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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
(Mark One)
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2016
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)
___________________________________

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer    o
Accelerated filer ý
 
 
Non-accelerated filer    o    (Do not check if a smaller reporting company)
Smaller reporting company 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 August 1, 2016, there were approximately 29,917,822 shares of the registrant's Class A common stock and 11,140,888 shares of the registrant's Class B common stock outstanding.





WORKIVA INC.
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


i

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, 2015, 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.

ii

Table of Contents

Part I. Financial Information
Item 1.     Financial Statements
WORKIVA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
As of June 30, 2016
 
As of December 31, 2015
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
39,885

 
$
58,750

Marketable securities
11,044

 
17,420

Accounts receivable, net of allowance for doubtful accounts of $886 and $713 at June 30, 2016 and December 31, 2015, respectively
18,260

 
15,647

Deferred commissions
1,500

 
1,368

Other receivables
897

 
818

Prepaid expenses and other current assets
5,387

 
3,875

Total current assets
76,973

 
97,878

 
 
 
 
Property and equipment, net
43,619

 
44,410

Intangible assets, net
978

 
896

Other assets
1,126

 
711

Total assets
$
122,696

 
$
143,895

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
 
 
 
Accounts payable
$
4,965

 
$
5,138

Accrued expenses and other current liabilities
14,697

 
20,394

Deferred revenue
57,291

 
55,741

Deferred government grant obligation
1,003

 
985

Current portion of capital lease and financing obligations
1,625

 
1,808

Current portion of long-term debt
20

 
18

Total current liabilities
79,601

 
84,084

 
 
 
 
Deferred revenue
8,340

 
7,597

Deferred government grant obligation
1,497

 
1,996

Other long-term liabilities
4,026

 
3,343

Capital lease and financing obligations
20,358

 
21,083

Long-term debt
53

 
73

Total liabilities
113,875

 
118,176

 
 
 
 
Stockholders’ equity
 
 
 
Class A common stock, $0.001 par value per share, 1,000,000,000 shares authorized, 29,646,146 and 29,014,665 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively
30

 
29

Class B common stock, $0.001 par value per share, 500,000,000 shares authorized, 11,403,350 and 11,933,784 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively
11

 
12

Preferred stock, $0.001 par value per share, 100,000,000 shares authorized, no shares issued and outstanding

 

Additional paid-in-capital
209,022

 
202,371

Accumulated deficit
(200,504
)
 
(176,934
)
Accumulated other comprehensive income
262

 
241

Total stockholders’ equity
8,821

 
25,719

Total liabilities and stockholders’ equity
$
122,696

 
$
143,895

See accompanying notes.

1

Table of Contents

WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Revenue
 
 
 
 
 
 
 
Subscription and support
$
34,969

 
$
28,085

 
$
68,554

 
$
54,354

Professional services
8,042

 
5,883

 
19,008

 
14,768

Total revenue
43,011

 
33,968

 
87,562

 
69,122

Cost of revenue
 
 
 
 
 
 
 
Subscription and support
7,039

 
5,564

 
13,957

 
11,449

Professional services
5,538

 
4,189

 
11,726

 
7,966

Total cost of revenue
12,577

 
9,753

 
25,683

 
19,415

Gross profit
30,434

 
24,215

 
61,879

 
49,707

Operating expenses
 
 
 
 
 
 
 
Research and development
14,047

 
12,196

 
28,563

 
24,204

Sales and marketing
19,828

 
16,329

 
39,916

 
30,034

General and administrative
7,882

 
6,291

 
16,835

 
13,025

Total operating expenses
41,757

 
34,816

 
85,314

 
67,263

Loss from operations
(11,323
)
 
(10,601
)
 
(23,435
)
 
(17,556
)
Interest expense
(468
)
 
(513
)
 
(958
)
 
(1,023
)
Other income and (expense), net
278

 
191

 
854

 
125

Loss before provision for income taxes
(11,513
)
 
(10,923
)
 
(23,539
)
 
(18,454
)
Provision for income taxes
12

 
106

 
31

 
22

Net loss
$
(11,525
)
 
$
(11,029
)
 
$
(23,570
)
 
$
(18,476
)
Net loss per common share:
 
 
 
 
 
 
 
Basic and diluted
$
(0.28
)
 
$
(0.28
)
 
$
(0.58
)
 
$
(0.47
)
Weighted average common shares outstanding - basic and diluted
40,593,908

 
39,627,842

 
40,522,790

 
39,610,905

See accompanying notes.



