Workiva Inc. (WK) Earnings Call Transcript & Summary

Great. Well, let's get started. My name is Adam Hotchkiss and I cover the emerging software space here at Goldman Sachs. We're really excited and privileged to have Julie Iskow, President and CEO of Workiva with us here today. Julie, thanks for being here.

Thank you for being here, and thank you all. Late afternoon. Appreciate you sticking around.

Great. Look, for those in the room who are less familiar with Workiva as a company, could you just give us a high-level understanding of what Workiva does and what you're trying to build at the business?

Sure. Workiva was started in 2008 by a group of engineers and accountants, and the impetus for it was just to provide some transparency around financial reporting. We started out essentially as a company helping to automate the process of getting SEC reporting, and we were known for that for a while. But over the course of the last 15 years, we've developed into a platform for yes, financial reporting, but also non-financial reporting and ESG, operational reporting, regulatory and governance risk and compliance, and that's what we do today. And we have -- what we go out to market with as a platform for Assured Integrated Reporting, and that is financial reporting, non-financial ESG reporting as well as governance, risk and compliance and the assurance part of it all.

Great. And Julie, you've been CEO now for about 6 months after 3 years at the company, and that's after many years of running technology and product organizations and a number of software companies. So what brought you to Workiva? And what have you learned over the last 3 years -- or 3 years, I guess, and then 6 months as CEO?

Yes. So I came to Workiva for a number of reasons. We are having a nice exit in my last company, where I was the Chief Technology Officer but is also the Head of Product. I was also the CIO and also had broad responsibilities across the operations, ran call center, customer success and so forth. So the role at Workiva was appealing. And when we sold that company, I was looking around for roles and it felt like a great next step. The company seemed, however, to have an incredible opportunity for -- in a number of ways. And I will say, just the company hadn't touched its data, SaaS data, a company that's been around for 10-plus years, has huge rich data set that we could leverage that hadn't been even mind or touched in any way. There was an opportunity for branding differently, right? The company was a very quiet company. It's an incredible SaaS company, cloud company from day 1, but really, it was kind of a product company and the world didn't know who we were. We haven't really gone out in any significant way beyond North America. I think it was under 4% when I had arrived there from international revenue -- from a revenue perspective. And then the platform was a true platform. So there hadn't been acquisitions. It was a multi-solution offering, but every single solution was built off the core of the platform. It's not -- it was unlike any other platform company that I had worked with and I had been at several. It's not a bunch of solutions integrated together. It was the platform. The core offering is probably a huge percentage of each solution. So every one of the solutions we offer is 80% or more the platform. So it's the technology, it was the opportunity for data, opportunity for going global, it's just a number of reasons. And over the course of the couple of years that I've been here, it's almost for next month, it will be 4 years, the opportunity for Workiva has just grown significantly. And the platform is just increased in relevancy. And I think that's probably the most exciting thing about the opportunity here at Workiva. We have a TAM that's $25 billion that we've talked about over the last couple of years. We have this ESG opportunity. We rolled out ESG with our platform over the last 6 to 8 quarters and began selling that and investing in that. And just the scrutiny around for investors, the demand for transparency, the looking at the non-financial factors as well as financial factors now impacting financial valuations of the company. We're right there in the thick of all of that. And it's regulatory, something we've done for well over a decade. It's -- we've got this XBRL tagging component and all the pieces play together beautifully that we've gone on the platform. So the opportunities just increased again in significance over the course of the time that I've been here. But I came for lots of wonderful reasons in addition to the incredible culture that Workiva had and had long before I came here. I am striving every day to keep it the wonderful culture that it is. But beyond that, just opportunities just continues to grow.

That's great. And Julie, I know you worked closely with Marty with his time as CEO, and you were COO, anything surprised you over the last 6 months as you've made the transition to the CEO role? Or has it been business as usual?

