Adam Rogers - IR Matt Rizai - Chairman and CEO Stuart Miller - VP, Treasurer and CFO Marty Vanderploeg - President and COO.

Jeff Houston - Northland Securities Steve Ashely - Robert W. Baird Alexander Du - Credit Suisse.

Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Workiva Inc. First Quarter 2016 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Adam Rogers, Senior Manager of Investor Relations; you may begin your conference..

Thank you and good afternoon, everyone. And welcome to the Workiva first quarter 2016 earnings conference call. This afternoon, we'll begin with comments from Chairman and Chief Executive Officer, Matt Rizai; followed by Executive Vice President, Treasurer and Chief Financial Officer, Stuart Miller. And then we'll turn the call over to questions.

Also on the line today are Marty Vanderploeg, President and Chief Operating Officer; and Mike Sellberg, Executive Vice President and Chief Product Officer. A replay of this call will be available until May 11. Information to access the replay is listed in today's press release, which is available on our website under the Investor Relations section.

As a reminder, today's conference call is also being broadcast live via webcast. Before we begin, I'd like to remind everyone that during today's call we'll be making forward-looking statements regarding future events and financial performance, including guidance for our second quarter and full fiscal year 2016.

These forward-looking statements are subject to known and unknown risks and uncertainties. Workiva cautions that these statements are not guarantees of future performance.

All forward-looking statements made today reflect our current expectations only, and we undertake no obligations to update any statement to reflect the events that occur after this call.

Please refer to the company's Annual Report on Form 10-K or quarterly report on Form 10-Q for factors that could cause our actual results to differ materially from any forward-looking statements. Also during the course of today's call, we will refer to certain non-GAAP financial measures.

Reconciliations of non-GAAP to GAAP measures, and certain additional information, are also included in today's earnings press release. And with that, we'll begin by turning the call over to our Chairman and CEO, Matt Rizai..

Thank you, Adam. And thanks to everyone for joining us today to discuss our first quarter 2016 results. Workiva is off to a strong start this year. Total revenue for the first quarter was $44.6 million, an increase of 27% over Q1 of 2015. With subscription and support revenue up 28% and Professional services revenue up 23%.

We outperformed our guidance for quarterly revenue, operating loss and loss per share. As a result, we’re increasing our full year 2016 guidance which Stuart will discuss in more detail later in the call. Today, we are reaffirming our expectations that for the full year of 2016, Workiva will use less cash from operations than we did in 2015.

We expect further improvements in 2017. We continue to sign new Wdesk customers as well as add-seats within existing customers in our non-SEC markets including Sarbanes-Oxley, risk proceeds and management reporting and adjacent markets like enterprise risk management and audit management.

Growth on these expanded markets post our expectations that non-SEC used cases will contribute more than 50% of our subscription bookings for the full year 2016. I want to give you some examples of these non-SEC used cases that show breadth and depth of Wdesk.

Several insurance companies including American Enterprise Group, Aon Corporation and Donegal Group employers holding in United Fire Group used Wdesk to streamline the Model Audit Rule compliance process which is very similar to SOX.

The California Lottery system uses Wdesk for budget and planning and to create its comprehensive annual financial report also known as CAFR. The CAFR reports are very similar to 10-K reports that public companies must file. A cloud base e-commerce company use Wdesk for its S1 process for its IPO and more recently for its follow-on offering.

KC Jewel Stores is using Wdesk for internal audit and budgeting. A large real estate holding company is currently moving a massive budget project into Wdesk. And a leading global investment management company is using Wdesk to create and file investment practices.

We continue to see strong demand for Wdesk in the SOX markets because it streamlines how teams document, implement and assess internal controls over financial reporting. Here are some of the customer examples for SOX. A Hawaiian Electric turned to Wdesk to replace its legacy work processing and spreadsheet software for SOX and internal controls.

With Wdesk they decreased their time to spend on redundant administrative activities. Wdesk gives them that more times to examine and analyze their risks and controls.

Invesco Mortgage also replaced its legacy system with Wdesk to manage their SOX process, immediately benefitted some linking, version control, collaboration during testing and accountability among process owners. Wdesk for SOX and internal controls recently won Silver Edison award in the Applied Technologies Financial Solution’s category.

