Workiva Inc. (WK) Earnings Call Transcript & Summary

[Audio Gap] fireside conversation of -- great 4-day conference. Thank you to everyone that's here attending the investor side, the corporate side and all sides. I'm thrilled to wrap this room's fireside conversations with Workiva, and 2 key executives sitting here on stage with me. I've had the privilege of knowing Workiva for over a decade of my career. I made my first trip to Iowa, well over a decade ago, to visit the company and have the opportunity to work with them on their IPO, and all the goodness sense. With us on stage, we have Julie Iskow, CEO -- new CEO of Workiva, which I'll start with...

Not yet. Incoming.

Incoming, sorry, Jill Klindt, who is CFO of the business. Julie, you've been named CEO of the business. Congratulations once again.

Thank you very much.

And with that, I'd say, could you give like the audience here a brief intro in your background, and then as well, what you plan to do the same, and what you plan to do differently leading Workiva?

Sure. I'll start with my background. I'm currently the Chief Operating Officer and President of Workiva. I have full responsibility for global P&L and commercial side of the business, as well as operational side and product and technology. And I've been with the company now for 3.5 years. So worked very closely with Marty, our current CEO. And, we've worked together on the strategy and the operations and we'll continue on executing, but I'll talk a little bit more about that later. I will say that I came up through the product in the engineering side of the business, been an engineer, I've been in product development and Head of both product and engineering and together, a CIO, a CPO and a CTO, so came up on the product side. But I've taken on broadening roles. And as I came into Workiva, it was comfortable moving into the full operational business. I have been responsible for the strategy. Marty said, when I came in, you owned the strategy to the $1 billion. So our team has been working on that. We put a strategy in place for the company to execute on within probably 5, 6 months of my arrival. We have refreshed the strategy, as the market has changed. But for the most part, our strategy remains intact. It is around our fit-for-purpose best-of-breed solutions on our connected ever increasingly open intuitive intelligent platform. Included with that is our strengthening of our partner ecosystem -- expediting our growth. And then finally, of course, global footprint expanding and being excellent everywhere, we play. That's the strategy. And Marty and I see things very similarly around growth, around continuous innovation, a people-first culture. We see eye-to-eye on all of those things. The things will continue our strategy. It will be -- continue to be executed on. I think where you will see my focus as well is on the productivity for the company. We're past the $500 million mark from a revenue perspective. So, we will continue to put emphasis on productivity as we grow and scale the company.

Fantastic. And just for anyone new in the room or on the webcast. Talk a little bit more about this fit-for-purpose solutions. Workiva started with a platform very modern SaaS platform. But what do customers use were keeping to do?

Sure. Actually, the company started in 2008. And it was started by accountants and engineers. And, they moved into the market for some transparency around financial reporting. But since that time, over the past 15 years, what we have now is a platform, and it supports companies, while they do their regulatory, financial and ESG reporting. And we are now the world's leading platform for financial reporting, ESG reporting and GRC reporting. So we have broadened into this platform, and we have -- we can talk more about it if you'd like. We have a number of solutions around the financial reporting portion of the business, GRC. And of course, now we've added the ESG. TAM now, with the breadth of solutions that we have is the $25 billion. So we're not lacking for TAM today. And again, only unified platform for this trio, what we call internally is a trifecta of financial reporting, ESG reporting and GRC audit risk and controls.

You brought up ESG. Let's go a level deeper on that one and the opportunity. This is a global opportunity. It's not just Europe. This is regulatory driven, but it's also required by constituent shareholders, customers. They care now about the companies they purchase from. What do you see in the ESG opportunity for Workiva?

I'll say that because of what I just described to you in our history for over a decade, we've been providing investor-grade reporting for our customers. And when we moved into the market for ESG six quarters ago, we were able to move out with our platform, and we've been becoming ever more fit for purpose and best-of-breed over those 6 quarters. It is a large and global opportunity for us. We've been fortunate to be a first mover in the market, but it is a new market, long durable growth. It is supported by evolving regulations. We know, what's happening in Europe. The CSRD passed. And, even though it's not immediate, it moves us in the direction of aligning the financial reporting with the ESG reporting and one integrated report. In fact, in Europe, they call it integrated reporting. And that happens over the -- that mandate will be an effect for the 24th filing year in '25. That's when that happens. And then on top of that, there is assurance. It needs to be third-party audited, and that comes in 2026 to 2028. What company has assured integrated reporting, audit-ready, controlled environment for your financial data and your ESG data, Workiva. And that's why that unified platform with that trio trifecta is what we have, and we're enthusiastic about the opportunity, lots to learn, however. I mean it's new again to companies that are just understanding. Some of them are mature. We have a lot of customers that are mature and ready to go, and understand their journey, and they've been reporting for a while now, and wanting to get more rigorous and disciplined in that. Some companies are self-regulated because they've made commitments for ESG out in the market already. And then others are more what we call emerging and learning and understanding what they have to do a little less mature and sophisticated on their journey. So we've been out in the market, early days, learning a lot. The customers are learning a lot, understanding the regulations are still evolving. So just, again, a large and global opportunity for us.

