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Item 7. 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 consolidated financial statements and related notes included elsewhere in this Annual Report. 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 “Section 1A. Risk Factors” included elsewhere in this Annual Report.

Overview

Workiva simplifies complex work for thousands of organizations worldwide. We are a leading provider of cloud-based compliance and regulatory reporting solutions that are designed to solve business challenges at the intersection of data, process and people.

Workiva changes the way enterprises manage and report business data. Our open, intelligent and intuitive platform is based on single instance, multi-tenant software applications deployed in the cloud. Our platform connects data, documents and teams, which results in improved efficiency, greater transparency and reduced risk of errors. We offer customers controlled collaboration, data linking, data integrations, granular permissions, process management and a full audit trail on our proprietary platform. As of December 31, 2020, 3,723 organizations, including 75% of Fortune 500® companies, subscribed to our platform for at least one solution.(1)

Customers use our platform to create, review and publish data-linked documents and reports with greater control, consistency, accuracy and productivity. Customers collaborate in the same document simultaneously, which improves efficiency and version control. Our platform is flexible and scalable, so customers can easily adapt it to define, automate and change their business processes in real time.

Our platform lets our customers connect data from Enterprise Resource Planning (ERP), Governance Risk and Compliance (GRC), Human Capital Management (HCM) and Customer Relationship Management (CRM) systems, as well as other third-party cloud and on-premise applications.

While our customers use our platform for dozens of different use cases, our sales and marketing resources are organized into four solution groups: Regulatory Reporting, Non-Regulatory Reporting, Financial Services and Integrated Risk.

We operate our business on a Software-as-a-Service (SaaS) model. Customers enter into annual and multi-year subscription contracts to gain access to our platform. 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 model, operating metrics related to a customer’s expected use of each solution determine the price. At December 31, 2020, over 80% of our subscription revenue was priced on a solution-based licensing model. We charge customers additional fees primarily for document setup and XBRL tagging services.

(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.

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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 our platform, 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 our platform.

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 1,718 at December 31, 2020 from 1,580 at December 31, 2019, an increase of 8.7%.

We have achieved significant revenue growth in recent periods. Our revenue grew to $351.6 million in 2020 from $297.9 million in 2019, an increase of 18.0%. We incurred net losses of $48.4 million and $47.5 million in 2020 and 2019, respectively.

Impact of COVID-19

A pandemic of respiratory disease (abbreviated “COVID-19”) began to spread globally, including to the United States, in early 2020. The World Health Organization declared COVID-19 to be a public health emergency of international concern. The full impact of the COVID-19 outbreak continues to be inherently uncertain at the time of this report. The COVID-19 outbreak has resulted in travel restrictions, prohibitions of non-essential activities, disruption and shutdown of certain businesses and greater uncertainty in global financial markets.

On March 27, 2020, legislation intended to support the economy during the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), was signed into law. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. We do not believe the CARES Act will have a material impact on our business, results of operations, financial condition or liquidity.

We cannot fully predict the extent to which the ongoing COVID-19 outbreak will impact our business or operating results, which is highly dependent on inherently uncertain future developments, including the severity and duration of the COVID-19 outbreak and the actions taken by governments and businesses in relation to COVID-19 containment. We have adopted several measures in response to the COVID-19 outbreak, including advising employees to work from home, restricting non-critical business travel by our employees, and canceling in-person marketing events (including our annual user conference in September 2020 and September 2021) and replacing them with digital events. These travel restrictions and conversion of marketing and internal events to a virtual format resulted in an expense reduction of approximately $16.7 million for the year ended December 31, 2020 relative to the same period in the prior year. Notwithstanding these measures, we have been able to continue to meet the needs of our customers, keeping our platform fully operational and delivering the services contracted by our customers.

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As a result of the work and travel restrictions relating to the ongoing COVID-19 outbreak, substantially all of our sales and operating activities are being conducted remotely. This global work-from-home operating environment may adversely impact the productivity of certain employees, and these conditions may persist and harm our business, including our future operating results. Additionally, we believe a number of customers and prospects have delayed purchasing decisions as result of the COVID-19 outbreak. Furthermore, in response to the COVID-19 outbreak existing and potential customers may ultimately choose to reduce technology spending or attempt to renegotiate contracts and obtain concessions, which could materially and negatively impact our operating results and financial condition. Because our platform is offered as a subscription-based service, the effects of the outbreak may not be fully reflected in our operating results until future periods.

Key Factors Affecting Our Performance

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

Pursue New Customers. We sell to organizations that manage large, complex processes with many contributors and disparate sets of business data. We market our platform to professionals in the areas of: finance and accounting, regulatory reporting, management and performance reporting, integrated risk management, and global statutory 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 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.

Expand Across Enterprises. Our success in delivering multiple solutions has created demand from customers for a broader-based, enterprise-wide Workiva 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 expand and deepen our relationships with global and regional partners, including consulting firms, system integrators, large and mid-sized independent software vendors, and implementation partners. Our advisory and service partners offer a wider range of domain and functional expertise that broadens our platform’s capabilities and promotes Workiva as part of the digital transformation projects they drive for their customers. Our technology partners enable powerful data and process integrations to help customers connect critical transactional systems directly to our platform, with powerful linking, auditability and control features. 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.

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Investment in growth. We plan to continue to invest in the development of our 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, global statutory reporting, and the U.S. government. As a result of the COVID-19 pandemic, regulatory authorities may delay the adoption of new regulations and policy mandates, which could adversely impact our business. For example, the Financial Conduct Authority in the United Kingdom (FCA) has set out proposed rule changes to postpone by one year the mandatory European Single Electronic Format (ESEF) requirements for annual financial reporting Additionally, member states' ambassadors to the European Union agreed to the European Council’s position to adopt an optional one-year delay to the planned schedule for implementation of the ESEF mandate, as part of a broader package designed to make it easier for capital markets to support economic recovery from the COVID-19 crisis.

