~~239~~

~~Variable lease cost~~

~~203~~

~~1,367~~

Other supplemental information related to leases was as ~~follows (dollar amounts in thousands):~~follows:


	~~Three months ended March 31,~~As of September 30, 2019
~~Cash paid for amounts included in the measurement of lease liabilities:~~
~~Operating cash flows from operating leases~~	$	~~960~~
~~Right-of-use assets obtained in exchange for lease obligations:~~
~~Operating leases~~	$	~~2,033~~
Weighted Average Remaining Lease Term (in years)
Operating leases	~~8.2~~7.9
Weighted Average Discount Rate
Operating leases	5.7		%

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As of ~~March 31,~~September 30, 2019, future estimated minimum lease payments under non-cancelable operating leases were as follows (in thousands):

Operating Leases
Remainder of 2019 $ 3,011
2020 4,193
2021 4,233
2022 3,867
2023 3,536
Thereafter 11,255
Total minimum lease payments 30,095
Less: Amount representing interest (6,509)
Total $ 23,586

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	Operating Leases
Remainder of 2019	$	910
2020	4,153
2021	4,237
2022	3,872
2023	3,540
Thereafter	11,255
Total minimum lease payments	27,967
Less: Amount representing interest	(5,867)
Total	$	22,100

As of ~~March 31,~~September 30, 2019, we did not have additional operating or financing leases that had not yet commenced.

6. Debt

Other Long-Term Debt

Convertible Senior Notes

In August 2019, we issued $345.0 million aggregate principal amount of 1.125% convertible senior notes due 2026 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, including the exercise in full by the initial purchasers of their option to purchase an additional $45.0 million principal amount (the “Notes”). The Notes were issued pursuant to an indenture and are senior, unsecured obligations of the Company. The Notes bear interest at a fixed rate of 1.125% per annum, payable semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 2020. Proceeds from the issuance of the Notes totaled $335.9 million, net of initial purchaser discounts and issuance costs.

The initial conversion rate is 12.4756 shares of our common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $80.16 per share, subject to adjustment upon the occurrence of specified events. The Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding May 15, 2026 only under the following circumstances:

•during any calendar quarter commencing after the calendar quarter ending on September 30, 2019 (and only during such calendar quarter), if the last reported sale price of our Class A common stock, par value $0.001 per share (which we refer to in this offering memorandum as our “Class A common stock”), for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

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•during the 5 consecutive business day period immediately following any 10 consecutive trading day period (the “measurement period”) in which the trading price (as defined below) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our Class A common stock and the conversion rate on each such trading day;

•if we call any or all of the Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or

•upon the occurrence of certain specified corporate events as set forth in the indenture.

On or after May 15, 2026 until the close of business on the business day immediately preceding the maturity date, holders may convert their Notes at any time, regardless of the foregoing circumstances.

Upon conversion, we will pay or deliver, as the case may be, cash, shares of our Class A common stock or a combination of cash and shares of our Class A common stock, at our election, in the manner and subject to the terms and conditions provided in the indenture. It is our current intent to settle conversions through a combination settlement of cash and shares of our Class A common stock with a specified dollar amount per $1,000 principal amount of Notes of $1,000.

If we undergo a fundamental change (as defined in the indenture), holders may require us to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events that occur prior to the maturity date or if we deliver a notice of redemption, we will increase, in certain circumstances, the conversion rate for a holder who elects to convert its Notes in connection with such corporate event or notice of redemption, as the case may be. During the three months ended September 30, 2019, the conditions allowing holders of the Notes to convert were not met. The Notes were therefore not convertible during the three months ended September 30, 2019 and are classified as long-term debt on our condensed consolidated balance sheets.

We may not redeem the Notes prior to August 21, 2023. We may redeem for cash all or any portion of the Notes, at our option, on or after August 21, 2023 if the last reported sale price of our Class A common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

In accounting for the issuance of the Notes, we separated the Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability components from the par value of the Notes. The difference represents the debt discount that is amortized to interest expense at an effective interest rate of 4.3% over the term of the Notes. The carrying amount of the equity component was $60.1 million and is recorded in additional paid-in-capital. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

In accounting for the issuance costs related to the Notes, we allocated the total amount incurred to the liability and equity components of the Notes based on the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the liability component were $7.5 million. The issuance costs allocated to the liability component are amortized to interest expense under the effective

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interest rate method over the contractual term of the Notes. Issuance costs attributable to the equity component of the Notes were $1.6 million and are netted against the equity components representing the conversion option in additional paid-in capital.

The net carrying amount of the liability and equity components of the Notes was as follows (in thousands):


	September 30, 2019
Liability component:
Principal	$	345,000
Unamortized discount	(59,184)
Unamortized issuance costs	(7,394)
Net carrying amount	$	278,422

Equity component, net of purchase discounts and issuance costs	$	58,560

Interest expense related to the Notes is as follows (in thousands):


	Three and Nine Months Ended September 30, 2019
Contractual interest expense	$	468
Amortization of debt discount	963
Amortization of issuance costs	120
Total interest expense	$	1,551

7. Commitments and Contingencies

Other Purchase Commitments

During 2019, we entered into certain non-cancelable agreements with third-party providers for our use of cloud services in the ordinary course of business. Under these agreements, we are committed to purchase $18,000 in fiscal year 2019, $1.2 million in fiscal year 2020, $2.3 million in fiscal year 2021, and $1.2 million in fiscal year 2022.

Litigation

From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We evaluate the development of legal matters on a regular basis and accrue a liability when we believe a loss is probable and the amount can be reasonably estimated. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of any currently pending legal proceedings to which we are a party will not have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

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8. Stock-Based Compensation

We grant stock-based incentive awards to attract, motivate and retain qualified employees, non-employee directors and consultants, and to align their financial interests with those of our stockholders. We utilize stock-based compensation in the form of restricted stock awards, restricted stock units, options to purchase Class A common stock and Employee Stock Purchase Plan (“ESPP”) purchase rights.

As of ~~March 31,~~September 30, 2019, awards outstanding under the 2009 Plan consisted of stock options, and awards outstanding under the 2014 Plan consisted of stock options and restricted stock units.

As of ~~March 31,~~September 30, 2019, ~~2,521,272~~2,295,587 shares of Class A common stock were available for grant under the 2014 Plan.

Our ESPP became effective on June 13, 2017. Under the ESPP, eligible employees are granted options to purchase shares of Class A common stock at the lower of 85% of the fair market value of the stock at the time of grant or 85% of the fair market value at the time of exercise. Options to purchase shares are granted twice yearly on or about January 15 and July 15 and are exercisable on or about the succeeding July 14 and January 14, respectively, of each year. As of ~~March 31,~~September 30, 2019, ~~4,719,674~~4,632,233 shares of Class A common stock were available for issuance under the ESPP. No participant may purchase more than $12,500 worth of common stock in a six-month offering period.

Stock-Based Compensation Expense

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


		Three months ended March 31,							Three months ended September 30,						Nine months ended September 30,
		2019		2018			2019		2018		2019		2018
Cost of revenue	Cost of revenue					Cost of revenue
Subscription and support	Subscription and support	$	357	$	171	Subscription and support	$	386	$	161	$	1,142	$	560
Professional services	Professional services	409		150		Professional services	456		153		1,296		449
Operating expenses	Operating expenses					Operating expenses
Research and development	Research and development	1,900		1,021		Research and development	2,265		1,624		6,016		4,140
Sales and marketing	Sales and marketing	1,964		1,113		Sales and marketing	2,203		1,397		6,199		3,950
General and administrative	General and administrative	3,563		3,450		General and administrative	3,913		3,614		11,276		14,220
Total	Total	$	8,193	$	5,905	Total	$	9,223	$	6,949	$	25,929	$	23,319

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Stock Options

The following table summarizes the option activity under the Plans for the ~~three~~nine months ended ~~March 31,~~September 30, 2019:


		Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value			Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
						(in thousands)							(in thousands)
Outstanding at December 31, 2018	Outstanding at December 31, 2018	6,400,175	$	13.65	6.1	$	142,340	Outstanding at December 31, 2018	6,400,175	$	13.65	6.1	$	142,340
Granted	Granted	—	—					Granted	—	—
Forfeited	Forfeited	(9,153)	16.65					Forfeited	(40,203)	16.79
Exercised	Exercised	(960,802)	11.51					Exercised	(1,817,243)	12.38
Outstanding at March 31, 2019		5,430,220	$	14.02	6.1	$	199,157
Outstanding at September 30, 2019								Outstanding at September 30, 2019	4,542,729	$	14.13	5.7	$	134,913

Exercisable at March 31, 2019		4,330,467	$	13.34	5.7	$	161,785
Exercisable at September 30, 2019								Exercisable at September 30, 2019	3,786,843	$	13.57	5.4	$	114,571

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 ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018 was ~~$34.3~~$69.6 million and ~~$3.6~~$22.1 million, respectively.

