Q1 2021 Workiva Inc Earnings Call
Good afternoon, ladies and gentlemen, my name is Kavita and I'll be your host operator on this call.
After the prepared comments, we will conduct a question and answer session and.
<unk> will be provided at that time.
Any time during the conference you need to reach and operator. Please press star followed by zero. Please note that this call is being recorded on May four 2021 at five P. M Eastern time.
And I was kind of a meeting over to your host for today's call, Mike <unk>, Vice President of corporate development and Investor Relations and <unk>. Please go ahead.
Good afternoon, and thank you for joining us for what he was first quarter 2021 conference call.
Today's call has been prerecorded and will include comments from our Chief Executive Officer, Marty Vanderploeg, followed by our Chief Financial Officer, Joe Quint.
We will then open the call up for a live Q&A session.
Julie is Kal our Chief operating officer is also on the call.
A replay of this webcast will be available until May 11 2021.
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 2021.
These forward looking statements are subject to known and unknown risks and uncertainties.
Were keto 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 reckon.
A 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 our CEO Marty Vanderploeg.
Hello, and thank you for joining today's call.
We're kiva is off to a strong start in 2021, beating first quarter guidance for revenue and operating income.
We exceeded 24% growth and subscription and support revenue driven by broad based demand for our platform and fit for purpose solutions.
Macro business trends, such as digital transformation changes and the regulatory landscape and remote workplaces continue to create favorable conditions for the adoption of our platform.
Due to improved market demand and and expanding addressable market, we are raising our guidance.
Joe will provide further details about our financial results and future outlook later in the call are.
Our team is executing we are maintaining an aggressive pace on our 2021 gross priorities, which include expanding globally ramping our partner ecosystem and launching new platform based fit for purpose solutions.
Starting with global expansion, we continue to expand outside of North America EMEA.
EMEA continues to show accelerated year over year growth as we continue to focus on Isa and other use cases that we expect will drive logo expansion.
Strong momentum continues with our partner ecosystem.
Our partners continue to play a key role and extending the value of our platform and accelerating its adoption.
There are also strategically involved and the go to market for our new fit for purpose solutions.
And our 2020 Investor day, we discussed our approach to identifying and bringing new and enhanced solutions to market.
Our recent U S. D announcement as a result of our idea to incubation process that provides the optimum mix of disciplined speed and agility. This process allows us to innovate on our platform validate with our partners and prospects and define the commercial offering.
Our ESG solution enables global organizations to simplify the complex ESG ecosystem and achieve greater transparency and accountability.
Organizations across the globe are motivated to report their non financial data alongside their financial data to provide a broader company valuation and we believe we are well positioned to deliver the solution.
We have years of experience delivering a cloud platform that supports investor grade reporting for the world's largest organizations.
Yes to your reporting as complex, making it a natural fit for our platform and a compelling market for us to enter.
Yes, G requires the capture management and reporting and financial and Nonfinancial data for many sources and the collaboration of many internal stakeholders.
We have been helping customers manage complex reporting for over a decade.
Our ESG solution is end to end, where customers can automate and consolidate the collection of ESG data.
Connect directly to source documents and systems.
Utilized globally recognized or proprietary ESG frameworks.
Work and and audit ready environment.
Bringing together teammates datasets and data sources, and a controlled setting and achieve greater transparency and accountability with full X BRL capabilities.
Currently approximately 11007 hundred large companies and groups across the EU are subject to mandatory requirements for non financial reporting.
Last month, the European Commission introduced a new corporate sustainability reporting directive C. S Rd intended to improve the quality of ESG reporting and bring more companies within the mandate.
Upon finalization of the European Legislative process, the proposed CSR D will potentially impact nearly 50000 companies in the EU.
And the directive also requires companies to digitally tag reported data using ESF inline ex BRL standard and we're kiva is the leading provider of EXPAREL and inline EXPAREL software and services.
Therefore, we believe ESG will drive global demand for our cloud platform and lead to an expansion of our addressable market and response, we are scaling our operations by making targeted investments in R&D sales and marketing.
For us the launch of ESG is not just another fit for purpose solution. It aligns with the values, we support and our mission to build trust and the global economy with transparent data and connected reporting.
We believe we have the right platform at the right time to help our customers address their ESG requirements and.
