Q2 2020 Workiva Inc Earnings Call
Good afternoon, ladies and gentlemen, my name is Kathryn.
Operator on this call.
After the prepared comments, we will conduct a question and answer session.
Instructions will be provided the time.
Time during the conference you need to recapture and operator, Please press Star College I zero.
Please note. This call is being recorded on August four 2025 o'clock PM Eastern time I.
I'd now like to turn the meeting over to your host for today's call Adam trees director of Investor Relations at work here. Please go ahead.
Good afternoon, and thank you for joining us for Akiva second quarter 2020 conference call.
Today's call husband P. recorded in one quick comment Smart Chief Executive Officer, Marty vendor plows.
Our Chief Financial Officer, Stuart Miller, well, then open the call up for a life QNX session.
Joe Klein, our Chief Accounting Officer will also be on the call.
A replay of this webcast will be available until August 11th.
Information to access the replay is listed in todays press release, which is available on our website under the Investor Relations section.
Before we begin I'd like to remind everyone that during today's call really making forward looking statements regarding future events in financial performance, including guidance for the third quarter and full fiscal year 2020.
Forward looking statements are subject to known and unknown risks and uncertainties.
Keep it cautions that these statements are not guarantees of future performance.
All forward looking statements made today reflect our current expectations only we undertake no obligation to update any statements 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 could differ materially any forward looking statements.
Also during the course of today's call will refer to certain non-GAAP financial measures reconciliation to non-GAAP GAAP measures and certain additional information are also included in todays press release with that I'll begin my turn the call over towards CEO Marty counterpart.
Thank you Adam and thank you for everyone for joining todays call.
Despite challenges from a corporate nicely pandemic, we're pleased with our second quarter 2020 financial results, which exceeded guidance for revenue and operating results.
Our results reflect our employees resiliency and their dedication to our customers.
Our sales and marketing teams have successfully transition.
Virtual environment, and we now have greater visibility into the second half a year.
As a result, we're reinstating for your guidance, which is close to our free pandemic for your guidance for revenue.
Stuart will provide further details about our financial results and outlook later in the call.
In Q2 demand for our platform improved across all of our growth factors, which include a meal.
W. data.
Platform solutions for integrated risk global statutory reporting and the U.S. government.
Our partnerships with technology companies and advisory firm remains an important catalyst for a long term growth.
We are proud that three of the four largest advisory firms in the world are now we'll keep our partners.
Customers are embracing our new platforms capabilities as we further streamline their complex business and reporting processes like connecting teams documents and data from initial sources to final reports.
Our new platform also increases our flexibility and speed when developing new solutions.
Maybe something else to enter more markets faster than ever.
For example, our FERC reporting and ease of solutions were both launched on the new platform.
After identifying the opportunity we quickly move from concept to launch within a few months.
Developing and delivering new solutions on our platform will continue to be a key driver to our success.
As we discussed last quarter, we switched to virtual marketing events in response to cope with my team. We've been pleased with the large attendance at our virtual events and the number of sales leads generated.
Next month, we will host our annual amplify global user conference virtually.
This year as timely females.
Building trust in business data and supporting business continuity in an age of transformation.
Over 4500 people have already registered to a trend.
At Workiva culture is a key driver of our success every day, whether we are in our offices or working remotely our employees Creative award winning workplace that attracts and retains top talent.
Recently computerworld named Workiva, one of the 2020 best places to work in IC.
And fortune named US 2020, best workplace in New York.
In closing we are pleased burst second quarter results and our team's ability to effectively execute during this challenging time.
We remain well positioned and confident in our ability to capitalize on the many opportunities that lie ahead of us.
I will turn it over to Stuart Miller.
Thank you Marty.
Following the initial shock of Cobot 19 in March we began to see more predictable cadence to closing deals, particularly in June and into July.
Suggesting that our customers and prospects are settling into a new normal.
I want to highlight one market development related to covert 19.
The financial conduct authority or F.C.A., the UK regulator has.
'cause opened a consultation on whether it should delayed the initial each reporting deadline.
Hi here.
Well the comment period last another much.
We expect the F.C.A. to approve the delay for UK companies.