Probably that it's been remarkably easy. It's a drama -- it was a drama free transition, and I attribute that to Marty himself and the Board wanting to do it right. I was there for 3.5 years. They transitioned full P&L responsibility as President of Company. I've been on the Board. So 0 surprises. Operationally, stepping into the CEO role, Marty and I still talk frequently. He's become the Non-Executive Chair of the Board, which shows a lot of trust in me and our executive team. The executive team is one which is sitting right here or 2 of them are, in fact, sitting here. The executive team has been working with me and I with them for 3.5 years, consolidated a bit when I became the CEO, but just very smooth operations. We haven't missed a beat. Our strategy remains intact, one that we've developed over the last several years. So absolutely, no hiccups in the transition, I think no challenges really. Marty and I still continue to talk and work together and it's gone really well.

Yes. Really good to hear that. And you've mentioned platform a number of times, and I wanted to dig into that. When you look at the current state of the product suite, how do you feel about where you are today? I think it's obviously become a lot more broad-based with adding ESG. You have GRC, you have SEC, you've got Europe specific functionality as well. Where are you today? And what do you see this company being over 5 years? Do you think you have the current product set in place that makes you associated for this TAM and this opportunity? Or is there more room to build and expand?

Sure. I mean, we've invested in our platform. We transitioned to new platform over the last couple of years. We're the leader today in the -- and we have best-of-breed in the solutions we play in. Our platform is unmatched in terms of the technology that we have to execute, to have our customers execute. But as you know, software is not one of those things where you work on it and it's done. And a great example is AI, right, Generative AI. I mean yesterday, we could have said, yes, we're good. But no, the technology around us continues the opportunity to expand, and we will be relentlessly focused on maintaining excellence and being best-of-breed and widely differentiated from our competitors. So no, we are not done, and we won't be done. We are getting more productive. We've got core offerings out there. We're able to compete in all the spaces that we play in. So it's not we're building something from scratch, but a great software company and particularly a platform company, continues to invest to ensure its spot as the leader.

That's great. Digging into the product a bit. I wanted to start just on the SEC side. I think for a lot of us that have watched you sort of dominate that market over the years, it's pretty surprising when you say almost quarter after quarter now that, that's one of your top bookings products. What's happening there that's getting you excited? And what do you think that on the way it looks like?

On the SEC side?

Specifically on the SEC side.

Sure. Well, there are 2 areas of growth for us on SEC, and one is new issuers and that's U.S. and worldwide. And then there are the takeaways. And we've had one of our -- the last couple of quarters, we have great quarters on the takeaways. But we do look at -- there's a couple of thousand more opportunities out there for us over time that we think we can go after from the SEC side. And I think important to note is when we say financial reporting, it's not just SEC, right? We've got private company reporting, annual interim reporting, we've got management reporting, we've got global statutory or multi-entity reporting. We've got a number of use cases across our verticals in public sector, in banking and insurance and so forth, so investments. So it's not just financial reporting for us, it's just not the SEC solution. So a lot of opportunity there. And yes, it is a huge part of our portfolio and our revenue.

That's great. And then you alluded to it a little bit, but related to the momentum in financial reporting is the capital markets business. I know that's been a topic that investors have been really interested in. Would love for you to just dig in a little bit on where you've seen Workiva's position play out as we've seen a little bit of the capital markets activity come back into the market relative to when you were doing the number of IPOs back in 2020 and 2021.

Sure. Yes. We had a heyday with IPOs, the world did in 2021, and we took full advantage, and it was a wonderful for Workiva. But those customers, when we get them, end up, of course, it is our hope, and we're seeing it borne out. They end up buying the additional solutions with the SEC and management reporting and others that we just mentioned and ultimately as well ESG. But those -- the capital markets, I mean, we've not baked it into any of our modeling it come back this year. We're seeing some signs of it, and we're certainly ready for it to come back. We increased the size of our team and the strength of our team, not long ago over 2022. They've been doing secondary offerings. We did get the top 2 or the largest IPOs of 2023 thus far, as we've mentioned and highlighted one in our recent earnings call. So we are ready for the market to come back. But even a year before year or so before a company goes public, we see them coming in and buying controls, private company reporting. And then when they're ready and the IPO comes, it then becomes our capital market solution and then, again, transitions into SEC and SOX and report management reporting and so forth. But we're absolutely ready to take on that opportunity when it comes.