NoNaN options were granted during the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018. The total fair value of options vested during the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018 was approximately ~~$2.7~~$5.0 million and ~~$4.6~~$10.3 million, respectively. Total unrecognized compensation expense of ~~$6.9~~$4.5 million related to options will be recognized over a weighted-average period of ~~1.8~~1.5 years.

Restricted Stock Units

Restricted stock units granted to employees generally vest over a three- or four-year period in equal, annual installments or with three-year cliff vesting. Restricted stock units granted to non-employee members of our Board of Directors generally have 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 ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018 was approximately ~~$4.3~~$7.3 million and ~~$3.0~~$7.2 million, respectively.

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The following table summarizes the restricted stock unit activity under the Plan for the ~~three~~nine months ended ~~March 31,~~September 30, 2019:


		Number of Shares	Weighted- Average Grant Date Fair Value			Number of Shares	Weighted- Average Grant Date Fair Value

Unvested at December 31, 2018	Unvested at December 31, 2018	2,359,261	$	23.95	Unvested at December 31, 2018	2,359,261	$	23.95
Granted	Granted	613,889	39.24		Granted	906,173	43.40
Forfeited	Forfeited	(25,238)	26.43		Forfeited	(62,767)	28.56
Vested⁽¹⁾	Vested⁽¹⁾	(247,419)	17.50		Vested⁽¹⁾	(358,511)	20.35
Unvested at March 31, 2019		2,700,493	$	27.99
Unvested at September 30, 2019					Unvested at September 30, 2019	2,844,156	$	30.50

(1) ~~As of March 31,~~During the nine months ended September 30, 2019, in accordance with our Nonqualified Deferred Compensation Plan, recipients of ~~222,614~~250,750 shares had elected to defer settlement of the vested restricted stock units ~~in accordance with our Nonqualified Deferred Compensation Plan resulting~~and 274,079 shares were released from deferral. This resulted in total deferred units of ~~777,235~~531,292 as of ~~March 31,~~September 30, 2019.

Compensation expense associated with unvested restricted stock units is recognized on a straight-line basis over the vesting period. At ~~March 31,~~September 30, 2019, there was approximately ~~$58.7~~$58.3 million of total unrecognized compensation expense related to restricted stock units, which is expected to be recognized over a weighted-average period of ~~2.5~~2.4 years.

Employee Stock Purchase Plan

The fair value of each share issued under the ESPP is estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility is based on the historical volatility of our common stock. The expected term represents the period of time the ESPP purchase rights are expected to be outstanding. The expected term for the ESPP purchase rights approximates the offering period. The risk-free interest rate is based on yields on U.S. Treasury STRIPS (Separate Trading of Registered Interest and Principal of Securities) with a maturity similar to the estimated expected term of the ESPP purchase rights.

The fair value of our ESPP purchase rights was estimated assuming no expected dividends and the following weighted-average assumptions:


		Three months ended March 31,				Nine months ended September 30,
		2019	2018		2019	2018
Expected term (in years)	Expected term (in years)	0.5	0.5	Expected term (in years)	0.5	0.5
Risk-free interest rate	Risk-free interest rate	2.6%	1.8%	Risk-free interest rate	1.9% - 2.6%	1.8% - 2.4%
Expected volatility	Expected volatility	48.6%	22.2%	Expected volatility	35.2% - 48.6%	22.2% - 36.4%

During the ~~three~~nine months ended ~~March 31,~~September 30, 2019, ~~100,949~~188,390 shares of common stock were purchased under the ESPP at a weighted-average price of ~~$21.29~~$26.13 per share, resulting in cash proceeds of ~~$2.1~~$4.9 million.

Compensation expense associated with ESPP purchase rights is recognized on a straight-line basis over the vesting period. At ~~March 31,~~September 30, 2019, there was approximately ~~$580,000~~$681,000 of total unrecognized compensation expense related to the ESPP, which is expected to be recognized over a weighted-average period of 0.3 years.

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8.9. Revenue Recognition

Disaggregation of Revenue

The following table presents our revenues disaggregated by industry (in thousands). Certain prior year amounts have been reclassified to conform with current period presentation. These reclassifications have no impact on total revenue.


		Three months ended March 31,							Three months ended September 30,						Nine months ended September 30,
		2019		2018			2019		2018		2019		2018
Information technology	Information technology	$	9,162	$	7,359	Information technology	$	9,734	$	7,698	$	28,897	$	22,843
Consumer discretionary	Consumer discretionary	7,979		6,851		Consumer discretionary	8,324		7,248		24,632		20,918
Industrials	Industrials	7,792		6,872		Industrials	8,190		6,890		24,194		20,706
Diversified financials	Diversified financials	7,438		6,898		Diversified financials	8,570		6,847		24,271		20,198
Banks	Banks	6,678		5,843		Banks	7,476		6,044		21,099		17,628
Healthcare	Healthcare	6,584		5,344		Healthcare	6,949		5,347		20,463		15,786
Energy	Energy	5,644		4,852		Energy	5,515		4,805		16,605		14,303
Other	Other	18,686		15,887		Other	19,421		15,994		57,465		47,527
Total revenues	Total revenues	$	69,963	$	59,906	Total revenues	$	74,179	$	60,873	$	217,626	$	179,909

The following table presents our revenues disaggregated by type of good or service (in thousands):


		Three months ended March 31,							Three months ended September 30,						Nine months ended September 30,
		2019		2018			2019		2018		2019		2018
Subscription and support	Subscription and support	$	56,123	$	46,470	Subscription and support	$	63,022	$	51,306	$	179,617	$	146,613
XBRL professional services	XBRL professional services	11,410		9,852		XBRL professional services	7,767		6,312		28,699		23,080
Other services	Other services	2,430		3,584		Other services	3,390		3,255		9,310		10,216
Total revenues	Total revenues	$	69,963	$	59,906	Total revenues	$	74,179	$	60,873	$	217,626	$	179,909

Deferred Revenue

~~During~~We recognized $59.0 million and $47.2 million of revenue during the three months ended ~~March 31,~~September 30, 2019 ~~we recognized $51.3 million of revenue~~and 2018, respectively, that was included in the deferred revenue ~~balance~~balances at the beginning of the ~~period.~~ respective periods. We recognized $114.4 million and $93.9 million of revenue during the nine months ended September 30, 2019 and 2018, respectively, that was included in the deferred revenue balances at the beginning of the respective periods.

Transaction Price Allocated to the Remaining Performance Obligations

As of ~~March 31,~~September 30, 2019, we expect revenue of approximately ~~$180.7~~$212.9 million ~~is expected~~ to be recognized from remaining performance obligations for subscription contracts. We expect to recognize approximately ~~$151.3~~$162.6 million of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.

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9.10. Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including ~~our~~convertible senior notes, outstanding stock options, stock related to unvested restricted stock units, and common stock issuable pursuant to the ESPP to the extent dilutive. Basic and diluted net loss per share was the same for each period presented, as the inclusion of all potential common shares outstanding would have been anti-dilutive.

The net loss per share is allocated based on the 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.

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															Three months ended
		March 31, 2019						March 31, 2018							September 30, 2019				September 30, 2018
		Class A		Class B		Class A		Class B			Class A		Class B		Class A		Class B
Numerator	Numerator									Numerator
Net loss	Net loss	$	(5,898)	$	(1,565)	$	(7,330)	$	(2,288)	Net loss	$	(12,978)	$	(3,073)	$	(8,532)	$	(2,432)

Denominator	Denominator									Denominator
Weighted-average common shares outstanding - basic and diluted	Weighted-average common shares outstanding - basic and diluted	35,746,572		9,482,707		32,662,318		10,196,438		Weighted-average common shares outstanding - basic and diluted	37,785,850		8,945,813		34,221,118		9,752,310
Basic and diluted net loss per share	Basic and diluted net loss per share	$	(0.17)	$	(0.17)	$	(0.22)	$	(0.22)	Basic and diluted net loss per share	$	(0.34)	$	(0.34)	$	(0.25)	$	(0.25)


	Nine months ended
	September 30, 2019						September 30, 2018
	Class A		Class B		Class A		Class B
Numerator
Net loss	$	(25,422)	$	(6,414)	$	(32,616)	$	(9,734)

Denominator
Weighted-average common shares outstanding - basic and diluted	36,771,232		9,276,805		33,393,426		9,966,513
Basic and diluted net loss per share	$	(0.69)	$	(0.69)	$	(0.98)	$	(0.98)