5300 companies affected by the SEC mandate a.
Approximately 1400 are headquartered in the UK.
Our expectation of a delay of the mandate for the UK market.
It had no material impact on our outlook for EMEA.
Now turning to our financials.
[laughter] results and guidance on a non-GAAP basis.
No our press release for a reconciliation of our non gap and gap results and guidance.
I will address our performance against Q2 guidance first.
We beat you to 2020 revenue guidance at the midpoint by $3.3 million.
Higher subscription revenue accounted for most of the beach.
We succeeded in collecting a high percentage of the receivables that we had held in reserves at the end of Q1.
The pandemic had less of an impact on collections than we had anticipated in March.
We'd be guidance on Q2 operating income by more than $5 million revenue beat I, just mentioned accounted for two thirds of the swing.
Lower employee travel and entertainment and medical care expenses accounted for the remaining third of the beat on operating income.
Now turning to a comparison of Q2 2020.
The Q2 last year.
We generated total revenue in the second quarter of $83.9 billion.
An increase of 14.1% from Q2 2019.
Breaking out revenue by reporting line item.
Subscription and support revenue was $70.7 million up 15.9% from Q2 2019.
New logos and new solutions helped drive strong revenue growth in Q2 2020.
53% of the increase in SMS revenue in Q2.
Came from new customers added in the last 12 months.
The balance of the increase came from companies, who have done or customers for more than a year.
Professional services revenue was $13.2 billion in Q2 2020.
An increase of 1.2% from the same quarter last year.
Growth in revenue from set up in consulting overcame a small decrease in XBRL services relative to Q2 last year.
Turning to our supplemental metrics.
We finished Q2 with 3512 customers. They net increase of 91 customers from Q2 2019.
Net increase of five customers from Q1 2020.
The average annual contract value of the new logos signed in Q2 2020.
Was 34% higher than the same value for a churned accounts in Q2.
Our revenue retention rates remain strong.
Our subscription and support revenue retention rate was 94 and a half your sat through the second quarter of 2020.
Compared to 95.4%.
For the same period last year.
Almost half the attrition in the quarter came from M&A do you listings and bankruptcies.
With that on our subscription and support revenue retention rate was 107.9% to the second quarter of 2020.
Compared to 114 and a half for sale in Q2 29 chain.
The decline reflects winding down conversion of customer contracts to solution based licensing.
As well as pandemic related impacts both price increases in solution churn.
We continue to increase our number of larger subscription contracts.
In the second quarter of 2020, we had 716 contracts valued at over $100000 per year.
28% since you to the prior year.
The number of contracts valued at over $150000 totaled 342 customers and the second quarter up 44% from Q2 2019 results.
Moving down the piano.
Gross profit totaled $62.4 million in Q2.
Up 16.4%.
The same quarter a year ago.
Consolidated gross margin was 74.4% and the lightest quarter versus 73% in Q2 29 team.
Net expansion of 140 basis points.
Breaking out gross profit.
Subscription and support gross profit totaled $59 billion.
According to a gross margin of 83.5% honestly that's revenue.
A contraction 30 basis points compared to Q2 2019.
Additional headcount to help upgrade customers to our new platform was the primary driver of the contraction.
Professional services gross profit in the second quarter was $3.4 billion equating to a 25.7% gross margin.
Fair to 22.8% in Q2 2019.
Research and development expense in Q2 totaled 21, and a half a million dollars up 7.6% from Q2 2019.
Primarily due to higher compensation costs.
R&D expense as a percentage of revenue improved 25.6% in Q2 2020.
27.1% in Q2 2019.
Sales and marketing expense for the quarter increased 23.5%.
From Q2, 20 $19 million to $32.3 million, primarily reflecting our investment in sales talent to drive bookings grows.
General and administrative expenses totaled $10.5 billion in Q2.
$3.1 billion compared to Q2 2019.
<unk> expenses as a percentage of revenue increased 240 basis points to 12.5% due to severance costs additional headcount and higher software expenses.
We posted an operating loss $1.9 million in Q2 2020.
Compared to an operating profit was $86000 in Q2 2019.
Well keep us operating margin in Q2 was better than our guidance as I discussed earlier.
