Workiva Inc. ($WK)

Hello. My name is Brett Miller. I'm the Co-Head of Software Investment Banking at J.P. Morgan. Today, it's my great pleasure to lead a discussion with Julie Iskow the CEO of Workiva. Workiva provides cloud software that helps enterprises collaboratively prepare, manage, audit and file complex financial, regulatory and sustainability reports with connected data and work all automation. Before joining Workiva in 2019, Julie held various technology and product leadership roles at Medidata, HealthEquity, WageWorks and she took over the CEO role of Workiva in 2023. So Julie, thanks for being here.

A pleasure to be here. Thanks for having me.

So to start off, you have over 6,600 customers, including over 85% of the Fortune 1000. What is it about Workiva that resonates with the office of the CFO, in particular, with these larger, more complex organizations?

Well, you described what we do in the office of CFO. We have a number of capabilities, two dozen solutions that we sell within the office of the CFO. And when you are in the office the CFO, your data needs to be accurate. You're sending it to investors and to regulators and to boards and your data needs to be consistent data consistency data accuracy data integrity, but you also need to explain the data to auditors and to investors. And so there needs to be data traceability, you need to have data lineage, you need to know where it came from, what changes happened to at any point at any time, you need to be able to count on that data being accurate but also explain the lineage of that data. And that is something that resonates strongly in the office of the CFO. You need confidence in your data, period, end of the story. And that is a lot of what resonates in the office of the CFO. There's also, of course, as you rattled off our offerings, I mean, these are things -- this is what the CFO office does, right? And incredibly important. It is not a nice to have. It's kind of mission-critical infrastructure. So we are in the office CFO. We have a platform. That's another area of where we resonate as well. CFOs and CIOs, their counterparts are looking for platforms where you can leverage data across the platform, one experience for your users, the usual platform consolidation reasons that buyers are interested in it. So for a number of reasons, we resonate with the buyers in the office of the CFO.

And the office of the CFO is a category that I think of as having a ton of companies and products out there. I think you've talked about customers standardizing on Workiva and consolidating all those point solutions. What is driving that decision and what is driving it now?

Well, you know a bit about the reporting landscape. The complexity continues to increase. It's not straightforward anymore the. It's not one report here and one report there. There's integrated reporting. Getting a more holistic view of your business when you look at your financial factors and your nonfinancial factors and then, of course, you want auditability and controls around them. So they all tie together nicely and again, CIOs and CFOs executives are looking for a platform because of the benefits of that platform. So it reduces the complexity of all of the reporting of all the solutions that we provide. You want to do it on one platform, your data is pulled together, a single source of truth, access. And in the world of AI right now, you want that data together to be able to apply that AI and you want it in a secure, controlled audit-ready environment, again, to have confidence in that data rather than have them in point solutions. So for a whole host of reasons, the platform is having its time right now.

Right. And I think you bear that out in the numbers. And so will people think a lot about churn always, I think, a particular focus right now you continue to generate 97% plus gross revenue retention quarter after quarter and 110% plus net revenue retention. How have you so consistently retained and upsold those customers? And what's driving that going toward?

I mean as we -- we'll be at $1 billion this year.

Congrats on that, by the way. It's a big [indiscernible].

Thank you. Just one small financial milestone on the way to bringing a lot of value to our customers, but an exciting one for us. But we've continued to expand our portfolio. We've invested in TAM. We have a lot of offerings for our customers. So just having that portfolio is one answer your question. But the other is, as we've come to the $1 billion, we've just improved our execution. We focused on account expansion, larger deals bringing more value to the customer. So we just continue to do that. It's a land-and-expand motion. And even now where we're landing with more solutions, we have plenty of offerings around the portfolio and the platform. to bring more value to our customers. So just part of the strategy and the motion.