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				As of
		March 31, 2019	March 31, 2018		September 30, 2019	September 30, 2018
Shares subject to outstanding common stock options	Shares subject to outstanding common stock options	5,430,220	7,807,606	Shares subject to outstanding common stock options	4,542,729	6,693,724
Shares subject to unvested restricted stock units	Shares subject to unvested restricted stock units	2,700,493	1,917,048	Shares subject to unvested restricted stock units	3,375,448	2,215,129
Shares issuable pursuant to the ESPP	Shares issuable pursuant to the ESPP	92,664	107,764	Shares issuable pursuant to the ESPP	77,788	108,929

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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 20, 2019. 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, 2018, 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 is a leading provider of cloud-based solutions for connected ~~data,~~ reporting and compliance. Our platform, Wdesk, is used by thousands of public and private companies, government agencies and higher-education institutions. Wdesk offers controlled collaboration, data linking, data integrations, granular permissions, process management and a full audit trail. Wdesk users are able to combine narrative with their data, which greatly improves insight in their financial, regulatory and management reporting processes. As of ~~March 31,~~September 30, 2019, ~~3,366~~3,454 organizations, including more than 75% of Fortune 500^® companies, subscribed to our Wdesk platform.⁽¹⁾

(1) Claim not confirmed by FORTUNE or Fortune Media IP Limited. FORTUNE^® and FORTUNE 500^® are registered trademarks of Fortune Media IP Limited and are used under license. FORTUNE and Fortune Media IP Limited are not affiliated with, and do not endorse products or services of, Workiva Inc.

Our customers can connect Wdesk with data in more than 100 cloud and on-premise applications. In June 2018, we expanded our Wdesk platform with Wdata, which combines new data preparation capabilities with existing connectors and Application Programming Interfaces (APIs) to help our customers more easily capture, enrich and connect large datasets to Wdesk. Integrating enterprise business systems with our platform ~~removes~~eliminates manual steps in the reporting and analysis process after the data leaves our customers' Enterprise Resource Planning (ERP) and other data systems and enables data assurance throughout the entire reporting process with an immutable audit trail. Wdata also enables a broader set of business users to explore complex data at scale and better manage data transformations in the office of the CFO.

~~Although~~We market our ~~customers employ~~solutions under six broad categories: SEC Reporting, Management Reporting, Integrated Risk, Capital Markets, Global Statutory Reporting, and Regulated Reporting. Within those categories, Workiva ~~solutions for hundreds of different use cases, we currently focus our sales~~offers the following solutions: SEC Reporting, SEDAR Reporting, Financial Reporting, Connected Financials, Management Reporting, Audit Management, Controls Management, Enterprise Risk Management, Policies and ~~marketing resources in five areas: finance~~Procedures, Capital Markets, Prospectus Fund, Shareholder Reports, Insurance Statutory Reporting, Insurance Prospectus, CAFR/AFR, Stress Testing, Living Will, Tax Reporting, CASS Compliance, Global Statutory Reporting, and ~~accounting; risk and controls; regulatory reporting; financial close, management and performance reporting; and statutory and corporate tax reporting.~~IFRS 17.

We operate our business on a Software-as-a-Service (SaaS) model. Customers enter into ~~quarterly,~~ annual ~~and~~or multi-year subscription contracts to gain access to Wdesk. Our subscription fee includes the use of our software and technical support. Prior to the third quarter of 2018, our subscription pricing was based primarily on the number of corporate entities, number of users, level of customer support and length of contract. Thereafter, we began converting existing customer orders to, and signing new orders primarily based on, a solution-based licensing model. Under this new model, operating metrics related to a customer's expected use of each solution determine the price. The solution-based model has a higher contract value than the seat-based model because it typically offers customers unlimited seats per solution and a reduced administrative workload. We expect a substantial majority of our subscription revenue will

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be priced on the solution-based licensing model by ~~mid-2020.~~year-end 2019. We charge customers additional fees primarily for document setup and XBRL tagging services.

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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 Wdesk, bringing scale and support to customers and prospects. Our technology partners enable more data and process integrations to help customers connect critical transactional systems directly to Wdesk, which becomes a central repository of trusted data, with powerful linking, auditability and control features.

Our integrated platform, subscription-based model and exceptional customer support have contributed to a low rate of customer turnover while achieving strong revenue growth. Our subscription and support revenue retention rate was ~~95.7%~~94.5% (excluding add-on seats) for the twelve months ended ~~March 31,~~September 30, 2019.

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 ~~1,357~~1,512 at ~~March 31,~~September 30, 2019 from ~~1,313~~1,293 at ~~March 31,~~September 30, 2018, an increase of ~~3.4%~~16.9%.

We have achieved significant revenue growth in recent periods. Our revenue grew to ~~$70.0~~$74.2 million and $217.6 million during the three and nine months ended ~~March 31,~~September 30, 2019, respectively, from ~~$59.9~~$60.9 million and $179.9 million during the three and nine months ended ~~March 31,~~September 30, 2018, ~~an increase of 16.8%.~~respectively. We incurred net losses of ~~$7.5~~$16.1 million and ~~$9.6~~$31.8 million during the three and nine months ended ~~March 31,~~September 30, 2019, respectively, compared to $11.0 million and ~~March 31,~~$42.4 million during the three and nine months ended September 30, 2018, respectively.

Converting existing customer orders to a solution-based licensing model has contributed to the acceleration of growth in our subscription revenue year-to-date, and we expect it to continue to do so through the remainder of 2019. This conversion has also contributed to the improvement in our subscription and support revenue retention rate including add-ons for the same periods. We expect the benefit of this contribution to wane beginning in the last quarter of 2019. Accordingly, we will need to find new sources of revenue to sustain our growth rate beyond 2019. To maintain our revenue growth for the longer term, we have been accelerating our investments in talent, processes and technology, particularly for expansion in EMEA, integrated risk, statutory reporting and Wdata. If these investments do not meet our expectations, we may be unable to sustain our revenue growth rate. We expect these investments to increase operating losses in absolute terms and as a percentage of revenue at least through the fourth quarter of 2019, ahead of any incremental revenue contribution they may generate after 2019.

Key Factors Affecting Our Performance

Generate Growth From Existing Customers. Wdesk can exhibit a powerful network effect within an enterprise, meaning that the usefulness of our platform attracts additional users and more data. Since solution-based licensing offers our customers an unlimited number of seats for each solution purchased, we expect customers to add more seats in Wdesk over time. As more employees in an enterprise use Wdesk, additional opportunities for collaboration and automation drive demand among their colleagues for additional solutions. Furthermore, converting customer ~~contracts~~orders to solution-based licensing typically generates a one-time increase in contract value for each solution.

Pursue New Customers. Our first software solution enabled customers to streamline and automate their SEC regulatory filing process. In 2013, we began expanding into ~~additional~~adjacent markets ~~that were faced~~challenged with managing large, complex processes with many contributors and disparate sets of business data. We currently sell to new customers in the areas of finance and accounting; risk and controls; regulatory

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reporting; financial close, management and performance reporting; and statutory and corporate tax reporting. We intend to continue to build our sales and marketing organization and leverage our brand equity to attract new customers.

Offer More Solutions. We intend to introduce new solutions to continue to meet growing demand for our Wdesk platform. Our close and trusted relationships with our customers are a source for new use cases, features and solutions. We have a disciplined process for tracking, developing and releasing new solutions that are designed to have immediate, broad applicability; a strong value 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.

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Expand Across Enterprises. Our success in delivering multiple solutions has created demand from customers for a broader-based, enterprise-wide Wdesk 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 ~~add~~expand our relationships with partners, including consulting and advisory firms, technology partners, and implementation partners. Our global partners, including global strategic consulting and advisory firms, identify opportunities for our platform to help companies transform financial reporting and integrated risk processes. We also partner with regional accounting, consulting and implementation partners. These highly skilled regional partners ~~offer a broader range~~provide subject-matter expertise in the implementation of ~~services that leverage~~specific solutions and extend our direct sales force by referring opportunities to us. Technology partners expand the ~~capabilities~~ecosystem of ~~Wdesk. Our technology partners~~our connected reporting and compliance platform and enable data connections and process integrations to further ~~streamline~~transform critical business functions, as we capitalize on growing demand for ~~Wdesk to address broader-based,~~ enterprise-wide opportunities. 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 Wdesk platform 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 EMEA, as well as use cases for integrated risk, statutory reporting ~~audit management~~ and ~~other use cases.~~Wdata.

