Workiva Inc. (WK) Earnings Call Transcript & Summary

All right. Good morning, everybody, and thank you again for joining us for Day 3 of the Morgan Stanley Technology Conference. So with me this morning, we are excited to host the team from Workiva. We have Marty and Jill. Guys, how are you doing today?

Great.

Doing good. Yes, doing good. Thank you.

Happy to be here.

Awesome. Well, thank you so much for joining us today. So before we begin very quickly. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. Okay. Awesome. With that out of the way, thanks again for joining us. First of all, Jill, congratulations on your new role as the CFO of Workiva. We're certainly very excited for you. And obviously, we love working with Stuart. And we look forward to working with you as well.

Thank you. Thank you, Stan. Appreciate that.

You know maybe let's start with you, right? You've been obviously with Workiva for a very long time. Since 2008, I believe, and your tenure at the company is actually longer than Marty's -- I'm sorry, rather than Stuart's. Marty has been there for a while. But if you look back at your tenure at Workiva, what would you say are maybe like the top 2 to 3 pieces that really stand out to you? And how the company has really transformed itself over the years?

Yes. That's a great question, Stan. And you're right. So I have been with the company since 2008 and had the opportunity to contribute to the growth at every stage. And it is unrecognizable in our current form from the initial stages of 10 people sitting around the table in the same office, kicking around ideas, thinking about ways to create the product. And then to our initial fast growth to $100 million in revenue and taking the company public in 2014. And then crossing the $350 million mark in 2020 for revenue. All those important milestones and changes along the way. And what makes it really special is and something that I don't think will ever change is our collaborative values-based culture and a company that attracts the best talent and just the best people in the industry. We have a great group and it's always a pleasure to go to work. So that -- some things have stayed consistent, but the 2 to 3 things that really stand out to me is just around our strategy and our great new form that we're -- that we've rolled out now and have all of our customers moved over to the platform architecture is enabling us to create and configure fit-for-purpose solutions as extensions of that platform. And deliver them much more quickly, that high velocity was low-to-no code. Another thing in thinking about those fit-for-purpose solutions that we -- some examples of those would just be our global stat reporting and FERC reporting solutions, and accelerating the delivery of those offerings. We're going to continue to enhance that platform to make it more open, intelligent and intuitive. And then -- as part of that, we'll expand the growth of our partner program. And build that program and leverage those strong partner ecosystems to help us -- and give those partners the opportunity to expand our solution portfolio and extend the use of our platform with mutual clients. So those are at a high level, what's really standing out to me is next steps and where we're going to go.

Yes. And that certainly makes a lot of sense. I mean for what it's working, when we do our work and we talk to partners and we talk to customers, they really echo just the tremendous evolution and innovation that you guys have driven over the years in really pushing forward the overall product direction. Maybe if we get a little bit more tactical, right, and look back at 2020. It was a challenging year. I think it was a challenging year for everybody, right? But you guys did a really fantastic job as far as just navigating through the pandemic of 2020. If we look back at the year, what are some of the positives that you saw through the year and some of the things that you're really most excited about that you're hoping to carry into 2021?

Yes. You're exactly right that it was a difficult year for everyone. Our employees and customers are certainly had difficulties as well. But we really think that our values-based culture help to sustain us, and we remain strong and connected to us and to our customers, even as we -- around the globe, worked remotely for most of the year, and continue to work remotely at this time. We're starting to get back into some offices, but it's slow. And one significant example of that for 2020 was that, during that year, even during all of those struggles and through the pandemic, all of our customers were transitioned to our next-generation platform. So that was a company-wide initiative and significant undertaking, as you can imagine, and a great testament to the engagement of our employees and the value we provide to our customers. Also in 2020, we were able to have a really broad-based execution. We talked about this in our Q4 earnings release. 77% of our new solution and new logo bookings were generated by solutions outside of SEC or SEDAR. So we continue to expand these fit-for-purpose solutions to our customers. And those solutions include management reporting, private company financial reporting, regulatory reporting and supporting all the assurance functions. For 2021, we see demand drivers that are new and expanding, and we believe we'll have good duration. So including financial reporting, regulatory compliance assurance in areas like ESG, even. So lots of room for forward growth, too.