Almost not even a question here. To your point, I was just reading an article yesterday, that I forget what news source Wall Street Journal, but there are a number of very large companies that we're going to report on climate proactively, in the regulatory filings regardless of what the SEC actually implements that I thought of Workiva right away.

Absolutely, we've got -- we have -- even prior to regulation in North America, we have companies, of course, reporting and beginning to move into that ESG journey for because stakeholders, investors want to see it, regulators are going to want to see it, the stakeholders across the company. They want to differentiate themselves. Employees want to work for companies that are impacting the world in the right way. So there's a lot of reason companies are moving in that direction without the regulation.

Great. All right. Jill, I don't want to leave you out and sitting up here too long. So let's bring you in. You recently reported Q4, and also provided 2023 guidance. Maybe help frame that 2023 guidance for investors and let's start on the top line. What are some of the revenue drivers that you see that help set up the guidance that you've provided?

Julie just hit on them, and it's absolutely true that what we're really focusing on is, those 4 growth drivers. We have our fit-for-purpose solutions, within our innovative platform, with the ability to continue to expand in geographies, with special emphasis on EMEA. And alongside of that, building out our partner ecosystem, and continuing to build those relationships and enable our partners to succeed and us to succeed along with them. Those are the main drivers. And what we expect to see is that the broad-based solution portfolio that we have can help us to be more nimble. And we saw it in '22, we were still able to meet our beginning of the year expectations, even though we had a drop off in capital markets, and that was a tough compare for us. We still were able to meet our growth goals because of the -- because of the breadth of our solutions. And alongside of that, what we're going to see, and we talked about this is that S&S will be growing more quickly than our services. We do expect, as our [ Plague ] partners become more scale up their training that we would start to move more of our services over to our partners. Our XBRL tagging, so that part of our services portfolio will continue to keep that business. It's really profitable for us, and it's -- we're a great fit to be able to provide that. But it's more of the implementation and consulting services. We'll start to move over to our partners. So we'll be more flat on the services line. And this brings us to a higher high teens growth rate for S&S. We guided to 16% at the midpoint for overall revenue growth, and we feel very good about our growth path to that.

Fantastic. And we talked earlier, but really driven by the macro environment per se, just given the necessity of Workiva for your customers and reporting out. But what did the guidance bake in, on the assumption on the macro, the same, an improvement? How does that factor this year's guidance?

So we were very prudent with how we formed the forecast. There's always some amount of risk, but we feel very confident that we can -- we have the ability, we have the solutions, we have the platform to be able to go out and really meet our goals. The investments that we made in '22 will help us to -- we formed some additional teams around go-to-market and using that plan going into this year is, we tend just not see as much churn at some companies, it's not something that you can stop doing regulatory reporting or control management. And so we're able to retain customers at a very good rate. And, then the growth that we expect to see will be additional sales into our great strong customer base, as well as expansion into different geographies. Those expand partner relationships, all of that, we really feel like we'll will help us to continue to move forward.

Just to build a bit on what Jill is saying, it's critically important, so I want to highlight it in that, we benefit from the trends of most SaaS companies, right? They move to the cloud, working from anywhere, digital and financial transformation, the disparate data sources of all kinds, structured and unstructured. I mean all of that, we share -- we have that in common with cloud and SaaS companies, and we're from a macro perspective. But the 2 trends that are specific to our company to help drive our growth, our regulation, which is increasing, and it's increasing in complexity. And we help with that. That's what our -- that's what we do. We simplify the complexities of regulatory reporting, financial and nonfinancial and, of course, GRC, but also investor scrutiny, right? Every company is thinking about how they're being scrutinized by investors and regulators, yes. And that's increasing. And we're right there and C-suites are thinking about it, and boardrooms are thinking about it. So that's where, as Jill highlights, we tend to be more resilient in these times. And that's why we talk about ourselves as, we're a platform for these times because of not just the trends in market around cloud, like every other SaaS company that's absolutely beneficial to us, but it's also that the regulatory environment that's evolving and investor scrutiny very significant for us. And all those best-of-breed solutions that Jill just spoke about, I spoke about, those are on the platform, and again, only unified platform to have the financial reporting, the nonfinancial or ESG reporting with GRC assurance. And that's what we're calling, and you'll hear us go to market with this is assured integrated reporting, where the integrated report is the financial and nonfinancial or ESG together. So that's what we driving our move and our optimism into the next year and beyond.