Turning to our balance sheet and cash flow statement.
At June 30, 2020 cash cash equivalents in marketable securities totaled $509 million.
An increase of 12 and a half million dollars compared to the balance at March 31, 20, each way.
In Q2, 2020, net cash provided from operating activities totaled $7.1 million.
Compared with cash provided of $18.8 million.
In the same quarter a year ago.
At the end of each quarter, we review outstanding invoices to determine which ones present at collection risk due to a variety of factors, including credit risk.
Consistent with how you see six so six.
We removed the invoices at risk and take the amount out of both accounts receivable and deferred revenue until payment is collected which is when we begin to recognize that revenue.
At June 30, 2020, we classified $5.6 million over receivables to this reserve account.
Up from $3.2 million of receivables at June 30, 29 team.
This reserve account reduce deferred revenue by an equal amount and therefore, it reduced billings at the ended the quarter.
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.
It's Marty indicated we are reinstating guidance for full year 2020 based on improved visibility on new business.
Both pipeline and deals closing.
Our new full year guidance is close to our pre pandemic full year guidance on revenue.
Substantially improved on operating loss.
We are factoring in the expected impact of covered 19 on our business and results of operations based on information available to us today.
For the third quarter 20, each way, we expect total revenue to range from 84.3 $84.8 million.
We expect subscription revenue to grow at a faster rate in services revenue in Q3.
We expect non-GAAP operating loss to range from $5.2 million to $5.7 million.
The full year 2020, we expect total revenue to range from 341, and a half the 342 and a half a million dollars.
We expect non-GAAP operating loss to range from a love it and a half billion to $10 million.
We will now take your questions operator, we're ready to begin the Q and I session.
Ladies and gentlemen, just as a reminder, if he'd like to ask a question. Please press star in the number one on your China [noise].
Yes, sorry in the number line.
And your first question comes from the line of Tom Roderick with Stifel.
Gentlemen, thank you for taking my questions. Congratulations on a on a great finish to two what was starting up a good second quarter. So well done on that I guess I want to go back 90 days ago and Yeah. Marty you had talked about a number of deals I think at the time, there's some 50 deals that kind of slipped out of out of closures.
And into the next quarter 40 of them kind of put back in the pipeline that maybe 32 were put back in the pipe, but regardless, it's a pretty big number would love to just hear about you know what you did with the sales team many strategic changes any steps you put in place.
You know what what did you do in terms of a of getting the sales team or you know that help close those deals and then as you look at the pipeline I'd love to hear a little bit more about what you're doing also to replenish the pipelines. It sounds like a lot of those deals get in fact close this quarter close rates or Rob, but talk little bit about more.
Planned replacement as well thanks.
Okay.
Well.
Good question first the first comment I would say is that.
You know of those deals that slipped first corridor.
You know it we had a pretty typical distribution a number those closed a number those are still in the pipe for this quarter and potentially next quarter and some went away I.
I mean, the example, so you know the really the industries that are still suffering from covert 19, hospitality airlines things like that.
Those deals are not going to come back anytime soon.
So we saw it you know we didnt.
You know <unk>, one category didn't sort outpaced the rest, but we you know we close some some slipped in the summer on long term hold for sure.
In terms of our sales team pivoting to virtual selling.
Weve really been pleased with that not only in closing deals with building pipe.
And would be would you know what when you take into consideration to a certain percentage of the economy is damaged and you really can't sell those industries I mentioned previously the rest of the economy is really as Stuart said come back to a new normal.
And we're seeing a pipe or building very somewhere to we did in the past and a the closure rate is.
He is also coming back to sort of enormous before cold, So where do you except for those damaged industries or I should say stressed industries for the time being.
We're seeing things sort of normalize and come back the normal so.
[noise] things look pretty good.
From three months ago, the shock that definitely affected everybody and but now after some primus settled and we're just seeing normalcy sort of returning.
Yeah, that's great to hear Marty Thanks for that Stuart you mentioned, a Europe just little bit in your comments you referenced the FCC evaluating a one year delay I guess, what I'd love to hear is is how are your customers and potential customers over in Europe thinking about this is Jeff mandate I know that it was meant to be sort of.
