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spk02: Good afternoon, ladies and gentlemen. My name is Kellyanne. I'll be your host operator on this call. After the prepared comments, we will conduct a question and answer session. Instructions will be provided at that time. If any time during the conference you need to reach an operator, please press the star key followed by the digit zero. Please note that this call is being recorded on May 3rd, 2022 at 5 p.m. Eastern time. I would now like to turn the meeting over to your host for today's call, Mike Rost, Senior Vice President of Corporate Development and Investor Relations at Workiva. Please go ahead.
spk03: Good afternoon, and thank you for joining us for Workiva's first quarter conference call. During today's call, we will review our first quarter 2022 results and discuss our guidance for the second quarter and full year 2022. Today's call has been prerecorded and will include comments from our Chief Executive Officer, Marty Vander Plauw, followed by our Chief Financial Officer, Jill Clint. We will then open the call up for a live Q&A session. Julie Isco, our President and Chief Operating Officer, is also on the call. A replay of this webcast will be available until May 12, 2022. Information to access the replay is listed in today's press release, which is available on our website under the Investor Relations section. Before we begin, I would like to remind everyone that during today's call, we will be making forward-looking statements regarding future events and financial performance, including guidance for the second quarter and full fiscal year 2022. These forward-looking statements are subject to known and unknown risks and uncertainties. Workiva cautions that these statements are not guarantees of future performance. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statement to reflect the events that occur after this call. Please refer to the company's annual report on Form 10-K and subsequent filings for factors that could cause our actual results to differ materially from any forward-looking statements. Also, during the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliations of non-GAAP-to-GAAP measures and certain additional information are also included in today's press release. With that, we'll begin by turning the call over to our CEO, Marty Vander Plauw.
spk04: Hello, and thank you for joining today's call. The Rekiva team delivered a solid quarter and continued to execute at a high level, once again delivering financial results above our guidance. We beat the high end of our Q1 guidance in revenue and operating results. In Q1, we outperformed in multiple solution areas, including our GRC, GSR, and ESG solutions. For the quarter, subscription and support revenue grew 26.1%, and total revenue grew 24.4%. We had strong new logo growth, adding 93 net new logos and delivering a 27% increase from Q1 2021 in the number of customers with contract values over $100,000. We also achieved our highest revenue retention rate of 97.7%. The current global macroeconomic and geopolitical environment has led to volatility in the public markets. We did see a significant reduction in the number of IPOs in Q1. As a result, new sales of our capital markets and SEC solutions were impacted. Even with these global challenges, we are still on track to meet our guidance for this year, which Jill will talk about later in the call. We remain confident in the resiliency of our business and the future growth opportunities across our solution portfolio. Workiva's mission is to power transparent reporting for a better world, and we believe that we have the team and the technology to expand in our large and relatively unaddressed TAM. The SEC's new proposed climate-related disclosure requirements is a perfect example of our growing opportunity. The proposed mandate would require the following. The disclosure of climate-related risks, governance, financial impacts, and greenhouse gas emissions. Assurance for greenhouse gas emissions for accelerated and large accelerated filers and an inline XPREL tagging requirement. The addition of a financial statement footnote for climate related financial statement metrics and climate disclosures that would be subject to assurance and external audit review. These proposed regulations send a strong signal that investors and regulators want accurate, transparent investor grade disclosures. The Workiva platform enables our SEC and ESG solutions to work in tandem so customers can easily create audit-ready disclosures and file directly with the SEC. At Workiva, we use a continuous release cycle and deliver new enhancements across our single-instance multi-tenant platform. This enables our R&D teams to remain focused on rapidly developing technology and capabilities that create customer value and deeper customer engagement. A few of our recent platform enhancements include an ESG Explorer for framework management. Reporting teams can now quickly access and explore disclosure guidelines from internationally recognized ESG frameworks such as SASB, TCFD, and the UN SDGs and GRI to make informed decisions and identify material disclosures and metrics. We also recently made multiple enhancements to our GRC solutions to extend Workiva's leadership position. We released new