Q4 2019 Earnings Call
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I would now like to him the conference over to your Speaker today, Adam Teresa Director of Investor Relations. Thank you. Please go ahead Sir.
Good afternoon, everyone. Thank you for joining us Pirquitas fourth quarter 2019 earnings Conference call. This afternoon will begin with comments for our Chief Executive Officer, Marty that her about followed by our Chief Financial Officer Stuart Miller, and then we will turn the call over to question also on the line today is chocolate Chief Accounting officer.
A replay of this call will be available until February 27 information to access the replay is lift in today's press release, which is available on our website under the Investor Relations section as a reminder, today's conference call. It's also being broadcast live via webcast people. We began I would like that right everyone that during today's call will be making forward looking.
Statements regarding future events in financial performance, including Guy the guidance for our first quarter and full fiscal year 2020. These forward looking statements are subject to known and unknown risk uncertainties Workiva cautions that these statements are not guarantees of future performance. All forward looking statements made today reflect our current expectations only.
Undertake no obligation to update any statements to reflect that that's that occur after this call.
Please refer to the company's annual report on form 10-K for factors that could cause our actual results could differ materially any forward looking statements also during the course of today's call will refer to certain non-GAAP financial measures reconciliations of non-GAAP to GAAP measures in certain additional information are also included in todays earnings per.
That's really but that will begin by turning the call over to our CEO Marty.
[laughter]. Thank you Adam and thanks to everyone for joining the Workiva fourth quarter and full year 2019 conference call.
We're pleased with our fourth quarter and full year 2019 results that beat guidance for revenue operating loss and loss per share.
I am proud of the many accomplishments in 2019.
We rolled out the next generation of the Workiva platform.
We expanded our global presence.
Accelerated investment in our partner ecosystem.
We transitioned a majority of our customers to solution based licensing and we increased investments in markets, where we see the most potential for growth.
One of our top priority. This year is upgrading customers to the next generation of our technology, which has an end to end platform.
Our customers now have the power to connect and manage all of their data from initial systems of record.
Two final reports and our secure cloud platform.
The new Workiva platform is faster more open a scalable and feature rich.
It enables customers to connect data from ERP, GRC and CRM platforms, along with other third party applications and systems of record.
Examples include Oracle Sep Salesforce Workday Black line and tablet.
Our ability to integrate with third party systems and applications is critical to the evolution of our platform.
Once the data is connected in the Workiva platform users can automatically refreshed data from multiple sources, which in turn populate the date in spreadsheets documents and presentations. This enables real time reporting of all types of performance data.
Our advisory and service partners can combine their domain expertise with our new more open platform to create high value solutions for their clients.
We see our partners as a catalyst for growth in 2020.
For example, KPMG now leverages, the Workiva platform to deliver a unified and streamline solution for their risk management and regulatory compliance customers.
We continue to see broad adoption of our platform in 2019, 72% of new solution and new logo bookings came from markets outside FCC or SEDAR.
It is important to reiterate.
All of our solutions Ron the same end to end platform.
In 2019, we were pleased with increased bookings from our growth vectors AMEA W. data and our platform solutions for integrated risk and global statutory reporting.
We're also seeing good early demand for the Workiva platform from the U.S. government.
We plan to continue to invest in these core growth areas, which Stuart will discuss later in the call.
Uh huh.
Culture is everything at Workiva, we encourage people to truly support each other at work through pure recognition resource groups and cultural events.
Transparency as the backbone of our workplace and we empower our employees the voice of the feedback through frequent town halls.
Q and AIDS with executives employee surveys and open digital chat channels.
Just two days ago Fortune magazine named Workiva, one of the hundred best companies to work for for the second consecutive year.
We are proud to be joining many of our customers in this prestigious group.
Our ability to attract and retain top talent is what makes us successful.
In closing.
As we roll out the next generation of the Workiva platform I'm more excited never about our future when I talk to our customers and prospects. They also see the power of the platform, which we believe will fuel our growth in the coming years.
With that let me turn over to Stuart Miller, our CFO.