And it's notable at a time when these metrics have for most software companies, just slowly degraded over the last several years, the consistency of Workiva has been, I think, one of the hallmarks of it. So it's impressive. Speaking of impressive, you generated 21% subscription revenue growth this and which you've done pretty consistently. Talk about how you're able to maintain that growth as you scale the business and maintain those high growth rates. And again, 20% plus growth looking pretty good in public software world these days and what segments within the business because there are many of them like have the most momentum.

So I mean, a multipronged answer, of course, and it is our offerings and the TAM expansion. We, again, now have the so many solutions to offer our customers. It's also geography. We have moved into areas outside of the U.S., and we've invested there. So plenty of opportunity. And while we have significant base in the Fortune few thousand and Fortune 100, 500 and so forth. S&P, 89% of the S&P 500 here in the U.S. we also have begun getting more new logos and wins outside of the U.S. and Europe is a strong example of that. And that is a big area of growth for us, so we continue to expand there. But again, it's our own execution, whether it's geography, whether it's a number of solutions and TAM expansion for us and our investment there. It's also just execution. We've elevated our sales organization. They're better. We have -- our partner relationships are stronger. We go to market with our partners, and it's that leads to a number of multi-solution deals as well. We're better at landing with them. So we just continue to expand in all our of the business just getting discipline and expanding TAM, but also geographic.

Getting better at all the things and all the places.

Getting better at all the things. Well said.

And while you're growing, you've also seen margins inflect quite dramatically in the last year. So you reported 18% non-GAAP operating margin in Q1. That's up 1,600 basis points year-over-year. What's changed? And where is that leverage coming from?

Probably the same answer that I just gave you for the growth is just more discipline, more intention, more rigor, just focus on productivity. Sure, AI has something to do with it, but it really is the maturity of a company. I mean, you can't operate so inefficiently at $1 billion as you do on the way up to the $1 billion. And we've just began being really thoughtful about our operating rigor and discipline, and it's paying off. And I've talked a lot in prior whether our Investor Day or earnings around actions we're taking across the company, specifically, of course, in sales and marketing. But what we're doing to really improve productivity. And those are paying off. And it wasn't just though the one quarter -- it's been a climb there on getting more rigor and more operating leverage and expanding margins.

And then we just talked about maintaining the high growth, and we've talked about increasing the profitability. So the natural question would be, as you think about the forward, how do you balance the two and the trade-offs with it?

We really, to date, haven't looked at it as a balance productivity gives us more fuels the innovation and fuels our growth. And we've been getting better on both. As you can see, our growth continues at a strong rate, but also we've been expanding the margins. So the more productive we are, the more we have going to the margin expansion. But also, we have -- we're able to invest in innovation and in our sales and go-to-market organization. So we've had a lot of opportunity to improve the way we work and focus on productivity, and that's freed up funds and to enable us to grow. So it hasn't been a trade-off thus far for us and continues to not be a trade-off at this point.

So let's talk about AI, which has been the theme of this conference. You've said that Workiva is built for this era. I love that. So what do you mean by that? And what makes you believe that Workiva can thrive in this world of AI. So.

First question started off and what is the advantage of the Orion mode and it's how -- why do we resonate and it really is giving confidence in the data and that platform of trust the sacred place for the CFO where they know that every data point at any point in time and anywhere narrative is an can be trusted and defensible. I think in the area of AI, where you have just so much more data, unverified data, so many more unverified data sources, AI everywhere. You do want a place, you do want a platform where you know when you apply AI or you're getting your numbers that are, again, going to investors and regulators and boards, you want to know that data is accurate, you want to be able to explain it, defend it, understand where it came from, from source system and what's happened to it all along the way until the end of that report. I mean -- that is what we are made for. And that's been something we have built over the last decade, 1.5 decades. That's Workiva's core. And we're not leaving it behind in this [ narrow world ]. We're leaning into it as we build our AI products the more AI, the more data, the more critical it is for CFOs and CFO office to have trust in the data that they are using when they apply AI and then report to The Street.

So if I'm hearing you right, that puts a little less risk around the trust coated version of Workiva, but you also want to be integrating AI into your products. So let's talk a little bit about where is AI in your products today? What are the top use cases for AI and what's that value are getting from it.