capabilities for GRC data management and data connectivity that better enable GRC teams to evaluate account adjustments and manage risk-related data modifications, all with real-time data. Our partners continue to make investments to expand their Workiva practices. We had a number of large partner-related wins during the quarter. The European division of a Big Four advisory firm invested in the Workiva GSR solution to support their managed service that delivers statutory reporting services to their clients. This was a replacement of a legacy technology vendor. Another example is a large European energy service provider that engaged with both a Big Four firm and a regional partner in their selection of Workiva to support a financial reporting transformation project. This new Workiva client purchased multiple solutions, including ESF, GSR, and management reporting. These two deals are examples of the trends we see across our growing partner ecosystem. The purchase of multiple solutions, larger deal sizes, and the delivery of services by our partners. On April 1st, we acquired Parsport, a leading ESF financial reporting provider, that has been delivering XBRL conversion software in Europe for more than a decade. Their solutions help organizations quickly and efficiently file XBRL reports. We are excited to welcome this talented team to Workiva and extend our global XBRL leadership. Last month, Workiva was named the Fortune's 100 Best Companies to Work For for the fourth consecutive year. This year, we moved up 41 spots, coming in at number 20. This award celebrates the world-class culture we've created at Workiva. It is a testament to our employees' commitment to our values and the way they support our customers, communities, and each other. In closing, we are pleased with our first quarter performance. We believe we have the right team, the right technology at the right time to capitalize on the increasing global opportunities to power transparent reporting for a better world. With that, I will turn the call over to Jill.
spk10: Thank you, Marty, and good afternoon, everyone. Today, I will talk about our results and guidance on a non-GAAP basis, refer to our press release for a reconciliation of our non-GAAP and GAAP results and guidance. As Marty mentioned, we delivered a solid Q1 and exceeded first quarter guidance. We beat Q1 2022 revenue guidance at the midpoint by $2.2 million. Both S&S and services revenue contributed to the beat. We beat guidance on Q1 operating results at the midpoint by $5.3 million. The revenue beat coupled with slower hiring and lower T&E makes up the majority of the beat on operating loss. Turning to Q1 2022 results versus Q1 the year before. We generated total revenue in the first quarter of $129.7 million, showing growth of 24.4% from Q1 2021. Breaking out revenue by reporting line item. Subscription and support revenue was $107.1 million, up 26.1% from Q1 2021. New logos and new solutions helped drive strong revenue growth in Q1 2022. 66% of the increase in S&S revenue in Q1 came from new customers added in the last 12 months. Professional services revenue was $22.6 million in Q1 2022, up 16.9% from the same quarter last year. Higher XBRL services revenue due to an expanding SEC customer base and the introduction of FERC XBRL services was the primary driver of the increase. Turning to our supplemental metrics. We finished Q1 with 4,408 customers, a net growth of 608 customers from Q1 2021, and a net growth of 93 customers from Q4 2021. This performance shows a strong start to 2022, with Q1 historically being our seasonal slow period for adding new logos. Our subscription and support revenue retention rate was 97.7% for the first quarter of 2022, an increase compared to 95.1% for the same period last year. While we are pleased with this result, and it reflects our focus on customer experience and continued investment in our platform, we believe this metric may normalize closer to our historical average. With add-ons, our subscription and support revenue retention rate declined to 109.2% for the first quarter of 2022, compared to 111.2% in Q1 2021. We attribute a majority of this decline to our capital markets business. The number of larger subscription contracts continues to show growth. In the first quarter of 2022, we had 1,124 contracts valued at over $100,000 per year, up 27% from Q1 the prior year. The number of contracts valued at over $150,000 totaled 603 customers in the first quarter, up 32% from Q1 2021. The number of contracts valued over $300,000 totaled 186, up 42% from Q1 2021. The $300,000 contract value category continues to show the highest year-over-year growth. Moving down to P&L. Gross profit totaled $100 million in Q1, up 22.9% from the same quarter a year ago. Consolidated gross margin was 77.1% in the latest quarter versus 78.1% in Q1 2021, a net decline of 100 basis points. Breaking out gross profit. Subscription and support gross profit totaled $89.4 million, equating to a gross margin of 83.4% on S&S revenues. a contraction of 160 basis points compared to Q1 2021. The decline was primarily driven by increased compensation-related expenses versus Q1 2021. Professional services gross profit in the first quarter was $10.7 million, a contraction of 30 basis points versus Q1 2021, equating to a 47.3% gross