In the regulatory risk market, we continue to win new businesses for resolution and recovery plans known as RRP, comprehensive capital analysis and review called CCAR, Dodd-Frank Act Stress Test or DFAST and Own risk and solvency assessment known as ORSA among risk reports.

For example, a global bank customer has hundreds of Wdesk users who create CCAR, RRP, SEC, SPDR which is required in Canada and other annual and floor financial reports. We also see growing demand within private companies.

For example, Cloudera, a large private data management analytics platform provider uses Wdesk for quarterly financial reports to their stakeholders including investors, option holders, board of directors, audit committee and executing management.

And a privately held regional medical center uses Wdesk for comparative budget analysis on a monthly and year-to-date basis. They also give Wdesk for departmental management reports and a variety of hospital performance metrics.

We are encouraged about the growth opportunities for Wdesk enterprise risk management or ERM which executives used to identify systemic risks, determine and assess risk magnitude and plans strategic responses.

For example, we have a large regional bank customer that uses Wdesk for SEC, SOX and internal proceeds and they recently added a significant number of seats for a companywide ERM project. As I mentioned on the last call, in the fourth quarter of 2015 we began marketing Wdesk to broad based audit management market.

Along with ERM, audit management is a subset of a larger market that’s defined as governance, risks and compliance known GRC. We currently have several customers in the beta stage of audit planning and risks assessment where we see a lot of expansion opportunities. One of the reasons why our customers adopt Wdesk because it's significant ROI.

We announced some examples of our customer’s ROI in press releases this quarter. They included a study by for us to consulting that short a large auto parts retailer saved more than $400,000 and achieved then ROI of 238% by using Wdesk's streamline SOX and internal control processes.

Bel Fuse, a diversified electronics company that saved more than $500,000 in 2015 by using Wdesk to manage its SOX process throughout its global operations. And a large public insurance company that saved over $200,000 by using Wdesk to prepare its SEC form and full registration statement for variable annuity contracts.

Press releases this quarter also announced Wdesk expansion across our customer’s organizations.

They included FEL Financials that uses Wdesk for SEC reporting, investor relations, ORSA an internal management reports as well as other risks regulatory and internal documents, JLL Income Property Trust and its advisor LaSalle Investment management that called Wdesk a slim dunk for efficiency gains and uses Wdesk to manage over 80 regulatory filings and internal reports including SEC, SOX companywide fun reporting and a variety of quarterly and annual management reports.

An American Enterprise Group, a privately held insurance company that uses Wdesk to produce internal management reports and presentations create annual statutory put notes and audit reports and manage Model Audit Role, compliance that involves 13 business processes and 55 control owners.

As I have mentioned in past calls we often add seats throughout our customer’s organization after an initial contract for single used case. However, we are seeing more initial contracts for multiple departments across the company.

For example, Micra Electronics Manufacturer signed an initial contract for its finance, communication, legal, sales, investor relations and sustainability departments.

And GCP Applied Tech which supplies construction materials signed initial contract for SEC reporting, SOX and internal controls, management reporting, data collection and certain cases. So as we can see we’re focused on driving the non-SEC side of our business.

We believe we have just begun to scratch the surface of these large low end market and therefore, we’re continuing to invest in software development, sales and marketing to help Workiva grow. On Monday, Workiva won two American Business awards, also known as Stevie awards.

We won a Silver Stevie award for the most innovative technology company of the year and a Bronze Stevie award for most innovative company of the year. Both categories were companies with fewer than 2500 employees. Finally, we are looking forward to our fifth annual user conference, September 7 in San Diego.

We will offer more than 50 sessions on SOX and internal controls, SEC compliance, risk mitigation, accounting and finance processes, XBRL training, on structure data collection and other advanced ways to use Wdesk. In summary, our first quarter was strong.

Adoption of Wdesk continues to gain traction with new and existing customers and our sales pipeline continues to build. We are excited about the multiple growth opportunities in front of us and we remained focused on executing on our initiatives. With that, let met turn it over to Stuart Miller..

Thank you. As Matt mentioned, our first quarter result exceeded our expectations and we continue to see positive momentum in market. We generated total revenue in the first quarter $44.6 million, an increase of 26.7% from the first quarter last year. Breaking out revenue by reporting line item.

Subscription and support revenue was $33.6 million up 27.9% from Q1 of 2015. 51.4% of the increase came from deeper penetration of our existing customer base. The remaining 48.6% of the S&S revenue increase in Q1fame for new customers added in the last 12 months. The average contract values on subscription support from all customers continue to rise.