That's great. And then I just wanted to turn to ESG. I think it's obviously one of the most exciting parts of the business given what's going on from a regulatory perspective. And I know it's of interest to many in this room. Would love to give you the opportunity to just walk us through how you've taken advantage of the ESG opportunity through your product and go-to-market investment over the last number of years? And then how you think that, that product is positioned in the market today?

Sure. The good news for us is that platform that we talked a little bit about that platform has incredible technology to help customers again handle complex composite reporting anywhere where you have narrative data charts and footnotes and et cetera, right? That's what that platform does. And it's for investor-grade reporting, and it is incredibly well suited for ESG. And 6, 8 quarters ago, we went out with that platform having done essentially nothing to it, and we went out to the ESG market and began selling ESG. Of course, since that time, we've learned what's necessary in the market to compete and to play and what our customers need on it. And it includes capabilities, more sophisticated data collection capabilities, data ingestion capabilities, there are frameworks that are become standard that companies are selecting and leveraging. They pick raiders and rankers and so forth. There's the data assembly and management. And so we've enhanced our platform to be able to handle those things for customers. And we're still learning. The world is still learning what's necessary for -- to be able to report on these non-financial factors. But there's a lot more to it, particularly when you think of all the data sources that are coming from structured, unstructured, cloud, not cloud, just disparate data sources. So we've built out capabilities to be able to do that and handle just everything around the ESG journey. So we've invested in that. But the core platform itself has brought the most to the -- for our ability to go compete for those -- the customers that are ready to take that journey.

And how do you feel about the competitive landscape there? I think it's sometimes challenging when you see 40 different websites of companies saying they can do this ESG reporting thing or help you do it. What do you have to say to people who are skeptical of that competitive landscape and how you're positioned?

I mean, they're coming out of nowhere. Everyone is suddenly doing ESG, and this is one of our favorite questions because we have incredible differentiation when it comes to helping companies get through their ESG journey and do ESG reporting. And I will say it's -- going back to what I mentioned, what company has done investor-grade reporting for over a decade. What company is adept and incredibly confident at helping customers meet regulatory requirements. In fact, when there's a regulatory change, taxonomy change, we are capable of including that in the platform and the solutions immediately upon the mandate becoming law. And we have the expertise on the staff. We know how to do it. And so between regulatory, investor-grade reporting, already having the world's leading capability for XBRL tagging, we're absolutely there in terms of the competition. We can beat it there. But we also have the complete offering of our platform, which is the financial, with the non-financial or ESG and assurance. And if you're familiar with the corporate sustainability reporting directive, CSRD that just came to be a law in November of last year and was -- we got more clarity on in July. You will know that what's required there is that the financial reporting and the non-financial or the ESG reporting have to be together in the same integrated report and ultimately, we'll need assurance, and there will be a tagging component. And there is no other platform in the world that not only has the experience we do in helping do this reporting, but it also -- we're the only one that has all 3 together on the same platform. So it makes a difference. And I'm sure you're all familiar with why a platform plays better, particularly in these times when companies are looking to consolidate their SaaS offerings, but there are so many other ways, that the 3 solutions play better together. And again, we've been doing it for a long, long time. So when it comes to who can do reporting and certainly the integrated report better than what we were really that, there are no competitors in that arena.

Yes, that's great to hear. And in relation to CSRD, how have those customer conversations been evolving? I think we heard SAP earlier in the week talk about how there's been a pretty large growth and momentum over the last number of months around people asking about sustainability reporting. Are you hearing that acceleration in customer conversations around the regulation? And I ask that because I know what you've talked about in the past is there are multiple catalysts, right, to drive people to want an ESG solution, and it's not just regulation, it's the C-suite, it's the Board of Directors, it's investors. And so I just want to see where we're at today on that.