margin. Research and development expense in Q1 totaled $32.7 million, up 35% from Q1 2021 due to new headcount investments, compensation-related expenses, and increased server usage versus Q1 2021. R&D expenses, a percentage of revenue increased to 25.2% in Q1 2022, up 23.2% compared to Q1 2021. Sales and marketing expense for the quarter increased 38.2% from Q1 2021 to $51.8 million, as we continued to expand our sales team, returned to travel, and invested in marketing events. General and administrative expenses totaled $16.7 million at Q1, up $4.5 million compared to Q1 2021. The increase was driven by higher compensation, professional fees, and T&E. We posted an operating loss of $1.2 million in Q1 2022. compared to an operating profit of $7.5 million in Q1 2021. Turning to our balance sheet and cash flow statement. At March 31, 2022, cash, cash equivalents, and marketable securities totaled $524 million, a decrease of $6.9 million compared to the balance at December 31, 2021. Net use of cash from operating activities in Q1 2022 totaled $900,000 compared with cash provided of $11.5 million in the same quarter a year ago. Turning to our guidance. I first want to call out that the financial impact of our April 1st PARSport acquisition is not included in our updated 2022 guidance. While we expect the PARSport results will be accretive to our 2022 results, Our work to fully transition the passport financials to US GAAP is ongoing. We will include further details when we release our Q2 2022 results. For the second quarter of 2022, we expect total revenue to range from $125.5 million to $126.5 million. We expect subscription revenue will continue to grow at a faster rate than services revenue at Q2. We expect non-GAAP operating loss to range from $13 million to $12 million, a net loss of 27 cents to 25 cents on a per share basis. Our share count will be approximately 52.7 million weighted average shares. For the full year 2022, we are raising guidance for revenue. We now expect total revenue to range from $534 million to $536 million. We expect non-GAAP operating loss to range from $32 million to $30 million, or a net loss of 71 cents to 67 cents on a per share basis. Our share count will be approximately 53 million weighted average shares. And in 2022, we expect to post positive free cash flow for the sixth consecutive year. Our current 2022 assumptions are dependent on a variety of factors that are subject to change. and that we believe are appropriately prudent for the current environment. In closing, I would like to echo Marty's excitement about our placement on Fortune's 100 Best Companies to Work For. To all Workievians, this achievement reflects what I see every day. It's a pleasure to work alongside you at this great company. Thank you. We will now take your questions. Operator, we are ready to begin the Q&A session.
spk02: Thank you. At this time, if you do have a question, please send us by pressing star 1 on your telephone keypad. Additionally, if you'd like to remove yourself from the queue, you may also press star one at that time as well. Again, that will be star one for questions. We'll hear first today from Matt Stultler with William Blair.
spk05: Hey, yeah, thank you for taking the questions. Maybe we'll start with just one on guidance. So obviously, you know, solid results for the quarter, raised for the full year. Q2 implying a little bit of a sequential decline in revenue. So I would love to maybe just touch on that, what's embedded in that guidance, and specifically just touching on, one, the tough headcount environment, right, in terms of whether that's elongating sales cycles, implementation cycles. Two, the geopolitical impact on spending intentions, especially in Europe. And then three, obviously, any changes specific to that capital markets component or the SEC component versus the guidance you were given in February would be helpful. Thank you.
spk10: Sure. Thanks, Matt. I think we're probably going to tag team this one. You got a lot in that question. So to start off on the revenue guidance, you are correct. It does show a decrease in that revenue quarter over quarter and indicate that through the end of the year. As we stated, we wanted to make sure that we were appropriately prudent in the way that we were moving forward with our guidance for the year. There is a lot going on. reflecting some of the items you just mentioned in your question. And we want to make sure that we are giving very prudent guidance so that we can make sure to continue to overachieve that. But we do feel very strongly that the guidance that we've provided for the year is well within our range to meet. And capital markets was another piece of that question. And we've given a little bit of guidance around that. Obviously, we know that the overall capital markets have decreased. Everybody's well aware of this. That doesn't mean that it has completely dried up for us. There still are a lot of secondary offerings that we're working through, and there are companies that are ready to be going public. So we do have some business there, and that is correctly included within our within our guidance. And I think that, Marty, do you want to hit on some of the other portions of that around the headcount, difficulty hiring, and the geopolitical environment?