Thank you Marty.
So consistent with comments on previous calls.
We are investing in our sales organization to drive revenue growth from EMEA, W. data and our platform solutions for integrated risk and global statutory reporting.
We're encouraged by our progress in bookings and pipeline from our growth factors and we remain committed to our plan.
Our Q4 results and 2020 guidance reflect our investment in these factors.
Our program of converting customer contracts to our solution based licensing model or SPL.
Is approaching successful completion.
At year end 2019.
About 82% of subscription value was contracted on our SPL model.
The lift in revenue growth from SPL.
Which I have previously estimated at a couple of hundred basis points Wayne's after Q1.
We expect bookings from new solutions in new logos, particularly from our growth sectors to drive revenue growth going forward.
Our shift to SPL has contributed lasting benefits to our business.
FPL has raised deal sizes for both new logos in new solutions.
For example, average new logos size increased 32% to $72000 in fiscal 2019.
Unlimited seats per solution has made our platform easier for customers to administer.
SPL has simplified our sales process and internal administration.
Thereby improving scalability.
In addition, SPL has helped expand the number of active users on our platform substantially.
In 2019, the number of active users on our platform increased almost 32% from 2018.
Expanding our user base is created opportunities for sales of new solutions.
Turning now to our financial review.
As always I'll talk about our results and guidance on a non-GAAP basis.
Please refer to our press release for a reconciliation of our non-GAAP GAAP results and guidance.
We outperformed our revenue guidance in Q4, we generated total revenue in the fourth quarter of $80.3 million, an increase of 24.6% from Q4 2018.
Breaking out revenue by reporting line item.
Subscription and support revenue was $66.1 million up 23% from Q4, 2018, new logos, new solutions and conversions to solution based licensing helped drive strong revenue growth in Q4 2019.
60% of the increase in SMS revenue in Q4 came from existing customers.
The balance of the increase came from new customers added in the last 12 months.
Professional services revenue was $14.1 million in Q4 2019.
An increase of 32.5% from the same quarter last year.
A one time lift up $2.5 million and XBRL services.
Due to a change in an FCC regulation that affected large accelerated filers.
Accounted for a majority of the growth in professional services revenue in Q4.
Turning to our supplemental metrics.
We finished Q4 with 3510 customers a net increase of 170 customers from Q4, 2018, and a net increase of 56 customers from Q3 2019.
Our revenue retention rates remained strong.
Our subscription and support revenue retention rate was 94.7% for the fourth quarter of 2019.
Compared to 96.1% for the same period last year.
More than half of the attrition in the quarter came from M&A, the listings and bankruptcies.
With that odds are subscription support revenue retention rate improved to 113% in the fourth quarter of 2019.
Compared to 107.1% in Q4 2018.
Our progress with larger subscription contracts continues to be promising the number of contracts valued at over $100000 per year totaled 652.
In the fourth quarter of 29 team.
Up 47% from Q4, the prior year.
The number of contracts valued at over $150000 totaled 285 customers in the fourth quarter up 50% from Q4 2018 results.
Moving down the piano.
The gross profit totaled $58.1 million in Q4 up 22.6% from the same quarter a year ago.
The consult consolidated gross margin was 72.3% in the latest quarter versus 73.5% in Q4 2018.
Our long term target for consolidated gross margin continues to be 75%.
Breaking out gross profit.
Subscription and support gross profit totaled $54.6 million equating to a gross margin of 82.6% on SMS revenue.
Hey, contraction of 160 basis points compared to Q4 2018.
Additional head count to help upgrade customers to our next generation platform together with higher cloud services costs.
Accounted for the contraction.
Professional services gross profit in the fourth quarter was $3.4 million equating to a 24.4% gross margin.
$1.4 million from the same period previous year.
Research and development expense in Q4 totaled $21.2 million up 11.3% from Q4, 2018, due to higher compensation and cloud services expenses.
R&D expense as a percentage of revenue improved 320 basis points and the latest quarter to 26.4% compared to Q4 2018.
