Workiva (NYSE:WK) Surprises With Q3 Sales But Quarterly Guidance Underwhelms

Petr Huřťák /
2023/10/30 4:29 pm EDT

Financial and compliance reporting software company Workiva (NYSE:WK) reported Q3 FY2023 results beating Wall Street analysts' expectations, with revenue up 19.1% year on year to $158.2 million. Revenue guidance for the full year also exceeded analysts' estimates but next quarter's guidance of $164.5 million was less impressive, coming in 1.31% below expectations. Turning to EPS, Workiva made a non-GAAP loss of $0.65 per share, down from its loss of $0.15 per share in the same quarter last year.

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Workiva (WK) Q3 FY2023 Highlights:

  • Revenue: $158.2 million vs analyst estimates of $155.6 million (1.65% beat)
  • EPS (non-GAAP): -$0.65 vs analyst estimates of $0.04 (-$0.69 miss)
  • Revenue Guidance for Q4 2023 is $164.5 million at the midpoint, below analyst estimates of $166.7 million
  • Free Cash Flow of $14.1 million, down 44.4% from the previous quarter
  • Net Revenue Retention Rate: 112%, in line with the previous quarter
  • Customers: 5,945, up from 5,860 in the previous quarter
  • Gross Margin (GAAP): 75.8%, in line with the same quarter last year

"Workiva delivered another solid quarter, achieving subscription revenue growth of 21% and an operating profit that beat the high end of our guidance," said CEO Julie Iskow.

Founded in 2010, Workiva (NYSE:WK) offers software as a service product that makes financial and compliance reporting easier, especially for publicly traded corporations.

Compliance Software

The demand for software platforms that automate compliances processes is rising as keeping up with the latest financial reporting regulations and standards is difficult and expensive, especially as companies increasingly operate across several geographical regions with varying rules.

Sales Growth

As you can see below, Workiva's revenue growth has been strong over the last two years, growing from $112.7 million in Q3 FY2021 to $158.2 million this quarter.

Workiva Total Revenue

This quarter, Workiva's quarterly revenue was once again up 19.1% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $3.15 million in Q3 compared to $4.83 million in Q2 2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter's guidance suggests that Workiva is expecting revenue to grow 14.4% year on year to $164.5 million, slowing down from the 19.1% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 16% over the next 12 months before the earnings results announcement.

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Customer Growth

Workiva reported 5,945 customers at the end of the quarter, an increase of 85 from the previous quarter. That's a little slower customer growth than what we've observed in past quarters, suggesting that the company's customer acquisition momentum is slowing.

Workiva Customers

Key Takeaways from Workiva's Q3 Results

With a market capitalization of $5.02 billion, Workiva is among smaller companies, but its $782.4 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.

It was good to see Workiva slightly improve its gross margin this quarter. We were also happy its revenue narrowly outperformed Wall Street's estimates, driven by better-than-expected subscription and support revenue. On the other hand, its decelerating customer growth missed expectations and its revenue guidance for next quarter underwhelmed. Overall, the results could have been better. The company is down 3.33% on the results and currently trades at $88.55 per share.

Workiva may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.