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 of December 31, 2020, the majority of our SEC customers reported their financials on a calendar-year basis. Sales and marketing expense is generally higher in the third quarter since we hold our annual user conference in September. Our transition to a virtual event in September 2020 and September 2021 has mostly mitigated this trend. 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.

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Key Performance Indicators

Year ended December 31,

(dollars in thousands)

Financial metrics

Year-over-year percentage increase in total revenue 18.0% 21.9% 17.5%

Subscription and support as a percent of total revenue 84.2% 82.5% 82.0%

As of December 31,

Operating metrics

Subscription and support revenue retention rate 95.0% 94.7% 96.1%

Number of customers with annual contract value $100k+ 847 652 443

Number of customers with annual contract value $150k+ 419 285 190

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 95.0% as of December 31, 2020, up slightly from 94.7% as of December 31, 2019. 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 whose securities were deregistered due to merger or acquisition, or financial distress accounted for just over half of our revenue attrition in the latest quarter.

Subscription and support revenue retention rate including add-ons. Add-on revenue includes the change in both solutions 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 109.5% as of the quarter ended December 31, 2020, down from 113.0% as of December 31, 2019. The decline reflects the winding down of the conversion of customer contracts to solution-based licensing, as well as COVID-related impact on both price increases and solution churn.

In 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 our platform.

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 each of the years ended December 31, 2020, 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 twelve to 36 months. We typically invoice our customers for subscription fees annually in advance. For contracts with a two or three year term, customers sometimes elect to pay the entire multi-year subscription term in advance. Our arrangements do not contain general rights of return.

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 to help our customers with business processes and best practices for using our platform. 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 Amazon Web Services and Google Cloud Platform.

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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 pay sales commissions for initial contracts and expansions of existing customer contracts. When the relevant amortization period is one year or less, we expense sales commissions 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:

Year ended December 31,

(in thousands)

Revenue

Cost of revenue

Operating expenses

(Benefit) provision for income taxes (291) 139 247

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

Year ended December 31,

(in thousands)

Cost of revenue

Operating expenses

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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:

Year ended December 31,

Revenue

Cost of revenue

Operating expenses

Interest expense (4.0) (2.0) (0.7)

Other (expense) income, net (0.1) (0.2) 0.2

Loss before provision for income taxes (14.1) (15.8) (20.5)

Provision (benefit) for income taxes (0.1) — 0.1

Revenue

Comparison of Years Ended December 31, 2020 and 2019

Year ended December 31, Period-to-period change

(dollars in thousands)

Revenue

Total revenue increased $53.7 million in 2020 compared to 2019 due primarily to the increase in subscription and support revenue of $50.1 million. Growth in subscription and support revenue in 2020 was attributable mainly to strong demand and better pricing for a broad range of use cases, including SEC reporting, integrated risk, global statutory reporting, and management and performance reporting. The total number of our customers increased 6.1% from December 31, 2019 to December 31, 2020. Professional services revenue increased $3.6 million due primarily to higher setup and consulting revenue.

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Cost of Revenue

Comparison of Years Ended December 31, 2020 and 2019

Year ended December 31, Period-to-period change

(dollars in thousands)

Cost of revenue

Cost of revenue increased $5.2 million in 2020 compared to 2019. Subscription and support cost of revenue increased $6.6 million due primarily to $6.4 million in higher cash-based compensation and benefits due to increased headcount as well as a $1.6 million increase in software expense which were partially offset by a $1 million reduction in cloud infrastructure costs and a $1.3 million reduction in travel costs due to the COVID-19 pandemic. The increase in cash-based compensation and benefits and software resulted from our continued investment in and support of our new platform and solutions. The reduction in cloud infrastructure costs primarily resulted from upgrading our customers to our new platform. Professional services cost of revenue decreased $1.5 million due primarily to a reduction in travel and office expenses as a result of the COVID-19 pandemic.

Operating Expenses

Comparison of Years Ended December 31, 2020 and 2019

Year ended December 31, Period-to-period change

(dollars in thousands)

Operating expenses

Research and Development

Research and development expenses increased $4.9 million in 2020 compared to 2019 due primarily to higher cash-based compensation and benefits costs of $5.8 million and a $2.0 million increase in the cost of software and cloud infrastructure services. The increases were partially offset by a $2.3 million reduction in travel costs due to the COVID-19 pandemic. The increases in compensation, software and cloud infrastructure services reflect continued investment in and support of our platform and solutions.

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Sales and Marketing

Sales and marketing expenses increased $24.4 million in 2020 compared to 2019 due primarily to $30.4 million in higher cash-based compensation and benefits, an additional $2.3 million in stock-based compensation, $0.5 million in professional services and $1.1 million in software expense. These increases were partially offset by $7.3 million in savings from reduced travel by our sales and marketing employees due to the COVID-19 pandemic and a $2.8 million reduction in marketing expense due to transitioning our annual user conference to a virtual format. The increases in compensation were due to increased headcount. The increases in professional service fees and software expense supported our investment in expanding our international sales force.

General and Administrative

General and administrative expenses increased $11.6 million in 2020 compared to 2019, due primarily to $4.8 million in higher cash-based compensation and benefits, an additional $7.2 million in stock-based compensation as well as $0.6 million in cancellation fees paid for events that were cancelled due to the impact of the COVID-19 pandemic. These increases were partially offset by a $1.4 million reduction in travel costs due to the COVID-19 pandemic. During 2020, we recorded an additional $1.5 million and $5.5 million of cash-based and equity-based compensation, respectively, pursuant to certain separation agreements with former executives and managers. The remaining increase in personnel-related costs was driven primarily by an increase in employee headcount.