Multi phased implementation anyway. So it wasn't like a wide you gave that well either get it by January 15th or you didn't.
Do you think this F.C.A. a valuation slows down the pipeline in the UK or is it sort of irrelevant, where customers are thinking about digital transformation anyway, and you're still ramping your own build over there in terms of sales head count and marketing spend to improve awareness.
Yeah. That's a good question you know as we'd indicated before com Oh, we were using the the Isa mandate.
Not as an opportunity to sell a point solution, but as an opportunity to get a meeting with the right people at the front end to sell the platform and we're seeing a lot of success with that so we don't see the delay on the potential delay coming out of that see a.
On he set up is slowing down that motion at all so in fact, we've already you know we've made quite a better penetration into those accounts and broaden the discussion beyond e. So yeah I is I didn't get it on the my earlier comments, we really didn't affect our four.
Casting it really hasn't affect our staffing.
Outstanding I'll jump back into queue, but thank you guys nice job.
Thanks. Thanks.
Next question comes from the line Alex.
<unk>.
Thanks Stuart.
Question retention held really strong Q2, but wondering if you could characterize the step down in the add on revenue how much of that it's just math around the lapping the best deal.
Yeah, certainly it was a combination of SPL and you know not taking price increases, particularly on yeah for companies that we're renewing in industries infected.
You know by co bid and then.
A bit solution churn, particularly from companies that were affected by cobot, specifically you know, it's hard to isolate STL, but as we've said in the past. Its you know it accounted for probably a couple hundred basis points of the movie.
Okay, great. Thanks, and then Marty you mentioned in the prepared remarks, Oh the partner channel you highlighted a three of the top four global consulting partner I'm. Just curious if you see any changes in terms of partner involvement in deals or partner resources being devoted to workiva versus prior quarters.
Yeah that we're we're really happy.
With the with our partner activity right now partners are starting to recognize that not only can they.
The make money deploying our solution.
And you know advising customers on how to use a thick and also build up a cold.
A real practice around it.
And so we're seeing a.
A lot of our partners not just the big ones, taking us very seriously.
And engaging with their clients. So that that's been a really positive thing for us and the like we've said all along it takes a while to build that momentum, but we're really seeing it pay off now.
Alright, great. Thank you.
Thanks, So next.
Your next question.
Sure.
Hey, guys. This is actually Nick on for Terry Thanks for taking my questions. So the first one is kind of heading back toward that you said maybe up to me.
You guys gave us an update on the.
I guess on how conversations are progressing with both large organizations.
And maybe you know the Lord of the market that and what you're addressing them with the W. free said solution, which gives us an update on both sides and I guess the follow up or you are you see any changes in terms of competitive dynamics in EMEA.
Let me start just by saying that you know.
<unk> echoing what Stuart said the.
You know eased up is sort of one of the.
One of the mechanism for years to get to customers and to talk to them. We've had a lot of engagement over you. So.
We are starting to close deals on the bottom two thirds of the market.
And Oh, the high end of the market the.
Top one third where we saw platform sales or not or or or scale down product. We haven't seen a any effect. There. Those those are large companies, but making platform type investments to satisfy more than just the so they may be doing FCC in there they may be going all sorts of different types of book comply.
It's an internal reporting thing so.
It's been a nice entry into those big companies and I have we haven't seen any change in don't expect any but it's going very well.
The bottom you know two thirds of the market, we're getting really good engagement and like I said, we're starting to close some business.
And again, there's a certain central's companies that are going to carry on no matter what are they want to get it handled they want it you know comply and.
And be good citizens. So we've had good luck engaging and we don't see this Ah this delay in the UK really affecting our our ROE advancement in the market.
Got it Okay. That's helpful and I guess, just kind of pivoting more toward go to market with higher of Julie It's going really is here I was wondering if you guys. Good <unk> could potentially touch on Sunday operational enhancements. She is put in place and and it isn't hasn't certainly into.
Increase efficiencies in certain areas and organization. Thanks.
Well [noise], yeah happy to answer that the you know Julie has been.