Sure. I mean a few years ago, when Generative AI, I came out in the large language models came out. We, of course, were quick to ensure that they were embedded into the platform. They're in every across every solution, solution category, and they're available to our customers to leverage, whether it's drafting a report or streamlining work. So we've been doing that for a couple of years. But then we've moved on to in specific areas and use cases. We've come up with more advanced capabilities for our customers. And we have those in the various solution areas. So we've noticed an uptick in that. We have -- over 1/3 of the customer base has enabled it for their use. They need to sign a waiver and so forth. And say that they are going to use it and be okay with it and then activate it and leverage it. So we are seeing an uptick and they're using it in the more advanced tiers of our good, better, best pricing, which no doubt you will ask.

We'll get there. Let's talk about how you're monetizing AI today? And just as important, like, how do you see that changing? Because many companies are just embedding it as a way to drive retention and ARPU, but aren't specifically monetizing it. So how are you thinking about that journey?

We -- as I mentioned, we have had embedded in the platform available for everyone to use, and we aren't charging for it there. But in this good, better, best, we have the standard -- the essential and the standard and the advanced offerings for some of our solutions. And in the advanced offering we have, for example, for SEC, we have SEC intelligence package. And that would include some of our more advanced capabilities that customers can use. And we put in that premium offering advanced tier with a number of other capabilities, whether it's financial statement automation or some design features or translation capabilities and things like that. So we've embedded it in our advanced offerings, and we are seeing an uptick there of both purchase and usage. So today, that's how we're monetizing it. And we're watching the uptick of it and the usage of it and we're learning what customers are using and what we'll be building next for them and so forth.

Okay. Speaking of what you'll be building next. Let's talk about an Agentic future, like Workiva is in the midst of a fundamental transformation with AI, those are your words. So talk about how you're thinking about an increasingly agentic future for work.

Sure. I mean, every classic SaaS company that wants to win in the era of AI is going to have to do transformation. And it's -- sure, it's transformation around the company working differently and so forth. But it's primarily focused right now on the product and the technology organization where your product is front and center, of course. And we have these classic platforms that were not built for an Agentic future. And for us, our platform was very document-centric, workflow-centric template centric and what it needs to be is data-centric in today's world. And what that means is we have to have not just store all the data and store all our documents, you have to be able to understand them in the context around them. And these kinds of things are what -- when you transform the platform, you can then have AI access that data in a way in which you can have these agents and AI products truly a genic orchestration as opposed to AI assistant. And that's really the transformation we've been on for the last 1.5 years and continue to be on. So we are transforming the platform so that we can build true AI products, AI-native projects as opposed to AI-powered, AI-assisted, AI -- those -- so we are making that transition with agents doing work, and we see a future where our customers we'll be able to go in when and where they want to bring review and check and governance or a future where they can have the agents orchestrate everything and have an end product, right? We want the human to be able to go in and do the work they want to do, have put their judgment where they want it, but we also want to just have orchestrated agents to be able to...

Different levels of automation depending on your purpose.

That's right. And we always want to give our customers the ability to see what's going on. But we also want to give the ability to have all the work done not by them. And that is where we're going for our suite of products and our capability, but it does require this platform transformation. Again, this data centric and the ability to the data models and you need the semantic layer. And I mean it's very standard for those companies that are going to make this transition into the agentive future, and we are well on our way in leveraging the transformation already the platform capabilities.

One, because the -- well, you talked about the platform capabilities, but I assume there's something about Workiva is probably architecture is the way it's built that enables you to seize upon this moment. Is that right?

It is true, while we're transforming the platform to become data centric to be able to build AI products off of it. We are also bringing with us those things that make Workiva, Workiva. Which is that data accuracy, integrity and consistency and that traceability, defensibility and the data lineage and the linking and so forth so that you bring what is important for you that core and we're to continue to evolve our current offerings, but we're bringing all to the AI future, but we're bringing all that with us. So we have the best of both worlds. What made us successful is what will keep us successful in the future, our moat, but we are, of course, transforming the platform so that we can be strong in the AI world as well with true AI native offerings.

