Workiva Inc. (WK) Earnings Call Transcript & Summary

It's probably -- and it has been, and we've watched this, it's where the work is well-defined, where the work is repeatable, and where the work can be validated that you can actually check and make sure when you let AI do it. That's how we're in the early phases, how companies typically work. They adopt the AI capabilities that -- where they can validate it and where it's pretty well-defined work. But you can see as they get more comfortable and they validate it and so, yes, it did work and was right, that they're willing to do more and more and adopt more and more that is less well-defined or that is less repeatable or that is less validatable. But still, in the office of the CFO, and we are very well-aware of this, you need the judgment of those users of the platform, and you need to ensure that they are in control and they pick the level of autonomy, right? We want to make it so that they can choose. We want to help them. We want to do more of the work for them, but we want them to make the decision on how much of the work they want us to do. And that's really important.

You kind of touched on this, but when I think about Workiva's data and governance advantage, why does AI make that advantage more valuable?

I think you're hearing this from a lot of companies who have this capability to do governance and security. The more you usage you use AI and the more that the software does for you, the more you're going to want to make sure that you trust. That you trust the data, that you trust the technology, and that you're able to trust the outcomes. If you're going to delegate to agents and let software do work for you, you're going make sure that you can trust. That data needs to be trusted. The platform that's doing the work can be trusted. And you can't just say, okay, do I trust them or not? You need to be able to prove it every outcome out of the Workiva platform is -- whether an agent is doing the work through our MCP gateway or humans doing the work. If AI is working on it, you're going to want to be able to defend it. I mean you're going to want to be able to explain every number and even the narrative where it came from and how it changed over time through the system. And that is incredibly important when software is doing more of the work and more and more AI is doing the work. So trust becomes incredibly valuable. It's always been valuable but even here in an environment with AI and so again, software taking on more of the work.

So you mentioned the MCP gateway lets your customers connect outside models and agents to Workiva. Within that, how do you remain the strategic platform if the intelligence increasingly is coming from somewhere else?

And you mean intelligence coming to someone else, the models, the large language models and so forth, the Claude or et cetera. So that's 1 element of intelligence, right? That's 1 layer of intelligence, the models, but they're only as good as the data that they act on. And that's where we're -- that's the value of Workiva. A CFO knows that the data coming out of there and the results coming out will be trusted. When the customer leverages or the agents of the customer leverage the MCP gateway, what comes with it is traceability, is data lineage, is defensibility, is auditability, right? It doesn't just -- the data doesn't come out. It comes with all of that, and that is the value. That's the true value of the Workiva platform. yes, we want to be open. We want our customers to leverage their technology ecosystem. We want them to bring their tools. We want them to build on our platform. We want them to do whatever they want. But the real value that they're getting, again, is what's coming in the platform, that traceability, that defensibility, that is a necessity, right? It's what -- sure, you can use Claude on your ERP and have it and leverage it within your company, but you can't -- every time you're called upon, you can't have the traceability, the auditability and the defensibility, which a CFO knows is the thing that determines their reputation, of course, the companies.

So what should investors be watching for to get some visibility into your agents moving from just customer interest into meaningful adoption and economic value?

I think the real sign of whether or not our AI capabilities are effective and customers are leveraging is really the value it brings to the customer and the outcomes, right? What outcomes are they getting? Because it's -- we do look at adoption and we look at the measures of it. But it's not how many times you click or how many prompts you put in that is the measure of value. It's the outcome that comes out and then it's how much they continue to want to do with your company? So I would look -- it's retention, it's expansion. If they're getting value from our AI capabilities and helping them to do more work, we're doing more work for them, it's really about how they continue to invest with us. Then you know what you're rolling out in the capabilities, our success. Customers want to know whether you're future-proofing them with technology. Are you staying current? Are you staying ahead for them, so they don't need to do it? Can they leverage your technology, and benefit from it, and get better outcomes? And those are -- that's business growth, right? That's business growth. That's how you know you're doing the right job with the technology. So yes, of course, we look at adoption. We watch, we listen, we learn, and we see the use of more, but that's not the metric of whether or not a customer is getting the value from it, right? It really is -- it's about growth, and expansion, and opportunity for the customer to continue to do more with us, putting more on our platform. That's the true test.