Our long term target for R&D expense to revenue continues to be 25%.
Sales and marketing expense for the quarter increased 44.5% from Q4, 2000 $18 million to $31.1 million, reflecting accelerated investments in sales talent, primarily to drive bookings in EMEA integrated risk global stat reporting and government.
General and administrative expenses totaled $10.3 million in Q4.
$3.3 million compared to Q4 2018.
Gionee expense as a percentage of revenue increased 200 basis points to 12.9% due to higher headcount to support our growth.
Our long term target for Gina expense to revenue remains a 10%.
Operating loss was $4.6 million in Q4, 2019 compared to an operating loss of $300000. In Q2 thousand 18, Workiva is operating margin contracted 540 basis points in the latest quarter, which was better than our guidance.
Turning to our balance sheet and cash flow statement.
At December 31, 2019.
Cash cash equivalents in marketable securities totaled $488 million, an increase of $3.2 million compared to the balance.
September 30 2090.
In Q4, 20, 92018, net cash provided from operating activities totaled $2 million compared with cash used of $400000 in the same quarter a year ago.
Remaining performance obligations on subscription contracts continue to vary from deferred revenue as we implement multiyear contracts with annual billing terms for some customers.
Turning to our guidance.
For the first quarter of 2020, we expect total revenue to range from $82.8 million to $83.3 million at the midpoint, we're guiding to a growth rate of 18.7% for total revenue in Q1 2020 compared to Q1 2019.
As a reminder, Q1 is seasonally the high point.
For our services revenue in terms of contribution to total revenue.
We anticipate that the highest quarterly growth rate for services, we will pose this year will be in Q1.
Nevertheless, we expect our subscription growth rate to outpace our professional growth rate professional services growth rate.
We expect non-GAAP operating loss to range from seven to seven and a half million dollars in Q1 2020.
For full year 2020, we expect total revenue to range from $341.5 million to $343.5 million.
We expect non-GAAP operating loss to range from $36 million to $38 million, reflecting investment and the growth factors, we highlighted earlier.
We expect positive operating cash flow for the full year, 2020, which would represent our fourth consecutive year of positive cash flow.
Before I close I want to highlight two items related to our full year guidance.
First we expect revenue from professional services to grow at a low single digit rate for fiscal 2020.
One updating your financial models. Please note that we posted onetime increased increases in professional services revenue in Q2 2019 of $1.9 million.
And in Q4, 2019 up $2.5 million that we do not expect to recur in 2020.
Second our revenue guidance assumes strong growth in EMEA in 2020.
But it does not assume a surge of demand from new logos seeking to comply with the impending SF mandate will have better visibility on the demand from that sector later in the year.
We'll now take your questions and the operator, we're ready to begin the Q and a session.
Certainly as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q and a roster.
Oh.
Your first question comes from the line of Tom Roderick with Stifel. Your line is open.
Hi, gentlemen, thank you for taking my questions. So nice finish to the year.
Marty Let me ask you. The first question here and just thinking about some of the components of where you want to spend money next year and how they have that's all constructed.
In particular I was hoping you could start with a little bit more detail just on the platform upgrade and moving customers to modernize platform what is that going to take with respect to additive R&D heads professional services bodies and then the second part of that I guess in putting that in the context of the guidance Stuart.
As we look at a 36 to 38 million dollar loss on the year that more than doubles. The loss. This year with 50 million more and revenue. So perhaps you could kind of help us think through the components of how much of that added to the increase in op ex goes to R&D versus sales and marketing versus geographic expansion that'd be great. Thank you.
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Thanks, Tom.
First off I would say that in terms of moving to the new platform.
There is not an increase in R&D cost that's pretty much behind us.
Now, we're moving toward Onboarding our customers.
And we're well underway in that effort, we did hire some additional.
Customer support people most of those are already on board and.
The bulk of the new spend this year is still our go to market, it's primarily sales and.
Is building out sales teams both in North America ended in EMEA, So that's where the bulk of the spend as Stuart you want to add anything no I mean, I agree with that into that and when you see the incremental spend thats its on the sales and marketing line Tom.