2

Table of Contents

WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Net loss
$
(11,525
)
 
$
(11,029
)
 
$
(23,570
)
 
$
(18,476
)
Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of income tax benefit of $21 and $16 for the three months ended June 30, 2016 and 2015, respectively, and net of income tax benefit (expense) of $21 and ($44) for the six months ended June 30, 2016 and 2015, respectively
68

 
(24
)
 
(33
)
 
45

Unrealized (loss) gain on available-for-sale securities, net of income tax (expense) of ($33) and $0 for the three months ended June 30, 2016 and 2015, respectively, and net of income tax (expense) of ($33) and $0 for the six months ended June 30, 2016 and 2015, respectively
(21
)
 

 
54

 

Other comprehensive income (loss), net of tax
47

 
(24
)
 
21

 
45

Comprehensive loss
$
(11,478
)
 
$
(11,053
)
 
$
(23,549
)
 
$
(18,431
)
See accompanying notes.



3

Table of Contents

WORKIVA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Three months ended June 30,
 
Six months ended June 30,
 
2016

2015
 
2016
 
2015
Cash flows from operating activities
 
 
 
 
 
 
 
Net loss
$
(11,525
)
 
$
(11,029
)
 
$
(23,570
)
 
$
(18,476
)
Adjustments to reconcile net loss to net cash used in operating activities
 
 
 
 
 
 
 
Depreciation and amortization
975

 
1,127

 
1,972

 
2,296

Stock-based compensation expense
3,502

 
2,620

 
6,892

 
4,794

Provision for doubtful accounts
48

 
52

 
170

 
126

Realized gain on sale of available-for-sale securities
(4
)
 

 
(6
)
 

Amortization (accretion) of premiums and discounts on marketable securities, net
36

 

 
75

 

Recognition of deferred government grant obligation
(230
)
 
(206
)
 
(663
)
 
(272
)
Deferred income tax
(12
)
 

 
(12
)
 

Changes in assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
(1,844
)
 
(584
)
 
(2,725
)
 
(1,495
)
Deferred commissions
(117
)
 
(32
)
 
(129
)
 
113

Other receivables
142

 
(424
)
 
(82
)
 
(612
)
Prepaid expenses and other
(1,327
)
 
(65
)
 
(1,513
)
 
79

Other assets
(323
)
 
38

 
(386
)
 
94

Accounts payable
797

 
1,262

 
101

 
1,419

Deferred revenue
5,399

 
2,514

 
2,184

 
1,842

Accrued expenses and other liabilities
447

 
2,046

 
(5,422
)
 
(1,846
)
Change in restricted cash

 
73

 

 
101

Net cash used in operating activities
(4,036
)
 
(2,608
)
 
(23,114
)
 
(11,837
)
 
 
 
 
 
 
 
 
Cash flows from investing activities
 
 
 
 
 
 
 
Purchase of property and equipment
(597
)
 
(159
)
 
(1,009
)
 
(1,030
)
Purchase of marketable securities
(802
)
 

 
(802
)
 

Sale of marketable securities
2,404

 

 
7,197

 

Purchase of intangible assets
(59
)
 
(195
)
 
(114
)
 
(278
)
Net cash provided by (used in) investing activities
946

 
(354
)
 
5,272

 
(1,308
)
 
 
 
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
 
 
 
Payment of equity issuance costs

 
(273
)
 

 
(1,346
)
Proceeds from option exercises
236

 
353

 
520

 
433

Taxes paid related to net share settlements of stock-based compensation awards

 

 
(761
)
 

Changes in restricted cash

 

 

 
300

Repayment of other long-term debt
(18
)
 
(42
)
 
(18
)
 
(67
)
Principal payments on capital lease and financing obligations
(476
)
 
(483
)
 
(908
)
 
(1,161
)
Distributions to members

 
(35
)
 

 
(35
)
Proceeds from government grants

 

 
183

 
313

Payments of issuance costs on line of credit
(33
)
 

 
(33
)
 

Net cash used in financing activities
(291
)
 
(480
)
 
(1,017
)
 
(1,563
)
Effect of foreign exchange rates on cash
40

 
(19
)
 
(6
)
 
9

 
 
 
 
 
 
 
 
Net decrease in cash and cash equivalents
(3,341
)
 
(3,461
)
 
(18,865
)
 
(14,699
)
Cash and cash equivalents at beginning of period
43,226

 
89,893

 
58,750

 
101,131

Cash and cash equivalents at end of period
$
39,885

 
$
86,432

 
$
39,885

 
$
86,432

 
 
 
 
 
 
 
 
Supplemental cash flow disclosure
 
 
 
 
 
 
 
Cash paid for interest
$
470

 
$
496

 
$
792

 
$
919

Cash paid for income taxes, net of refunds
$
40

 
$

 
$
48

 
$

 
 
 
 
 
 
 
 
Supplemental disclosure of noncash investing and financing activities
 
 
 
 
 
 
 
Fixed assets acquired through capital lease arrangements
$

 
$
343

 
$

 
$
527

Allowance for tenant improvements
$
215

 
$

 
$
401

 
$
698

Accrued distributions to members
$

 
$

 
$

 
$
60

Purchases of property and equipment, accrued but not paid
$
82

 
$

 
$
82

 
$

See accompanying notes.