Professional services revenue was $11 million, an increase of 23.4% from the first quarter of 2015. Higher customer account and services for non-SEC used cases accounted for the majority of growth in the services revenue.

Turning to our supplemental metrics, we finished the first quarter with 2557 customers, a net increase of 267 customers from Q1 of 2015, and a net increase of $33 from Q4 of 2015. Our subscription support revenue retention rate excluding add-ons was 96.1% for the month of March 2016 compared with 95.8% in December of 2015.

Once again, customers being acquired or seasoned to file SEC reports accounted for over half of the revenue attrition. With add-ons our subscription and support revenue retention rate was 112.1% for the month of March 2016 compared with 112.5% in December 2015.

Increased subscription revenue on non-SEC use cases from existing customers continues to be the primary driver of our add-on revenue retention rate. Moving down the income statement, I will talk about our results [technical difficulty] before stock-based compensation, in other words, on a GAAP basis.

Please refer to our press release for a reconciliation of our non-GAAP and GAAP results. Gross profit was $31.7 million in the first quarter, up 23.5% from the same quarter a year ago; representing a gross margin of 71.1% compared a gross margin of 73.0% in the first quarter of 2015.

Now breaking out gross profit, subscription and support gross profit was $26.8 million, equating to a gross margin of 79.8% on S&S revenue; compared to $20.5 million or a 78% gross margin in the first quarter of 2015. Improved efficiency of our customer success team and higher subscription prices accounted for the margin expansion.

Professional services gross profit in the first quarter was $4.9 million, equating to a 44.7% gross margin, compared to $5.1 million or 58.3% gross margin in the same period last year. We have increased both FTEs and cash compensation in the past year, to handle the growing demand for services around our SOX in regulated risk use cases.

Turning to operating expenses; research and development expense in the first quarter was $13.9 million, an increase of 19.3% from $11.7 million in the prior year's first quarter due to higher compensation and additional staff as we continue to dedicated resources to building the next generation of Wdesk.

Our R&D, expense as a percentage of revenue this quarter declined to 31.3%, compared to 33.2% in Q1 last year. Sales and marketing expense increased 47% over Q1 of 2015, to $19.6 million, driven primarily by higher compensation and additional headcount in line with our expectations.

Expanded marketing programs accounted for the remaining part of the increase. General and administrative expenses were $6.8 million in Q1, an increase of 26.4%, compared with $5.4 million in the first quarter of 2015, driven by higher compensation and additional staff used to support the growth of our business.

Operating loss was $8.7 million in the first quarter of 2016, compared to $4.8 million in the same period last year. Net loss was $8.7 million for the first quarter of 2016 compared to the net loss of $5.3 million in the first quarter of 2015.

We posted a net loss per share of $0.21 in the first quarter of 2016 compared to a net loss per share of $0.13 the same quarter a year ago.

Turning to our balance sheet and our statement of cash flows; at March 31, 2016, we had cash, cash equivalents, and marketable securities of $55.9 million, a decrease of $20.3 million compared with the balance at December 31, 2015.

In the first quarter of 2016, net cash used in operating activities was $19.1 million, compared with $9.2 million in the same quarter a year ago. Today, we're reaffirming our expectation that for the full year 2016, Okemo will use less cash from operations than we did in 2015. We expect further improvement in 2017.

As spoke on our last conference call, Symlink about the seasonality of our cash flow from operations, noting the cash use is greatest in the first quarter. To recap, Okemo typically pays cash bonuses to employees in the first quarter.

Also as we deliver professional services in the first quarter, we burn off short-term deferred revenue related to services that were invoiced during the prior, which appears as use of cash on that line item in Q1.

Consistent with my comments last time, our cash use in Q1 was attributable to three major factors, our loss from operations, our payment of annual cash bonuses to employees, and the seasonal decline of deferred revenue.

At March 31, 2016, deferred revenue declined $3.2 million from year end 2015, primarily due to a seasonal drop of $2.4 million in deferred revenue from professional service. In addition launch from deferred revenue declined $459,000 during the quarter, consistent with our plan to reduce incentives for multiyear contract.

Our short-term subscription support deferred revenue declined $323,000 during the quarter. All of the decline in short-term subscription support deferred revenue was attributable multiyear contract approaching their renewal date. Turning to our guidance on our income statement for 2016.