That's great. Jill, one more for you on the guidance. Let's hit on the bottom line quickly. What did you talk about for bottom line this year? And then one, maybe to double-click on Q1 operating expenses, perceived a little bit higher than expected. Can you just talk through the trending there?

Sure. So for Q1, we had a tough compare against Q1 of '22 because nobody was traveling at that point. I don't know if this time last year, this conference was the first thing that actually was an in person, and the same was true for different events in company and meeting with customers, we just didn't really travel. So travel has been a piece of that. And we also, in Q1 of this year, are holding some employee events in person, that are causing a bit of a tough comparison. So our sales teams and marketing teams, R&D teams are getting together as a whole, to do planning and forward really make sure that we're building relationships that we're able to maintain our culture and build the path forward to execute on our strategy. It's really important to bring people together in person. And in a hybrid environment. I know everybody is feeling the same. Those personal interactions is not that it's happening every day in the office. You have to build the options build experiences for employees to come together. And so that's another piece of it. The other thing that you see in Q1 is there is some seasonality. Our 401(k) match. This is only the second year that we've had that in North America. And that tends to be skewed heavier towards the first part of the year. And, so that's a bit of an uptick just as far as a quarter [indiscernible] Q4 versus Q1. And then some other taxes, payroll taxes and that sort of thing tends to be heavier in Q1. But if you look at the full year, we are solidly behind being profitable in the second half and on a non-GAAP basis and then going into '24 being non-GAAP profitable. And then we've also standing behind our long-term operating model and how we -- how you all can expect to see us grow over the next few years through '27.

Excellent. We'll come back to a long-term operating model in a few minutes. But back on the growth opportunity side, and I'm going to jump back to Julie now. We talked about some of the product and solution set areas of growth. Let's talk about geography, in particular, I would love to here your diagnosis of the opportunity in Europe, really big opportunities as I see it for Workiva. What are you doing to go deliver on that?

Sure. We recognize we have not capitalized on the opportunity in Europe yet. We have a ways to go, and we're pushing heavily on improvement there. We've done a number of things, but we're going after, yes, the CSRD is there, but there's there is an opportunity to sell broadly our portfolio. We're going first with partners. We're a partner-first region there in Europe. We're not as well known as we are in North America. So that's part of the opportunity. We're also doing a realignment of our sales organization. We've centralized all of the teams very recently, and they reported now to their global counterparts leaders in North America, so we're getting aligned more there. We're also enabling the sales organization to sell not just as a solution but more of this assured integrated reporting, which is something already known and understood well in Europe. And we're -- we hired some sales leaders there. We've brought in some outside talent. We have a new Head of Sales there, who has sold at multiple SaaS companies, and has some experience in the market. So we're up-leveling the team. We're enabling them to sell more of a platform play, multi-solution play as opposed to a single transaction, and we're getting aligned more across the company. But we see what you see, [ Brad ] that there is tremendous opportunity. And we also understand, if we can't capitalize on that, we're not going to get to the growth objectives that we have. So a significant opportunity for us in Europe.

Fantastic. And then one other lever is partners. I think you both referred to partners earlier in this conversation, but the growing partner network around Workiva's business. What are these partners? Are they big GSIs, are they more specialized consulting firms and how does the opportunity look in the U.S. and internationally for the partner network?

When I mentioned the strategy earlier I mentioned, the best-of-breed solutions, the open intuitive intelligent connected platform, mentioned the global opportunity, but also mentioned us building and expanding and leveraging this high-performing partner ecosystem. We have 200-plus partners within our ecosystem, combination of, of course, consulting, advisory, Big Four, Global 7, regional partners, integrators, technology partners. But we really focus on those Big Four for opportunity because they're everywhere we want to be in digital and financial transformation. We go to market together with them. They bring us source deals. We want nothing more than for them to be commercially successful when they sell with us, and when they implement with us. And let's take an example of ESG. So we can sell some technology with ESG, a partner could come in and they'll help the customer today understand the journey and the strategy and help them, they'll do a materiality assessment. They'll help them select the data sources they want to include. They'll help them select the framework or frameworks that they want to map to. They'll help them understand what reporting the stakeholders need to see, the rankers, the raters, there's so much more than technology that a partner can bring. And together, we are better. They help our customers get more value and then from our platform. And then once they're in, they can also help us expand there. And when we see some metrics, too, we see when we sell with partners, we are able to go broader and hire in an organization. They have -- those partners have built very trusted and solid relationships with their -- with the customers, but we're able to get a higher deal size, and higher win rate when we work with partners. So again, partners everywhere we want to be, and they really are part of our growth story and expedite our ability to grow.

It sounds like a huge opportunity and particularly with partners helping to drive companies through digital transformation and their C-suite.

And they have alliances on their side committed to our company. So it's both ways. We are opportunity for them and them for us. But together, we're better for sure.