Great addition for our company. She has a brought a lot of operational discipline as I mentioned the last call I was trying to do two jobs and it was not put though.
Going as well as it could and so she has brought operational discipline a lot more metric driven decisions and in terms of go to market.
We have really sort of focused on.
Packaging, how we're going to you know.
Go to market in terms of positioning communication with the in terms of value and so we've we've spent a lot of time investing in that also seller skills.
And she's done a great job on all that so we.
We feel like Oh, the stuff. She is doing is definitely going to improve sales efficiency and go to market efficiency.
Could have more to talk to you bought a cold it hadn't come in the middle of it but in terms of anecdotal type of things and what I observed in the in the company itself, it's going very well.
Got it okay. Thanks, guys.
Yeah.
Your next question.
Stands now.
Okay.
Perfect. Thank you so much guys and Oh.
Hopefully everybody is doing well in an environment.
Couple of question for me on the on that Youssef mandate.
As much as UK is considering potentially delaying.
Have you heard any kind of rumblings about you know the rest of up of AMEA potentially also putting that discussion the table.
We I have not I'm sure that is being bounced around but I've not heard anything official I tend to think that in a you know in the current state of the European Union I don't think they're going to necessarily be concerned about moving forward, obviously, they're doing.
I don't have enough on coal, but in general, but even if they do that Stuart has said many times, we have not built that into our forecast in a significant way and.
Even if it's a b the Lady here as I mentioned that still gonna be something that will give us a chance to talks and the new prospects and existing customers. So.
I, even before coal bed, you know I had a we had thought that there was a chance. It would go away to your that just seems to be what most of these.
Regulatory things do and what we've seen it mothers and we had built from model that more or less accounting for that already.
Okay perfect all right. That's why shouldn't we really haven't seen that happened in Europe, but if it does it's not something I'm very concerned about it's still going to happen and the conversations are still taking place.
Right and I, just a matter of time makes sense and maybe just a follow up for Stuart can.
Can you help us unpack the Todd the in the 5.6 million of a allowance for receivables are you guys now have and what what how that impacted billings in the quarter I'm just is the kind of the moving pieces Oh billings declining.
2% year here just want to make sure we have all correct.
Absolutely. So the way to think about it is I think is to compare it to the June 30, 2019, Stan so.
What a 3.2 million that was in the reserve.
Last year <unk> at June 30, and then 5.6. So if you were to look at you know pro forma change in short term billings short term billings would've been up 6.6% if you adjusted both numbers.
For that or if you added back the that that those reserves for it.
But does that change that's a that's a year on year change or is that there was that sequence yet. So that's the year on year change the a the sequential one a would've been I mean, I think thats the right way to look at it because our business is seasonal right.
Particularly when it comes to when it comes to billings, but that 6 million dollar one was at the end of of March this year and so.
That if you look at as a percentage of of the combined.
Number so you.
You know receivables plus the add back it was about the total was 6 million was about 11.6% of the total at 331. It was about 11.9% that's six at 630.
Got it okay that maybe we can we can follow up a little bit more in line. Thank you. So much I appreciate it you bet. Thanks, Dan.
Your next question comes from them mine, Mike Grondahl.
Right.
Yes, Michael on for Mike Thanks for taking my questions.
First off just on the thank you and the segments. It seems like it's pretty broad based across the different silos, even a couple of points and.
Growth in energy year over year anything to call out there as far as surprises in the quarter.
More strength.
Certain industries.
I would say that the.
The one that's really showing a lot of promises global statutory reporting we're seeing a very good sized deals.
And you know, but the competition there is much different some it's an older technology competition. So that's all of all of the girls sectors showed very good.
Progress or through the first half a year, but global statutory reporting really really stood out.
Got it and.
Maybe just comment on changes in the last couple of quarters in a potential M&A market.
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[noise] Oh, let's do work or comment on that go ahead Sir.
Yeah, I mean, what we know we continue to look at opportunities brought to us and initiate conversation ourselves.
I think it's fair to say that.
The pandemic has cause.
Both the companies that might be interested selling.
The slows down.
On the M&A fraud so.
I would say it's been relatively quiet.
Okay and you do have a follow up question come online.
Thanks.