Non-Operating Income (Expenses)

Comparison of Years Ended December 31, 2020 and 2019

Year ended December 31, Period-to-period change

(dollars in thousands)

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

Interest income fell $1.4 million in 2020 compared to 2019 due to decreased interest rates in our investment accounts. Interest expense increased $7.9 million in 2020 compared to 2019 due to interest incurred on our senior convertible notes. Other expense decreased $0.4 million in 2020 compared to 2019 due primarily to reduced losses on foreign currency transactions.

Results of Operations for Fiscal 2019 Compared to 2018

For a comparison of our results of operations for the fiscal years ended December 31, 2019 and 2018, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 20, 2020.

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Liquidity and Capital Resources

Year ended December 31,

(in thousands)

As of December 31, 2020, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $530.0 million, which were held for working capital purposes. We have financed our operations primarily through the proceeds of offerings of equity, convertible debt, 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. While we expect to continue to incur operating losses and may incur negative cash flows from operations in the future, we believe that current cash and cash equivalents and cash flows from operating activities will be sufficient to fund our operations for at least the next twelve months from the date of the issuance of the audited consolidated financial statements.

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 (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 year ended December 31, 2020, cash provided by operating activities was $33.2 million. The primary factors affecting our operating cash flows during the period were our net loss of $48.4 million, adjusted for non-cash charges of $4.3 million for depreciation and amortization of our property and equipment and intangible assets, $45.8 million of stock-based compensation, $8.9 million for the amortization of our debt discount and issuance costs and a $22.2 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $16.0 million increase in deferred contract costs, an $8.0 million increase in accounts receivable, a $2.5 million increase in prepaid expenses and other, and a $4.1 million decrease in accounts payable, offset by a $37.5 million increase in deferred revenue and a $16.8 million increase in accrued expenses and other liabilities. 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. The decrease in accounts payable and increases in accounts receivable and accrued expenses and other liabilities were attributable primarily to the timing of our billings, cash collections, and cash payments. The increase in prepaid expenses was attributable primarily to the timing of annual contracts. The increase in deferred contract costs was primarily due to additional payments made to our sales force related to the direct and incremental costs of obtaining a customer contract.

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For the year ended December 31, 2019, cash provided by operating activities was $30.9 million. The primary factors affecting our operating cash flows during the period were our net loss of $47.5 million, adjusted for non-cash charges of $3.8 million for depreciation and amortization of our property and equipment and intangible assets, $35.8 million of stock-based compensation, $3.3 million for the amortization of our debt discount and issuance costs and a $35.7 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $10.3 million increase in deferred costs, a $1.3 million increase in other receivables, a $2.1 million increase in prepaid expenses and a $1.9 million increase in other assets, offset by a $5.2 million decrease in accounts receivable, a $2.2 million increase in accounts payable, a $32.0 million increase in deferred revenue, and a $12.2 million increase in accrued expenses and other liabilities. 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. The increase in other receivables was due to higher interest receivable as a result of an overall increase in our marketable securities. The increases in accounts payable and accrued expenses and other liabilities and decrease in accounts receivable were attributable primarily to the timing of our billings, cash collections, and cash payments. The increase in other assets and prepaid expenses was attributable primarily to timing of payments relating to cloud infrastructure services. The increase in deferred costs was primarily due to additional payments made to our sales force related to the direct and incremental costs of obtaining a customer contract.

Investing Activities

Cash used in investing activities of $103.8 million for the year ended December 31, 2020 was due primarily to $175.9 million for the purchase of marketable securities and $1.9 million of capital expenditures, partially offset by $62.9 million from the maturities of marketable securities and $11.4 million from the sale of marketable securities. Our capital expenditures were associated primarily with computer equipment in support of expanding our infrastructure and work force.

Cash used in investing activities of $90.1 million for the year ended December 31, 2019 was due primarily to $112.6 million for the purchase of marketable securities and $3.1 million of capital expenditures, partially offset by $26.8 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 $11.1 million for the year ended December 31, 2020 was due primarily to $19.2 million in proceeds from option exercises and $7.2 million in proceeds from shares issued in connection with our employee stock purchase plan, partially offset by $13.7 million in taxes withheld related to net share settlement of our stock-based compensation awards and an aggregate $1.6 million in payments on finance lease obligations.

Cash provided by financing activities of $363.0 million for the year ended December 31, 2019 was due primarily to $335.9 million in proceeds from the issuance of our senior convertible notes, $24.2 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 an aggregate $1.6 million in payments on finance lease obligations.

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Contractual Obligations and Commitments

The following table represents our contractual obligations as of December 31, 2020, aggregated by type:

Payments due by period

Total Less than 1 year 1-3 years 3-5 years More than 5 years

(in thousands)

Total future payments related to our Convertible Senior Notes due 2026 shown in the table above includes $345.0 million principal amount and future interest payments of $23.3 million. For more information on our convertible senior notes, refer to Note 8 of our accompanying Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

We have entered into a lease agreement for land and an office building in Ames, Iowa, which was constructed in two phases. The lease term includes an initial 15-year term and three five-year extensions at our option because renewal was determined to be reasonably assured at the inception of the lease. The lease contains purchase options to acquire the landlord’s interest in the land lease and building at any time beginning three years from June 2014 (the commencement date of the second phase of the lease). In addition, the lease requires us to purchase the building from the landlord upon certain events, such as a change in control.

We enter into certain non-cancelable agreements with third-party providers in the ordinary course of business. Under these agreements, we are committed to purchase $14.0 million for cloud infrastructure services and $8.6 million primarily for cloud services. These amounts are included in the table above under “other contractual commitments”.

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Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, provision for 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.

We believe that of our significant accounting policies, which are described in Note 1 to our consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of our operations.

Revenue Recognition

We generate revenue through the sale of our cloud-based software and the delivery of professional services. Revenues are recognized when control of these services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

We determine revenue recognition through the following steps:

•Identification of the contract, or contracts, with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

•Allocation of the transaction price to the performance obligations in the contract

•Recognition of revenue when, or as, we satisfy a performance obligation

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. Our subscription contracts are generally twelve to 36 months in duration, are billed either annually or in advance and are non-cancelable. We consider the access to our platform and related support services in a customer contract to be a series of distinct services which comprise a single performance obligation because they are substantially the same and have the same pattern of transfer.

