Workiva (WK) To Report Q1 Earnings: What's In The Offing?

Workiva Inc. (NYSE:WK) is set to report first-quarter 2018 results on May 2.

The company has surpassed the Zacks Consensus Estimate in the trailing four quarters, delivering an average positive earnings surprise of 34.42%.

In fourth-quarter 2017, Workiva reported a loss of 19 cents per share, narrower than the Zacks Consensus Estimate of a loss of 22 cents. Revenues surged 17.5% to $54.5 million and exceeded the Zacks Consensus Estimate of $53.3 million.

Workiva expects non-GAAP net loss in the range of 19-20 cents per share. The Zacks Consensus Estimate is pegged at a net loss of 19 cents per share.

For first-quarter 2018, management anticipates total revenues between $57.3 million and $57.8 million. The company expects ASC 606 will have an unfavorable impact of approximately $2 million on professional services revenues in the first quarter.

The Zacks Consensus Estimate is pegged at $57.6 million, which reflects year over year growth of 11%.

Notably, Workiva stock has gained 34.4% in the past year, substantially outperforming industry’s rally of 24.9%.

Let's discuss the factors likely to influence first-quarter results.

Wdesk Gaining Traction

Workiva continues to focus on developing its flagship product, Wdesk cloud platform, which is used for collecting, integrating, managing and analyzing business data, continues to gain traction. It is expected to boost top-line growth in the soon-to-be reported quarter.

In the last reported quarter, Workiva had 3,063 customers as of Dec 31, 2017, a net increase of 291 customers from Dec 31, 2016. Further, Workiva's revenue-retention rate (excluding add-on revenues) was 96%. Including add-on revenues, retention rate was 107.6% as of Dec 31.

During the last quarter, the company integrated Wdesk platform with Anaplan’s Connected Planning platform to streamline the process of performance management reporting. Partnerships like Anaplan will aid Workiva capitalize on growth opportunities that the rapidly-growing Software-as-a-Service (SaaS) market presents.

Furthermore, Wdesk platform was selected by Temple University and Florida Atlantic University to improvise budgeting and financial reporting processes.

The Financial revealed that as per a recent Market Insights Report, the global financial services application market will be worth $117.1 billion by 2023 from $74.35 billion as of 2017. Notably, the market is currently growing at a CAGR of 7.86% and the time period under consideration is 2018-2023. We believe that since Workiva’s platform is mostly used for auditing and accounting, the company will benefit from growth of the relevant market.

Increasing Customer Base Bodes Well

The company had 324 customers with an annual contract value ("ACV") of more than $100,000, at the end of the fourth quarter, which surged 37% from 236 customers at the end of the year-ago quarter.

Moreover, the company had 146 customers with an ACV of more than $150,000, up 52% from 96 customers at the end of the year-ago quarter.

Workiva continues to expand its existing customer base with its accounting, SOX and compliance software. This expansion in clientele along with a widening partner ecosystem is expected to drive growth.

Margins to Remain Pressured

However, higher spending on product development is likely to keep margins under pressure at least in the near term. Additionally, intensifying competition in the Global Financial Service space remains a woe.

What Does the Zacks Model Unveil?

Our proven model shows that a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The Sell-rated stocks (4 or 5) are best avoided, especially when the company is seeing negative estimate revisions.

Workiva has a Zacks Rank #3 and an Earnings ESP of 0.00%, which makes surprise prediction difficult.

Stocks with Favorable Combination

Here are a few stocks from the broader technology sector, you may want to consider as our proven model shows that these have the right combination of elements to post an earnings beat this quarter.

Fortinet, Inc. (NASDAQ:FTNT) has an Earnings ESP of +2.70% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Arrow Electronincs, Inc. (NYSE:ARW) has an Earnings ESP of +0.66% and a Zacks Rank #2.

CyberArk Software Ltd. (NASDAQ:CYBR) has an Earnings ESP of +3.53% and a Zacks Rank #3.

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