4

Table of Contents
WORKIVA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1. Organization and Significant Accounting Policies
Organization
Workiva Inc., a Delaware corporation, and its wholly-owned subsidiaries created Wdesk, a cloud-based platform for enterprises to collect, link, report and analyze business data with control and accountability. The Wdesk proprietary word processing, spreadsheet and presentation applications are integrated and built upon a data management engine, offering synchronized data, controlled collaboration, granular permissions and a full audit trail. We offer our customers solutions in the areas of compliance, risk, finance, accounting, and audit management. Our operational headquarters are located in Ames, Iowa, with additional offices located in the United States, Europe and Canada.
Basis of Presentation and Principles of Consolidation
The financial information presented in the accompanying unaudited condensed consolidated financial statements has been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and in accordance with rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated balance sheet data as of December 31, 2015 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. The condensed consolidated financial information should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the SEC on March 1, 2016. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of our financial position and results of operations. The operating results for the three and six months ended June 30, 2016 are not necessarily indicative of the results expected for the full year ending December 31, 2016.
The unaudited condensed consolidated financial statements include the accounts of Workiva Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and various other assumptions believed to be reasonable. These estimates include, but are not limited to, the determination of the relative selling prices of our services, health insurance claims incurred but not yet reported, collectability of accounts receivable, valuation of available-for-sale marketable securities, useful lives of intangible assets and property and equipment, income taxes and certain assumptions used in the valuation of equity awards. While these estimates are based on our best knowledge of current events and actions that may affect us in the future, actual results may differ materially from these estimates.



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New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance codified in Accounting Standards Codification (“ASC”) 606, Revenue Recognition - Revenue from Contracts with Customers, which amends the guidance in former ASC 605, Revenue Recognition. In August 2015, the FASB approved the deferral of the effective date of the standard by one year. The new guidance is effective for our fiscal year beginning January 1, 2018 instead of January 1, 2017 and permits the use of either a full retrospective or modified retrospective transition method. Entities are permitted to adopt the guidance in accordance with the original effective date if they choose. We have not determined our transition method, and we are currently evaluating the impact the provisions of ASC 606 will have on our consolidated financial statements and whether we will adopt the guidance early.
In April 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. The amendments in this update provide guidance to customers about whether a cloud computing arrangement includes a software license. The amendment was effective for interim and annual periods beginning after December 15, 2015 with early adoption permitted. Effective January 1, 2016, we adopted this standard prospectively. The adoption did not have a material impact on our consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The standard requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. The standard became effective for interim and annual periods beginning after December 15, 2015. Effective January 1, 2016, we adopted this standard. The adoption did not have a material impact on our consolidated financial statements.
In February 2016, the 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 lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. The standard will become effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The guidance is required to be adopted at the earliest period presented using a modified retrospective approach. We are currently evaluating the impact the provisions will have on our consolidated financial statements and whether we will adopt the guidance early.
In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. Under this ASU, entities are permitted to make an accounting policy election to either estimate forfeitures on share-based payment awards, as required by current guidance, or to recognize forfeitures as they occur. We will be required to make this election at the entity level using a modified retrospective transition method, with a cumulative-effect adjustment to the accumulated deficit. The guidance will be effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. We plan to adopt this update on the effective date and are currently evaluating the impact it will have on our consolidated financial statements. The remaining provisions of ASU 2016-09 are not expected to have a material impact on our consolidated financial statements.


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2. Supplemental Consolidated Balance Sheet and Statement of Operations Information
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of (in thousands):
 
June 30, 2016
 
December 31, 2015
Accrued vacation
$
4,342

 
$
3,604

Accrued commissions
1,879

 
2,470

Accrued bonuses
4,274

 
9,598

Estimated health insurance claims
1,100

 
900

Accrued other liabilities
3,102

 
3,822

 
$
14,697

 
$
20,394


Other Income and (Expense), net
Other income and (expense), net for the three and six months ended June 30, 2016 and 2015 consisted of (in thousands):
 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Interest income
$
62

 
$
12

 
$
145

 
$
27

Income from training reimbursement program
230

 
206

 
663

 
272

Other
(14
)
 
(27
)
 
46

 
(174
)
 
$
278

 
$
191

 
$
854

 
$
125





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3. Marketable Securities
At June 30, 2016, marketable securities consisted of the following (in thousands):
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Aggregate Fair Value
U.S. treasury debt securities
$
3,507

 
$
6

 
$

 
$
3,513

U.S. corporate debt securities
7,513

 
19

 
(1
)
 
7,531

Money market funds
34,667

 