Yeah. I mean, our demand has been pretty steady. And again, we -- listen, we have 88% of the Fortune 100, 85% of the Fortune 500, 80% of the Fortune 1000. And those customers in the U.S. are buying that demand is without regulation. So we're seeing that for a number of the reasons that you cited. It's stakeholder demand. It's risk management, right? I mean, ESG is really about surfacing those risks just like financial, it's non-financial risks, and they're reporting those out and their stakeholders are demanding it. So that is consistent demand is what I'd say. On the side in Europe, Europe slow to adopt period. The regulations, again, just became law in November. There was some clarity in July, but half written at this point, and we're learning more. The customers are learning more. So it's not suddenly a rush in demand and a lot of customers, potential customers are waiting to see what's happening. So we don't look at it as this. We look at it as steady durable demand and growth over a number of years. And that -- the other thing is that regulation in Europe, the CSRD, it's not here, 50,000 companies right now need to comply. It's -- they've laid out the compliance and it evolves depending on the size of the company and the type of company and so forth. So it's over a number of years. So for us, it's more a steady, consistent demand over a course of years. But certainly, we are having more conversations. We're talking about it more, our marketing team and our sales team are out there working with customers, talking to customers. We're getting in the hearts and minds of customers in a number of ways, again, with our marketing and touch points on sales and so forth. So yes, people are very, very interested. The conversations are happening. But again, demand pretty consistent.

Got it. No, that's really helpful. And then, I just wanted to touch on multi-solution deals because I think that's one of the things since you started, that's really improved quite dramatically. And I would love to understand from you because you've been in an operating role your entire time at the company. What you think has been the main driver of that? And what gives you confidence that, that continues to grow?

I think, it's -- we are evolving as a company. We're improving the way we operate. It is a big focus since I've been here, I mean, multi-solution account expansion. I mean, I talked to the team all the time about, look, if we just sold 1 or 2 more solutions to every customer we have, we'd never need a new customer, I mean we don't operate that way. But that -- the opportunity is so significant for us to move into the $1 billion and the multibillion by just selling more to our current base. And I highlighted on the earnings call, our last earnings call, a number of multi-solution account expansion plays. And yes, we are focused on it. I mean, again, our go-to-market teams are putting a lot of emphasis on it. What we like to try to do is kind of have that 50-50 blend of new logos and new solutions so that we're always harvesting what we have, but also getting new logos to harvest. But it's absolutely a push and an emphasis on the way we operate. And our sales team has begun to evolve too. I mean, when you move from a single solution into a multi-solution and a platform, you really need to have different motions in your sales organization. There's a different skill level. They develop relationships in a different way. You've got different buyers, different stakeholders in the deal from the customer side. So you really need to have a new skill set in sales to be able to do that. And we have been transitioning to that kind of selling organization that sells more as a platform multi-solution, but we set targets for ourselves internally around multi-solution deals, account expansions and so forth. And we watch it and we -- it is part of our growth strategy.

That's great. Sure, go ahead.

Sorry, I was just, because of the what you said basically, how do you ensure that discounting impact in relation to that?

So we've been fortunate here. Our solutions are best-of-breed. So we don't give a 2 for 1 or a discounting. We haven't needed to go there yet. And we price advantageously, but it's not when we're doing larger deals and so forth. But we've not seen any significant -- more significant discounting on the multi solution. I mean, you are buying a new capability on our platform. For example, when you buy ESG and you are -- you have SEC. So we've not run into that at this point. The value proposition for these new solutions, leveraging different capabilities, they're different enough off the platform and we've not had to leverage that kind of discounting for our sales at this point.

That's great. And just for the audience, I'd like to save questions for after the session. I appreciate that. I think another thing that I wanted to talk about was just the macro side of things. I know, Workiva has been relatively insulated compared to a lot of other businesses. We hear that larger ticket items often have longer sales motions. There's a lot more scrutiny in the market, yet I think you talked about how mission-critical your solution is and the platform gaining traction. And so how would you describe to the audience here where Workiva sits within the current macro? And what gives you the confidence in sort of the trajectory into next year?