Professional Services Revenue and Customer Options

Professional services revenues primarily consist of fees for document set up, XBRL tagging, and consulting with our customers on business processes and best practices for using our platform. We have determined that an agreement to purchase these professional services constitutes an option to purchase services in accordance with ASC 606 rather than an agreement that creates enforceable rights and obligations because of the customer’s contractual right to cancel services that have not yet been used. In the limited case of agreements where we determined that the option provides the customer with a material right, we allocate a portion of the transaction price to the material right based upon the relative standalone selling price. Professional service agreements that do not contain a material right are accounted for when the customer exercises its option to purchase additional services.

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Revenue is recognized 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.

Our professional services revenue is higher in the first calendar quarter because many of our customers employ our professional services just before they file their Form 10-K.

Contracts with Multiple Performance Obligations

Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for the individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices based on our overall pricing objectives, taking into consideration market conditions and entity-specific factors, including the value of our arrangements, length of term, customer demographics and the numbers and types of users within our arrangements.

While changes in assumptions or judgments or changes to the elements of the arrangement could cause an increase or decrease in the amount of revenue that we report in a particular period, these changes have not historically been significant because our recurring revenue is primarily subscription and support revenue.

Recent Accounting Pronouncements

Refer to Note 1 of the notes to consolidated financial statements for a full description of recent accounting pronouncements.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency rates, although we also have some exposure due to potential changes in inflation or interest rates. We do not hold financial instruments for trading purposes.

Foreign Currency Risk

Our sales contracts are denominated predominantly in U.S. dollars and, to a lesser extent, the Canadian dollar, Euro, and British Pound Sterling. Consequently, our customer billings denominated in foreign currency are subject to foreign currency exchange risk. A portion of our operating expenses is incurred outside the United States and is denominated in foreign currencies. These operating expenses are also subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Canadian dollar, Euro, British pound, Singapore dollar, Australian dollar, and Hong Kong dollar. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statement of operations. To date, we have not entered into derivatives or hedging transactions as our exposure to foreign currency exchange rates has not been material to our historical operating results, but we may do so in the future if our exposure to foreign currency should become more significant. Foreign currency transaction gains (losses) are included in net loss and were $(329,000), $(609,000) and $289,000 in the years ended December 31, 2020, 2019 and 2018, respectively.

Inflation Risk

Inflationary factors, such as increases in our operating expenses, may adversely affect our results of operations, as our customers typically purchase services from us on a subscription basis over a period of time. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, an increase in the rate of inflation in the future may have an adverse effect on our levels of operating expenses as a percentage of revenue if we are unable to increase the prices for our subscription-based solutions to keep pace with these increased expenses.

Interest Rate Sensitivity

We had cash, cash equivalents and marketable securities totaling $530.0 million as of December 31, 2020. The cash, cash equivalents and marketable securities are held for working capital purposes. 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 caused by expected credit losses.

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An immediate increase of 100-basis points in interest rates would have resulted in an $1.6 million market value reduction in our investment portfolio as of December 31, 2020. 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 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.

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Item 8. Consolidated Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Reports of Independent Registered Public Accounting Firm 59

Consolidated Balance Sheets 63

Consolidated Statements of Operations 64

Consolidated Statements of Comprehensive Loss 65

Consolidated Statements of Stockholders’ Equity (Deficit) 66

Consolidated Statements of Cash Flows 67

Notes to Consolidated Financial Statements 69

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Workiva Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Workiva Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established inInternal Control-Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 17, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Revenue Recognition

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2010.

Chicago, Illinois

February 17, 2021

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors ofWorkiva Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Workiva Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Workiva Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated February 17, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Chicago, Illinois

February 17, 2021

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WORKIVA INC.CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

As of December 31,

ASSETS

Current assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accrued expenses and other current liabilities 68,256 49,799

Operating lease liabilities, non-current 17,209 18,564

Finance lease obligations, non-current 16,662 19,415

Stockholders’ equity

Accumulated other comprehensive income 230 287

Total liabilities and stockholders’ equity $ 707,006 $ 638,951

See accompanying notes.

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Year ended December 31,

Revenue

Cost of revenue

Operating expenses

(Benefit) Provision for income taxes (291) 139 247

Net loss per common share:

See accompanying notes.

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WORKIVA INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(in thousands)

Year ended December 31,

Other comprehensive (loss) income, net of tax

Foreign currency translation adjustment, net of income tax expense (137) 13 26

Other comprehensive (loss) income, net of tax (57) 189 26

See accompanying notes.

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Shares Amount

Cumulative-effect of change in accounting principle — — — — 8,381 8,381

Stock-based compensation expense — — 30,841 — — 30,841

Issuance of restricted stock units 99 — — — — —

Other comprehensive income — — — 26 — 26

Cumulative-effect of change in accounting principle — — — — (11,796) (11,796)

Stock-based compensation expense — — 35,784 — — 35,784

Issuance of restricted stock units 420 — — — — —

Equity component of convertible senior notes, net — — 58,560 — — 58,560

Other comprehensive income — — — 189 — 189

Stock-based compensation expense — — 45,771 — — 45,771

Issuance of restricted stock units 796 — — — — —

Other comprehensive loss — — — (57) — (57)

See accompanying notes.