spk04: Yeah, and, you know, in terms of the decline between Q1 and Q2, before we do that, there is some seasonality there, too. Is that right, Jill?
spk10: Correct. We do have seasonally high services revenue in Q1, so that's also a piece of it.
spk04: But we expect services and... and recurring revenue to increase quarter over quarter, obviously. So that's mostly a seasonality thing you're seeing there in terms of the quarter to quarter decline. In terms of hiring, yeah, I mean, it's a really tough market out there right now. I think everybody's consistent on that message. We hit about 80% of our hiring goal last quarter. And it's just really tough. I think we're doing better than most. We're getting really high-quality people, but we're just running a little behind. And then T&E has come up slower than we anticipated as well. We were being conservative in that estimate. So that contributes to most of the decline in spending.
spk09: That's helpful. And just to
spk05: Maybe just have one more in there. In terms of the Parsport acquisition, very, very interesting capability that you're adding there for essentially ECF conversion. Any early thoughts around the strategy or initial interest or traction with upgrading or using that as a platform to introduce customers to the full Rekiva platform and driving that conversion over time?
spk04: Yeah, obviously they were very successful in ESEF. Likewise, we achieved our goals, but our goals are much different. We're selling a higher-end solution that takes care of the whole reporting process and does the ESEF tagging. Their solution is just an end-of-process conversion to an XBRL document. They've been very successful, well over 800 logos, and a large percentage of those logos are large companies. With GDPR and all the other hurdles you have in Europe to get the customers, it was a very attractive way to have access to a lot of new logos. That was one of the primary reasons for doing it. A second was that they just announced or recommended, I should say, the European Union that they were going to require reporting of 50,000 companies on the ESG stuff and XBRL was going to be a part of that and so you know there's going to be a large low-end component in that 50,000 and and there'll be a lot of companies that just you know do that quickly at the beginning like we've talked about so it was really a way to access and get access to you know being introduced to customers very quickly And we see that low-end solution as an entry point for a lot of different other applications as well. Very talented team. Culture was a really good match. And the leadership are really, really good guys. So it was a really easy decision, frankly.
spk09: Got it. Very helpful. Thanks again.
spk02: We'll hear next today from Alex Sklar with Raymond James.
spk06: Thanks. Maybe just starting off following up on Matt's passport question, but I can appreciate you're waiting for the full accounting to be done, but can you give us any bounds on what that might contribute in terms of revenue or profitability for the year? And does that affect any of your planned European investments that you have at the start of the year? Thanks.
spk10: So I did mention that it will be accretive. Oh, sorry, Marty.
spk06: Oh, go ahead. Go ahead.
spk10: We did mention that it will be accretive to our overall results, and we will provide guidance inclusive of the PARS support results with our Q2 call. And I think, Marty, were you going to chime in on the second part of that?
spk04: What was the second part, Alex?
spk10: It was around if it's going to change how we move forward in Europe, I believe.
spk04: Oh, yeah, yeah, yeah. No, no. Our investment profile for our platform in Europe is staying the same. We don't have any change of plans there. It's just a very big market with a lot of opportunity, and we're at the very early stages of exploiting that market. So no change in those plans.
spk06: Okay. And maybe sticking with Europe for the second question, but we're getting to kind of the end of the first ESF deadline in Europe. And I'm curious kind of what your plans are, how you're thinking about retargeting those prospects for kind of phase two, where it does get to be a little bit more difficult.