Got it okay, there's there's a little bit of Theres, a little bit of support LNG today is little bit on on customer success, but as Marty said, we've already hired as people, but we'll have a flow through a full year of expense on them.
Got it that's helpful and Stuart just kind of parsing through your comment there in terms of expecting strong EMEA gross [laughter], but that seems to be even without the benefits of of the SEF mandate.
Let me work backwards on that statement just in terms of do you still feel like that can be a real catalyst for the business that regulatory mandate any update in terms of the way that customers in that geography or thinking about their digital transformations and are you hopeful that that mandate will in fact started to drive an impact your business as you look at that.
2021, just talk a little bit more about Europe, with being able to drive growth and that that mandate, even really playing a factor this year it sounds like.
Yes, So I think the mandate is played a factor in a sense that it has prompted discussions.
With customers in his bidding had been easier to get meetings as a result of.
That staring companies in the face.
But our success to date there has been.
It's more about selling our whole platform to larger companies.
And the sort of.
As I mentioned, we're not projecting sort of surge of growth in new new logos coming from compliance with the set mandate.
We need to.
Watch, how that's going to play out.
Through the rest of the year, we're confident we'll go out we'll get our share of that business, but I just wanted to street to know that that's not in that's not baked into our forecast.
So hopeful that the a that the mandate plays out, but but not baking it into the forecast. So if it happens we'll treated as upside.
I think thats right I mean, we've got we've.
First in quite a bit of success in Europe with the current go to market strategy.
This is Marty we haven't really head into any indication one way or the other in terms of more or less optimistic we still see that mandate coming it looks like it's going to be enforced we're getting a lot of incoming calls asking about it and so but those types of things you. Just don't know also we more or less.
As of model just based on selling the platform, which is going very well so.
Got it really helpful I'll jump back into queue. Thank you gentlemen.
Thanks, Tom.
Your next question comes from the line of Terry Tillman with Suntrust. Your line is open.
Hey, or are you guys is actually Nick on for Terry.
You can.
Okay, great. Thanks for taking my questions since the first one just.
No one asked about the competitive dynamics.
Has there been any changes.
Notably in terms of FCC recording or use case areas.
I guess what are you seeing right now in Europe competition wise.
So we really we havent seen any change competitively really anywhere in the globe.
And in Europe, the competitive situation there it's at least for Youssef is very similar to what is the is the U.S.. It's it's the financial printers and then there is some smaller companies.
We are going to be focused on their home countries.
So no change there.
Yeah, you know that for me what I always look for primarily is competition from a platform point of view and we still don't see any reporting platforms on the horizon.
Got you Okay. That's helpful and I guess looking into 2020 beyond and also taking accounted for the growth investments you guys. It previously mentioned.
Can you just talked about the driver the model between new customers and expansion sales going forward.
Did you say 2021 or 2020 on does 1020, andas and beyond yeah.
Well I think it's going to stay pretty pretty consistent it'll be balance for the most part between new logos and add on sales a new logos theres a lot of new logo opportunity obviously overseas.
And also in the private companies space and now that we have.
We launched our new platform of the kind of activity, there's a lot of opportunity our existing customers I think it's going to stay pretty well balanced.
Okay. That's helpful. Thanks, guys.
Appreciate it.
Your next question comes from the line of Chris Merwin with Goldman Sachs. Your line is open.
All right. Thanks, so much for taking my question.
Wanted to ask a bit about billings growth, obviously rugged super healthy in the quarter billing credits stepped down just a little bit.
Was wondering if you talk a bit about why that wasn't it gets the fact that we're lapping impacted.
Solution based pricing I'm, just curious if theres anything else to call out there. Thanks.
Hey, Chris is stored so as you know we had record billings for the for the quarter.
And.
The.
It was up about the current billings were up about 15%.
The.
As we called out on the previous a the last November or so we had pointed out that there had been a surge of conversions in Q4 2018, So thats on test BL, So thats really what you're seeing is the.
Is the comparison.