Hey, guys. Thanks for taking the follow up Marty I was hoping you could just go into a little bit more detail on the on the next generation platform here, we're getting some nice feedback from customers that I've seen it play with that perhaps even using it already that's that feel like it's really kind of a game changer with respect to how remote employees Ken.
Interact with each other and they can you know sort of being the same a line and at the same line at the same time things like that so I guess the question I'd have for you is number one are you getting a better reception I'm on the product with respect to adoption as more and more of your customers employees are working from home and then secondarily, what sort of the monitor.
Terry add on opportunity as you roll this product out it does it does it interact better with some of these add on features better w. data or global statutory or somebody other products and just kind of think love love to hear a little bit more about how you're thinking about monetizing back and it does seem like it's a little bit about functionality game changer.
Well I would say first off that are rolling out of next Gen has been Oh.
Very very pleasant surprise, it's been a.
Very a very stable and has really performed well I'm going to do you rebuild a platform the size of bars, and that's a big undertaking and.
And we've been extremely.
Pleased with how that's turned out.
In terms of the leverage we're going to get from that platform remember we've gone through a truly modern microservices architecture.
And for instance, Burke and W. for you supposed to solutions I mentioned in the up in the.
Paired remarks, the beginning.
We create as specific solutions for those and just a couple of months and package them and are selling them already and generating booking so.
We are going to see direct a new revenues from switching customers from classic for next Gen.
<unk>, what we see in 2021 on the leverage we're going to get there is we're going to be able to package more and more specific solutions for sellers, putting their bag and so that's really where the where we get the leverage.
Yeah, and then just perhaps one quick follow on on that W. data would love to just here a little bit more about that customers that are adopting it what does that doing to the deal prices and who are you looking at or who are they looking at as a potential alternatives for Debbie data is this more of a data prep tool type of solution like an altira Ics.
Or is it pretty much something historically, they've just done it manually.
Yeah. It's it's it's it's it's a let's say a baby version of what [laughter] alter Ics does but it's it's put together for our particular product in our particular customers.
And it is sort of a data prep through all but the big thing for US is kind of activity. You know you can bring your data in there and do all the things you need the prep data for our solutions that are used cases, which customers love, but that really good thing is we can connect.
A large number source systems not just the ERP is but CRM tools and.
<unk> tools like concur, albeit salesforce and so you can pull in data that's not just back office data, but front office state and we're seeing customers using the platform more and more for that so.
W. data like I said it was the missing link them a platform and we do a platform sale with W. data, we're giving you know considerably higher ABS is.
And so it so it was in terms of product. It was the missing piece for us having a true platform. So that's a that's really how to look at it.
That's great.
Is it for me. Thank you guys I appreciate it thanks.
Yeah.
And your last question comes from the line of that Rob.
Baird.
Thanks, guys, it's Matt Lemenager on for Rob I had one on the gross and customers greater than 150, K., which is held fairly steady I guess, just comparing that with the growth than in customer is greater than 100 case kind of decelerated a little bit is there anything.
ER.
And Packer I mean, it seems like maybe it's more in platform sale in the traction, but just kind of thing that that growth in 100 cane has come down a bit at least compared to you know two or three quarters ago, while the growth in 150, K., it's holding and strong so anything to think about there.
Hi, Matt Stuart.
So.
Hey, we're really happy to be growing them, both those kinds of level. During the time of coven I do think that a growth of the over 150 does reflect strength on selling the platform.
But the in the 28% is down a little bit and I do think that that's reflective of.
The.
The impact of co that more than anything else.
Okay. Okay got it yeah, and Stuart I was just going to ask on cash flow, sometimes you've provided additional color on the on the calls around operating cash flow or how to think about that having been operating cash positive. It sounds like collections were strong in the first half is there anything you want to point people too.
Looking at the second half of the or anything around cash flow.
Yeah, not specifically around the second half the year I mean, we're pleased to be nicely cash flow positive.
On on the first half year.
Leave it at that.
Okay.
Sounds good thanks, guys.
Thanks, Matt.
Ladies and gentlemen, this concludes today's conference call. We thank you for your participation you may now disconnect.
Yeah.
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