Great. And the interesting thing that I think that we hear coming out of the pandemic is that the pandemic has really changed a lot of the ways that the world views the type of software that they need in order to move forward. As you talk to customers and you hear perspectives from your partners, do you -- are you picking up anything along those lines where their views of the importance of Workiva's products to how their customers' ultimate end users get their work done, that that's changed as a result of the pandemic?

We are definitely benefiting from those macro business trends, including movement to the cloud platform deployments and digital transformations and remote workplaces. With that remote work, our clients and prospects have transitioned to cloud-first or cloud-only strategy, which fits right in line with our products. So remote work has also elevated the requirements of collaboration. Audit trail security, data permissions and connectivity between systems and all of those trends benefit Workiva.

Got it. And in as much as we started this conversation, Jill, with giving a recap of your career at Workiva. But even we just zoom in just the last few years, Workiva really has gone through some pretty major transformation in this product portfolio in the way that you guys sell the products and onboarding clients beyond just the core SEC where you got started. Could you walk us through maybe some of the differentiating factors of this new Workiva platform that you've been hearing about from the customers that you had now? I think I believe all of your customers are now on the new Wdesk platform, right? So what are some of the positives that you're hearing from these customers on this -- the new platform?

Marty, do you want to chime in on that?

Yes, I'll chime in on the product side, I think, Stan, the -- that was a -- the new platform was a really difficult strategic decision for us. We decided to start from scratch. And we built a totally new platform, and it consumed us for 4 years, I must say. And the platform as a multi-tenant platform with micro services. And so what that enables is you can add another service and they're all Kubernetes based. We have hundreds of services now. You can add a new service without affecting the whole platform. So developers and eventually, partners can add services, both on the client side of it, on the -- whatever machine you're accessing with or also on the back end. So that brings incredible ability to innovate. And what the customers see that sort of get to your core question, they see a new -- totally new platform. It's very intuitive to use. It's feature rich. There's many more features than the old platform. And we're very open. They can get at the data they need, their IT teams can access APIs and get out data. So it's been a significant change for our customers and for us. But one thing it's to have accomplished that whole transition during the pandemic over 3,500 customers, thousands of solutions because they have multiple workspaces and solutions during a pandemic and our churn didn't change. Our customer set is back up where it was with the old platform. So it was quite a monumental effort. And now we view that as one of our biggest strategic advantages going forward. We paid the price which is a really hard decision for a company to do.

And Marty, you mentioned that the platform, the microservices aspect of it, and just how scalable it is. I would presume that in as much as your partners and your customers can develop on the platform, the core new platform also allows you to develop faster, right? So you can hypothetically innovate on the product that you bring to market faster. Is that also the case?

Very much so. I mean that was -- aside from getting on new technology and getting on AWS and Google Cloud, it's all about being able to build large software systems. The old way of doing it is one big block of code and you change something way over here and it affects something way over there, and you don't -- you start to get so brittle and fragile, no one wants to touch it. This is all API, little services that connect through APIs. Then when you start to open up your platform to third parties, be it partners or other technical developers, it's already API based. And so it -- first, for instance, we got that product out so fast just because we just added a few services, upgraded the XBRL taxonomy and all of a sudden, we're in the market. So that's -- you hit the nail on the head. That's probably the biggest strategic advantage we have is we can develop really fast now.

And when you look at this new platform, are you seeing signs that because of how rapid -- how much value and how rapidly you're delivering that value to customers that there's almost this higher propensity from customers to adopt multiple products from Workiva? Because they know that, hey, we're just going to get a tremendous amount of value. And when we look at the subscription-based licensing product that also removes a lot of the friction. So between the core platform and the new licensing team structure, are you seeing a faster adoption of multiple products across your customer base?