Sure. I use the word insulated, and I don't know that we're insulated per se. I mean we're not immune. We are definitely seeing the signs that other SaaS companies are seeing. We've got the elongated deal cycles. We've got more people coming into our deals from higher levels and multiple levels across the organization. Takes more signatures and more approvals. So we're definitely seeing that. I find myself on more customer calls, working with teams to help things go over the line. It's not that they're saying no. It's more that it takes longer or there's a delay and they're just scrutinizing deals, and we absolutely see that. So I don't want to go on record as saying more immune or we're insulated from it. But I think it's more -- they're being cautionary in their spend. And we're doing the same thing internally. I mean, our team is looking at deals when the software purchasing committee has something to buy out over a certain deal size, I'm going to be involved, and I'm going to ask the hard questions like we're finding our C-level executives in our customers asking those same questions. So I really do think we do see it, but -- and there's the but, right? I just want to make clear, we are seeing the macro impact. But we're simple regulatory. We're -- as you said, and we are a topic in boardrooms and C-suites, and it's a different kind of sale. It's not yet another project management tool. It's not a travel application that you could wait another year or 2 years to implement. I mean, we are important for business outcomes. We're important to stakeholders. We're important for investors. And where you might say -- the decisions for certain things are left to lower levels in the organization or the scrutiny anything on dollars. I mean something comes in, and we need to pay some extra money for ESG reporting for financial or non-financial reporting. We're not usually going to get in there. So we've been fortunate in that we are -- we have -- what we're considering a resilient platform in more challenging times. For many of the reasons I just described, the regulation and the visibility of the -- those kinds of things that we sell.

And how are the SIs playing a role? You mentioned your sales force and sales motion, but in particular to ESG, but just your broader solution set, how do the -- how important are the SIs and the consultants to you?

Yes. I mean, we have 4 tenets of our growth strategy, which we've talked about a little here and one is our best-of-breed solutions, it's on our platform, which is overarching around all of those solutions, open, intuitive, intelligent, et cetera. And then we've got our global footprint, which we're expanding and becoming more excellent now, as I will say. But it's also this high-performing partner ecosystem that we continue to strengthen and expand and get better and better. And that reach with our partners is incredibly significant to our growth story and our growth opportunity. So we put a lot of time and investment and effort into our partners and making them commercially successful for us. We have been in a transition where we've been beginning to -- not beginning in the midst of transitioning our services to our partners. And we are -- and advisory and consulting partners absolutely the big 4 we play a lot with. And we want them to get commercially successful with our solutions in implementing, but also offer a wide array of their own consulting and advising offerings around those implementation services. When they know they'll be commercially successful with us is when they will begin bringing us even more sourced deals. We'll go to market and we'll co-sell with them, so we'll get the more of those co-sell opportunities. So that's kind of the cycle we're in, and we're in that pivot time where we are beginning to see the fruits of the labor, if you will, come back to us in source deals, influence deals and opportunities for co-sell with the partners. So we see more run room there for sure as we continue to work with partners and doing implementation and a lot of advisory and consulting. The other thing they do for us besides that is they really bring value to our platform. When you think of those big 4, what did the big 4 do? Same thing we do. They do audit, they do tax, they do reporting, and they do now ESG, they've put each one of those have split billions of dollars into ESG. And they work with our customers when we have implementations together, and they bring more value from our platform to the customers, which, of course, makes it stickier, right? And of course, they're in there with them doing digital and financial transformation. They'll recommend Workiva as another solution, and that's part of the account expansion. And the increase that you are seeing in our larger deal size, I think we talked about in our earnings call that the greater than 300,000 above customer account value, that's increasing at a faster rate. And that comes -- a lot of that is partner, partner contribution. So our partners are everywhere we want to be in digital and financial transformation, and our goal is to make them wildly commercially successful. So they will, in turn, work with us in co-sell and provide source deals.

That's great. I wanted to pivot to sort of data analytics. I know you said data and the data asset was one of the reasons you joined. How are you thinking about AI, Gen AI for someone like Workiva? I know it's a -- when you talk about the back office more broadly, you think of a more risk-averse software buyer. And so how do you sort of balance those 2?