Fantastic. So Jill, let's go back to those long-term targets. 2027 targets and long-term operating model. Can you just walk us through at a high level, what you've disclosed for this long-term model?

Absolutely. So the long-term model brings us to 22% of non-GAAP profitability. And we've -- we have also said that at that point and probably somewhat before that, we'll be at $1 billion in revenue. And so, building towards those targets, we are focusing on our strategy, ways to become more efficient in how we go to market, more efficient in how we sell. The way that we expect to get those targets for some of our more long-lived solutions, they are more efficient to sell. So, as we get ESG more mature, as we get GRC more mature, all of these things will help us to become more efficient in that sales motion. So moving towards some improvement, as a percentage of revenue across the board and bringing partners in to Julie's comment. And that's another piece of that. It all helps us become more efficient because partners can drive more efficient deals as well, because when the partners involved, you get a bigger deal size and tends to have a higher close rate. So that -- these are all things that are helping our productivity.

Sure. And in light of some of these trends, particularly in the partners, do you expect S&S to remain at a higher growth rate than the services?

Yes. We do. We do. As always, I had mentioned, our XBRL tagging revenue, it's a really nice services stream, and it's actually reoccurring services because the company doesn't pull that in-house. And so, that piece of it, we'll expect to have some modest growth. But the setup in consulting and implementation types of services, we expect to be more flat over time. And so what really drives is higher is that S&S revenue growth? We're happy to give that services revenue to our partners and we're watching that decrease the services revenue, decrease as we hand that off to our partners, again, to make them ever more commercially successful with us, and have opportunities to build the advisory services around the implementation. So -- intentional.

And we pause here we have about 5 minutes left, and let me just pull the room. Are there any questions? We got a mic, I think we'll run around. Yes, here come Sorry, hold on 1 minute. I'll get you the mic.

I've got two, if I could. I think recently, maybe it was a call, it was said that some customers are spending more on ESG, than other solutions. I was wondering if you can talk to that, is that -- is that comment about the entire base? Or is that very much a special sort of situation? And, if I could also just throw the second one. Go ahead, please.

It's early days for us. I mean we have hundreds -- several hundred rather than thousands at this point. But we are a -- so the data is not exact. But what we're seeing is, where we have financial reporting in a customer, right? They're purchasing financial reporting with. We are seeing the price for ESG higher than the price for financial reporting. So, we are able to. But we're looking at -- as I mentioned earlier, there's a mature market and there's an emerging market. And landgrab today on the early market, the emerging market. So we're -- it's a different sale, than it is for the mature market where you can get a larger price point.

I also ask, regarding the sales force reorganization, can you just give us maybe a little bit more like when did that start? How productive should it be? And might there be any kind of slow down in the interim?

So, I think it's specifically related to the EMEA.

So Europe.

Okay. So that started last year with -- as Julie had mentioned, globalizing the leadership there. And within the sales team, we also have -- and we've talked about this in the past few quarters that we did move more towards trying to be more efficient with those sales, bringing more of the finding potential opportunities in pipeline building to the individual reps rather than leaving that to account, more of the BDMs is what we call them. And so bringing the account owner more, to the forefront and building that pipeline and building those relationships was a big piece of it. And, I don't know if there's anything else you want to.

Okay. We just brought in the sales leader in January and began -- moving our -- shifting our go-to-market to more of the platform they shored integrated reporting play. So we're in the midst of improving that now. So looking forward to the benefits of that.

Any other questions from investors in the audience? Sure, right up front, please.

First of all, congrats on your new role Julie. And then the question that I had is, I think as part of your recent results, you also mentioned kind of refocusing some of your sales organization towards, and some of your high growth use cases such as ESG. So, I was wondering kind of how you're thinking about that in the kind of broader product suite and sort of whether you're thinking of deprioritizing certain products? Or is it more just great but FTEs, I guess, allocated on the ESG side?

We're being very thoughtful and strategic about our hiring, and we have this, again, broad-based platform, financial reporting, ESG and GRC, and those are our capabilities, and we're they're being -- we're putting emphasis on all of those capabilities, and the platform. It's a platform play that we're moving into. So it isn't that we're reallocating all resources towards ESG. We're very much looking at the platform, and those 3 capabilities playing together. That's the value proposition.

Any other last questions in the room? I'm going to wrap with one final one. And again, thank you, Julie and Jill, for both being here. Julie, again, congrats incoming CEO. Let's say, 5 years from now or so, and I'm not asking on financial metrics, but -- and Workiva has been incredibly successful, how is Workiva defined? What do you see the business? Has it looked then 5 years from now in that very successful scenario?

I believe, we will continue to be, but we will be known for the company that is powering transparent reporting, for its nonfinancial and financial across the globe, and trusted reporting for companies around the globe.

Great. Well, thank you again, and thank all of you for a great conference this week.

Thank you. Thank you for being here.

Thanks.