Workiva Inc. Class A

Good afternoon, ladies and gentlemen. My name is Tanya and I will be your host operator on this call. After the prepared remarks, we will conduct a question and answer session. Instructions will be provided at that time. Please note that this call is being recorded on November 6, 2024 at 5 p.m. Eastern. I would now like to turn the meeting over to your host for today's call, Mike Ross, Senior Vice President of Corporate Development and Investor Relations at Workiva. Please go ahead.

Good afternoon, and thank you for joining us for Workiva's third quarter conference call. During today's call, we will review our third quarter results and discuss our guidance for the fourth quarter and full year 2024. Today's call has been pre-recorded and will include comments from our Chief Executive Officer, Julie Isco, followed by our Chief Financial Officer, Jill Clint. We will then open the call up for a live Q&A session. A replay of this webcast will be available until November 13th, 2024. 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 fourth quarter and full fiscal year 2024. 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. Reconciliation 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 CEO Julie Isco.

Thank you, Mike, and welcome everyone to today's call. Jill and I look forward to sharing our Q3 results. We'll showcase some of our signature customer wins and we'll highlight trends that are driving our momentum. We'll also discuss our outlook for Q4 and our updated guidance for the full year 2024. To kick things off, I'd like to share a few comments on the impact to Workiva of the outcome of the US presidential election. With the Trump administration, we remain bullish on our market opportunity, including sustainability management and reporting. We remain equally confident that our growth strategy continues to be relevant and intact. Why? Because the demands on our customers have never been greater. The stakes are high. The impact is massive. And accuracy, speed, and productivity are not optional, and this includes the reporting of both financial and non-financial factors. Reporting on non-financial and sustainability information is a global initiative. It's a topic that goes well beyond any U.S. political talking point, and it's one that's not limited to regulation. We believe that the global momentum and the demand for sustainability management and reporting is not going away, and it will not be slowed down by the outcome of this election. For corporations, sustainability reporting is about performance. It's about growth. It's about impact. It's about surfacing risks and managing those risks. It's about addressing the changing requirements of customers, of employees, and of supply chains. And at times, yes, it's about regulation. But sustainability reporting is far from being a trend. It's a generational movement. As highlighted at our Investor Day, over 4,200 companies have committed to science-based targets along with the associated reporting. And 23,000 companies representing 50% of the global market cap now report their emissions data with the rigor required by the CDP. And although the 2024 proxy season saw a continued rise in anti-ESG proposals, none of these proposals passed and none of them received more than 10% support. While we've been selling ESG well ahead of regulation, there are some sustainability regulation deadlines that are fast approaching. Companies are actively preparing for both the EU Corporate Sustainability Reporting Directive, or CSRD, and the State of California Climate Rules. These regulatory requirements are not influenced by the US federal government. We believe that the CSRD is a game changer. It's not simply the next regulatory requirement. It's a step change in the size and the scope of our opportunity. For European companies, the regulations are clear. Large companies will begin reporting starting in Q1 of 2025, and there are over 1,000 new data points that they need to report on. These new disclosures will be subject to external audits starting in 2026, with XBRL disclosure with ESEF being phased in over time. The impact of the CSRD, though, is not limited to Europe. Global customers are increasingly focused on meeting the requirements of the regulation, regardless of whether they're directly governed by it. For these companies, the implications of the CSRD extend to their supply chain and the needs of their customers. Businesses aiming to attract and retain customers as they grow in Europe will have a strong incentive to comply with the CSRD. To operate successfully on a global scale, companies will be compelled to disclose their sustainability metrics. As we as a country transition to a new president, we will continue to execute on our strategy and serve our customers' growing set of requirements for sustainability management and reporting. I'll now move on to our Q3 results. Workiva is once again in a beat and raise position. Our results demonstrate an acceleration in both growth and improved operating efficiency. We delivered solid Q3 performance with subscription revenue growing at 19% and total revenue growing at 17%. These results drove a beat to the high end of our revenue guidance while at the same time delivering a Q3 operating margin above the high point of our guide. In Q3, we saw a repeat of the healthy buying environment that we communicated in our Q2 call. We had another record bookings quarter. We saw broad-based demand across the entire solution portfolio and a higher volume of account expansion deals and platform wins across North America, Europe, APAC, and Latin America. We believe that there are several reasons for our improved performance. Key factors include enhanced internal execution and increased customer demand driven by approaching regulatory deadlines, particularly the CSRD. We've also observed a general improvement in the macro. Whether from new logos or account expansions, we were encouraged by our win rates, our deal sizes, and our platform wins. We also delivered in Q3 Another standout performance in our sustainability management and reporting solution was an added boost from Workiva Carbon. Sustainability was yet again a top-booking