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. Sales and marketing expense is generally higher in the third quarter since we hold 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~~

Three months ended March 31,
2019 2018
(dollars in thousands)
Financial metrics
Total revenue $ 69,963 $ 59,906
Percentage increase in total revenue 16.8 % 15.4 %
Subscription and support revenue $ 56,123 $ 46,470
Percentage increase in subscription and support revenue 20.8 % 17.5 %
Subscription and support as a percent of total revenue 80.2 % 77.6 %

As of March 31,
2019 2018
Operating metrics
Number of customers 3,366 3,119
Subscription and support revenue retention rate 95.7% 95.7%
Subscription and support revenue retention rate including add-ons 110.7% 105.3%
Number of customers with annual contract value $100k+ 493 335
Number of customers with annual contract value $150k+ 207 151

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Key Performance Indicators


	Three months ended September 30,									Nine months ended September 30,
	2019			2018			2019			2018

	(dollars in thousands)
Financial metrics
Total revenue	$	74,179		$	60,873		$	217,626		$	179,909
Percentage increase in total revenue	21.9		%	16.9		%	21.0		%	17.3		%
Subscription and support revenue	$	63,022		$	51,306		$	179,617		$	146,613
Percentage increase in subscription and support revenue	22.8		%	18.7		%	22.5		%	18.5		%
Subscription and support as a percent of total revenue	85.0		%	84.3		%	82.5		%	81.5		%


	As of September 30,
	2019	2018
Operating metrics
Number of customers	3,454	3,289
Subscription and support revenue retention rate	94.5%	95.9%
Subscription and support revenue retention rate including add-ons	112.8%	104.7%
Number of customers with annual contract value $100k+	611	398
Number of customers with annual contract value $150k+	261	173

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 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 ~~95.7%~~94.5% as of ~~March 31,~~September 30, 2019, ~~unchanged~~down slightly compared to the rate as of ~~March 31,~~September 30, 2018. 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.

Subscription and support revenue retention rate including add-ons. Add-on revenue includes the change in both solutions and seats purchased 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.

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Our subscription and support revenue retention rate including add-ons was ~~110.7%~~112.8% as of the quarter ended ~~March 31,~~September 30, 2019, up from ~~105.3%~~104.7% as of ~~March 31,~~September 30, 2018.

In the first quarter of 2019, we began calculating revenue retention rates using quarterly ASC 606 revenue instead of our prior method using monthly ASC 605 revenue. We expect quarterly measurements will be less variable than the single month measurements we previously reported.

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 Wdesk.

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 ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018, 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 ~~three~~twelve to 36 months. We typically invoice our customers for subscription fees in advance, with payment due at the start of the subscription term. From time to time, we offer limited incentives for customers to enter into contract terms of more than one year, typically for terms of two or three years. Our arrangements do not contain general rights of return.

~~Table of Contents~~

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 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 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 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. Sales commissions paid where the amortization period is one year or less are expensed 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.

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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 March 31,							Three months ended September 30,							Nine months ended September 30,
		2019		2018			2019		2018			2019		2018
		(in thousands)
											(in thousands)
Revenue	Revenue					Revenue
Subscription and support	Subscription and support	$	56,123	$	46,470	Subscription and support	$	63,022	$	51,306		$	179,617	$	146,613
Professional services	Professional services	13,840		13,436		Professional services	11,157		9,567			38,009		33,296
Total revenue	Total revenue	69,963		59,906		Total revenue	74,179		60,873			217,626		179,909
Cost of revenue	Cost of revenue					Cost of revenue
Subscription and support⁽¹⁾	Subscription and support⁽¹⁾	9,809		8,802		Subscription and support⁽¹⁾	10,924		8,139			30,935		25,578
Professional services⁽¹⁾	Professional services⁽¹⁾	9,727		7,709		Professional services⁽¹⁾	10,827		7,520			31,029		22,888
Total cost of revenue	Total cost of revenue	19,536		16,511		Total cost of revenue	21,751		15,659			61,964		48,466
Gross profit	Gross profit	50,427		43,395		Gross profit	52,428		45,214			155,662		131,443
Operating expenses	Operating expenses					Operating expenses
Research and development⁽¹⁾	Research and development⁽¹⁾	22,011		20,127		Research and development⁽¹⁾	22,899		19,984			66,705		60,829
Sales and marketing⁽¹⁾	Sales and marketing⁽¹⁾	25,365		21,006		Sales and marketing⁽¹⁾	32,990		24,068			86,568		67,326
General and administrative⁽¹⁾	General and administrative⁽¹⁾	10,383		11,768		General and administrative⁽¹⁾	12,017		11,864			33,626		45,286
Total operating expenses	Total operating expenses	57,759		52,901		Total operating expenses	67,906		55,916			186,899		173,441
Loss from operations	Loss from operations	(7,332)		(9,506)		Loss from operations	(15,478)		(10,702)			(31,237)		(41,998)
Interest income						Interest income	1,460		341			2,593		843
Interest expense	Interest expense	(440)		(450)		Interest expense	(1,959)		(448)			(2,832)		(1,347)
Other income, net		320		343
Other income and (expense), net						Other income and (expense), net	24		(138)			(259)		195
Loss before provision for income taxes	Loss before provision for income taxes	(7,452)		(9,613)		Loss before provision for income taxes	(15,953)		(10,947)			(31,735)		(42,307)
Provision for income taxes	Provision for income taxes	11		5		Provision for income taxes	98		17			101		43
Net loss	Net loss	$	(7,463)	$	(9,618)	Net loss	$	(16,051)	$	(10,964)		$	(31,836)	$	(42,350)

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


		Three months ended March 31,							Three months ended September 30,						Nine months ended September 30,
		2019		2018			2019		2018		2019		2018

		(in thousands)							(in thousands)
Cost of revenue	Cost of revenue					Cost of revenue
Subscription and support	Subscription and support	$	357	$	171	Subscription and support	$	386	$	161	$	1,142	$	560
Professional services	Professional services	409		150		Professional services	456		153		1,296		449
Operating expenses	Operating expenses					Operating expenses
Research and development	Research and development	1,900		1,021		Research and development	2,265		1,624		6,016		4,140
Sales and marketing	Sales and marketing	1,964		1,113		Sales and marketing	2,203		1,397		6,199		3,950
General and administrative	General and administrative	3,563		3,450		General and administrative	3,913		3,614		11,276		14,220
Total stock-based compensation expense	Total stock-based compensation expense	$	8,193	$	5,905	Total stock-based compensation expense	$	9,223	$	6,949	$	25,929	$	23,319

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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 March 31,							Three months ended September 30,						Nine months ended September 30,
		2019		2018			2019		2018		2019		2018
Revenue	Revenue					Revenue
Subscription and support	Subscription and support	80.2	%	77.6	%	Subscription and support	85.0	%	84.3	%	82.5	%	81.5	%
Professional services	Professional services	19.8		22.4		Professional services	15.0		15.7		17.5		18.5
Total revenue	Total revenue	100.0		100.0		Total revenue	100.0		100.0		100.0		100.0
Cost of revenue	Cost of revenue					Cost of revenue
Subscription and support	Subscription and support	14.0		14.7		Subscription and support	14.7		13.4		14.2		14.2
Professional services	Professional services	13.9		12.9		Professional services	14.6		12.4		14.3		12.7
Total cost of revenue	Total cost of revenue	27.9		27.6		Total cost of revenue	29.3		25.8		28.5		26.9
Gross profit	Gross profit	72.1		72.4		Gross profit	70.7		74.2		71.5		73.1
Operating expenses	Operating expenses					Operating expenses
Research and development	Research and development	31.5		33.6		Research and development	30.9		32.8		30.7		33.8
Sales and marketing	Sales and marketing	36.3		35.1		Sales and marketing	44.5		39.5		39.8		37.4
General and administrative	General and administrative	14.8		19.6		General and administrative	16.2		19.5		15.5		25.2
Total operating expenses	Total operating expenses	82.6		88.3		Total operating expenses	91.6		91.8		86.0		96.4
Loss from operations	Loss from operations	(10.5)		(15.9)		Loss from operations	(20.9)		(17.6)		(14.5)		(23.3)
Interest income						Interest income	2.0		0.6		1.2		0.5
Interest expense	Interest expense	(0.6)		(0.8)		Interest expense	(2.6)		(0.7)		(1.3)		(0.7)
Other income, net		0.5		0.6
Other expense, net						Other expense, net	—		(0.2)		(0.1)		0.1
Loss before provision for income taxes	Loss before provision for income taxes	(10.6)		(16.1)		Loss before provision for income taxes	(21.5)		(17.9)		(14.7)		(23.4)
Provision for income taxes	Provision for income taxes	—		—		Provision for income taxes	0.1		—		—		—
Net loss	Net loss	(10.6)	%	(16.1)	%	Net loss	(21.6)	%	(17.9)	%	(14.7)	%	(23.4)	%

Comparison of Three and Nine Months Ended ~~March 31,~~September 30, 2019 and 2018

Revenue


		Three months ended March 31,								Three months ended September 30,							Nine months ended September 30,
		2019		2018		% Change		2019		2018		% Change	2019		2018		% Change