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WORKIVA INC.CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year ended December 31,

Cash flows from operating activities

Adjustments to reconcile net loss to net cash provided by operating activities:

(Recovery of) Provision for doubtful accounts (159) (92) 550

Amortization of debt discount and issuance costs 8,889 3,262 —

Deferred income tax — (65) (9)

Changes in assets and liabilities:

Operating lease right-of-use asset 3,906 2,552 —

Operating lease liability (4,525) (3,035) —

Cash flows from investing activities

Sale of marketable securities 11,423 498 —

Purchase of intangible assets (296) (734) (251)

Other investments — (1,000) —

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WORKIVA INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

Year ended December 31,

Cash flows from financing activities

Proceeds from government grants — — 22

Effect of foreign exchange rates on cash 478 287 (393)

Supplemental cash flow disclosure

Cash paid for income taxes, net of refunds $ 679 $ 371 $ 67

Supplemental disclosure of noncash investing and financing activities

Allowance for tenant improvements $ 149 $ 270 $ 2,192

Purchases of property and equipment, accrued but not paid $ 263 $ 144 $ 1,287

See accompanying notes.

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WORKIVA INC.

NOTES TO 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”) simplifies complex work for thousands of organizations worldwide. We are a leading provider of cloud-based compliance and regulatory reporting solutions that are designed to solve business challenges at the intersection of data, process and people. Our operational headquarters are located in Ames, Iowa, with additional offices located in the United States, Europe, the Asia-Pacific region and Canada.

Revision of Prior Period Financial Statements

Effective January 1, 2019, we implemented transitional guidance from the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). In conjunction with the fiscal 2020 year-end reporting process, we identified misstatements in our previously issued consolidated financial statements related to lease accounting and the application of Topic 842. We evaluated the materiality of the misstatements both qualitatively and quantitatively in accordance with Staff Accounting Bulletin (SAB) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements, and determined that the misstatements were not material to any of our prior period annual or interim financial statements. Adjusting the cumulative effect of the misstatement in the year ended December 31, 2020 statement of operations would be material to the December 31, 2020 consolidated financial statements. Accordingly, the Company has revised its previously issued consolidated financial statements contained in this Annual Report on Form 10-K to correct the effect of these immaterial misstatements for the corresponding periods.

The following table presents the effect of the adjustments on the consolidated balance sheet as of December 31, 2019, including the cumulative effect of the transitional adjustment recorded as of the beginning of fiscal year 2019 (in thousands):

As reported Adjustments As corrected

Accrued expenses and other current liabilities 49,930 (131) 49,799

Current portion of finance lease obligations 1,328 301 1,629

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The approximate effect of the misstatements on the statement of operations for the year ended December 31, 2019 was a $316,000 decrease in general and administrative expense related to depreciation and amortization and a $339,000 decrease in interest expense resulting in a reduction of $655,000 in the net loss. The approximate effect of the misstatement on the statement of cash flows for the year ended December 31, 2019 was a reduction of $352,000 in financing activities and a corresponding increase of $352,000 in operating activities.

The adjustments for amounts similar to the above were also made to the consolidated balance sheets as of, and the consolidated statements of operations for the quarterly periods ended, March 31, 2020, June 30, 2020, September 30, 2020, March 31, 2019, June 30, 2019 and September 30, 2019, respectively. See Note 16. “Unaudited Quarterly Results of Operations” for further detail.

Basis of Presentation and Principles of Consolidation

The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and include the accounts of Workiva Inc. and its wholly owned subsidiaries.All intercompany accounts and transactions have been eliminated in consolidation.

Seasonality affects our revenue, expenses and cash flows from operations. Revenue from professional services is generally higher in the first quarter as many of our customers file their 10-K in the first calendar quarter. Sales and marketing expense is generally higher in the third quarter since we hold our annual user conference in September. Our transition to a virtual event in September 2020 and September 2021 has mostly mitigated this trend. In addition, the timing of the payments cash bonuses to employees during the first and fourth calendar quarters may result in some seasonality in operating cash flow.

Segments

Our chief operating decision maker reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. There are no segment managers who are held accountable by the chief operating decision maker, or anyone else, for operations, operating results and planning for levels or components below the consolidated unit level. Accordingly, we determined we have one operating and reportable segment.

Foreign Currency

We translate the financial statements of our foreign subsidiaries, which have a functional currency in the respective country’s local currency, to U.S. dollars using month-end exchange rates for assets and liabilities and average exchange rates for revenue, costs and expenses. Translation gains and losses are recorded in accumulated other comprehensive income as a component of stockholders’ equity (deficit). Gains and losses resulting from foreign currency transactions that are denominated in currencies other than the entity's functional currency are included within “Other (expense) income, net” on the consolidated statements of operations.

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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.

Cash and Cash Equivalents

Cash consists of cash on deposit with banks that is stated at cost, which approximates fair value. We invest our excess cash primarily in highly liquid money market funds and marketable securities. We classify all highly liquid investments with stated maturities of three months or less from date of purchase as cash equivalents and all highly liquid investments with stated maturities of greater than three months as marketable securities.

Marketable Securities

Our marketable securities consist of commercial paper, corporate debt securities, U.S. treasury debt securities and foreign government debt securities. We classify our marketable securities as available-for-sale at the time of purchase and reevaluate such classification as of each balance sheet date. We may sell these securities at any time for use in current operations even if they have not yet reached maturity. As a result, we classify our investments, including securities with maturities beyond twelve months as current assets in the accompanying consolidated balance sheets. Available-for-sale securities are recorded at fair value each reporting period. Unrealized gains and losses are excluded from earnings and recorded as a separate component within “Accumulated other comprehensive income” on the consolidated balance sheets until realized. Dividend income is reported within “Other (expense) income, net” on the consolidated statements of operations. We evaluate our investments to assess whether the amortized cost basis is in excess of estimated fair value and determine what amount of that difference, if any, is caused by expected credit losses. Allowance for credit losses are recognized as a charge in “Other (expense) income, net” on the consolidated statements of operations, and any remaining unrealized losses are included in “Accumulated other comprehensive income” on the consolidated balance sheets. There were no credit losses recorded for the year ended December 31, 2020. There was no impairment charge for any unrealized losses in 2019 and 2018. We determine realized gains and losses on the sale of marketable securities on the specific identification method and record such gains and losses in “Other (expense) income, net” on the consolidated statements of operations.