solution. Europe was a highlight for the quarter again as well. We delivered continued momentum in Europe across all solution categories. The value of our platform continues to resonate, particularly with the CSRD fast approaching. We win with our platform, we win with our partners, and we win with Assured Integrated Reporting, which now includes carbon accounting, the most consistently regulated part of sustainability. I'd like to start off our deal highlights for the quarter with three wins demonstrating the success of our Assured Integrated Reporting platform. First, a US-based Fortune 100 food and beverage company expanded their platform usage with a mid-six-figure deal for ESG reporting and policy management. The purchase of ESG complements this company's previous investment in SEC reporting, controls management, and enterprise risk management. This company purchased ESG to support their current science-based target reporting initiative and to address requirements for the CSRD. The opportunity was a co-sell and will be delivered by a Big Four firm. Second, we signed a multi-six-figure account expansion deal with a North American industrial company. This company has been a loyal customer for Kiva for 11 years. This quarter, They purchased ESG, controls management, and audit management, and are now utilizing six solutions on our platform. This was a competitive deal with a GRC-specific platform vendor. The ability to handle GRC, financial reporting, and ESG was a differentiator in this deal. The opportunity was a co-sell with a Big Four advisory firm, and the same Big Four firm will be providing delivery for the project. And third, we signed a mid-six-figure, five-solution account expansion deal with a UK-based IT services company. This company purchased their first Workiva solution, Global Statutory Reporting, in Q4 of 2023. Less than a year later, they expanded on the Workiva platform with the addition of five solutions, Management Reporting, Controls Management, Policies and Procedures, ESG, and Workiva Carbon. This opportunity was sourced and will be implemented by a European regional consulting firm. I'll move on now to financial reporting. In Q3, financial reporting contributed substantially to our growth. I'd like to highlight three financial reporting deals from the quarter. First, we closed a mid-six-figure account expansion deal with a Fortune 50 company for management reporting. This global organization is in the process of an S4 HANA upgrade and broader finance transformation. A regional advisory firm partner had been working with the client on other Workiva projects and was hired to replace a legacy mainframe reporting solution that had been in place for years. Workiva offered the power and the flexibility to move this customized reporting solution to the cloud and to work alongside the new S4 HANA business processes. The strength of the Workiva financial reporting solution, with the proven trust this customer had in its business partner, was a key differentiator in the deal. ERP upgrades, transitions, and broader finance transformation projects continue to be a valuable market event for us. to land new customers and sell new solutions. Second, we closed a mid-six-figure four-solution new logo deal with a European global payments and shopping service provider. This customer purchased our global statutory reporting, private company reporting, SEC reporting, and capital market solution as this company prepares for a 2025 IPO. The opportunity was a co-sell with a global IT services firm. And third, we closed a multi-six-figure four-solution new logo win with a large European reinsurance company. This reinsurance company purchased ESF global statutory reporting, insurance reporting, and ESRS XBRL reporting to support their requirements for CSRD. This was a competitive deal with four-point solution vendors competing for part of the business. The cloud delivery and comprehensive capabilities of the Workiva platform is a differentiator in this deal. The opportunity was sourced and will be delivered by a Big Four advisory firm. I'll now turn to GRC. GRC programs fundamentally involve managing controls, risks, and policies, and conducting operational audits. Our GRC portfolio closely aligns with our financial reporting and sustainability solutions. This is truly a better together value proposition. Let's take a look at three GRC deals that closed in Q3. First, a European-based entertainment company signed a mid-six-figure three-solution account expansion deal. The company purchased Controls Management, audit management, and policies and procedures to complement the investment made in the Workiva ECF solution in Q4 of 2023. This opportunity was a co-sell and will be delivered by a Big Four advisory firm. Second, a Canadian consulting firm purchased controls management and audit management in a six-figure account expansion deal. These were the sixth and seventh solutions purchased by the company. This was a competitive deal with a GRC platform vendor. The value of the platform and the ability to leverage the investments already made in our SEC and ESG solutions were differentiators in this opportunity. The deal was a co-sell and will be delivered by a regional consulting firm. Third, a U.S. regional bank purchased four GRC solutions as an account expansion deal. This 12-year loyal SEC reporting customer purchased audit management, controls management, risk management, and policies and procedures. This was a competitive deal against three GRC platform solution providers. The opportunity was a co-sell and will be delivered by a regional consulting partner. Let's move on now to talk about one of our top booking solutions for nine quarters in a row, sustainability management and reporting. The demand for our sustainability management and reporting solution, which includes ESG reporting and Workiva Carbon, continues to grow. Organizations are investing in sustainability programs to enhance their reporting on corporate targets and to comply with regulations such as the CSRD. I'd like to highlight a few of these sustainability management and reporting wins from the quarter. we landed a multi six-figure new logo customer, a Canadian manufacturing