		(dollars in thousands)										(dollars in thousands)
Revenue	Revenue						Revenue
Subscription and support	Subscription and support	$	56,123	$	46,470	20.8%	Subscription and support	$	63,022	$	51,306	22.8%	$	179,617	$	146,613	22.5%
Professional services	Professional services	$	13,840	$	13,436	3.0%	Professional services	$	11,157	$	9,567	16.6%	$	38,009	$	33,296	14.2%
Total revenue	Total revenue	$	69,963	$	59,906	16.8%	Total revenue	$	74,179	$	60,873	21.9%	$	217,626	$	179,909	21.0%

Total revenue increased ~~$10.1~~$13.3 million for the three months ended ~~March 31,~~September 30, 2019 compared to the same quarter a year ago due primarily to a ~~$9.7~~$11.7 million increase in subscription and support revenue. Growth in subscription and support revenue in the ~~first~~third quarter was attributable ~~mainly~~ to strong demand ~~and better pricing~~ for a broad range of ~~use cases, including SEC reporting, risk~~solutions and ~~controls, financial and managerial reporting, and capital markets.~~the continued conversion of existing customer accounts to a solution-based licensing model. Additionally, professional services revenue increased $1.6 million due in part to $0.9 million in certain XBRL professional services that we do not expect to continue in the next quarter. The total number of our customers expanded ~~7.9%~~5.0% from ~~March 31,~~September 30, 2018 to ~~March 31,~~September 30, 2019.

~~Professional services~~

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Total revenue increased ~~$0.4~~$37.7 million for ~~three~~the nine months ended ~~March 31,~~September 30, 2019 compared to the same ~~quarter~~period a year ago ~~as growth~~due primarily to a $33.0 million increase in ~~revenue from XBRL~~subscription and support revenue. Growth in professional services ~~over came~~revenue was attributable primarily to an increase in XBRL tagging services. Professional services revenue increased at a ~~decrease in~~slower rate than subscription and support revenue ~~from other services, which includes consulting.~~for the nine months ended September 30, 2019 compared to the same period a year ago. As our customers become familiar with our platform, they typically become more self sufficient and require fewer professional services. We expect the revenue growth rate from subscription and support to continue to outpace revenue growth from ~~professionals~~professional services on an annual basis.

~~Table of Contents~~

Cost of Revenue


		Three months ended March 31,								Three months ended September 30,							Nine months ended September 30,
		2019		2018		% Change		2019		2018		% Change	2019		2018		% Change

		(dollars in thousands)										(dollars in thousands)
Cost of revenue	Cost of revenue						Cost of revenue
Subscription and support	Subscription and support	$	9,809	$	8,802	11.4%	Subscription and support	$	10,924	$	8,139	34.2%	$	30,935	$	25,578	20.9%
Professional services	Professional services	9,727		7,709		26.2%	Professional services	10,827		7,520		44.0%	31,029		22,888		35.6%
Total cost of revenue	Total cost of revenue	$	19,536	$	16,511	18.3%	Total cost of revenue	$	21,751	$	15,659	38.9%	$	61,964	$	48,466	27.9%

Cost of revenue increased ~~$3.0~~$6.1 million during the three months ended ~~March 31,~~September 30, 2019 compared to the same quarter a year ago due primarily to ~~$1.6~~$4.0 million in higher cash-based compensation, benefits and travel costs ~~$0.4~~due mostly to increased headcount, $0.5 million of additional stock-based compensation, a $0.7 million increase in consulting fees and ~~a $0.5~~$0.6 million rise in the cost of cloud-based software and infrastructure services. Continued investment in and support of our new platform and solutions drove increases in headcount, consulting fees and cloud computing costs.

Cost of revenue increased $13.5 million during the nine months ended September 30, 2019 compared to the same period a year ago, due primarily to an increase in cash-based compensation, benefits and travel costs of $8.6 million due mostly to higher headcount, $1.4 million of additional stock-based compensation, a $1.7 million increase in consulting fees and a $1.5 million rise in the cost of cloud-based software and infrastructure services to support our expanding customer base. ~~We are continuing to invest~~The increases in ~~professional services, including to~~headcount and consulting fees were the result of our continued investment in and support of our new platform and solutions.

Three months ended March 31,
2019 2018 % Change
(dollars in thousands)
Operating expenses
Research and development $ 22,011 $ 20,127 9.4%
Sales and marketing 25,365 21,006 20.8%
General and administrative 10,383 11,768 (11.8)%
Total operating expenses $ 57,759 $ 52,901 9.2%
Operating Expenses


	Three months ended September 30,							Nine months ended September 30,
	2019		2018		% Change	2019		2018		% Change

	(dollars in thousands)
Operating expenses
Research and development	$	22,899	$	19,984	14.6%	$	66,705	$	60,829	9.7%
Sales and marketing	32,990		24,068		37.1%	86,568		67,326		28.6%
General and administrative	12,017		11,864		1.3%	33,626		45,286		(25.7)%
Total operating expenses	$	67,906	$	55,916	21.4%	$	186,899	$	173,441	7.8%

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Research and Development

Research and development expenses increased ~~$1.9~~$2.9 million in the three months ended ~~March 31,~~September 30, 2019 compared to the same quarter a year ago due primarily to ~~$0.6~~$1.4 million in higher cash-based compensation and benefits, ~~and travel costs, $0.9~~$0.6 million in additional stock-based compensation and a ~~$0.6~~$0.7 million increase in the cost of cloud infrastructure services. ~~Transitioning certain projects to internal teams allowed us to reduce consulting fees.~~ We continue to dedicate resources to developing the next generation of Wdesk, which has resulted in an increased investment in research and development.

Research and development expenses increased $5.9 million in the nine months ended September 30, 2019 compared to the same period a year ago due primarily to higher cash-based compensation, benefits, and travel costs of $2.3 million, additional stock-based compensation of $1.9 million and a $1.7 million increase in the cost of cloud-based software and infrastructure services.

Sales and Marketing

Sales and marketing expenses increased ~~$4.4~~$8.9 million during the three months ended ~~March 31,~~September 30, 2019 compared to the three months ended ~~March 31,~~September 30, 2018 due primarily to ~~$3.2~~$6.3 million in higher cash-based compensation, benefits, ~~and~~ travel costs, ~~and~~$0.8 million in additional stock-based compensation, a $0.9 million increase in the cost of ~~$0.9 million.~~marketing programs and a $0.7 million increase related to consulting and recruiting. Headcount in sales and marketing increased ~~9.1%~~25.5% in the quarter ended ~~March 31,~~September 30, 2019 compared to the same quarter a year ago. We expect to continue to invest in sales and marketing employees for future revenue growth. The increase in the cost of marketing programs is due to increased partnership and international expansion activity as well as costs related to our annual user conference.

Sales and marketing expenses increased $19.2 million during the nine months ended September 30, 2019 compared to the same period a year ago due primarily to higher cash-based compensation, benefits, and travel costs of $13.9 million, additional stock-based compensation of $2.2 million, an increase in professional service fees of $1.2 million related to consulting and recruiting, and an increase in the cost of marketing programs of $1.4 million. The increase in marketing programs was due to increased partnership and international marketing activities as well as an increase in costs related to our annual user conference.

General and Administrative

General and administrative expenses ~~decreased $1.4 million~~remained relatively flat in the three months ended ~~March 31,~~September 30, 2019 compared to the same quarter a year ~~ago due primarily to lower cash-based compensation, benefits, and travel costs of $1.0 million.~~ago. General and administrative expense as a percentage of revenue improved to ~~14.8%~~16.2% in the latest quarter from ~~19.6%~~19.5% the same quarter last year due primarily to a reduction of expenses for executive compensation. We expect a higher level of executive compensation expense beginning in the fourth quarter as a result of hiring a chief operating officer and associated staff.

General and administrative expenses decreased $11.7 million during the nine months ended September 30, 2019 compared to the same period a year ago. This decrease was due primarily to $8.5 million in lower cash-based compensation, benefits and travel as well as a $3.2 million decrease in stock-based compensation.

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Non-Operating Income (Expenses)


		Three months ended March 31,							Three months ended September 30,							Nine months ended September 30,
		2019		2018			2019		2018		% Change	2019		2018		% Change

		(dollars in thousands)							(dollars in thousands)
Interest income						Interest income	$	1,460	$	341	328.2%	$	2,593	$	843	207.6%
Interest expense	Interest expense	$	(440)	$	(450)	Interest expense	(1,959)		(448)		337.3%	(2,832)		(1,347)		110.2%
Other income, net		320		343
Other income and (expense), net						Other income and (expense), net	24		(138)		(117.4)%	(259)		195		(232.8)%

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

~~Interest expense and Other income, net remained relatively flat during~~During the three months ended ~~March 31,~~September 30, 2019, interest income increased $1.1 million compared to the same ~~period~~quarter a year ~~ago.~~ago due to increases in our investment accounts. Interest expense increased $1.5 million during the same time period because of the issuance of our senior convertible notes.