spk04: Well, yeah, of course, we're going to be attacking on two fronts. The Parsport team will continue to go after customers. They have a significant number, but there's still quite a few out there. In terms of us, we continue to go at customers talking about financial reporting platform, doing a comprehensive annual report, being able to integrate with data, and then tag it with ESF tagging requirements. So when we approach a customer that's already doing ESF tagging, we approach it as this is sort of a comprehensive platform for reporting and streamlines your reporting process, eliminate risk, and gives you more control. And so that's, you know, it's the same way we did it in North America, exactly the same. And as I've mentioned, a bolt-on type solution in the U.S. had a large percentage of the market. And over time, we just took it all. So there's a lot of value add going from a bolt-on solution to a complete reporting platform. But Understand there's a lot of very small companies and companies who don't want to change the reporting process. And with that, we have a solution. So we're able to stay in the account and sell other things besides maybe we can sell integrated risk or GRC solution or who knows. But I think the combined strategy of having two solutions is really going to help us move in Europe.
spk09: All right, great. Thank you. We'll hear next from Joe Mears with Trist.
spk00: Hey, thanks for taking my question, guys. Regarding capital markets, I believe you've talked about single-digit market share there and just acknowledging that you've recently tripled the size of the sales team. And with the market kind of in a slower pace right now, is this a time where you're able to make those initial conversations with new customers potentially work on? growing that market share, even though the revenue might not be coming in right now?
spk04: Oh, absolutely. You know, you talk to the investment bankers, they'll tell you the same thing. There's a large number of companies waiting to go public. And as Jill mentioned, we're still getting business in cap markets. We're still talking to customers. And it's just a large number of companies that still want to access the public markets. So As I mentioned, we didn't perform as well as we'd planned in both SEC and cap markets this quarter. But two factors there. One is a lot of that will come back to us in subsequent quarters as soon as those markets open up. And second off, our growth strategy, our long-term growth strategy, is more focused on solutions like GRC and ESG and GSR and our management reporting, annual and quarterly reporting, and all those things. well this quarter. And so when I look at the big picture, I was very pleased with the quarter in the sense that the solutions that still have a lot of TAM runway for us did really well. And this SEC dip and this dip in cap markets is more of a macro thing that will smooth out sooner or later. So that's really how we're looking at it. And I was just very pleased with all of the uncertainty with the inflationary issues with the ukraine situation uh all of our solutions uh fared fairly well some outperformed esg and gsr and grc all outperformed in that environment and are continuing to grow so long term we're very positive and in fact those over performances made up you know over half the difference that we had seen in terms of a drop-off in SEC and cap markets. So overall, I was pleased with the quarter in light of what the macroeconomic situation was.
spk00: That's helpful.
spk08: Thanks.
spk00: And then just as a follow-up on ESEF, I think the U.K. had allowed companies to comply like six months later than the rest of the EU. Are you seeing any difference or pickup in conversations with U.K. customers recently? Thank you.
spk04: Oh, yeah, that's an area of focus for both our European team and the new Parsport team. We're both focused on UK to, you know, get as many of those logos as we can as well. And we're seeing activity there. Obviously, it's the largest ECF market, and as you mentioned, it was delayed. So it actually was helpful that it was delayed. We could focus on the other ones and then pivot to that. A lot of activity there.
spk09: Anything further, Mr. Mears? Thanks so much. That was all. Appreciate the help.
spk02: Thank you. We'll move on to Andrew DiCasperi with Barenburg.
spk09: And Mr. DiCasperi, your line is open if you still have a question.
spk01: Can you hear me?
spk02: Yes, we can now.
spk01: Okay, thanks. I just had a question on SEC Solutions. I think you mentioned it was impacted this quarter. Just wondering, I guess I assume that the financial reporting product specifically would see some conversion upside given some of those companies went public. I was just wondering if you could elaborate how that went in Q1 and if you still think that will potentially accelerate over the next few quarters.
spk04: I guess when you say accelerate, you mean... Do you mean continue to decline or to pick up?
spk01: Yeah, exactly. Sorry, pick up.
spk04: Well, first off, the decline in SEC was a result of just a lack of new filers. We did well on a new logo basis from the existing base and from the customers that had gone public recently. So we did well there, but you typically don't plan for a 95% reduction in capital markets activity in one quarter like we saw. So, you know, all in all, I was pleased with SEC in terms of the environment we were in. The team did well, and we saw good activity there. Got a significant number of new logos. But, you know, when you completely take out the new segment of it, it's hard to make that up. Do I see that continuing? Well, I mean, we'll continue to perform well in SEC. We won't perform where we want to until the cap markets comes back some. It doesn't even have to come back anywhere near where it was. We plan for a certain number of new companies every year in our forecasting. But again, to pivot back to my point, we are really pleased with our solutions. We made up half the ground in terms of any reduction in those two solutions. So from my point of view, to see those early TAM solutions do so well in such a bad environment was really, really positive for us.