So on the productivity side, lots of interesting anecdotes from companies about how they're using AI to increase productivity. Like what about Workiva? What are some interesting proof points of how it's working.

Of course, we're using it to increase productivity internally. We have -- our employees are leveraging it daily. We've made it available to everyone. They're getting better and better and using it more. But we feel the real unlock for productivity with AI is using it cross teams cross-functionally within the organization, changing workflows and doing things differently. And this is where we see it really bringing productivity gains -- so of course, we're doing it in R&D. I mean that is where you're getting a lot of leverage with the models and cloud and so forth and cursor, et cetera. So we're using it there. We're working differently, but engineers are, of course, of leveraging it. But we're doing it in sales. We're doing it, of course, in our CFO office and marketing and illegal, every function around the company is leaning in to leverage it to get better outcomes, change the way they work to increase their productivity. I mean table stakes now in well-run companies.

I think so, yes. You've noted that the AI compute is currently sourced through broader infrastructure contracts without any near-term gross margin pressure. This conference, I've heard some interesting answers around impact of particularly on the gross margin line in the future as cost token costs will change. How do you think about AI costs as the usage scales? And how do you avoid surprises on your margin?

We [indiscernible] surprises by being on top of things, the answer for everything across the company. We're tightly managing our use -- we don't use the most expensive models for everything we do. I mean the general population of employees at Workiva is using different models than a coder might use for coding productivity. You don't need those models to get the lift and productivity enhancements. So we're making sure we're using the right models in the right places across the organization. We're watching our use of it. As you mentioned, we purchased them through the infrastructure contracts. So we've been able to manage it, but we'll continue to monitor it. It's just not been an issue to us for to date. But again, we'll continue to watch as we use more and more. And as customers start leveraging more of what we're offering. And in the top pricing tiers that when customers are using it, we're able to charge more in those pricing tiers so we can compensate for the use of the tokens. And some of our metrics are even usage-based in our value metrics and usage-based metrics, we can charge for and we see the usage going up.

On the competitive front, if big -- other big platform suites or AI native entrants, if they were to try to automate kind of the CFO workflow. Where is Workiva the most defensible? Like you've talked a little bit about moats, let's just -- in your view, what are the moats and what are the strongest ones?

Sure. And I think the one we talked about a little earlier is the strongest moat I mean, are you going to give you're an enterprise software company, are you going to use the startups, agents versus Workiva's trusted data platform and to submit to regulators and investors. And it's that. And we have our customers that have been with us, have their data and their documents and 10-Qs and Ks and multi-entity reports, they're all in our platform, which you can leverage to do AI. And you know that they are, again, accurate. You have the right versions. So we have all that data in the platform that we can leverage. But it truly is that you can trace every data point and a narrative back to source. And that matters where as a startup will not have that. So we feel very confident in that. But we have advantages, of course, in other ways too, where we've been doing regulatory reporting for, again, well over a decade. So we have the expertise when a regulation changes the day becomes law, our customers are there ready to be compliant. I mean there are a lot of advantages that we have built up with our trusted customer base over the last 15-plus years. So we have a lot of advantages just in being who we are in the footprint that we have and the trust that we've built. So there is that. But truly, it is we have the platform that CFOs can count on have confidence in their data, and you don't get that from some of these other start-ups. And the other thing is there is a perception that we're legacy, and we're just going to lean on where we are today and who we are today. And that's not true. Over the course of the last 1.5 decades, we also built up a strong innovation arm. And we continue to build new solutions and expand in TAM and invest in that. So our innovation arm is alive and well, and we can innovate too, and we operate like a startup within Workiva in a number of areas in the business. So we are not just standing still and resting on our laurels and our moat. We're also continuing to innovate and have an ability to quickly innovate and even out innovate some of the start-ups with our moat as well. So a lot of advantages and already being a trusted enterprise software company that can innovate quickly.