From from the can conversion to SPL.
Got it makes sense and.
Just a follow up on on Europe from an investment standpoint.
Yeah, where are you in particular with adding head count I mean sales headcount that is just trying to think about any further hiring there and how that could that impact the pacing new logo growth. Thanks.
Well, we are continuing to grow our sales team there, we really don't disclose exact numbers, but we're still aggressively hiring salespeople in Europe.
Hey, good progress in hiring them in the in the latter half of.
Have a 2019 and so you'll see the full year impacted that but as Marty said, we're continuing to higher and Europe, it's such a natural market for us.
Thank you.
Your next question comes from the line for off Oliver with Baird. Your line is open.
Hi, gentlemen, good evening, thanks for taking my questions Marty one for you and then Stuart I had one follow up for you Marty you mentioned fed Gov.
Okay remarks.
So really positive signs there I can remember your exact words, but I know, having recently gotten fed ramp just was curious for any more color around the fed opportunity how that shaking up.
How about shaking out and.
A color on not on activity there.
Sure Yeah, I mean, you hit the nail that have the fed ramp really enabled us to the authorization really enabled us to go after that and.
We hired several early season salespeople and had some good initial success.
The the pipeline looks good and the deal sizes is really good.
One thing our core team has a lot of experience here is in the government. So we're quite optimistic.
Okay, Great. That's helpful. Thanks, Marty and then Stewart, yes, sorry, but to go back to Europe [laughter].
Yeah Yeah.
So you I mean it.
I think but pretty good indicator I guess that you know you guys aren't expecting a lot from for me so really in the numbers this year and I just.
Risk of beating a dead horse just wanted to.
Diving, a little bit more on that I mean, I know you guys. The puts and some sales resources on the ground there and that it sounds like things are going pretty well you know I know deal sizes have been moving higher for you guys generally just curious.
You know getting that kind of like platform Cal traction early on.
In Europe would seem to be a positive so curious for a little bit more color there and whether there are other you know maybe outside drivers like you know that's where Han upgrades are people just thinking about their financials more broadly which are helping to drive interested workiva platform. Thanks guys.
Thanks, Rob, Yes, I mean, not not a lot more color to give other than to say that.
The set mandate has catalyzed lot of conversations that otherwise would take us longer.
John and there is real openness to.
Digitization of the office of the CFO.
There's.
Certainly a compliance focus.
Among us really larger European companies.
That is.
Every bit as sophisticated as the most sophisticated companies in the U.S. and real appreciation for the power of our platform. So we're quite encouraged.
Yeah. The this is Marty the certainly we've used Europe as a test bed for platform selling.
And because of that we've we've learned a lot the deal size in Europe is really proven that selling a platform.
It is really a good way to approach our market in other words, one place to do all of your reporting and compliance activities and and it's resonating in Europe, and obviously, we're going to start to do that in the U.S. as well and were getting underway with that but just the fact, we've launched the new platform and we have direct connectivity now is really enabled platform selling so.
That's really what you know as forecasted in EMEA this year as opposed to.
He said, which is more of a on the high end as a platform so but on the bottom half it's more of a application. So so.
Again, if you would like to ask a question press star one on your telephone.
Your next question comes from the line of Mike Grondahl with Northland Securities. Your line is open.
Yes, thanks, guys.
Hey, you're.
Growth vectors.
Any chance you could kind of rank those how you're doing kind of on a relative basis there.
Well the short answer is no [laughter], but I will give some more color I mean.
No we've talked a lot about EMEA and.
That is going well.
Integrated risk just having a platform approach there is already we're already seeing.
Good results, they're selling multiple types of use cases within GRC on our platform and that's really helped tick up the ABS and is really.
To minimize the competition in many ways so.
W. data is Ben you know really.
Special thing in terms of getting ABS up across the board. It's had played a big role and getting ABS up for all of our new solution sales and then obviously, we're going back to our existing customers and getting an uptick there when we put w. data and so.
That's been a really good.
Story as well so you know, they're all working out fairly well.
I really would say that.