spk01: Thanks. And then on the ESG demand, I know Q4 you had said this was a top four solution. Just wondering, given probably the core product price was lower this quarter, Just wondering, have you seen even more activity in Q1, particularly with the SEC comments, comment period not underway? And maybe on that topic, when you think about how potentially to package it alongside financial reporting, how should we think about that? Let's say fast forward to when this ruling comes out.
spk04: Well, yeah, activity and ESG is very positive. I mean we're seeing the pipeline grow very fast. We had a good quarter, although Q1 is always slower as you know, but we had a good quarter in our ESG solution and we're very optimistic this year in terms of how that solution will grow. Obviously the SEC proposal is very exciting to us because in some way, shape, or form, everybody's going to have to, you know, when that's finalized, everyone's going to have to comply. So we'll package it different ways. Clearly, right now we're looking at potentially three different packaging configurations depending on where people are in their journey, their ESG journey, and the size of the company, and what's more material than in other industries. So Yeah, we're seeing a lot of activity, and obviously the SEC proposal is exciting for us because it would mean every customer would have to do something at some level. So that's something that we'll see how it plays out, but right now we're very optimistic.
spk01: Great. Thank you.
spk02: We'll hear now from Mike Grondahl with Northland Securities.
spk08: Yes. Hey guys, just as it relates to Passport, roughly what was 2021 revenues? And of those 800 plus clients, how many do you think you can sell a Workiva solution into? What percentage of that 800 is a good target for you?
spk04: The revenue I'm reluctant to comment on because we're still, you know, they were on a cash accounting basis and we're still converting to U.S. GAAP. So obviously we'll give you all that at Q2, but the end of Q2. But in terms of how many of those we convert, the number that we're looking to is somewhere between a third and a half we would convert over the next several years. That's just primarily based on looking at the size of the companies that they have in their customer list and then assuming some percentage of the larger companies would eventually buy a Workiva solution. We're very optimistic that it'll be a really good source of opportunities for our platform and we have a direct way to get into there. We're already a customer, so And the Parsport team has a very high customer satisfaction. So, yeah, we're very, you know, like I said, that was one of the primary reasons we did the deal was have access to all those customers. Sure.
spk08: And have you started calling on them, or when does that kind of start?
spk04: That'll start this quarter. We've started to make some initial calls. touch points but you know when you acquire a company there's a lot of stuff you go through the land them and get them acclimated and and then start to communicate with customers what that means to them and so you know we're doing a lot right now just uh acclimating the system and uh and so we'll start and they're also they're they themselves are in heavy logo um uh acquisition mode right now so we'll start doing that you know Toward the end of this quarter and next quarter, we'll start aggressively looking at how we go after those customers.
spk08: Got it. Okay.
spk09: Thank you.
spk02: And once again, if you do have a question, that will be Star 1 at this time. We'll move now to Brad Reback with Star People.
spk07: Great. Thanks very much. So if I look at the 535 midpoint of the range guide, Can you give us a sense on what the capital markets expectation is in so much as do you expect it to return to some level of growth here in the back half of the year? Or is that more of a 23 occurrence at this point?
spk04: You know, I think we're planning on it moderating some in the last quarter of the year. I don't anticipate it coming back to even a third of where it was, you know, the end of last year. So that's what we've worked into the forecast now. Pretty conservative, frankly.
spk07: Yeah, just so we're clear, when you say moderating, moderating increase or continuing to decline?
spk04: Moderating increase. I mean, you know, the way I do, I just talk to a lot to investment bankers, what they're seeing and, There's a sense that companies will start going public again in September. We'll see. That depends on a lot of issues we can't predict right now, but that's how we modeled it.
spk07: Great.
spk09: Thank you very much. And with no other questions at this time, I'd like to turn things back to our presenters for any closing remarks. Thank you all for joining.
spk02: and that will conclude today's conference thank you all for joining us you may now disconnect
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