Fair Value of Financial Instruments

Our financial assets, which include cash equivalents and marketable securities, are measured and recorded at fair value on a recurring basis. Our other current financial assets and our other current financial liabilities have fair values that approximate their carrying value due to their short-term maturities.

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Concentration of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. We place our cash and cash equivalents with high credit-quality financial institutions. Such deposits may be in excess of federally insured limits. To date, we have not experienced any losses on our cash and cash equivalents. We perform periodic evaluations of the relative credit standing of the financial institutions.

We perform ongoing credit evaluations of our customers’ financial condition and require no collateral from our customers. We maintain an allowance for doubtful accounts receivable based upon the expected collectability of accounts receivable balances. We did not have a significant concentration of accounts receivable from any single customer or from customers in any single country outside of the United States at December 31, 2020 or 2019.

Deferred Costs

We pay sales commissions for initial contracts and expansions of existing contracts with customers. These commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions paid where the amortization period is one year or less are expensed as incurred. All other sales commissions are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be three years. We determined the period of benefit by taking into consideration our standard contract terms and conditions, rate of technological change and other factors. Amortization expense is included in sales and marketing expense in the accompanying consolidated statements of operations.

Property and Equipment, net

Property and equipment is stated at cost, net of accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets, generally three to ten years. We amortize leasehold improvements and assets under finance leases over the lesser of the term of the lease including renewal options that are reasonably assured or the estimated useful life of the assets. Depreciation and amortization expense totaled $3.8 million, $3.4 million and $3.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Revenue Recognition

We generate revenue through the sale of subscriptions to our cloud-based software and the delivery of professional services. We recognize revenue when control of these services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

We determine revenue recognition through the following steps:

•Identification of the contract, or contracts, with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

•Allocation of the transaction price to the performance obligations in the contract

•Recognition of revenue when, or as, we satisfy a performance obligation

We report revenue net of sales and other taxes collected from customers to be remitted to government authorities.

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Subscription and Support Revenue

Professional Services Revenue and Customer Options

Professional services revenues primarily consist of fees for document set up, XBRL tagging, and consulting with our customers on business processes and best practices. We have determined that an agreement to purchase these professional services constitutes an option to purchase services in accordance with FASB Accounting Standards Codification No. 606, Revenue from Contracts with Customers, (ASC 606) rather than an agreement that creates enforceable rights and obligations because of the customer's contractual right to cancel services that have not yet been used. In the limited case of agreements where we determined that the option provides the customer with a material right, we allocate a portion of the transaction price to the material right based upon the relative standalone selling price. Professional service agreements that do not contain a material right are accounted for when the customer exercises its option to purchase additional services. Revenue is recognized 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.

Contracts with Multiple Performance Obligations

Deferred Revenue

We typically invoice our customers for subscription and support fees annually in advance on one- to three-year contract terms. For contracts with a two or three year term, customers sometimes elect to pay the entire multi-year subscription term in advance. Unpaid invoice amounts for non-cancelable services starting in future periods are included in accounts receivable and deferred revenue. The portion of deferred revenue that we anticipate will be recognized after the succeeding twelve-month period is recorded as non-current deferred revenue, and the remaining portion is recorded as current deferred revenue.

Customer Deposits

As an agreement to purchase professional services constitutes a customer option, fees received in advance of these services being performed are considered customer deposits and are included in accrued expenses and other current liabilities on the consolidated balance sheets. Unpaid invoice amounts for these professional services starting in future periods are excluded from accounts receivable and accrued expenses and other current liabilities.

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Cost of Revenue

Cost of revenue consists primarily of personnel and related costs directly associated with the professional services and 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.

Sales and Marketing Expenses

Advertising costs are charged to sales and marketing expense as incurred. Advertising expense totaled $3.8 million, $3.4 million and $2.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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, 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.

Leases

We determine whether an arrangement contains a lease at inception. Operating leases are included in operating lease right-of-use (ROU) assets, other current liabilities, and operating lease liabilities on our consolidated balance sheets. Finance leases are included in property and equipment, net, finance lease obligations, and finance lease obligations, non-current on our consolidated balance sheets.

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. Lease ROU assets and 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. We do not include options to extend or terminate the lease term unless it is reasonably certain that we will exercise any such options. We recognize rent expense under our operating leases on a straight-line basis. For finance leases, we record interest expense on the lease liability in addition to amortizing the right-of-use asset (generally straight-line) over the shorter of the lease term or the useful life of the right-of-use asset.

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 do not recognize right-of-use assets or lease liabilities for short-term leases, which have a lease term of twelve months or less, and instead will recognize lease payments as expense on a straight-line basis over the lease term.

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Intangible Assets

We account for intangible assets under ASC 350, Goodwill and Other. Intangible assets consist primarily of legal fees incurred for patents and are recorded at cost and amortized over the useful lives of the assets of ten years, using the straight-line method. Certain patents are in the legal application process and therefore are not currently being amortized.

Accumulated amortization of patents as of December 31, 2020 and 2019 was approximately $955,000 and $592,000, respectively. Future amortization expense for legally approved patents is estimated at $374,000 in 2021, $230,000 in 2022, $144,000 in 2023, $130,000 in 2024, $104,000 in 2025 and approximately $217,000 thereafter.

Impairment of Long-Lived Assets

Long-lived assets, such as property, equipment, right-of-use assets, 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.

Stock-Based Compensation

We measure all share-based payments, including grants of options to purchase common stock and the issuance of restricted stock units to employees, service providers and board members, using a fair-value based method. We record forfeitures as they occur. The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized in the consolidated statement of operations based on the estimated fair value of those awards on the grant date or reporting date, if required to be remeasured, and amortized on a straight-line basis over the requisite service period. We use the Black-Scholes option-pricing model to determine the fair values of stock option awards. For restricted stock units, fair value is based on the closing price of our common stock on the grant date.