During the nine months ended September 30, 2019, interest income increased $1.8 million compared to the same quarter a year ago due to increases in our investment accounts. Interest expense increased $1.5 million during the same time period due to the issuance of our senior convertible notes.

Liquidity and Capital Resources


		Three months ended March 31,							Three months ended September 30,						Nine months ended September 30,
		2019		2018			2019		2018		2019		2018

		(in thousands)							(in thousands)
Cash flow provided by operating activities	Cash flow provided by operating activities	$	5,119	$	1,783	Cash flow provided by operating activities	$	4,697	$	7,582	$	28,579	$	6,819
Cash flow (used in) provided by investing activities		(16,592)		427
Cash flow used in investing activities						Cash flow used in investing activities	(54,465)		(2,410)		(79,150)		(9,640)
Cash flow provided by financing activities	Cash flow provided by financing activities	12,520		2,805		Cash flow provided by financing activities	344,306		9,093		362,023		14,425
Net increase in cash and cash equivalents, net of impact of exchange rates	Net increase in cash and cash equivalents, net of impact of exchange rates	$	1,152	$	4,923	Net increase in cash and cash equivalents, net of impact of exchange rates	$	294,411	$	14,348	$	311,540	$	11,510

As of ~~March 31,~~September 30, 2019, our principal sources of liquidity were cash, cash equivalents and marketable securities ~~totaled $114.4 million. To date, we~~totaling $484.8 million, which were held for working capital purposes. We have financed our operations primarily through the proceeds of ~~our initial public offering, private placements~~offerings of equity, convertible debt, ~~that was settled in equity~~ and cash from operating activities. We have generated significant operating losses and negative cash flows from operating activities as reflected in our accumulated deficit and consolidated statements of cash flows. WeWhile we expect to continue to incur operating losses in the ~~future. As a result,~~future, we ~~may require additional capital resources to continue to grow our business. We~~ believe that current cash and cash equivalents and cash ~~flows~~flow from operating activities ~~availability under our existing credit facility and the ability to offer and sell securities pursuant to our shelf registration statement~~ will be sufficient to fund our operations for at least the next twelve months. We also may choose to seek additional equity or debt financing.

In August 2014, we entered into a credit facility with Silicon Valley Bank, which provided us with a revolving line of credit. Under the agreement, we could borrow up to $15.0 million with interest accrued at the bank's prime lending rate. In August 2019, we terminated the 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 and 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 2020.

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~~Pursuant to the credit facility, a letter of credit totaling $500,000 was~~No amounts were outstanding at ~~March 31, 2019. This letter~~the time of credit, which reduces the availability under the credit facility, was issued as a maintenance deposit for an office lease. The letter of credit expires every year but has a feature that automatically renews the term for an additional year with an ultimate expiration date of February 28, 2030.termination.

We filed a universal shelf registration statement on Form S-3 with the SEC, which became effective August 10, 2017. Under the shelf registration statement, we may offer and sell, from time to time in the future in one or more public offerings, our Class A common stock, preferred stock, debt

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securities, warrants, rights and units. The aggregate initial offering price of all securities sold by us under the shelf registration statement will not exceed $250.0 million.

In August 2019, we issued $345.0 million aggregate principal amount of 1.125% convertible senior notes due 2026, including the exercise in full by the initial purchasers of their option to purchase an additional $45.0 million principal amount (the "Notes"). The Notes are senior, unsecured obligations and bear interest at a fixed rate of 1.125% per annum, payable semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 2020. Proceeds from the issuance of the Notes totaled $335.9 million, net of initial purchaser discounts and issuance costs.

Operating Activities

For the three months ended ~~March 31,~~September 30, 2019, cash provided by operating activities was ~~$5.1~~$4.7 million. The primary factors affecting our operating cash flows during the period were our net loss of ~~$7.5~~$16.1 million, adjusted for non-cash charges of ~~$0.9~~$1.1 million for depreciation and amortization of our property and equipment and intangible assets, ~~$8.2~~$9.2 million of stock-based compensation expense, $1.1 million for the amortization of our debt discount and issuance costs and a ~~$3.8~~$9.5 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a ~~$14.8~~$3.6 million decrease in accounts receivable, ~~and~~ a ~~$2.0~~$3.8 million increase in deferred revenue, ~~offset partially by~~and a ~~$2.0~~$5.4 million increase ~~in deferred commissions, a $3.2 million increase in prepaid expenses and other, a $1.5 million increase in other assets, a $4.5 million decrease~~ in accrued expenses and other liabilities partially offset by a $2.1 million increase in deferred commissions and a ~~$1.6~~$0.9 million ~~decrease~~increase in ~~accounts payable.~~other assets. Customer growth and contract renewals for longer terms accounted for most of the increase in deferred revenue. We offer limited incentives for customers to enter into contract terms for more than one year. Deferred commissions increased due primarily to ~~additional~~ payments made to our sales force related to the direct and incremental costs of obtaining a customer contract. The ~~decreases~~decrease in accounts receivable ~~accounts payable~~ and ~~accrued expenses and~~the increase in other ~~liabilities~~assets were attributable primarily to the timing of our billings, cash collections, and cash payments. The ~~increases~~increase in ~~prepaid~~accrued expenses and other ~~assets~~liabilities were ~~due~~attributable primarily to the timing of ~~payments relating to cloud infrastructure services and~~ our payment of annual ~~user conference.~~bonuses.

For the three months ended ~~March 31,~~September 30, 2018, cash provided by operating activities was ~~$1.8~~$7.6 million. The primary factors affecting our operating cash flows during the period were our net loss of ~~$9.6~~$11.0 million, adjusted for non-cash charges of ~~$0.9~~$1.1 million for depreciation and amortization of our property and equipment and intangible assets, ~~and $5.9~~$6.9 million of stock-based compensation expense, and a ~~$4.7~~$10.4 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a ~~$2.3~~$8.6 million ~~decrease~~increase in deferred revenue, a ~~$0.8~~$3.3 million ~~decrease~~increase in accrued expenses and other liabilities, a $0.6 million increase in accounts payable, and a ~~$1.6~~$2.5 million decrease in prepaid expenses partially offset by a $1.9 million increase in deferred commissions ~~offset partially by a $6.5 million decrease in accounts receivable~~ and a ~~$2.7~~$1.7 million increase in accounts ~~payable.~~receivable. Customer growth accounted for most of the increase in deferred revenue. We offer limited incentives for customers to enter into contract terms for more than one year. Deferred commissions increased primarily due ~~primarily~~ to additional payments made to our sales force related to the direct and incremental costs of obtaining a customer contract. The ~~decrease in deferred revenue was caused by the timing of contract renewals with terms greater than one year. The decreases~~increases in accounts receivable and ~~accrued expenses and other liabilities and increase in~~ accounts payable were primarily attributable ~~primarily~~ to the timing of our billings, cash collections, and cash payments. The increase in accrued expenses and other liabilities was attributable primarily to the timing of our payment of annual bonuses. The decrease in prepaid expenses was attributable primarily to the timing of payments for our annual user conference.

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For the nine months ended September 30, 2019, cash provided by operating activities was $28.6 million. The primary factors affecting our operating cash flows during the period were our net loss of $31.8 million, adjusted for non-cash charges of $2.9 million for depreciation and amortization of our property and equipment and intangible assets, $25.9 million of stock-based compensation expense, $1.1 million for amortization of our debt discount and issuance costs and a $30.7 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $14.1 million increase in deferred revenue, a $9.8 million increase in accrued expenses and other liabilities, a $21.5 million decrease in accounts receivable and a $1.8 million decrease in our operating right-of-use asset partially offset by a $8.0 million increase in deferred commissions, a $3.7 million increase in prepaid expenses and other, a $2.3 million increase in other assets and a $2.2 million decrease in our operating lease liability. Customer growth and contract renewals for longer terms accounted for most of the increase in deferred revenue. The increase in deferred commissions was primarily due to payments made to our sales force related to the direct and incremental costs of obtaining a customer contract. The increase in accrued expenses and other liabilities and decrease in accounts receivable were primarily attributable to the timing of our billings, cash collections, and cash payments. The increases in other assets and prepaid expenses was attributable primarily to timing of payments relating to cloud infrastructure services and our annual user conference.