And these extra ordinary times, we are honored to contribute our part to climate awareness and sound corporate governance and to elevate fairness trust and overall compassion and across the global community.
And closing our Q1 results are reflective of our entire global team working together to build innovative solutions deliver a superior customer experiences and to live our values based culture.
We have always been intentional about prioritizing our culture and standing behind our values, which is why we are honored to once again be named to Fortune's 100, best companies to work for and best workplaces in technology.
Before I turn the call over I would like to welcome Jill Klindt to her first earnings call as our CFO.
Joe is an accomplished leader with strong knowledge of our business and all aspects of our financial reporting and corporate governance I look forward to working with her and her new capacity to position where kiva for future success.
With that I'll now turn the call over to Jill.
Thank you Marty and good afternoon, everyone.
I would like to start by echoing Marty's positive sentiment on this quarter's results and also express my appreciation to the amazing where COVID-19 team right.
And their continued dedication and execution.
It's been a pleasure working alongside the last 13 years and I'm excited to contribute to scaling the company and the CFO role turning to our results 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.
Continued to see broad based demand graduations and Q1 and.
As a result, we are raising guidance for 2021 revenue and operating income, which I will discuss later.
I'll address our performance against Q1 guidance first.
<unk> Q1, 2021 revenue guidance at the midpoint by $3 $7 million higher subscription revenue accounted for the majority of the beat.
Guidance on Q1 operating income at the midpoint by $3 million.
And the revenue beat mentioned was partially offset by increased compensation related expenses.
Turning to Q1 2021 results versus Q on near before.
We generated total revenue and the first quarter of $104 2 million.
Showing growth at 21, 5% from Q1 2020.
Breaking out revenue by reporting line and subsea.
Friction and support revenue was $84 9 million.
At 24, 2% from Q1 and 2020.
New logos and new solutions helps drive strong revenue growth and Q1 2021.
61% of the increase and SMS revenue in Q1 came from new customers added and last 12 months.
Professional services revenue was $19 $3 million and Q1, 2020 one at 10, 6% from the same quarter last year.
And this was largely due to higher <unk> services revenue.
As a reminder, the first quarter is a seasonal high point for <unk> tagging revenue since most of our publicly traded customers prepare their 10 Ks and the first quarter.
Turning to our supplemental metrics.
We finished Q1 with 3800 customers and net growth is 293 customers from Q1 and 2020 and.
And a net growth of 77 customers from Q4 2020.
Our revenue retention rates remained strong.
Our subscription and support revenue retention rate was 95, 1% for the first quarter of 2021 and improvement compared to 94, 5% for the same period last year.
With add ons, our subscription and support revenue retention rate improved to 111, 2% for the first quarter of 2021 compared to 110, 9% and Q1 and 2020.
The number is larger subscription contracts continues to show impressive growth.
And the first quarter of 2021, we had 884 contracts valued at over $100000 per year.
Up 32% from the Q1 day here before.
The number of contracts valued at over $150000 totaled 457 customers and the first quarter.
48% from Q1 2020 results.
Moving down the P&L.
Gross profit totaled 81 $4 million and Q1 up 26, 7% from the same quarter a year ago.
Consolidated gross margin was 78, 1% and the latest quarter versus 74, 9% and Q1 and 2020 and net expansion of 320 basis points.
Breaking out gross profit.
<unk> and support gross profit totaled $72 2 million equating to a gross margin of 85% on SMS revenue and expansion of 210 basis points compared to Q1 2020.
Driven by continued operating leverage on server usage related to the transition to our new platform and lower travel costs versus Q1 and 2020.
Professional services gross profit and the first quarter was $9 2 million up 24% versus Q1 and 2020.
Gross margin was 47, 6% and the expansion of 390 basis points.
Research and development expense in Q1 totaled $24 $2 million at.
And that 13% from Q1, 2020 due to higher compensation, partially offset by lower <unk> expenses and occupancy costs R&D expense as a percentage of revenue improved to 23, 2% in Q1, 2021 from 25% and Q1 and 2020.
Sales and marketing expense for the quarter increased 12, 3% from Q1, and 2020 to $37 $5 million as we invest and the growth of our business.
This increase was driven by higher compensation, partially offset by lower <unk> expenses.
General and administrative expenses totaled $12 $2 million and Q1 of <unk>.
<unk> $6 million compared to Q1 2020 due to increased compensation related expenses.