Yes. Love to hear that. Let's talk about go-to-market. So you've made a lot of changes in the go-to-market organization. Can you talk about that area of the business, how that's evolved over the last year or 2? And then how you're measuring success going forward?

Sure. We have brought in a couple of new leaders over the past year. And one of them was Michael Pinto, our new Chief Revenue Officer. And Michael came to us with a track record at AWS, 6, 7 years there, scaling his area of the business and region from a few hundred million to several billion. So he has been through building that go-to-market machine and building that muscle and just a different level of play. So we brought him in there. He's also been at Databricks for a couple of years he knows the data ecosystem. And that's truly what Workiva is becoming, right? We're the platform that manages the data that matters most in the office of the CFO. And we are having those conversations with our customers around the data ecosystem, how our platform plays in connects to the other applications in the architecture for the office, the CIO and CFO. So he brings that as well, very well networked in that ecosystem. So with that, he has come in to work either and just taken a different perspective, one of scale. He's seen the movie before. He scaled through the $1 billion -- multiple billion dollars, and he understands what it takes to build that machine. So he didn't come in and pivot us, but what he did do is come in and refine the strategy that we had and our ability to operate more effectively and efficiently. So we're bringing a different level of of seller or different profile, elevating the profile, we're selling our platform now, not 1 or 2 solutions and transactional sale. It really is that platform play that is resonating as we spoke about with the office of the CFO. So he's -- that's part of it. The sellers know how to how to work with partners. They embrace the partner rather than look at it as friction, and we do selling together. And, of course, productivity and the asked about the metrics. Of course, we look at efficiency and productivity and win rates and conversions and pipeline and all the standard metrics that you would want to be held accountable for as a Chief Revenue Officer. So he is doing that. But just it's elevating the level of play in our organization, and we're moving there. We had a very expensive sales model over the years that we had carried with us, and we had started making some changes in that, and he is very much in line with that. So he looked into our strategy to get to a more productive and effective sales organization, and he's coming in and helping us make that transition and bringing a lot and adding a lot at the same time.

Should we expect then sales and marketing as a percentage of revenue to then be coming down over time as those changes are?

You've seen our operating model. And yes, we've put some targets out there and we believe very strongly we will meet those. And it's not necessarily the upside there too lots to be improved upon on our sales and -- but having said that, where there is opportunity as we expand in TAM, we will be putting resources where they can most effectively help us grow. That is where we want to put our effort and we'll put our sales team members where we see the most opportunity and where we can continue to grow and allocate them in the right places.

And within the growth algorithm, obviously, very fast growth overall, but particularly fast growth on your large ACV customers. So -- and I'm sure this is all related to kind of your last couple of answers, but what's sort of driving the success with those biggest accounts.

Again, we have become much more effective at multi-solution selling and account expansion and that platform play is truly resonating when you buy one to a few of our solutions, you realize the value and you don't want to go to another point solution. You would rather put your data altogether in our trusted platform, understanding how it works and again, the confidence in the data. So that play is really working it is the value we bring to the customer. We continue to roll out more solutions and have the ability to bring value, but it is also, to your point, it is also just our execution getting better and stronger. And that's part of our strategy is larger accounts, more solutions, more value. We're just going to continue to do that. It's a land-and-expand play in the truest sense of the word and particularly in our larger accounts. And yes, Michael Pinto is really focused on those accounts where we can bring more value and expand significantly across the globe.

In addition to Michael and his team, you've also talked about how partners are playing, I think, increasing a large role in your large deals. So tell us about the partner strategy.