 

 
34,667

 
$
45,687

 
$
25

 
$
(1
)
 
$
45,711

Included in cash and cash equivalents
$
34,667

 
$

 
$

 
$
34,667

Included in marketable securities
$
11,020

 
$
25

 
$
(1
)
 
$
11,044


At December 31, 2015, marketable securities consisted of the following (in thousands):
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Aggregate Fair Value
U.S. treasury debt securities
$
4,805

 
$

 
$
(31
)
 
$
4,774

U.S. corporate debt securities
12,679

 
1

 
(34
)
 
12,646

Money market funds
53,365

 

 

 
53,365

 
$
70,849

 
$
1

 
$
(65
)
 
$
70,785

Included in cash and cash equivalents
$
53,365

 
$

 
$

 
$
53,365

Included in marketable securities
$
17,484

 
$
1

 
$
(65
)
 
$
17,420


The following table presents gross unrealized losses and fair values for those marketable securities that were in an unrealized loss position as of June 30, 2016, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):
 
As of June 30, 2016
 
Less than 12 months
 
12 months or greater
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
U.S. corporate debt securities
$
1,078

 
$
(1
)
 
$

 
$

Total
$
1,078

 
$
(1
)
 
$

 
$


We do not believe any of the unrealized losses represented an other-than-temporary impairment based on our evaluation of available evidence, which includes our intent as of June 30, 2016 to hold these investments until the cost basis is recovered.
4. Fair Value Measurements
We determine the fair values of our financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value assumes that the transaction to sell the asset or transfer the liability occurs in the principal or most advantageous market for the asset or liability and establishes that the fair value of an asset or liability shall be determined based on the assumptions that market participants would use in pricing the asset or liability. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input


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that is significant to the fair value measurement. The fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 -
Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 -
Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 -
Inputs are unobservable inputs based on our assumptions.
Financial Assets
Cash equivalents primarily consist of AAA-rated money market funds with overnight liquidity and no stated maturities. We classified cash equivalents as Level 1 due to the short-term nature of these instruments and measured the fair value based on quoted prices in active markets for identical assets.
When available, our marketable securities are valued using quoted prices for identical instruments in active markets. If we are unable to value our marketable securities using quoted prices for identical instruments in active markets, we value our investments using broker reports that utilize quoted market prices for comparable instruments. We validate, on a sample basis, the derived prices provided by the brokers by comparing their assessment of the fair values of our investments against the fair values of the portfolio balances of another third-party professional pricing service. As of June 30, 2016, 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 June 30, 2016
 
Fair Value Measurements as of December 31, 2015
Description
 
Total
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
Money market funds
 
$
34,667

 
$
34,667

 
$

 
$
53,365

 
$
53,365

 
$

U.S. treasury debt securities
 
3,513

 

 
3,513

 
4,774

 

 
4,774

U.S. corporate debt securities
 
7,531

 

 
7,531

 
12,646

 

 
12,646

 
 
$
45,711

 
$
34,667

 
$
11,044

 
$
70,785

 
$
53,365

 
$
17,420

 
 
 
 
 
 
 
 
 
 
 
 
 
Included in cash and cash equivalents
 
$
34,667

 
 
 
 
 
$
53,365

 
 
 
 
Included in marketable securities
 
$
11,044

 
 
 
 
 
$
17,420

 
 
 
 

Other Fair Value Measurements
At June 30, 2016, the fair value of our debt obligations approximated the carrying amount of $73,000. The estimated fair value was based in part on our consideration of incremental borrowing rates for similar types of borrowing arrangements. We have classified the fair value of our debt obligations as Level 3 due to the lack of relevant observable market data over fair value inputs.


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5. Commitments and Contingencies
Lease Commitments
As of June 30, 2016, future estimated minimum lease payments under non-cancelable operating leases were as follows (in thousands):
 
 
Operating Leases
Remainder of 2016
 
$
1,635

2017
 
3,412

2018
 
3,265

2019
 
2,583

2020
 
2,264

Thereafter
 
10,211

Total minimum lease payments
 
$
23,370


There have been no material changes in our future estimated minimum lease payments under non-cancelable capital and financing leases, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.
Litigation
From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of any currently pending legal proceedings to which we are a party will not have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
6. Stock-Based Compensation
We grant stock-based incentive awards to attract, motivate and retain qualified employees, non-employee directors and consultants, and to align their financial interests with those of our stockholders. We utilize stock-based compensation in the form of restricted stock awards, restricted stock units (together, “restricted stock”) and options to purchase Class A common stock.
As of June 30, 2016, awards outstanding under the 2009 Plan consisted of stock options, and awards outstanding under the 2014 Plan consisted of stock options, restricted stock awards and restricted stock units.
In June 2016, stockholders approved an amendment to the 2014 Plan that increased the number of shares available for grant by 3,900,000. As of June 30, 2016, 4,519,743 shares of Class A common stock were available for grant under the 2014 Plan.
Stock-based compensation expense for the six months ended June 30, 2016 was $4.6 million and $2.3 million for options to purchase Class A common stock and restricted stock, respectively. Stock-based compensation expense for the six months ended June 30, 2015 was $3.4 million and $1.4 million for options to purchase Class A common stock and restricted stock, respectively.