G&A expenses as a percentage of revenue increased to 11, 7%.
Our business fundamentals are strong we posted an operating profit of $7 $5 million and Q1, and 2021 compared to an operating profit of $861000 and Q1 and 2020.
Turning to our balance sheet and cash flow statement.
At March 31, 2021, cash and cash equivalents and marketable securities totaled $541 million.
And increase of $10 $6 million compared to the balance at December 31, 2020.
Net cash provided from operating activities in Q1, 2021, total 11 $5 million compared with cash provided of four.
$8 million and 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.
We are factoring in the expected impact of the COVID-19 pandemic on our business and results of operations based on information available to us today.
For the second quarter of 2021 <unk>.
We expect total revenue to range from $101 million to $102 million.
We expect subscription revenue will continue to grow at a faster rate and services revenue in Q2.
We expect non-GAAP operating income to range from breakeven to $1 million.
For the full year 2021.
We are raising guidance for revenue, we now expect total revenue to range from $418 million to $420 million.
We expect non-GAAP operating loss to range from 5 million to $3 million.
We are modeling higher travel costs and investment and growth opportunities through the remainder of 2021.
And in 2021, we expect to post positive free cash flow for the fifth consecutive year.
We will now take your questions operator, we are ready to begin the Q&A session.
And at this time, if you would like to ask a question that star followed by the number one on your telephone keypad.
And I followed by the number once asked a question.
And our first question comes from Matt Stotler with William Blair.
Hi, everybody and thank you for taking my questions I think first we'll start with one on.
And <unk> reporting and then I've got a follow up.
And we'd love to just kind of get an update on your expectations regarding the pace of adoption or kind of timing.
In terms of Aesop adoption over the coming years.
Tom.
Kind of balancing the timing of the mandate with obviously the mandatory compliance for financial statements layering in through 2022, and then expanding to non financial state of the following year.
Balancing that with kind of your observations in terms of customer behavior, I would love to kind of get your sense of what a realistic adoption path might look like.
Hey, Matt Thanks for the question.
Good question just to sort of give you.
State of where we're at now we continue to close ESF accounts.
And we're seeing a lot of interest there there is no doubt.
I would say its progressing very much like the SEC.
Did here and the early.
And.
And the early days of FCC, EXPAREL tagging and reporting and so I think thats very similar I think the overlaying on nonfinancial data is sort of a new thing I really don't have a good measure on that I will say that when the 2022.
And our requirements come in which obviously raised the bar on that I think we'll definitely see a higher rate of adoption and then just like we did with FCC.
And we're starting to get information about how our competitors have done and it's.
And it's trickier than it looks so we're very optimistic and I think it'll ramp similar to sell over the next debt.
Two to four years.
Got it.
Got it that's helpful and.
And just one follow up on on ESG, obviously really exciting to see the.
The solution, they're launched last week.
You're still pretty new and developing it turns on the landscape, which I think.
Our platform is very well suited to handle who love anything you can kind of gave some numbers around kind of potential companies and whatnot in terms of where this might be applicable on the EU any broader thoughts about the ESG opportunity globally and kind of again looking at how that might kind of rollout in terms of pace of adoption.
The initial early thoughts there would be helpful as well.
Well theres been quite a bit of obviously from every corner and discussion about ESG.
And that's coming from.
The investment organization and this is coming from individuals' is coming from governments, we are seeing pressure coming from all directions.
So I think it's a foregone conclusion that we will see.
Reporting requirements and a lot of jurisdictions on me.
And sort of leading or the EU, I'm, sorry, and sort of leading that charge.
And as we talked about and the.
And our prepared comments.
That will potentially be 50000 companies just in the European Union.
We're seeing a lot of <unk>.
<unk> from our partners.
The large advisory firms are reaching out to us and we're putting together plans on how they're going to market. So we're just seeing broad.
Excitement and.
And execution, starting there certainly the Tam expansion is and the billions and some other companies had put out approximate numbers that you can find but it's so early.
We've just we're just not going to put out some of our estimates until we get a little more visibility on what's happening. It's just such early days, but boy, we feel so blessed.
In terms of you know.
Having having good fortune.
On this.
Acceleration of ESG reporting Couldnt have happened for a better time for Ross our platform.
And there is really maturing and we just finished our.
Great.