Sure. I mean we all know when we're talking about these big 4 and the next tier, they're everywhere we want to be in financial and digital transformation. Our company's faith him a lot of money to listen to them and trust them. And when they say a vendor should be in the financial transformation plan and strategy, they listen. So we have a good opportunity. They provide the services high-value, high-margin services. They are commercially successful when they work with Workiva. We provide the technology, a beautiful play. We go to market together and offer the customer more value than each one of us individually. So both sides know that. So we have developed strong plays with our partners, and we provide a lot of value to the customer. And when we talk about how are we successful in expanding accounts in some of these larger customers, partners is a significant part of that. So we continue to do that. And some of the impetus might be an ERP transformation. And we want to be in those playbooks with those partners when the ERP transformation happens. It's a good time to reevaluate your disclosure and reporting or maybe consolidating on your ERPs, and we can come in globally, you may have a lot of them. We come in and we can help with that. So partnering with our big 4 and next year down is a strategy -- part of our strategy as well, and an important mechanism for us in terms of our growth and our account expansion.

With apologies for the delay, I think you wanted to talk about pricing since the outset. So you are an early adopter of value-based pricing, not seat-based or repeat not seat best. As you evolve that pricing structure in a good, better, best in those tiers, what's been the customer response? And what kind of impact do you expect this to see in revenue?

Sure. I mean We've seen pretty good response with our good, better, best pricing. We started in our SEC reporting and intelligent SEC and financial reporting, and we have seen lists of 20% plus in this motion. And I will say we're just getting started, but we've seen good traction. We're very enthusiastic about it, and we'll roll it out to other solutions as well. But it's one vector of growth for us. It's not the only. Of course, we have all those solutions. But it's definitely a mechanism for us to gain more value when there's value to be gained. And I'll say one of the reasons we started doing this good, better, best pricing is because we found ourselves discounting our offerings for customers that weren't quite ready, whether they were more on the SMB side or just not as advanced and mature. And so instead of discounting now, we're giving them a solution more fit for where they are, and then we can go back and extract more value -- provide more value to them and extract more value. And it's been working well. We've been going back at renewal time and even when we're doing new contracts for new solutions or mid-cycle. And we're going back to our customers that have been with us for over 10 years and getting more value as they get more value with these good, better, best pricing models and the premium tiers are resonating with the customers. and we are putting our AI capability as we talked. So we are seeing good traction. But I emphasize again, it's just one mechanism for additional value.

Although you're certainly out in front of trends.

I mean thank you for highlighting that we are not seat-based, and we have not been seat-based for the last 6 or 7 years. It is based on the value we provide and in some cases, yes, consumption base like our data integration capabilities.

So switching gears. The SEC has put out a proposal that would allow companies to choose semi-annual reporting instead of quarterly. If that were to go through, what sort of impact would that have on your business? And what is your view generally of that proposal?

And thank you for using the word proposal because that is what it is. It's a proposal. And what it is, is it gives companies the option, the flexibility to report twice a year or quarterly as they have been doing. So from the customers that we've talked to, they still want the rigor of the report. They have investors who want data. They want to keep the rigor and the discipline of that action, right, that momentum. And as I said, the CFO office wants confidence in the data. They want data accuracy and integrity and defensibility all year long throughout the quarter and throughout the year. It isn't going in just once a quarter anymore in reporting or once a year or in this case, maybe twice, it's all the year long. They want to go in and be proactive solving problems becoming more strategic. That's what the job of the CFO is. So they don't just do a report every quarter. That's not what Workiva's value proposition is. It is exactly what we've been talking about the thread here. they want to be -- have confidence in data they need to have auditors go in. It needs to be audit ready. They need to explain it, trace it back to source system, explain any changes in defendant regardless of the number of reports, we don't charge by number for it. That's not the value. The report is not the necessarily the report itself is not the high energy part of this is a high-value part. It's what we do in the platform with -- for our customers that really is the value of Workiva. So again, we don't charge per report. So for us, it's a non-event. But again, it is an option. It is a choice. And from the conversations we've had with our customers, they want to continue that rigor of the quarterly report.

Got it. Well, we are out of time. Thank you so much for being here and for all the insights.

Thank you. Appreciate it. Thank you all for attending.