Workiva Inc. (WK) Earnings Call Transcript & Summary

Welcome, everyone, and thank you for joining us for the Workiva fireside chat. I'm Matt Robbins with Deutsche Bank, and I'm pleased to introduce long-time CFO of Workiva, Stuart Miller. Workiva is a provider of the world's leading connected reporting and compliance platform used by thousands of enterprises across 180 countries, including 3/4 of the Fortune 500 and also by many government agencies. Workiva customers have linked over 5 billion data elements so they can trust their data, reduce risk and save time. Stuart Miller serves as EVP and CFO at Workiva. As CFO, he led the team that took Workiva public in 2014. Prior to Workiva, he was Managing Director of Colonnade Advisors, an M&A advisory firm that he founded in 1999. And before Colonnade, he served as an MD at JPMorgan, covering IT services, software and industrial companies. Stuart, thank you so much for joining us.

Matt, thanks for inviting me. I appreciate it very much.

Not a problem. Thanks for joining. Just as a point of order upfront, anyone in the audience can ask questions at any time. You should be able to type them into the web interface, and I will relay them to Stuart as soon as we reach a critical mass of those. We have about half an hour allocated. And I'll just kick it off with some questions. But first, Stuart, I know you have your own conference this week, so an even bigger thanks from me and the team for joining us.

Yes. So when I started at Workiva, our conference attracted hundreds of companies. And this year, we actually have over 10,000 registered for our virtual user conference, Amplify, which, as you indicated, starts tomorrow. And I encourage everyone on this call to go to workiva.com and register. It's free. There are many tracks. And many of the presentations are led by our customers, so you won't see them as 50-minute advertisements, they will be substantive and really reflect how the customers use our platform.

Yes. That sounds great. And this is the year of virtual conferences, so it really could not be easier, and especially because it's free. So I would encourage everyone to sign up as well. So Stuart, I gave a very brief introduction to the company. But to kick this off, I would love if you could just spend a few minutes telling us a little bit about Workiva.

Sure. So I'll give you a little bit of history. So we were -- Workiva was born in the cloud in 2008, and our first solution sale was in 2010. We ramped quickly, capitalizing on a regulatory change by the SEC that required public companies to begin tagging their financial statements and footnotes using XBRL, eXtensible Business Reporting Language, which is an open standard. And we disrupted that market for SEC reporting with a superior offering. And then in 2013, we began selling new solutions to adjacent markets in the office of the CFO. And last year, 2019, those adjacent markets accounted for 72% of our subscription bookings for new logos and new solutions. Those adjacent markets include both regulatory and nonregulatory reporting, so the regulatory reporting would include Dodd-Frank and CCAR and Resolution Plan, Solvency II and Sarbanes-Oxley and others. And then the nonregulatory side would be internal financial and managerial reporting. So you can say that Workiva is a classic sort of crossing the chasm story, as Geoffrey Moore would say. And so today, we sell 18 solutions, each of which leverages the large investment that our enterprise customers have made in their ERP systems, so it's corporations and governments and quasi-government institutions. And our customers have typically made huge investments in their ERP system, spending tens of millions of dollars, aggregating into the billions. And our platform extends the life of that investment by connecting to the ERP systems and unlocking the data in it for decision-making and reporting. So our aspiration is to be the leading platform for simplifying complex work. There's complexity in reporting, there's complexity in data management, and there's complexity around business processes because the systems that are upstream from us are either like ERP, sort of stop at the waterfront, stop at, for example, the general ledger. Or they stop, they're focused on a particular application. And what we do is we pull all that together to make the data usable and reportable.

So my understanding -- sorry for jumping in. My understanding is one of the things that really differentiates your product set is the ability to enable collaboration. It's like creating these big filings, which you said is not the majority of your business anymore, but at least started as that. Creating these filings is a huge undertaking, requiring input from many different teams. And so maybe you could just touch on, in 2014, or I suppose you said starting in 2010, like what was it about your platform that was just different from others trying to do the same?