Yes. I think that's exactly right. And it's coming about for several reasons. One is the -- we just have more solutions to sell, the number of SKUs someone can buy from us is significantly higher. Second off, a lot of them fit use cases when a private company goes public they need SOX and they need SEC reporting. Oftentimes, they need management reporting. Sometimes they need us to do an S1 form or an S4 or something. So we do see that -- we also incented the salespeople. They have kickers if they have multiple solution deals, and they're always in trying to pitch multiple solution deals. So from a technology point of view, from a portfolio point of view and then how we're incentivizing our sellers as well as all contributed to having more multi solution deals.

Got it. Got it. Well, maybe if we back up a little bit. So Workiva, where you guys really got started, right, is in the SEC reporting, and now you've built out a much broader product portfolio. But if we look at just your core SEC and SEDAR market, and as much as you guys are the 800-pound gorilla, biggest market share. Do you still feel like there's still more room for you guys to go just in that particular market?

Yes. We have a really efficient sales team there. It's -- those people have been doing that for 10 years now, and they really know what they're doing. And there's about a little over 4,000 sort of significant size SEC filers, that's growing right now rapidly, obviously. Everything is changing. And so we're seeing a lot of new issuers. But it changes depending on the economic situation, but it bounces between 4,400 may be 5,000 going concerns, there's a lot of smaller public entities that really are not really going concern. So -- but we have almost 3,000 of those, I think, 28-something hundred, and so there's still room to grow into that. And that team is just consistent. They just steadily knock off more logos every year. So yes, it is still growing. But it's much smaller part of our business now, right? 77% is other solutions. And that's really where we're going to see most of the growth. So --

And yes, the 77%, I mean, that's certainly -- that's really exciting as far as the -- just watching your progress over the years. I remember a few years ago, it was 50%, right? And now it's 77%. So obviously, the vast majority of the bookings are coming outside of the core SEC. When you look at that 70% -- 77% of bookings outside of the core SEC, which areas are growing fastest? And there might be -- I understand right that there's a certain balance of -- it could be growing fastest, but it's just very, very small, but which areas are growing fastest that you feel are actually of size?

Yes, it's the -- first off, I just want to back up a little bit and say we've always view the best way to build the company was with a portfolio of products in case any one thing for any external reason came under pressure any of our new sales. And so we have and the way we look at it is what contribution to bookings does each of those different product lines have, and we have a really well distributed portfolio. Like when I look at the total sales for a quarter, there's like 10 significant product lines that contribute -- the -- in a relevant amount. So it's really a broad-based business in terms of where we're selling. Ultimately, we get enough solutions in bigger customers, we end up with an ELA, which is really where we want to go. But in any event, the ones that have, for me, the most significance are first off is global statutory reporting. That's a huge market that we've just started to scratch. So it's growing fast. We're seeing very significant sales. But what excites me is most of it's ahead of us, right? We're just starting down that runway. So there's a lot of runway there. FERC is a market that is a little smaller. But what excites me about that is we've gotten access to a lot of public companies -- I'm sorry, private companies that we haven't gotten access to before, plus it opens up on energy vertical. We're talking to people now. They see it, they use it, they say this is really great for doing more or less replacing any office type processes post our system of record, and it starts expanding. We find use cases. So those are 2 that really stand out. ESEF has been steady. It's been a steady source of new sales and will continue for several years. So those are sort of the ones that stand out right now. And then just one more. The slow and steady wins the race, one has always been management reporting. I mean they use it for SEC pretty soon, they say, we can do a whole bunch of internal reports for anyone in the organization all the way up to Board, and so they also buy that solution. So that's sort of how we look at the portfolio approach, but a lot of runway in the energy sector, a lot of runway in global statutory reporting.