For the nine months ended September 30, 2018, cash used in operating activities was $6.8 million. The primary factors affecting our operating cash flows during the period were our net loss of $42.4 million, adjusted for non-cash charges of $2.9 million for depreciation and amortization of our property and equipment and intangible assets, $23.3 million of stock-based compensation expense and a $22.7 million net change in operating assets and liabilities. Included in our net loss during the nine months ended September 30, 2018 was a $6.6 million cash payment made to our former CEO pursuant to a separation agreement. The primary drivers of the changes in operating assets and liabilities were a $15.0 million increase in deferred revenue, a $6.9 million increase in accrued expenses and other liabilities, a $2.0 million increase in accounts payable, a $4.6 million decrease in accounts receivable and a $0.7 million decrease in prepaid expenses partially offset by a $5.6 million increase in deferred commissions. Customer growth accounted for most of the increase in deferred revenue. The increase in deferred commissions was primarily due to additional payments made to our sales force related to the direct and incremental costs of obtaining a customer contract. The increases in accounts payable and decrease in accounts receivable were primarily attributable to the timing of our billings, cash collections, and cash payments. The increase in accrued expenses and other liabilities was attributable primarily to the timing of our payment of annual bonuses. The decrease in prepaid expenses was attributable primarily to timing of payments for our annual user conference.

Investing Activities

Cash used in investing activities of ~~$16.6~~$54.5 million for the three months ended ~~March 31,~~September 30, 2019 was due primarily to ~~$22.2~~$54.7 million in purchases of marketable securities partially offset by $1.5 million from maturities of marketable securities.

Cash used in investing activities of $2.4 million for the three months ended September 30, 2018 was due primarily to $6.4 million in purchases of marketable securities and ~~$1.7~~$0.5 million of capital expenditures partially offset by ~~$7.4~~proceeds of $4.6 million from ~~the~~ maturities of marketable securities. Our capital expenditures were associated primarily with ~~furniture and fixtures~~computer equipment in support of expanding our infrastructure and ~~workforce.~~work force.

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Cash ~~provided by~~used in investing activities of ~~$0.4~~$79.2 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 was due primarily to $95.5 million in purchases of marketable securities, $2.9 million in capital expenditures and $0.7 million in purchases of intangible assets partially offset by proceeds of $20.4 million from maturities of marketable securities. Our capital expenditures were associated primarily with computer and technology purchases in support of expanding our workforce.

Cash used in investing activities of $9.6 million for the nine months ended September 30, 2018 was due primarily to $17.7 million in purchases of marketable securities and $0.7 million of capital expenditures partially offset by proceeds of ~~$0.5~~$9.0 million from ~~the~~ maturities 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 ~~$12.5~~$344.3 million for the three months ended ~~March 31,~~September 30, 2019 was due primarily to ~~$11.1~~$335.9 million in proceeds from the issuance of our senior convertible notes, $5.9 million in proceeds from option exercises and ~~$2.1~~$2.8 million in proceeds from shares issued in connection with our employee stock purchase plan.

Cash provided by financing activities of $9.1 million for the three months ended September 30, 2018 was due primarily to $7.5 million in proceeds from option exercises and $1.8 million in proceeds from shares issued in connection with our employee stock purchase plan.

Cash provided by financing activities of $362.0 million for the nine months ended September 30, 2019 was due primarily to $335.9 million in proceeds from the issuance of our senior convertible notes, $22.5 million in proceeds from option exercises and $4.9 million in proceeds from shares issued in connection with our employee stock purchase plan partially offset by ~~$0.4~~$0.9 million in ~~taxes paid related to net share settlements of stock-based compensation awards.~~payments on financing obligations.

Cash provided by financing activities of ~~$2.8~~$14.4 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2018 was due primarily to ~~$3.1~~$13.9 million in proceeds from option exercises and ~~$1.4~~$3.2 million in proceeds from shares issued in connection with our employee stock purchase plan partially offset by ~~$1.3~~$1.9 million in taxes paid related to the net share settlements of stock-based compensation ~~awards.~~awards and $0.9 million in payments on capital lease and financing obligations.

Contractual Obligations and Commitments

~~There~~During 2019, we entered into certain non-cancelable agreements with third-party providers for our use of cloud services in the ordinary course of business.

In August 2019, we issued $345.0 million aggregate principal amount of 1.125% Convertible Senior Notes due 2026 (the "2026 Notes"). The 2026 Notes will mature on August 15, 2026, unless earlier redeemed, repurchased or converted.

Other than the convertible senior notes and cloud services purchase 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, 2018 filed with the SEC on February 20, 2019.

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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 accounting principles generally accepted in the United States. 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 ~~three~~nine months ended ~~March 31,~~September 30, 2019, 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, 2018 filed with the SEC on February 20, 2019.

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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, 2018. ~~Our~~Other than the items described below, our exposures to market risk have not changed materially since December 31, 2018.

Interest Rate Sensitivity

We had cash, cash equivalents and marketable securities totaling $484.8 million as of September 30, 2019. The cash, cash equivalents and marketable securities are held for working capital purposes, including the acquisition of, or investment in, complementary products, technologies, assets, solutions, or businesses. Our investments are made primarily for capital preservation purposes. We do not enter into investments for trading or speculative purposes.

Our cash and cash equivalents consist primarily of cash and money market funds. Our exposure to market risk for changes in interest rates is limited because our cash and cash equivalents have a short-term maturity and are used primarily for working capital purposes.

Our portfolio of marketable securities was invested primarily in commercial paper and U.S. corporate and U.S. treasury debt securities and is subject to market risk due primarily to changes in interest rates. Fixed rate securities may have their market value adversely affected due to a rise in interest rates. Accordingly, our future investment income may fluctuate as a result of changes in interest rates, or we may suffer losses in principal if we are forced to sell securities that decline in market value as a result of changes in interest rates. However, because we classify our marketable securities as “available for sale,” no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary.

An immediate increase of 100 basis points in interest rates would have resulted in an $853,000 market value reduction in our investment portfolio as of September 30, 2019. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur. Fluctuations in the value of our investment securities caused by a change in interest rates (gains or losses on the

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carrying value) are recorded in other comprehensive income, and are realized only if we sell the underlying securities.

In August 2019, we issued $345.0 million aggregate principal amount of 1.125% convertible senior notes due 2026. As these Notes have a fixed annual interest rate, we have no financial or economic interest exposure associated with changes in interest rates. However, the fair value of fixed rate debt instruments fluctuates when interest rates change. Additionally, the fair value can be affected when the market price of our common stock fluctuates. We carry the Notes at face value less unamortized discount on our balance sheet, and we present the fair value for required disclosure purposes only.

Item 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

~~During~~Under the ~~quarter ended March 31, 2019,~~supervision and with the participation of our management, including our principal executive officer and principal financial officer, we ~~finalized enhancements~~conducted an evaluation of any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and ~~modifications to existing internal controls~~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 ~~procedures to ensure compliance with new leasing guidance in accordance with ASC 842. These changes to our control environment were completed in the first quarter of 2019.~~

~~Other than the item noted above,~~principal financial officer concluded that there ~~was no~~has not been any material change in our internal control over financial reporting ~~identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred~~ during the ~~three months ended March 31, 2019~~quarter covered by this report that ~~has~~ 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 2018 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. Other than the item noted below, there have been no material changes during fiscal 2019 to the risk factors that were included in the Form 10-K.

Risks Related to Our Business and Industry

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States, including those related to leases.

Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and could affect the reporting of transactions completed before the announcement of a change.

In February 2016, the FASB issued guidance codified in ASC 842, Leases (ASU 2016-02), which amends the guidance in former ASC 840, Leases. We adopted this new standard on the effective date of January 1, 2019. The application of this guidance resulted in the addition of right-of-use assets and lease liabilities on the consolidated balance sheet. We have implemented changes to our accounting processes, internal controls and disclosures to support the new standard. See Note 1 to our accompanying condensed consolidated financial statements for information about ASU 2016-02.

Any difficulties in implementing new or revised accounting principles could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline, harm investors’ confidence in us, and adversely affect our stock price.

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.

In general, under Section 382 of the United States Internal Revenue Code of 1986, as amended (the "Code"), a corporation that undergoes an ownership change within the meaning of Section 382 of the Code and the underlying regulations is subject to limitations on its ability to utilize its pre-change net operating losses ("NOLs"), to offset future taxable income. If our existing NOLs are subject to limitations arising from previous ownership changes, our ability to utilize NOLs could be limited by Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. Furthermore, our ability to utilize the NOLs of companies that we may acquire in the future may be subject to limitations. There is also a risk that either under prior regulations or other unforeseen reasons, our prior year NOLs could expire or otherwise be

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unavailable to offset future income tax liabilities. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs, whether or not we attain profitability.

We have broad discretion to use the net proceeds from the offering of our convertible senior notes, which we may not use effectively.

We intend to use the net proceeds from our convertible note offering for working capital and other general corporate purposes, as well as the acquisition of, or investment in, complementary products, technologies, solutions, or businesses, although we currently have no commitments or agreements to enter into any such transactions. The net proceeds from that offering may be invested with a view towards long-term benefits for our stockholders and this may not increase our results of operations or market value. The failure by our management to apply those funds effectively may adversely affect our operations or business prospects.