Income Taxes

We record current income taxes based on our estimates of current taxable income and provide for deferred income taxes to reflect estimated future income tax payments and receipts. We are subject to federal income taxes as well as state taxes. In addition, we are subject to taxes in the foreign jurisdictions where we operate.

We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment rate.

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On December 22, 2017, the U.S. government enacted legislation commonly referred to as the “Tax Cuts and Jobs Act” (TCJA). The TCJA made widespread changes to the Internal Revenue Code, including, among other items, the introduction of a new international “Global Intangible Low-Taxed Income” (GILTI) regime effective January 1, 2018. Companies may adopt one of two views in regards to establishing deferred taxes in accordance with the new (GILTI) regime under ASC 740, Income Taxes. Companies may account for the effects of GILTI either (1) in the period the entity becomes subject to GILTI, or (2) establish deferred taxes (similar to the guidance that currently exists with respect to basis differences that will reverse under current Subpart F rules) for basis differences that upon reversal will be subject to GILTI. We have elected to account for GILTI in the period incurred.

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statements of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheets.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount net of an allowance for doubtful accounts. The allowance for doubtful accounts is based on our assessment of the collectability of customer accounts. We regularly review our receivables that remain outstanding past their applicable payment terms and established an allowance for potential write-offs by considering factors such as historical experience, credit quality, age of the accounts receivable balances, and current and forecasted economic conditions that may affect a customer’s ability to pay. Accounts receivable deemed uncollectible are charged against the allowance once collection efforts have been exhausted.

Recently Adopted Accounting Pronouncements

On January 1, 2020, we adopted ASU No. 2018-13, Changes to Disclosure Requirements for Fair Value Measurements(Topic 820), which improved the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements. The adoption of this new standard did not have a material impact on our consolidated financial statements.

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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. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. Effective January 1, 2020, we adopted this standard. The adoption of this new standard did not have a material impact on our consolidated financial statements.

New Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for certain convertible instruments, amends guidance on derivative scope exceptions for contracts in an entity's own equity, and modifies the guidance on diluted earnings per share (EPS) calculations as a result of these changes. The standard will be effective for us beginning January 1, 2022 and can be applied on either a fully retrospective or modified retrospective basis. Early adoption is permitted for fiscal years beginning after December 15, 2020. We are currently evaluating the impact of this standard on our condensed consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This amendment was issued to simplify the accounting for income taxes by removing certain exceptions for recognizing deferred taxes, performing intraperiod allocation, and calculating income taxes in interim periods. ASU 2019-12 is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2020. The guidance is effective for us beginning January 1, 2021, and prescribes different transition methods for the various provisions. We plan to adopt this guidance on the effective date, and we do not expect the adoption of this guidance to have a material impact on our financial condition, results of operations, cash flows or disclosures.

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2. Cash Equivalents and Marketable Securities

At December 31, 2020, cash equivalents and marketable securities consisted of the following (in thousands):

Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value

Foreign government debt securities 1,025 2 — 1,027

Included in cash and cash equivalents $ 280,578 $ — $ — $ 280,578

At December 31, 2019, cash equivalents and marketable securities consisted of the following (in thousands):

Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value

Included in cash and cash equivalents $ 360,471 $ — $ — $ 360,471

The contractual maturities of the investments classified as marketable securities are as follows (in thousands):

Due in one to two years 73,960

Due in three to five years 2,864

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The following table presents gross unrealized losses and fair values for those cash equivalents and marketable securities that were in an unrealized loss position as of December 31, 2020, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in thousands):

Less than 12 months 12 months or greater

Fair Value Unrealized Loss Fair Value Unrealized Loss

U.S. treasury debt securities $ 15,042 $ (2) $ — $ —

Corporate debt securities 65,630 (47) — —

We do not believe the unrealized losses represent credit losses based on our evaluation of available evidence as of December 31, 2020, which includes an assessment of whether it is more likely than not we will be required to sell the investment before recovery of the investment’s amortized cost basis.

3. Supplemental Consolidated Balance Sheet Information

Property and Equipment, net

Property and equipment, net as of December 31, 2020 and 2019 consisted of (in thousands):

As of December 31,

Computers, equipment and software 7,995 8,029

Construction in process 93 34

Less: accumulated depreciation and amortization (16,433) (14,462)

Accumulated amortization related to finance leases was $1.8 million and $0.9 million as of December 31, 2020 and 2019, respectively.

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Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities as of December 31, 2020 and 2019 consisted of (in thousands):

As of December 31,

Estimated health insurance claims 1,224 1,040

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.

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. As of December 31, 2020 and 2019, all of our marketable securities were valued using quoted prices for comparable instruments in active markets and are classified as Level 2.

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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):

Description Total Level 1 Level 2 Total Level 1 Level 2

Foreign government debt securities 1,027 — 1,027 — — —

Convertible Senior Notes

As of December 31, 2020, the fair value of our convertible senior notes was $453.2 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 8 to the consolidated financial statements for more information.

5. Deferred Costs

Deferred costs, which primarily consist of costs to obtain contracts with customers, were $45.3 million and $29.1 million for the years ended December 31, 2020 and 2019, respectively. Amortization expense for the deferred costs was $21.0 million and $15.2 million for the years ended December 31, 2020 and 2019, respectively. There were no material impairment losses in relation to the costs capitalized for the periods presented.

6. Commitments and Contingencies

Purchase Commitments

We enter into certain non-cancelable agreements with third-party providers for our use of cloud services and cloud infrastructure services in the ordinary course of business. Under these agreements, we are committed to purchase $13.2 million in fiscal year 2021, $9.0 million in fiscal year 2022, and $0.4 million in fiscal year 2023.