Our guidance on a non-GAAP loss from operations and non-GAAP loss per shares, excludes the impact of stock-based compensation. Please refer to our press release for a reconciliation of our non-GAAP and GAAP guidance. For the second quarter of 2016, we expect total revenue to range from $41.7 million to $42.2 million.

We expect non-GAAP operating loss to range from $13.5 million to $14 million. GAAP operating loss was expected to be in the range of $17.2 million to $17.7 million. We expect non-GAAP net loss per share to range from $0.34 to $0.35. GAAP loss per share is expected to be in the range of $0.43 to $0.44.

Our loss per share guidance seems $40.8 million basic and diluted shares outstanding. We're raising our guidance for the full fiscal year 2016 as follows. We expect total revenue to range from $179.2 million to $181.2 million. We expect non-GAAP operating loss to be in the range of $45.5 million to $47.5 million.

GAAP operating loss is expected to range from $60.2 million to $62.2 million. Non-GAAP net loss per share is expected to be in the range of $13 to $18. Finally, GAAP operating loss per share is expected to range from $1.49 to $1.54. A loss per share guidance for the full year seems 41 million basis in diluted shares outstanding.

In summary, we will keep posting another strong quarter, demand remains robust for our solutions and we remain focused on executing our growth plans to capital on our multi-billion dollar opportunity. We will now take your questions. Operator, we are ready to begin the Q&A session..

[Operator Instructions] Your first question is from Jeff Houston from Northland..

Hey, guys thanks for taking my question.

Looking at the upside in the quarter where to assume that most of that came from the non-SEC business or was it mix of both SEC and non-SEC?.

Yeah. We -- this is Matt. We don’t really break out the revenue breakout as we mentioned and Stuart mentioned that we won’t give you at the end of the year what that breakout is within the context of bookings.

And we also are communicating with you that we are expecting the SEC, Non-SEC bookings is going to be greater than 6%, but we don’t do a break up for revenue split per year yet..

Great, makes sense.

And then looking at the cash flow guidance Stuart last year I think it was negative $21.5 million cash from operations and free to hit that the guidance of improved cash flow from operations this year since you lost $19 million in the first quarter is it safe to assume remaining three quarters should be flat to positive?.

Well, I guess we’re comfortable with the guidance we have given and so it’s going to be fluctuations around each quarter, but we are definitely giving guidance for 21.6. .

Okay. Thank you..

Thank you..

Your next question is from Steve Ashely from Robert W. Baird..

Perfect.

I would just like to ask on the non-SEC business, if we just look at that as maybe a pie chart and just trying to understand how of that business is SOX and I am not looking for an exact number here but I am looking for just some color commentary of how much of non-SEC does the SOX business represents maybe on a subscription bookings basis?.

Yes, Steve I think we are not going to break that down, but non-SEC as we have mentioned includes SOX, management reporting and regulated risk and those are probably the main areas that at least for this year we are seeing a lot of and some economic and finance side especially with private company.

So overall those are the areas that we see quite a bit of attention and demand but we are not ready to give you a split on each of those categories yet..

And then Stuart new customers that you bring in are you able to get annual billings terms for them and then secondarily have you had any success being able to maybe convert any existing quarterly billing customers over to annual?.

We have as you know we have standardized around annual contract starting second quarter last year for new customer and I think that’s going well. We have been endeavoring to converge existing customers and have made some progress there, but we got a long way to go..

Thank you..

[Operator Instructions] The next question is from Michael Nemeroff with Credit Suisse..

Hi, guys. Thanks for taking the question. This is Alex on for Michael. One question if I may, just given the ramp and sales investments over the past couple of quarters. Can you provide an update on how productivity has been trending, are you seeing a positive and improving contribution margins from your incremental sales for hire.

And if you could can you show any metric or clarify anyway for us? Thanks..

Well, this is Marty and I would say that most of those new hires were in sort of a new markets and we are seeing improved efficiencies in those but it's still early. I mean most of those folks have been on six months or less. And so it’s a little early but we are seeing some good signs there..

All right good thanks..

There are not further questions at this time. I will turn the call over to Matt for closing comments..

In closing I want to thank you for joining us today and operator you may now end the call..

This concludes today’s conference call you may now disconnect..