The conditional conversion feature of our convertible senior notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of our convertible senior notes is triggered, holders of notes will be entitled to convert the notes at any time during specified periods at their option. If one or more holders elect to convert their notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our Class A common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

Conversion of our convertible senior notes may dilute the ownership interest of our stockholders or may otherwise depress the price of our Class A common stock.

The conversion of some or all of our convertible senior notes may dilute the ownership interests of our stockholders. Upon conversion of the notes, we have the option to pay or deliver, as the case may be, cash, shares of our Class A common stock, or a combination of cash and shares of our Class A common stock. If we elect to settle our conversion obligation in shares of our Class A common stock or a combination of cash and shares of our Class A common stock, any sales in the public market of our Class A common stock issuable upon such conversion could adversely affect prevailing market prices of our Class A common stock. In addition, the existence of the notes may encourage short selling by market participants that engage in hedging or arbitrage activity, and anticipated conversion of the notes into shares of our Class A common stock could depress the price of our Class A common stock.

Certain provisions in the indenture governing the notes offered in our convertible note offering may delay or prevent an otherwise beneficial takeover attempt of us.

Certain provisions in the indenture governing our convertible senior notes may make it more difficult or expensive for a third party to acquire us. For example, the indenture governing the notes will require us to repurchase the notes for cash upon the occurrence of a fundamental change (as defined in the indenture governing the notes) of us and, in certain circumstances, to increase the conversion rate for a holder that converts its notes in connection with a make-whole fundamental change. A takeover of us may trigger the requirement that we repurchase the notes and/or increase the conversion rate, which could make it more costly for a potential acquirer to engage in such takeover. Such additional costs may have the effect of delaying or preventing a takeover of us that would otherwise be beneficial to investors.

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Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including our convertible senior notes, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. In addition, holders of the notes will have the right to require us to repurchase their notes for cash upon the occurrence of certain fundamental changes. Upon conversion of the notes, unless we elect to deliver solely shares of our Class A common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the notes being converted. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

The accounting method for convertible debt securities that may be settled in cash, such as our convertible senior notes, could have a material effect on our reported financial results.

Under FASB Accounting Standards Codification 470-20, Debt with Conversion and Other Options, (ASC 470-20), an entity must separately account for the liability and equity components of convertible debt instruments (such as our convertible senior notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. ASC 470-20 requires the value of the conversion option of the notes, representing the equity component, to be recorded as additional paid-in capital within stockholders’ equity in our consolidated balance sheet and as a discount to the notes, which reduces their initial carrying value. The carrying value of the notes, net of the discount and issuance costs, will be accreted up to the principal amount of the notes from the issuance date until maturity, which will result in non-cash charges to interest expense in our consolidated statement of operations. Accordingly, we will report lower net income or higher net loss in our financial results because ASC 470-20 requires interest to include both the current period’s accretion of the debt discount and issuance costs and the instrument’s coupon interest, which could adversely affect our reported or future financial results, the trading price of our Class A common stock and the trading price of the notes.

In addition, under certain circumstances, convertible debt instruments (such as the notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the notes exceeds their principal amount, and the effect of the conversion on diluted earnings per share is not antidilutive. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of Class A common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the notes, then our diluted earnings per share would be adversely affected.

We may still incur substantially more debt or take other actions which would intensify the risks discussed above or in our Annual Report on Form 10-K.

We and our subsidiaries may incur substantial additional debt in the future, some of which may be secured debt. We will not be restricted under the terms of the indenture governing the notes from

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incurring additional debt, securing existing or future debt, recapitalizing our debt, repurchasing our stock, pledging our assets, making investments, paying dividends, guaranteeing debt, or taking a number of other actions that are not limited by the terms of the indenture governing the notes that could have the effect of diminishing our ability to make payments on the notes when due.

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.

~~Issuer Purchases of Equity Securities~~

The following table provides information about purchases of shares of our Class A Common Stock during the three months ended March 31, 2019 related to shares withheld upon vesting of restricted stock awards and units for tax withholding obligations:

Date
Total Number of Shares Purchased ⁽¹⁾
Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under Program
January 2019 6,704 $ 38.22 — —
February 2019 3,194 41.86 — —
March 2019 — — — —
Total 9,898 $ 39.39 — —

~~(1) Total number of shares delivered to us by employees to satisfy the mandatory tax withholding requirement upon vesting of stock-based compensation awards.~~

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Item 6. Exhibits

The following exhibits are being filed herewith or incorporated by reference herein:


Exhibit Number						Description

4.1						Indenture, dated August 16, 2019, between Workiva Inc. and U.S. Bank National Association (incorporated by reference from Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August 16,2019).

4.2						Form of 1.125% Convertible Senior Note due 2026 (incorporated by reference from Exhibit A to the Indenture filed as Exhibit 4.1 to the Company's Current Report on Form 8-K filed on August 16, 2019).

10.1						Employment agreement, dated September 6, 2019, between the Company and Julie Iskow.

31.1						Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2						Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~101.INS~~101						~~XBRL Instance Document -~~The following financial information from Workiva Inc.'s Quarterly Report on Form 10-Q for the ~~instance document does not appear~~quarter ended September 30, 2019 formatted in ~~the Interactive Data File because its XBRL tags are embedded within the~~ Inline XBRL ~~document.~~(Extensible Business Reporting Language) includes: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Loss, (iv) the Consolidated Statements of Changes in Stockholders Equity (Deficit), (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements.

~~101.SCH~~104						Cover Page Interactive Data File - (formatted as Inline XBRL ~~Taxonomy Extension Schema Document.~~and contained in Exhibit 101)

~~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.~~

3444

Table of Contents

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 ~~1st~~6th day of ~~May,~~November, 2019.


WORKIVA INC.

By:			/s/ Martin J. Vanderploeg, Ph.D.
Name:			Martin J. Vanderploeg, Ph.D.
Title:			President 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


WORKIVA INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (in thousands) (unaudited)

	Three months ended March 31, 2019
	Common Stock (Class A and B)
	Shares	Amount		Additional Paid-in-Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders' Equity (Deficit)
Balances at December 31, 2018	44,044	$	44	$	297,145	$	98	$	(307,027)	$	(9,740)
Stock-based compensation expense	—	—		8,193		—		—		8,193
Issuance of common stock upon exercise of stock options	961	1		11,054		—		—		11,055
Issuance of common stock under employee stock purchase plan	101	—		2,149		—		—		2,149
Issuance of restricted stock units	25	—		—		—		—		—
Tax withholdings related to net share settlements of stock-based compensation awards	(10)	—		(390)		—		—		(390)
Net loss	—	—		—		—		(7,463)		(7,463)
Other comprehensive income	—	—		—		52		—		52
Balances at March 31, 2019	45,121	$	45	$	318,151	$	150	$	(314,490)	$	3,856

	Three months ended March 31, 2018
	Common Stock (Class A and B)
	Shares	Amount		Additional Paid-in-Capital		Accumulated Other Comprehensive Income		Accumulated Deficit		Total Stockholders' Deficit
Balances at December 31, 2017	42,369	$	42	$	248,289	$	72	$	(265,337)	$	(16,934)
Cumulative-effect adjustment in connection with the adoption of ASU 2014-09	—	—		—		—		8,381		8,381
Stock-based compensation expense	—	—		5,905		—		—		5,905
Issuance of common stock upon exercise of stock options	296	1		3,075		—		—		3,076
Issuance of common stock under employee stock purchase plan	80	—		1,370		—		—		1,370
Issuance of restricted stock units	9	—		—		—		—		—
Tax witholdings related to net share settlements of stock-based compensation awards	(61)	—		(1,342)		—		—		(1,342)
Net loss	—	—		—		—		(9,618)		(9,618)
Other comprehensive loss	—	—		—		(56)		—		(56)
Balances at March 31, 2018	42,693	$	43	$	257,297	$	16	$	(266,574)	$	(9,218)


	Operating Leases
Remainder of 2019	$	3,011
2020	4,193
2021	4,233
2022	3,867
2023	3,536
Thereafter	11,255
Total minimum lease payments	30,095
Less: Amount representing interest	(6,509)
Total	$	23,586


	As of March 31,
	2019	2018
Operating metrics
Number of customers	3,366	3,119
Subscription and support revenue retention rate	95.7%	95.7%
Subscription and support revenue retention rate including add-ons	110.7%	105.3%
Number of customers with annual contract value $100k+	493	335
Number of customers with annual contract value $150k+	207	151


Date	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under Program
January 2019	6,704	$	38.22	—	—
February 2019	3,194	41.86		—	—
March 2019	—	—		—	—
Total	9,898	$	39.39	—	—