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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7. Leases

We lease certain office space, residential space, buildings and land with various lease terms through June 2043. Certain office leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 5 years. The exercise of lease renewal options is at our sole discretion and are assessed whether to factor as part of 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 recognized in the consolidated statements of operations were as follows (in thousands):

Year ended December 31,

Finance lease cost:

Amortization of right-of-use assets 922 926

Interest on lease obligations 1,197 1,306

Under ASC 840, rent expense for the year ended December 31, 2018 was $5.6 million.

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

Year ended December 31,

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 5,350 $ 4,018

Finance cash flows from finance leases 1,641 1,565

Right-of-use assets obtained in exchange for lease obligations:

Finance leases — —

Other supplemental information related to leases was as follows:

As of December 31,

Weighted Average Remaining Lease Term (in years)

Operating leases 6.5 7.6

Weighted Average Discount Rate

Operating leases 5.5 % 5.7 %

Finance leases 5.5 % 6.0 %

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As of December 31, 2020, the aggregate annual lease obligations were as follows (in thousands):

Operating Leases Finance Leases

Less: Amount representing interest (4,599) (10,650)

8. Debt

Other Long-Term Debt

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 our credit facility with Silicon Valley Bank. No amounts were outstanding at the time of termination.

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 five consecutive business day period immediately following any ten 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 fiscal year ended December 31, 2020, the conditions allowing holders of the Notes to convert were not met. The Notes were therefore not convertible as of December 31, 2020 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.

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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 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):

As of December 31,

Liability component:

Unamortized issuance costs (6,164) (7,152)

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

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

Year ended December 31,

Contractual interest expense $ 3,880 $ 1,444

Amortization of debt discount 7,901 2,900

Amortization of issuance costs 988 362

9. Stockholders’ Equity (Deficit)

We have two classes of authorized common stock: Class A common stock and Class B common stock. The rights of the holders of our Class A common stock and our Class B common stock are identical, except with respect to voting and conversion. Each share of our Class A common stock is entitled to one vote per share and is not convertible into any other shares of our capital stock. Each share of our Class B common stock is entitled to ten votes per share and is convertible into one share of our Class A common stock at any time. Our Class B common stock also will automatically convert into shares of our Class A common stock upon certain transfers and other events.

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10. 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 ESPP purchase rights. Prior to our corporate conversion in December 2014, awards were provided under the 2009 Unit Incentive Plan (the 2009 Plan). The 2009 Plan was amended to provide that no further awards will be issued thereunder, and our board of directors and stockholders adopted and approved our 2014 Equity Incentive Plan (the 2014 Plan and, together with the 2009 Plan, the Plans).

As of December 31, 2020, awards granted under the 2009 Plan consisted of stock options and awards granted under the 2014 Plan consisted of stock options and restricted stock units. There were no other grants of any other award types under the Plans.

In June 2016 and June 2018, stockholders approved amendments to the 2014 Plan that increased the number of shares available for grant by 3,900,000 and 3,000,000, respectively. As of December 31, 2020, 1,659,252 shares of Class A common stock were available for grant under the 2014 Plan.

Our Employee Stock Purchase Plan (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 July 15 and January 15 and are exercisable on or about the succeeding January 14 and July 14, respectively, of each year. As of December 31, 2020, 4,445,378 shares of Class A common stock were available for issuance under the ESPP. No participant may purchase more than $12,500 worth of Class A 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):

Year ended December 31,

Cost of revenue

Operating expenses

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Stock Options

The following table summarizes the option activity under the Plans for the year ended December 31, 2020:

(in thousands)

Granted — —

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 years ended December 31, 2020, 2019 and 2018 was $55.8 million, $75.6 million and $27.5 million, respectively.

No options were granted during the years ended December 31, 2020, 2019 and 2018. The total fair value of options vested during the years ended December 31, 2020, 2019 and 2018 was approximately $3.5 million, $5.8 million and $12.4 million, respectively. Total unrecognized compensation expense of $0.7 million related to options will be recognized over a weighted-average period of 0.6 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 unit awards is calculated based on the stock price on the date of grant. The total fair value of restricted stock units vested during the years ended December 31, 2020, 2019, and 2018 was approximately $27.7 million, $8.8 million, and $7.7 million, respectively.

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The following table summarizes the restricted stock unit activity under the Plan for the year ended December 31, 2020:

Number of Shares Weighted-Average Grant Date Fair Value

(1) During the year ended December 31, 2020, in accordance with our Nonqualified Deferred Compensation Plan, recipients of 87,037 shares had elected to defer settlement of the vested restricted stock units and 60,635 were released from deferral. This resulted in total deferred units of 563,604 as of December 31, 2020.

Compensation expense associated with unvested restricted stock units is recognized on a straight-line basis over the vesting period. At December 31, 2020, there was approximately $56.0 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 years.

Employee Stock Purchase Plan

The fair value of each option grant 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 Class A common stock, and the expected term represents the period of time the ESPP purchase rights are expected to be outstanding and 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:

Year ended December 31,

ESPP

Expected term (in years) 0.5 0.5 0.5

The following table summarizes the ESPP activity under the Plan for the years ended December 31, 2020, 2019 and 2018:

For the year ended December 31,

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Compensation expense associated with ESPP purchase rights is recognized on a straight-line basis over the vesting period. At December 31, 2020, there was approximately $124,398 of total unrecognized compensation expense related to the ESPP, which is expected to be recognized over a weighted-average period of 14 days.

11. Accumulated Other Comprehensive Income

The following table summarizes the activity of accumulated other comprehensive income during the years ended December 31, 2020, 2019 and 2018 (in thousands):

Other comprehensive income 26 — 26

Other comprehensive (loss) income (137) 80 (57)

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WK · 10-K · period ended 2020-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Consolidated Financial Statements and Supplementary Data

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WK · 10-K · period ended 2020-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Consolidated Financial Statements and Supplementary Data

WK US Equity