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Stock-based compensation expense associated with stock options and restricted stock was recorded in the following cost and expense categories consistent with the respective employee or service provider’s related cash compensation (in thousands):
 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Cost of revenue
 
 
 
 
 
 
 
Subscription and support
$
125

 
$
87

 
$
243

 
$
183

Professional services
93

 
89

 
215

 
161

Operating expenses
 
 
 
 
 
 
 
Research and development
609

 
369

 
1,193

 
703

Sales and marketing
449

 
432

 
904

 
782

General and administrative
2,226

 
1,643

 
4,337

 
2,965

Total
$
3,502

 
$
2,620

 
$
6,892

 
$
4,794


The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility is based on historical volatilities for publicly traded stock options of comparable companies over the estimated expected life of the options. The expected term represents the period of time the options are expected to be outstanding and is based on the “simplified method.” We use the “simplified method” due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the options. The risk-free interest rate is based on yields on U.S. Treasury STRIPS with a maturity similar to the estimated expected term of the options. The fair value of our stock options was estimated assuming no expected dividends and the following weighted-average assumptions:
 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Expected term (in years)
6.1
 
6.1
 
6.0 - 6.1
 
6.1
Risk-free interest rate
1.41% - 1.54%
 
1.50% - 1.75%
 
1.41% - 1.90%
 
1.35% - 1.75%
Expected volatility
44.67% - 45.06%
 
42.74% - 43.55%
 
44.67% - 45.29%
 
42.35% - 44.08%
Forfeiture rate
4.64% - 5.15%
 
5.03% - 6.41%
 
0% - 5.15%
 
5.03% - 6.41%



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Stock Options
The following table summarizes the option activity under the Plans for the six months ended June 30, 2016:




Options
 

Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term (Years)
 
Aggregate Intrinsic Value
 
 
 
 
 
 
 
(in thousands)
Outstanding at December 31, 2015
6,969,133

 
$
11.37

 
7.7
 
$
43,287

Granted
786,469

 
14.56

 
 
 
 
Forfeited
159,837

 
14.67

 
 
 
 
Exercised
162,363

 
3.20

 
 
 
 
Outstanding at June 30, 2016
7,433,402

 
$
11.82

 
7.5
 
$
21,828

 
 
 
 
 
 
 
 
Exercisable at June 30, 2016
3,886,831

 
$
9.07

 
6.3
 
$
21,169


Options to purchase Class A common stock generally vest over a three- or four-year period and are generally granted for a term of ten years. The total intrinsic value of options exercised during the six months ended June 30, 2016 and 2015 was $1.5 million and $1.4 million, respectively.
The weighted-average grant-date fair value of options granted during the six months ended June 30, 2016 and 2015 was $6.53 and $6.09, respectively. The total fair value of options vested during the six months ended June 30, 2016 and 2015 was approximately $4.1 million and $3.8 million, respectively. Total unrecognized compensation expense of $20.4 million related to options will be recognized over a weighted-average period of 2.5 years.
Restricted Stock
We have granted restricted stock awards and restricted stock units to our executive officers that vest in three equal annual installments from the date of grant and restricted stock awards and restricted stock units to non-employee members of our Board of Directors with one-year cliff vesting from the date of grant. The fair value for restricted stock awards and units is calculated based on the stock price on the date of grant. The total fair value of restricted stock awards and units vested during the six months ended June 30, 2016 was approximately $3.3 million. No restricted stock awards or units vested during the six months ended June 30, 2015.


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The following table summarizes the restricted stock activity under the Plan for the six months ended June 30, 2016:




Number of Shares
 
Weighted-
Average
Grant Date Fair Value
 
Aggregate Intrinsic Value
 
 
 
 
 
(in thousands)
Outstanding at December 31, 2015
600,025

 
$
13.38

 
$
10,542

Granted
381,952

 
15.11

 
 
Forfeited

 

 
 
Vested
(246,690
)
 
13.35

 
 
Outstanding at June 30, 2016
735,287

 
$
14.29

 
$
10,044


Compensation expense associated with unvested restricted stock is recognized on a straight-line basis over the vesting period. The expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued. At June 30, 2016, there was approximately $8.8 million of total unrecognized compensation expense related to restricted stock, which is expected to be recognized over a weighted-average period of 2.0 years.