We're all very were very positive on all of and we'll continue to invest in all of them I'll say global stat is.
Doing well, both in North America and in Europe.
Promise I didn't mean to leave global steel.
Yeah, it's doing very well was.
As the other three are.
Got it and what the solution based pricing kind of called out like 82% penetration.
Connect go a lot higher or is that kind of a top end ceiling.
So that was the number at year end, which included some of the contracts that were signed right. At 12 31. So I think it's fair to say that we're hopeful to drive that number higher I doubt it will ever be a 100% Mike.
Got it just gets preferences preferences of customers certain customers.
Sure any.
Any thoughts high level, just on your acquisition pipeline kind of post the convert what you're thinking.
Sure so.
Yes, theres nothing that rises to the level of disclosure of course.
We look at everything.
We're continuing to evaluate targets that we were reaching out to as well as ones that are brought to us.
By our management team.
And our around the world and.
Bankers and consultants and so forth so.
We have we've been canvassing quite a few.
Prospects and.
But nothing has has risen to that level yet.
There were not any real hurry to do something we want to when we make an acquisition we wanted to be.
The right one that really enhances our platform and.
Has strong business logic behind it we're not interested in doing a deal for deals sake.
Yeah, I just want to reiterate that.
And we're going to we're looking for.
A potential acquisitions that have a high.
Probability of success and really messed with what we're trying to accomplish strategically.
We're hoping we find the right one, but obviously you never know.
Got it okay. Thanks, guys.
It's Mike.
Your next question comes from the line Stan Slops Guy with Morgan Stanley. Your line is open.
Hi, guys.
Thank you so much for Oh.
For taking my questions and good afternoon.
Oh, one from us.
Just as investors think about the the opportunity in the EU right.
When one could they start to see.
HM sees the results show up in actual reported numbers, whether it's me a billings were up that's probably going to be the leading indicator and what are the what does some of the success milestones that we should be mindful of and engaging the traction you guys are seeing in Europe.
One thing that might help you Stan is for the first time I know you. We just filed the 10-K today and it's buried in a footnote but for the first time, we started to disclose revenue by geography at a high level and so we reported Americas revenue and then.
Not Americas revenue in most of the revenue outside of the Americas.
EMEA and for us because.
It's early days elsewhere, and so you'll see.
The growth rate in revenue in.
In.
Non Americas revenue was a over 66%. It was like 66.7, if memory serves versus 20% in Americas. So that's a that's a new disclosure that should help.
Investors a bit.
Super helpful. Thank you and then maybe just one more.
How are you thinking about partnership specifically.
As you you pushed deeper into the European opportunity.
Well this is Marty I would I would say that obviously partnerships and.
In EMEA are very important.
The the real significant change for us is that.
We are starting to see pull from partners, meaning partners are calling us quite regularly both in the U.S. and in.
In EMEA and that's that's because now we really feel we have a platform. That's end to end that you can connect directly to so they're going to be a big part of growth in EMEA and also in the U.S.
We have to get that that that engine going which we've been sort of late to do but we didn't want to do it before the new platform came out.
Okay very helpful guys. Thank you so much.
Yes.
Your next question comes from the line, Brian Peterson with Raymond James Your line is open.
Thanks, guys, Kevin here on for Brian a thank you posted some nice upside on margins this quarter. Despite some of the investments you've mentioned stepping up in 2020, but was there any change in the timing of some of those items that might have been plan for this year, but maybe got pushed out into 2020.
No I think most of the the margin be was really as a result of the revenue beat.
And a lot of the revenue be was in services.
So that's the I think thats the right way interpretive.
Got it.
And then maybe just another one on the partner ecosystem can you help us framed the percentage of deals that involved a partner in the quarter versus a year ago and maybe how many certified partners do you have now versus same time last year.
I don't have the number off the top my head, but our number of partners has increased significantly and we.
We really haven't disclosed historically, what percentage of our bookings come from that so.
But it's up yes, it's definitely up.
Gotcha, Thanks, guys.
Thank you.
There are no further questions at this time.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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