So I want to ask a little bit about AI monetization. So you're placing many of your new AI capabilities into some of your premium pricing tiers. What needs to happen for AI to become a material growth driver for the business rather than some features that support pricing and retention?

So I'll answer it in 2 ways and 1 direct on the pricing, but also when you think about AI to change your business materially, it also comes into what I talked about before, which is our -- AI lets us expand and build faster and innovate faster, which enables you to expand markets and have more to give the customer. It's not just an AI capability, it's more offerings for the customers. So that's really, for us, where we look at AI as an enabler of growth. What more can we do for the customer, what more can we offer them, how much more value can we bring? And that goes back to that initial question that you asked about expansion and what do we look like over the next 1, 2, 3-plus years, right? It's what can we build because of AI? But I'll go back to the pricing model, which is the initial core of your question, which is how and when do we see value from it? And we're just getting started. I mean, we put AI into the platform, in every workflow, in every solution across the portfolio. And that's table stakes and available for everyone. We began putting out solution-specific AI capabilities, and we offer those in our solutions. And then we realize we're bringing out very advanced capabilities, bringing even more value to the customer and doing more work for the customer. So we put that into our already existing good, better, best model. So we have essentials, and our standard, and our premium or in advanced tier. So we've been putting our advanced capabilities there, letting customers work with those. We've been watching adoption of that. We've been watching how they use it. We're watching which things resonate more and bring more value. So we're learning, but we're doing it in a way that they have predictability on the pricing, and we have predictability on the bookings coming in, right, in the revenue. So it's been a really practical model, a good model for us to introduce our advanced AI capabilities. and it's working well. In the areas that we've introduced it, we've seen an uptick of greater than 20% when customers move into that advanced model. And we're going to continue to leverage it. It's a practical way for us to introduce all these advanced capabilities and for customers to leverage them without concern about using -- having to pay and use it, use more, and so forth. So it's been good. It's a very predictable model on both sides.

And so your pricing is already based on value and usage rather than a seat-based model. How does that position you differently as agents perform more of the work and you see this adoption increase?

Sure. And we're very fortunate. We are 1 of the companies, 1 of the very few SaaS application companies that isn't seat-based. And we have been for a while now 6, 7 years, charging customers for value usage. And what I mean by that is if you're a company that has our multi-entity reporting solution, we charge based on the number of entities you use, not the number of people that go into our platform and use it. And this is great when you move to the world of AI because we don't care if a human goes in, or an agent goes in, or you don't go in as long as you're getting value from the platform. So a number of controls is what we use when you buy our control solution. And it just so happens that the larger and more complex you are, the more you will end up paying because the more entities you have, the more control you have, the larger company you have, the more data integrations you have, and these are the kinds of proxies we have for complexity and size and usage of a company. So we've been very fortunate that we've had that pricing framework for many years now, and it plays very nicely in AI because say you're a customer in the top tier with us. You can look at a $1 billion company and a $50 billion company, both of which we serve. And the $1 billion company will pay X amount for a premium tier. But a $50 billion company will pay Y amount for the premium tier because they are using more of the platform, more controls, more entities, more data integration. So we are charging more if you're going to be leveraging more AI already. So we're already kind of tiered pricing within a tier, if you will. But we're set up and well-positioned to be able to charge in this way and to charge for AI. So very helpful.

So in the beginning when we were talking about some of your 2030 targets. You had mentioned on how you're tracking ahead, the 27 targets, especially on the margin side, you've made some really strong progress over the past number of quarters. So I'm curious, how do you think about the balance between generating that operating leverage versus investing into some of these AI products and growth area?

Sure. And I think another kind of misunderstood. We can do both, right? We can invest in and grow our current business. We can expand the business we have today and move into other offerings and expand our TAM and addressable market. And we continue to get to be a more efficient company. So we believe that they -- 1 fuel -- that productivity fuels the growth. And we believe we can do both. And we have been. We've been getting more efficient because of the way we've been operating. We -- the way we've been growing, the way we've been scaling the business, sure, leveraging AI to bring more efficiencies. So we're going to continue to do that. A lot more discipline at $1 billion and you have at $500 million, and we assume that's going to continue, which is why we have those 2030 target. So we intend to continue in that mode of improved operational effectiveness and efficiency. But we also intend to continue to grow the business. And yes, AI makes that even more possible and contributes to our ability to do that. It used to take a long time to build TAM. It's a lot quicker now when you have that TAM, in your mind, how you can leverage your, I'll call it again, earned advantages. So we believe we can do both. It's not an either/or, still not an either/or for Workiva.