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7. Net Loss Per Share
Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including our outstanding stock options and stock related to unvested restricted stock awards to the extent dilutive.
The net loss per share attributable to common stockholders 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 attributable to common stockholders is allocated on a proportionate basis.
We consider unvested restricted stock awards granted under the 2014 Equity Incentive Plan to be participating securities because holders of such shares have non-forfeitable dividend rights in the event of our declaration of a dividend for common shares. In future periods to the extent we are profitable, we will subtract earnings allocated to these participating securities from net income to determine net income attributable to common stockholders.
A reconciliation of the denominator used in the calculation of basic and diluted loss per share is as follows (in thousands, except share and per share data):
 
Three months ended
 
June 30, 2016
 
June 30, 2015
 
Class A
 
Class B
 
Class A
 
Class B
Numerator
 
 
 
 
 
 
 
Net loss
$
(8,219
)
 
$
(3,306
)
 
$
(7,578
)
 
$
(3,451
)
 
 
 
 
 
 
 
 
Denominator
 
 
 
 
 
 
 
Weighted-average common shares outstanding - basic and diluted
28,950,226

 
11,643,682

 
27,226,993

 
12,400,848

Basic and diluted net loss per share
$
(0.28
)
 
$
(0.28
)
 
$
(0.28
)
 
$
(0.28
)
 
Six months ended
 
June 30, 2016
 
June 30, 2015
 
Class A
 
Class B
 
Class A
 
Class B
Numerator
 
 
 
 
 
 
 
Net loss
$
(16,718
)
 
$
(6,852
)
 
$
(12,686
)
 
$
(5,790
)
 
 
 
 
 
 
 
 
Denominator
 
 
 
 
 
 
 
Weighted-average common shares outstanding - basic and diluted
28,742,233

 
11,780,557

 
27,197,080

 
12,413,825

Basic and diluted net loss per share
$
(0.58
)
 
$
(0.58
)
 
$
(0.47
)
 
$
(0.47
)


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The anti-dilutive securities excluded from the weighted-average shares used to calculate the diluted net loss per common share were as follows:
 
As of
 
June 30, 2016
 
June 30, 2015
Shares subject to outstanding common stock options
7,433,402

 
6,523,356

Shares subject to unvested restricted stock awards
353,335

 
654,375



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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 March 1, 2016. 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, 2015, 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 created Wdesk, a cloud-based productivity platform for enterprises to collect, link, report and analyze business data with control and accountability. Wdesk’s proprietary word processing, spreadsheet and presentation applications are integrated and built upon a data management engine, offering synchronized data, controlled collaboration, granular permissions and a full audit trail. Wdesk empowers our customers to dynamically define their business processes and optimize workflows so that critical data can be reported, analyzed and understood more efficiently. Our customers can gain insights based on their trusted data, which enables better real-time decision-making. Additionally, our customers deploy Wdesk to serve as a single system of record for critical data, to reduce risk and operational costs, and to increase efficiency. As of June 30, 2016, we provided our solutions to more than 2,600 enterprise customers, including 65% of the FORTUNE 100® and more than 65% of FORTUNE 500® companies(1).
(1) Claim not confirmed by FORTUNE or Time Inc. FORTUNE 500 is a registered trademark of Time Inc. and is used under license. FORTUNE and Time Inc. are not affiliated with, and do not endorse products or services of, Workiva Inc.
Our Wdesk product platform allows multiple users to simultaneously create, review and publish data-linked documents and reports with greater control, accuracy and productivity than ever before. We offer our customers solutions for compliance, risk, finance, accounting and audit management. Underlying these solutions is our scalable, enterprise-grade data engine that collects, aggregates and manages our customers’ unstructured and structured data.
We operate our business on a software-as-a-service (SaaS) model. Customers enter into quarterly, annual and multi-year subscription contracts to utilize Wdesk. Our subscription fee includes the use of our service and technical support. Our pricing is based primarily on the number of corporate entities, number of users, level of customer support, and length of contract. Our pricing model is scaled to the number of users, so the subscription price per user typically decreases as the number of users increases. We charge customers additional fees primarily for document setup and XBRL tagging services. We generate sales primarily through our direct sales force and, to a lesser extent, customer success and professional services teams.
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 95.1% (excluding add-on seats) for the twelve months ended June 30, 2016.
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 1,178 at June 30, 2016 from 981 at June 30, 2015, an increase of 20.1%.
We have achieved significant revenue growth in recent periods. Our revenue grew to $43.0 million and $87.6 million during the three and six months ended June 30, 2016 from $34.0 million and $69.1 million during the three and six months ended June 30, 2015. We incurred net losses of $11.5 million and $23.6 million during the three and six months ended June 30, 2016 compared to $11.0 million and $18.5 million during the three and six months ended June 30, 2015.