Well, maybe just let's dig into global statutory reporting for a second, right? Because that one is something that we've been really starting to hear about over the last year or so. What is -- could you just walk us through from a customer perspective, what is really driving that higher need for global statutory reporting now?

Well, I think that the countries where these entities exist, a large company will have many entities anywhere from 10 to 500 entities in each jurisdiction that it operates. And those end up with different accounting rules, different local laws. And so they have to roll up the financials sort of they call it from GAAP to stat accounting and yet -- so every country has a different set of financials that are audited and so it's a mess. And a lot of it is distributed now, and they do it in each country. And so it's really a control issue. And countries are paying a lot more attention to it. That's their tax base, and they like to know what's going on in their countries. So it's getting more and more scrutiny. Meanwhile, we've been fortunate that there just isn't a platform like us for that. It's very much been -- we're in a very unique position to really take a big chunk out of this market. So that's what's sort of driving it right now. It's just that large number of entities for a lot of companies, including private companies, which is why it's driving a lot of new logos.

And when you look at the adoption cycle of global statutory reporting for a large multinational company, for example, do they -- is it all like a big bang kind of approach from an adoption standpoint? Or is it, "Hey, we're going to do this country and we're going to do that country and then we're going to maybe division by division." How do -- what's the typical adoption pattern?

I think that we've seen a little bit of everything. We see some companies just buy it for every single entity and start rolling it out. But most, I think, take a graduated approach where we'll buy 10 or 15 or a license for 20 or 30 entities and up to 100 may be, get those in place, learn the platform and then move forward with the rest. So we do see a scaled approach. It also gives us, down the road, lower cost additional bookings over time. When they just say we want to buy more entities, that's a pretty low cost, low touch sales.

Got it. Got it. And maybe just transitioning to one of the other products that I think is really interesting in your portfolio now, which is Wdata, right, which really combines a lot of the data prep tools with connectors and APIs. And it almost becomes like a data lake, right, that your customers can really utilize, manage all the data that sits in various disparate systems across their internals. Can you just walk us through how you price the Wdata product? And when a customer starts to adopt Wdata, what are some of the issues that they're trying to solve?

Well, the -- first off, real quickly, we -- in terms of the pricing how we package that we, over time, really moved to including it as part of the platform. And many of the fit-for-purpose solutions, especially the connected solutions, it's just part of the pricing of the package, which raises the average selling price. And so most of the transactions are in that mode. Now we still do sell it for add-on sometimes. We see a lot of SEC customers adding it. But in general, we're really heading toward one unified platform and getting data into platform, obviously, is very strategic to any platform. So -- and then the problems customers are trying to solve is they may have 10 systems of record that are meaningful, their CRM system, might be their HR system, their ERP, their general ledger and they want to get all that together in one environment to create reports. Right now, it's really scattered. Sometimes IT teams will have a data lake, and they'll try to help the business units create those reports, but the business units really like to do it themselves. And we're seeing that they're able to pull from all these different systems of record, create reports with multiple data sources and do it all themselves. And that's really -- we have over, I forget how many connectors now, I think over 60 or 70 connectors now in the different types of systems. Also an open API, so there isn't a connector, you can write your own connection. So it's very strategic, and it's become an important part of our platform.

And when you look at all the capabilities that you are able to provide with Wdata, and even just the broader APIs that you guys have built out. How does that feed into your -- the overarching partner strategy, right? Because if I look at Workiva, and we've been covering you guys since IPO, but I always -- just going back to IPO, I was wondering why you didn't have more partners back then. But if I look at over the last like 1 year or 2, probably 2 years, your partner ecosystem has really blown up. And you're starting to see a lot of -- much bigger partners coming in. How do these products really feed into your overall partner ecosystem?