company. This company purchased Workiva Carbon and ESG reporting along with the CDAR reporting to support their global disclosure requirements, including those of the CSRD. Workiva was differentiated in this opportunity with our fit for purpose ESG solution and the capability to support financial reporting. ESG in combination with CDAR reporting is a clear better together value proposition. This opportunity was a co-sell and will be implemented by a regional consulting firm. Second, we closed a two solution new logo customer for ESG reporting and ESF with the European advertising and PR firm. This deal was driven by the integrated reporting requirements the reporting of both sustainability and financial information as required by the CSRD. The opportunity was sourced by a design agency partner that's been working with this company for years. And third, we signed an account expansion deal for ESG and Workiva Carbon with a US-based manufacturing company. This 10-year loyal SEC customer purchased both ESG and Workiva Carbon after meeting with the Workiva product team and with Workiva ESG customers at our Amplify event in September. This company has been reporting on sustainability for the past two years and will leverage the Workiva platform to evolve their sustainability reporting process. As a supplier to many consumer-based companies, reporting on climate and broader sustainability metrics has become a strategic requirement to retain customers and win new business. As outlined in a couple of these deal examples, Workiva Carbon played a new role in our deal activity this quarter. We launched Workiva Carbon at the end of Q2, and Q3 was a busy and productive quarter for us. We trained our sales team, certified our partners, we built our pipeline, and we closed deals. Along with ESG reporting, we delivered to market a comprehensive sustainability management and reporting solution. Workiva Carbon has advanced our ESG and our sustainability platform to support organizations' requirements for carbon accounting and the tracking and the disclosure of carbon emissions for Scope 1, 2, and 3 and decarbonization. As a fit-for-purpose solution, It enables organizations to measure, manage, collaborate, and report on emissions data to support their net zero supply chain and regulatory reporting requirements. This solution combines technology and expertise from the sustained life acquisition with the power of the Workiva platform. Workiva Carbon is a platform play. Our results in Q3 have confirmed that this was a strategic addition to our platform that has made our ESG solution an overall assured integrated reporting platform even more relevant. The CSRD is not the only regulation that's driving market demand. Sustainability regulations continue to advance in North America. On September 27, California's Senate Bill 219 was signed into law. Senate Bill 219 introduces key amendments to two existing climate disclosure laws. the Climate Corporate Data Accountability Act, or SB 253, and the Climate-Related Financial Risk Act, SB 261. These laws require large companies operating in California to report their GHG or greenhouse gas emissions as well as their climate-related financial risks. The main impact of SB 219 is that it grants the California Air Resources Board more time to adopt regulations related to these disclosures. The Board's deadline has been extended from January 1st of 2025 to July 1st of 2025. However, it's important to note that the original reporting deadlines remain unchanged companies must still begin reporting scope one and scope two emissions in 2026 with scope three emissions reporting starting in 2027. This extension provides the regulator, the California Water Resources Board, with flexibility to better address complex issues like scope three emissions. Scope three emissions involve indirect emissions across a company's value chain. With this extension, those corporations subject to the regulation will just have less time to prepare once the Board publishes the specifics of what will need to be disclosed. Additionally, SB 219 offers more leniency in how companies can consolidate emissions reporting at the parent level, and it allows the California Air Resources Board to handle reporting duties directly or through third parties. Overall, SB 219 aims to ease the implementation of California's ambitious climate reporting requirements, offering companies more flexibility. But it does so while maintaining the state's strong commitment to climate transparency and accountability. Moving on to our guide. As I highlighted in Investor Day, we're focused on both driving growth and improving operating margins. we'll be raising our full year guide for both revenue and operating profit. We're successfully accelerating subscription revenue growth. Following a strong third quarter, we're raising our full year 2024 revenue guidance by $6 million. We're also achieving margin expansion. In the third quarter, we realized a 170 basis point improvement in gross margin and a 70 basis point improvement in operating margin compared to Q3 of 2023. As a result, we'll also be raising our full year operating margin guidance. This guidance factors in the continued investment in sales and marketing that we've previously communicated. The vast majority of the sales and marketing spend is the hiring of quota bearing reps. It's an indicator of our confidence in our opportunity. We're encouraged by the demand we're seeing in the market which was also reflected in this quarter's billing numbers. Our results and our progress give us confidence that our strategy is working. We're focused on the long-term growth of our business by delivering an innovative platform and a set of high-value, fit-for-purpose solutions that solve our customers' increasingly complex and expanding reporting requirements. We continue to build Workiva as a durable business with a focus on both growth and profitability. I'd like to thank our customers, our partners, and our investors for their continued support. I'd also like to thank our talented team of dedicated employees. Together, we're working to make an even greater impact and accelerate our mission to power transparent reporting for a better world.