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We are an “emerging growth company,” as defined in the JOBS Act. We will cease to be an “emerging growth company” upon the earliest of (i) December 31, 2019, (ii) the last day of the first fiscal year in which our annual gross revenue is $1 billion or more, (iii) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in nonconvertible debt securities or (iv) the date on which we qualify as a “large accelerated filer” with at least $700 million of equity securities held by non-affiliates.
Key Factors Affecting Our Performance
New customers. We employ a “land-and-expand” sales strategy that focuses on acquiring new customers through our direct sales model and building our relationships with existing customers over time. Acquiring new customers is a key component of our continued success in the marketplace, growth opportunity and future revenue. We have aggressively invested in and intend to continue to invest in our direct sales force.
Further penetration of existing customers. Our account management teams seek to generate additional revenue from our customers by adding seats to existing subscriptions and by signing new subscriptions for additional business solutions on our platform. We believe a significant opportunity exists for us to sell additional subscriptions to current customers as they become more familiar with our platform and adopt our solutions to address additional business use cases.
Investment in growth. We are expanding our operations, increasing our headcount and developing software to both enhance our current offerings and build new features. We expect our total operating expenses to increase, particularly as we continue to expand our sales operations, marketing activities and development staff. We continue to invest in our sales, marketing and customer success organizations to drive additional revenue and support the growth of our customer base. Investments we make in our sales and marketing and research and development organizations will occur in advance of experiencing any benefits from such investments.
Seasonality. Our revenue from professional services has some degree of seasonality. Many of our customers employ our professional services just before they file their Form 10-K, often in the first calendar quarter. As professional services revenue from our non-SEC offerings continues to grow, we expect our professional services revenue to become less seasonal. Our sales and marketing expense also has some degree of seasonality. Sales and marketing expense is generally higher in the third quarter since we hold our annual user conference in September. In addition, we typically pay cash bonuses to employees in the first quarter, resulting in some seasonality in operating cash flow.


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Key Performance Indicators
 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
(dollars in thousands)
Financial metrics
 
 
 
 
 
 
 
Total revenue
$
43,011

 
$
33,968

 
$
87,562

 
$
69,122

Percentage increase in total revenue
26.6
%
 
28.1
%
 
26.7
%
 
26.5
%
Subscription and support revenue
$
34,969

 
$
28,085

 
$
68,554

 
$
54,354

Percentage increase in subscription and support revenue
24.5
%
 
27.8
%
 
26.1
%
 
27.5
%
Subscription and support as a percent of total revenue
81.3
%
 
82.7
%
 
78.3
%
 
78.6
%
 
As of June 30,
 
2016
 
2015
Operating metrics
 
 
 
Number of customers
2,622
 
2,390
Subscription and support revenue retention rate
95.1%
 
96.3%
Subscription and support revenue retention rate including add-ons
110.2%
 
108.4%
Total customers. We believe total number of customers is a key indicator of our financial success and future revenue potential. We define a customer as an entity with an active subscription contract as of the measurement date. Our customer is typically a parent company or, in a few cases, a significant subsidiary that works with us directly. Companies with publicly listed securities account for a substantial majority of our customers.
Subscription and support revenue retention rate. We calculate our subscription and support revenue retention rate by annualizing the subscription and support revenue recorded in the first month of the measurement period for only those customers in place throughout the entire measurement period, thereby excluding any attrition. We divide the result by the annualized subscription and support revenue in the first month of the measurement period for all customers in place at the beginning of the measurement period. The measurement period is based on the trailing twelve months.
Our subscription and support revenue retention rate was 95.1% at the June 2016 measurement date, down slightly from June 2015. We believe that our success in maintaining a high rate of revenue retention is attributable primarily to our robust technology platform and strong customer service. Customers being acquired or ceasing to file SEC reports has been the largest contributing factor to our revenue attrition.
Subscription and support revenue retention rate including add-ons. Add-on revenue includes the change in both seats purchased and seat pricing for existing customers. We calculate our subscription and support revenue retention rate including add-ons by annualizing the subscription and support revenue recorded in the last month of the measurement period for only those customers in place throughout the entire measurement period. We divide the result by the annualized subscription and support revenue in the first month of the measurement period for all customers in place at the beginning of the measurement period. The measurement period is based on the trailing twelve months.