And we have people, calling us and we have customers for ESG already so we're learning very fast. So this this tam increases is just very well time for where we were at.
Got it yes, very exciting thank you very much for taking the questions.
Matt.
And our next question comes from Tom Roderick with Stifel.
Hey, everybody. Thank you for taking my questions great to hear from you.
It's too big a topic I'm going to piggyback on Matt's question, there on on ESG and and Marty you laid out I think you said 50000 potential companies.
And going after this market and if I sort of lay that up against the ESF itself and Europe, I mean, you're talking about guidance about a 10 X opportunity, which is tremendous from a Tam standpoint, and also begs. The question. How do you best go to market, you mentioned partnering up with advisory services and and businesses on that front and tell me a little bit more about how you need to invest to tackle this on.
<unk>, particularly on some of these regulations roll out and perhaps accelerate the demand for this and do you really have to get ahead of the curve and then Jill and going to have a follow on for you with the way in relation to that so I'll come back to you and just a second but wed love to hear the go to market here Martin and Julie.
Oh, well thanks for the question, Tom I would I would say first off that.
And we're going to have the goal at the go to market from several different approaches we will definitely have a direct sales team that's working on this.
We have account owners for a lot of accounts and globally right now and we're well positioned to take any type of specialists and their and attack those accounts.
And the relationships with the partners is also going to be really beneficial and again that was fortuitous, we've scaled those relationships and we see partners investing and practices around our platform, which has been very encouraging.
And.
So I'm sure that's a big segment of our go to market will be through partners and then you know that when you get to 50000 customers Theres, a big scale and the size of those customers. So we'll definitely bifurcate the market from.
From largest where it'll be either us direct or with partners down to the very smaller firms, where I imagine and will use primarily.
Inside sales team or we may even get into other.
Other forms of distribution, but it's going to take a lot of.
And lot of different means to get on the market that big but we're just so well positioned to do that we have a reputation we have a very.
Substantial footprint already doing reporting and EXPAREL tagging and this is just going to dovetail nicely with our existing customer base as well so.
Yes.
Like I said, we're very blessed we understand that it's going to take some investment and thats going to take some time to watch how this market develops but.
We're just extremely excited about it so yes, that's great.
The follow on <unk>.
And I'd have for you is.
And just thinking about the impact and this I think I think you all had laid out sort of the.
The opportunity to get Europe, 25% of revenues within I think perhaps five years and you can remind me what the timeline wise how much does this accelerate debt and then just as we think about.
Building this into the cost structure, it's pretty obvious just given the implied guidance for the back half of the year the cost structure ramps pretty meaningfully so should we front end load that into Q3 does does do those costs get back and loaded or they smoothed pretty evenly just thinking about how to how to kind of get from whats profitable here to a negative $3 million and 5 million.
Op income number for the year would be would be helpful on the cost side.
Thank you Chris.
Sure. So we had put out and talked about the fact day in the long term, we would expect to have emas and.
Contribute 25% to 30% of total revenue, we have not put out a timeline around that date and.
Certainly something that we're aspiring cases, there is not a.
And there isn't a specific timeline around that.
But and.
We think that and this ESG opportunity at you had mentioned and whether or not this would accelerate the timing to that I think debt.
And.
We've always known that there would be additional fit for purpose solutions that might help us towards that goal and this is just one of those and and so this is a part on the.
Part of the total execution on that plan and and how we'll continue to to consider other kit for paper solution that will also contribute to the EMEA and market and actually and globally. So and we will continue to focus on that as and <unk>.
Physical and and Thats part of our growth and overall growth goals and.
And in thinking about the guidance overall.
You are correct and you are definitely ramping up now on <unk>.
And and Beckman and.
And.
On the business and.
We are focusing on gross and we believe that those investments will bring us to that gross.
And the hiring will be ramped through the end of the year. We are also ramping up and continuing to we will continue to ramp up travel should be and of the year and that has been and still mostly on hold we haven't really seen that through Q1.
And you'll largely see that into Q3 and Q4 and.
And with key for piloting and have yes, we do not expect that we'll get back to pre prepay.
Prepayment and make levels on travel per per head, though.
So and while it will increase we will not be back to what would have been 2019 levels of travel and we don't believe should enter the year.
Wonderful. Thank you for the detailed congratulations thank you.
Thank you Tom.
And our next question comes from Alex Sklar with Us from Raymond James.