Yes, I mean, we absolutely see AI and Generative AI as likely changing the landscape in reporting and things that we offer and so forth. But listen, we've had AI for a number of years. Yes, right, we have -- we spun up a data science team. We've been building out capabilities around that. We've used it internally ourselves. We've used it for our XBRL tagging and so forth. So we're not new to AI, and we had a data science team on our -- in our organization already. And then when Generative AI came out and those capabilities became available for us to use, we've partnered with Google, we've partnered with Microsoft, and we've rolled out our first offerings, if any of you are going to our user conference in Tennessee and later on in September, a couple of weeks from now, you will see a lot of our discussion and so forth around the features and capabilities. So it's very much a part of our -- the way we're going to market now, and it will increasingly be. There's still a lot of hype around it. We want to still be very, very careful. In fact, what we've done is we've pulled in those -- the capabilities from Google and Microsoft and their large language models, and we've brought them in app in our platform to ensure our customers that any data that they put in there and use will not be used by those companies to train their models. So these applications and large language model applications are in our platform in the same secure environment that they are using our capabilities. So we've been able to reassure that. And we'll roll these out. We have a new adopter program for these capabilities. Our goal is really to make sure that what we roll out to our customers is really going to bring them value, right? We're not going out there immediately monetizing. We want to understand the value that it can bring. We're going to build what's useful for customers and help them get better insights, work more effectively and more productively and again, make our platform more valuable for the users.

That's great. When you think about the hiring environment and that -- how that relates to the broader demand environment, I know there's a lot of further around the ESG opportunity in Europe, et cetera, and particularly as it relates to the regulation. And so how do you evaluate demand and productivity signals as it relates to hiring? And how does that balance with how you think about the headcount you're at today?

Yes. We've been more thoughtful about our head count of late. And I think our focus really is on ensuring that what we hire is strategic and going to the right places. We do that, too, with our reallocation of resources internally. We're making sure that we have the right talent for growth and scale and for the capabilities that we want to build out. So we will continue to hire. We're a growth company. We want to invest in growth. We're not managing to a margin. It's something not comfortable for me. It is we want to grow, but we want to focus on productivity as we grow. So we'll continue to invest and higher. We'll just be very thoughtful about it, about the resources that we have today and putting them in their best uses and the ones we hire will be thoughtful about those in terms of skills and productivity, and what's going to take us to the $1 billion. And I think that's what we're looking at.

That's great. To finish off here, we only have a couple of minutes left. I'd just love to get your view on what you think is being misunderstood by investors or the market. Or you think when you get questions from investors in the broader community, what you think is being underemphasized and something you'd like to emphasize today.

Do investors ever misunderstand anything? Okay. Just kidding. I think for Workiva, sometimes people can index on, oh, there's ESG, let's see what that opportunity is and what does it add or something new comes along. I think it's interesting to look at our history and what we've evolved to. And as we've continued to invest in the platform and a little bit along the lines of what I mentioned earlier when we started talking with what we've built is a platform that is capable of helping our customers do regulatory -- meeting regulatory compliance, helping them with complex reporting deposit reporting with narrative and data and footnotes and charts and graphs and so forth. And that is incredibly relevant in today's world across, yes, all the solutions that we have, but the environment that we're in, which is around scrutiny, right, around companies, the risk profile changing and things around us demanding more and regulatory coming more and more into play and changing with respect to complexity and intensity and frequency. And I'll call your attention to just over the last month, 2 new regulations came from SEC. One is around cybersecurity disclosure, right? Not related to anything specific that we have, although it's disclosure and its controls and it sure fits nicely in what we do. But there's also the other one that came out recently around private equity, right? And regulating those funds in private equity. And so when we think about Workiva, it's not, oh, we're an SEC company or financial reporting or ESG, sure. That's what we are at this moment. That's what we do today. But when you think about, as we've been building capability to be best-of-breed in all those solutions, what we've really been doing is building out this platform with technology, with innovation that will beautifully handle regulatory. And the relevance of that in today's world is increasing and will continue to increase. And I think that's -- when we look at ourselves in 1, 2, 3, 4, 5 years, that's the story. So is the ESG coming now? Is there a hockey stick? Is it this quarter? Is it 2 quarters, 4 quarters from now? It's a different story, right? Of course, that ESG is an unbelievable opportunity for us and to contribute significantly to our TAM. But there's so much more to the story of Workiva and what our innovative platform is all about and can contribute to as we think about our customers and potential customers globally.

Julie, thanks so much for joining us. And I appreciate the answers. Thank you.

Thank you.