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Our subscription and support revenue retention rate including add-ons was 110.2% at the June 2016 measurement date, up from 108.4% as of June 2015. Shifting the focus of our sales team covering existing customers toward use cases with larger target deal sizes drove most of the rate increase.
Components of Results of Operations
Revenue
We generate revenue through the sale of subscriptions to our cloud-based software and the delivery of professional services. We serve a wide range of customers in many industries, and our revenue is not concentrated with any single customer or small group of customers. For the six months ended June 30, 2016 and 2015, no single customer represented more than 2% of our revenue, and our largest ten customers accounted for less than 5% of our revenue in the aggregate.
We generate sales directly through our sales force. We also identify some sales opportunities with existing customers through our customer success and professional services teams.
Our customer contracts typically range in length from three to 36 months. Our arrangements do not contain general rights of return. We typically invoice our customers for subscription fees in advance on a quarterly, annual, two-year or three-year basis, with payment due at the start of the subscription term. In 2015, we began to move toward a standard minimum subscription term of one year and plan to convert most of our quarterly contracts to annual over the next few years. In addition, we continue to offer limited incentives for customers to enter into contract terms of more than one year, typically for terms of two or three years. Unpaid invoice amounts for services starting in future periods are excluded from accounts receivable and deferred revenue. Invoiced amounts are reflected as accounts receivable once we have initiated services with an offset to deferred revenue or revenue depending on whether the revenue recognition criteria have been met.
Subscription and Support Revenue. We recognize the aggregate minimum subscription and support fees ratably on a straight-line basis over the subscription term, provided that an enforceable contract has been signed by both parties, access to our SaaS solutions has been granted to the customer, the fee for the subscription and support is fixed or determinable, and collection is reasonably assured.
Professional Services Revenue. We believe our professional services facilitate the sale of our subscription service to certain customers. To date, most of our professional services have consisted of document set up, XBRL tagging, and consulting with our customers on business processes and best practices for using Wdesk. Our professional services are not required for customers to utilize our solution. We recognize revenue for our professional services contracts when the services are performed.    
Cost of Revenue
Cost of revenue consists primarily of personnel and related costs directly associated with our professional services, customer success teams and training personnel, including salaries, benefits, bonuses and stock-based compensation; the costs of contracted third-party vendors; the costs of server usage by our customers; information technology costs and facility costs. Costs of server usage are comprised primarily of fees paid to Google Cloud Platform and Amazon Web Services.


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Sales and Marketing Expenses
Sales and marketing expenses consist primarily of personnel and related costs, including salaries, benefits, bonuses, commissions, travel, and stock-based compensation. Other costs included in this expense are marketing and promotional events, our annual user conference, online marketing, product marketing, information technology costs and facility costs. We capitalize and amortize sales commissions that are directly attributable to a contract over the lesser of twelve months or the non-cancelable term of the customer contract based on the terms of our commission arrangements.
Research and Development Expenses
Research and development expenses consist primarily of personnel and related costs, including salaries, benefits, bonuses, and stock-based compensation; costs of server usage by our developers; information technology costs; and facility costs.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel and related costs for our executive, finance and accounting, legal, human resources, and administrative personnel, including salaries, benefits, bonuses, and stock-based compensation; legal, accounting, and other professional service fees; other corporate expenses; information technology costs; and facility costs.


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Results of Operations
The following table sets forth selected consolidated statement of operations data for each of the periods indicated:
 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
(in thousands)
Revenue
 
 
 
 
 
 
 
Subscription and support
$
34,969

 
$
28,085

 
$
68,554

 
$
54,354

Professional services
8,042

 
5,883

 
19,008

 
14,768

Total revenue
43,011

 
33,968

 
87,562

 
69,122

Cost of revenue
 
 
 
 
 
 
 
Subscription and support(1)
7,039

 
5,564

 
13,957

 
11,449

Professional services(1)
5,538

 
4,189

 
11,726

 
7,966

Total cost of revenue
12,577

 
9,753

 
25,683

 
19,415

Gross profit
30,434

 
24,215

 
61,879

 
49,707

Operating expenses
 
 
 
 
 
 
 
Research and development(1)
14,047

 
12,196

 
28,563

 
24,204

Sales and marketing(1)
19,828

 
16,329

 
39,916

 
30,034

General and administrative(1)
7,882

 
6,291

 
16,835

 
13,025

Total operating expenses
41,757

 
34,816

 
85,314

 
67,263

Loss from operations
(11,323
)
 
(10,601
)
 
(23,435
)
 
(17,556
)
Interest expense
(468
)
 
(513
)
 
(958
)
 
(1,023
)
Other income and (expense), net
278

 
191

 
854

 
125

Loss before provision for income taxes
(11,513
)
 
(10,923
)
 
(23,539
)
 
(18,454
)
Provision for income taxes
12

 
106

 
31

 
22

Net loss
$
(11,525
)
 
$
(11,029
)
 
$
(23,570
)
 
$
(18,476
)


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(1)     Stock-based compensation expense included in these line items was as follows:
 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
(in thousands)
Cost of revenue
 
 
 
 
 
 
 
Subscription and support
$
125

 
$
87

 
$
243

 
$
183

Professional services
93

 
89

 
215

 
161

Operating expenses
 
 
 
 
 
 
 
Research and development
609

 
369