Sure. So when we started, we were a platform focused on that particular SEC market. And I mean, it was not a platform, it was really an application that was focused on that market in particular. But what we did was we built a system that allowed hundreds of people to work simultaneously on the same document, spreadsheet or presentation from remote locations. So it was an early sort of work-from-home or remote location. And there was full permissioning and directed messaging, so a user could tag, could circle a number or a paragraph and say, @Matt Robbins, and it would create an e-mail sent directly to Matt saying Stuart has tagged this part of the spreadsheet or this part of the document and has asked you a question about it. So then the e-mail will let you click on the link and take you directly to the message that I had sent. So that was one aspect of it. The second aspect of it was the audit trail. So any change, a period, a comma, a formula, a number, anything that has changed is perpetually time-stamped with the e-mail address of the person making that change. And then also, another point of differentiation there that existed with the original platform was the live-linking, where a user can copy a number, formula, word or paragraph as a source and then paste it as the destination in another document or spreadsheet or presentation. And so whenever that data is updated at the source, it is also simultaneously updated in the destination, whether that document is opened or not. And so that live-linking greatly reduced the amount of ticking and tying necessary as our customers would typically drive the numbers off of a shared spreadsheet, and they knew that if they changed the number on the spreadsheet that the press release, the Board presentation, the script, all the K, the Q, all the above would be updated automatically, which greatly reduced the risk of an error. And then as we evolved, it's when we spent the last 3.5, 4 years building the new platform. The new platform is built on AWS. It's a microservices-based architecture in which each bit of functionality has its own container. We run about 150 microservices. It's managed in the docker environment. So each bit of functionality, such as authentication, would be an example of a container. Messaging would be another container. That system has APIs that allow us to connect to the ERPs and the applications upstream from us. And that's a new point of differentiation from us because we are -- we have a Switzerland strategy. We are agnostic. But as to who we connect with, we know that there's quite a bit of demand for customers that, say, run SAP HANA, that also want to pull in data from Salesforce and their HRIS systems, such as Workday, into the same report for forecasting purposes or for cost analysis purposes. So that's one of the big changes with the new platform that we've launched. The other -- another one, of course, is that the containerization through -- of the microservices architecture means that product innovation can go much more quickly because the team that is designing the new feature, new functionality, can quickly identify which containers are affected and can ignore the other containers. All the containers communicate with each other through APIs. Previously, the original platform was monolithic code built on Google Cloud. It's served its purpose. But this is a modern platform, and we're very excited about it. We're very far along in getting customers moved over to it. We should have potentially an announcement about that fairly soon. And so we think that the scalability of the new platform will -- is pretty exciting and also the ability to innovate more quickly. Like an example is recent innovations. So we recently announced a new offering for the FERC market, the Federal Energy Regulatory Commission market, which came out with the regulatory mandate affecting its 600-or-so companies that are required to file periodically with FERC. And we were able to launch a new solution for that niche market and get it up and running at about 1.5 months using the new platform. Under the old platform, that would have taken quite a long time, if it had been possible at all. Another example is the W for ESEF opportunity, a whole new market for us. So the European Securities and Markets Authority came out with the mandate requiring the 5,300 public companies in Europe to start tagging their financials using Inline XBRL. And we have a high-end product there for the larger companies with more complex offerings and we decided to go and offer a descoped diversion of that product for the middle market. And so we were able to do that in a couple of months on the new platform. We call it W for ESEF.

That's very impressive. And congratulations on the replatforming. I know that's a huge undertaking for most businesses, and launching a product in 1.5 months is pretty unheard of. So congratulations, Stuart.

Thank you.

I do want to talk about a little bit more about the compliance market. So you've been the CFO since 2014 and have seen a lot -- much of this change, which you just touched on. The business was founded on, it was called WebFilings. It was founded on that product base. And you -- I think you said what that -- the adjacent markets now account for 72% of subscription, so...

Of new bookings, yes, of new bookings. Yes.

Of new bookings. Excuse me. Okay. So could you maybe talk about why those adjacent compliance markets are so interesting to you? And how it is that you broadened outside of your original scope so effectively, it seems, into the compliance markets?

Sure. So we built really a horizontal platform. It's a platform that could just as easily address the front office as it addresses the middle office and the back office. We -- because the founders had quite a bit of experience on the financial side, there were 2 former public company CFOs who were among the founders, we decided to start with that market because there's nothing like a regulatory mandate to focus the mind. And we also knew that the middle office, the back office, was a little bit slower in adopting the cloud. And this was going to be -- the regulatory mandate would potentially open the market for the middle office and the back office to embrace the cloud. So that's where we started. And then as those same people in the controller's office, the office of the CFO, saw the value that we brought in terms of data management and reducing risk and speeding up their internal processes, it was only natural that we focus on adjacent markets rather than trying to tackle something outside of the office of the CFO. Although again, those markets are available to us for the future for TAM expansion. But all of the in-report complexity, data management complexity and business process complexity exists in things like GRC, governance risk and compliance, and in regulatory markets dealing with the FDIC or the Federal Reserve or the European equivalent.

So one of the areas that I noticed -- or to my understanding, that you have not yet expanded into, is financial close. It would appear to me as a natural -- a very close adjacency, you announced a partnership with Trintech earlier this year. So how do you think about that market? Is that one of the things you were mentioning as a potential avenue for future expansion?

Yes. So let me draw one distinction there, which is the difference between financial close, which is what -- we actually do that, and the accounting close, which we consider the accounting close to be a subset of the financial close. And so we partner with the leading companies on the accounting close piece. We partner with BlackLine, Trintech and FloQast, for example, who all do accounting close, accounting reconciliation, close consolidation. But the financial close itself is broader because it takes into account the accounting, but also takes into account the FP&A, the writing the MD&A and communicating all of the above. So it's an example of going to market with partners who are more focused on those smaller markets and broadening out our offering and doing it in a way in which we are Switzerland.

Right. Okay. Yes. That makes a lot of sense. Could you -- do you have any little nuggets for the audience of exciting new products coming down the pipeline that maybe you could highlight for us? Or just tease us a little bit if you can't disclose it fully?

Well, I would encourage you guys. I mean I would encourage everybody to attend the Amplify conference, where there will be some discussion about our road map in the future. There are lots of markets under consideration by our incubation team and lots that we have going on under the hood. Many of them are specific to vertical markets, particularly, let's say, financial services, as an example, where we've recently launched model risk management and BCBS 239 program management. So there are innumerable number of offerings that are specific to insurance and banking and utilities and so forth. And I will defer to my colleagues from the product side to discuss that at Amplify.

Okay. Fair enough, Stuart. Fair enough. We'll all have to join Amplify. It sounds great. That was actually a nice lead-in to -- I would like to move the conversation to markets and customers. And on the back of this product question, I think it's a nice segue into a Q&A that we just got -- a question we got from the audience. It's about the FERC opportunity. So you mentioned that you recently launched a product. FERC requires adoption of XBRL now, and you are very well-positioned to help people with that. The question is just like how much have you looked into the opportunity? And how much benefit are you expecting from that market and specifically from that product?

From FERC?

Yes. From FERC-regulated, yes.