Okay. Thank you Marty one more on ESG for me.
You talked about all the different sources of data customers need a pull from in order to do the reporting I am curious if income or your early customer lands, if youre finding the data needed for ESG reporting and general is already in your customers and were keep a platform and so the value prop for and existing customers even greater.
Well in some instances.
That is the case, we've seen some customers just go off and start doing ESG reporting with the platform as it existed and.
We had a we had a group of customers who are doing sustainability reporting for a lot of years. So yes, some of that and is already and there I would not say it's.
Widespread but the other thing is the customers know how to use our platform already.
Collection of <unk>.
Financial data and collection of non financial data is not substantially different.
We will have to make investments and our platform like I said is ideally suited but we're going to have to integrate with all sorts of different systems, and that's where some of the investments will take place and then just making it more fit for purpose.
And I'm, putting in a lot more of the and.
And the framework. So those are all types of things, we'll be investing and but I think that just the fact that they use it and are familiar with it.
Is going to drive a lot of adoption and our customer base.
Okay got it very helpful. And then Jill the X Bureau services growth is really impressive and what I think it's always seasonally stronger quarter, but is there anything we can read into on the services that you are in terms of the death representative of the FERC or suddenly European and he said success. Thanks.
No. Thanks for the question, Alex and it really is just related to continued growth and the.
And market and that and Q1 is day as you mentioned the seasonal high point for that revenue and we do continue to expand.
And you see customers and so that that and will be at on.
Continues to be up year on year over year.
Okay, great. Thank you.
And our next question comes from Andrew the guests per room.
Aaron Berg.
Yes, thanks for taking my question.
And I ask one more on ESG.
In terms of the pricing for this module I was just wondering is this going to be in line with how you price your other products.
If you could give us directionally, how how how much that could have been.
How much that can be generally and then secondly, just in terms of your long term targets just wondering as you rollout these fit for purpose solutions.
Would that delay achieving your long term margins.
Thanks for the question and.
And the.
Pricing just to first touch on that it's very early days for us and we're still trying to figure out pricing. One thing I can say is I think that we.
And we'll see a wide range of pricing based on size of the organization and the amount of usage. So we're trying to figure out the metrics still on how we're going to structure the pricing but on.
Obviously this is a much bigger problem for large companies and it is for smaller companies. So we're going to figure that out.
And I don't think its going to be radically different from the price range. We have now, but we have a pretty large price range right now is it and so.
But it's going to be and the same ballpark I think but it's way too early to.
You and make definitive comments.
And then.
And the long term financial targets.
We've always said that.
If we see growth opportunities, we're going to invest.
And.
And the market rewards growth and obviously the bigger we get the more scale we have.
The better and as for US in terms of all the cost structure. So.
I'm not I can't really.
Even ponder a guess if thats going to extend how long it takes to get there, but I do know that as we grow we get more and more.
More and more efficiency from scale so.
I'm just again, we're just focused on growing the faster we grow the better and more of these markets we grabbed the better.
And this is just on opportunity to do that and I think that on.
On how the market rewards growth I think most of our investors would agree with that.
And.
Just on one on <unk>.
The competitive landscape for ESG is that significantly different than what you have and kind of and the other financial reporting tools.
Well.
I would say that theres, a lot of excitement and obviously around ESG.
And there's a lot of startups and and some that are even sort of.
Past the startup stage, but.
There is no company that has a comprehensive platform.
And that can handle both the financial and the <unk>.
And the.
And on the nonfinancial data not like the platform, we've built in terms of dealing with it.
All different types of reporting with EXPAREL integrated and all that so we see a lot of competition up and coming that's okay that definitely signals.
A big Tam and we see investment and different startups all over so I anticipate we will have some competition here, but.
We're just very well positioned and and just have.
Such a big head start in terms of having the tools already built and having.
Having our foot and all of those accounts already so we're just very optimistic.
Thanks Martin.
And there are no further questions at this time and that.
That does conclude today's conference call. Thank you for your participation you may now disconnect.
[music].
Yes.
And.
And then on.
[music].
Yes.
Correct.
And.
Okay.
And again.
Net.
Sure.
Okay.
Okay.
Okay.
Moving on.
Yeah.
[music].
Yes.
Yes.
[music].
And.
Sure.
Okay.
[music].
And.
Okay.
Yeah.
And then.