Well, there's a couple of reasons. We've got a slow start on partners. One is our first few solutions didn't require much deployment effort. So there wasn't a way for the partners to capitalize on it and generate much revenue or income. So we really didn't have a way to push it to them. Now that we have Wdata. Wdata is a big source of advisers or consulting or deployment services for our partners. And also, we're going into much more complex types of use cases or solutions like global statutory reporting, think of how complex that is with hundreds of different balance sheets or income statements for every single entity. So in setting those big ecosystems up of reports and documents takes a lot of time in hooking it into -- so hooking it into the back-end systems as well. So bottom line is they now see us as an organization they can build a practice around because there's a lot of deployment services in a lot of our newer solutions. So that's driving it. The other reason we waited was we really we didn't want to push it real hard until our new platform was out. We started really pushing it a couple of years before it came out. We've done a great job of developing relationship with all the key partners, and now we're just getting ramped more. We're definitely ramping and it's going really well. And aspirationally, when you look at what we're trying to accomplish, very similar to what Anaplan or BlackLine has done. They've done a marvelous job with their partner ecosystems. And we're putting sort of that context when the partners talk about us. And we could build practices around you just like we do Anaplan. So that's really where we're headed, and we're really excited about because now there's a lot of opportunity for the partners to build these lucrative practices.

Yes. I think we've all seen the importance of partner ecosystems. And obviously, salesforce.com has probably been one of the first to really demonstrate the importance of a vibrant partner ecosystem to the success of the actual SaaS company itself. So I think you guys are definitely pushing all the right -- pulling all the right levers there. Maybe switching gears slightly. And I know we're bringing a little bit short on time. It's been an awful discussion. I don't think we can really end before digging into ESEF, right? This is the mandate that coming out of Europe. The interesting thing with that one is, although the actual mandate enforcement date got pushed by a year due to COVID, that actually feels like it's almost a positive for you guys, right? Because it gives you an extra year of companies really being aware of, "Hey, this is something that we need. And Workiva is this entity. Yes, maybe they're not Europe centric, but the product is." It's a rock-solid technology platform. Rather than trying to do something haphazardly just to get under list this deadline that's looming, we now have an extra year to really approach this vendor selection in a much more rational manner. Do you get a sense for that type of dynamic taking place right now?

I think that -- you see a lot of these mandates delayed a year for all sorts of different reasons. And our experience has been that it doesn't really change the dynamic that much. We haven't seen any change in demand or our sales cycles even after the announcement. Some countries haven't delayed, but the majority have. And so we really haven't seen a change. Now the thing that's important to remember is we sell a premium high-end product. And customers -- there's a certain set of really serious customers that are going to buy our product, no matter what, because they take it very seriously, and they want to represent themselves through XBRL in a very high end way. So -- and they take it very seriously and they do a very good job. There's also a lot of different types of customers out there, and some will grab on to a lower end product and figure they can do tagging. And oftentimes, they can, but it's oftentimes difficult. And so we just see this curve where customers start to realize that there's a challenge to it. They can do a much better job buying a premium solution. That's exactly what we saw in the SEC business. So we think we're on a very healthy trajectory right now. It's a multiyear thing to dominate that market. But in the end, we've invested so much in our platform compared to our competitors over there that we expect to see a pretty similar curve over time.

Got it. Got it. Well, that's certainly exciting. And I think a great way to maybe finish the session with me throw a question at Jill. Jill, you guys have had a great 2020. You delivered strong growth. And you also delivered strong operating margin improvements. Going into 2021, you actually -- you guys guided for a continuation of the strong revenue growth, but as some contraction on the operating margin side. As we go through '21, could we see some of that revenue outperformance through the -- flow through the P&L and actually deliver upside to margins? Or are you fully stepping on the gas and really trying to reinvest as much as you possibly can?

We really are focusing on resource investments to drive that revenue growth. We're investing in people, products, sales and marketing and we're holding to that guidance.

Okay. Perfect. All right. Well, that's a great place for us to end. Marty, Jill, thank you both so much for your time, and I hope you have a great rest of your day.

Thank you, Stan. We always enjoy participating in your conference. So thank you for that.

Yes. Thank you.

Thank you.