And so 1 of the things I also wanted to ask on some of your more premium pricing tiers. And you talked a little bit about this with serving a $1 billion customer versus a $50 billion customer. When you think about the early adoption that you're seeing of customers moving up to those tiers, are there any characteristics that they share? Is it some of the larger customers? Or is it a mix? And do you see that premium pricing tier being something that's applicable to the entire customer base?

I do ultimately see it being applicable. Customers come, as you know, at different points in time. Some are just becoming a public company or -- and so they're not ready to do beautiful design reports or financial statement automation and so forth. They just -- they're fine with a basic or a standard package and then there are others that are further along in their journey. So they are -- they would like all the new financial statement automation and these AI capabilities. Many customers look at them as table stakes already. So we're -- I do think ultimately, we can expand more of the base. But we'll be candid realistic. There is a portion of the company that we have, that we've had for decades that may never move on and take more advanced capability. But the companies today that are going public, that are growing, that are healthy, are ready to expand. I mean that's why oftentimes, we will land with an advanced package for a customer.

So you've announced some leadership changes recently. Can you tell us a little bit more about that.

Sure. We did bring on a new CRO. We brought in a new CFO, and we brought in a new Chief Product Officer, all since the beginning of the year, maybe Q4 and Q1. And we did it because $1 billion -- hitting the $1 billion this year, we've had some executives that had been with us for a number of years that hadn't yet seen the scale and the growth and where we're going and the multi-million dollars. So we brought on a Chief Revenue Officer that had come from Databricks and AWS and SAP and had seen the scale and knows what a go-to-market machine looks like. And he has worked with partners, knows how to sell hire-in organizations and engage with C-suite executives. So he's come in and running our go-to-market organization. Barbara Larson, our CFO that we brought in, spent 15-plus years at VMware, was at Workday for a decade, and even worked her way up to be the CFO of Workday. She comes through that scale as well and understands what a strong financial organization looks like through scale and has done the expanding margin and growth. And then we also brought Deepak Bharadwaj, who is in product and leading organizations and product organizations, both at ServiceNow for several years and then Adobe. So he's lived the life at scale as well. And having them at the executive level now in the organization has enabled us to think well beyond where we are today and just scale in an organization moving to the $2 billion and $3 billion. So just a representation of the way we're moving now. And it isn't just at the executive leadership level. We've moved and -- to bringing on executives across our senior leadership level, our operational leadership level in our technology organization. Part of it is you can attract talent that has been there and done that now and seen the movie. Part of is that part of it is our drive to bring in those who are familiar with scale and execution at the level we are and ready to take us to the next. We're pleased with the team, and the growth, and their ability to execute and scale the organization.

Great. So we're almost at time, so I'd like to just finish with 1 more high-level question. When you think about Workiva today as well as your vision for the business, what do you think is the most underappreciated aspect by investors?

I think it is that we have a strong business today, and we can make it stronger and grow it even more, the current business that we have today, that got us to $1 billion. But at the same time, because we have been transforming our platform, we can also have -- we can also extend that platform, that platform we've been transforming to be agentic-first. We can extend that platform into new offerings and new growth areas to get at that vision that you and I talked about early on with the multi-year, the vision to become that platform that, really, organizations can rely on to manage regulatory work. So I think the dual approach, the strength of the business today and the growth of the business today in conjunction whatnot instead of expanding what we do, I think that's underappreciated. And we're able to do it because of AI, because we are innovating quickly, and because we are transforming the platform to agentic-first platform. So new technologies enabled a lot. And if SaaS companies can take advantage of that and leverage and capitalize on it, the opportunity is tremendous, and we believe that opportunity is there for us in Workiva.

Great. We are all out of time. But Julie, thank you so much for joining me on [ today ].

Thank you I appreciate being here. And thank you all for joining us today.

Thank you.