Q1 2022 Workiva Inc Earnings Call
Yeah.
Good afternoon, ladies and gentlemen, my name is Kelly and I'll be your host operator on this call. After their prepared comments, we will conduct a question and answer session and instructions will be provided at that time.
Any time during the conference you need to reach an operator. Please press the star key followed by the digit zero. Please note that this call is being recorded on May 3rd 2022 at five P. M Eastern time.
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 work Eva. Please go ahead.
Good afternoon, and thank you for joining us for <unk> first quarter conference call.
During today's call. We will review, our first quarter 2022 results and discuss our guidance for the second quarter and full year 2022.
Today's call has been prerecorded and will include comments from our Chief Executive Officer, Marty Vanderploeg, followed by our Chief Financial Officer, Joe quit.
We will then open the call up for a live Q&A session.
Julie is cole, our president and Chief operating Officer is also on the call.
A replay of this webcast will be available until May 12, 2020 to.
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'd like to remind everyone that during today's call, we will be making forward looking statements regarding future events and financial performance, including guidance for the second quarter and full fiscal year 2022.
These forward looking statements are subject to known and unknown risks and uncertainties.
Well keep a cautions that these statements are not guarantees of future performance.
All forward looking statements made today reflect our current expectations only and we undertake no obligation to update any statement to reflect the events that occur after this call.
Please refer to the company's annual report on Form 10-K, and subsequent filings for factors that could cause our actual results to differ materially from any forward looking statements.
Also during the course of today's call, we will refer to certain non-GAAP financial measures.
Reconciliations of non-GAAP to GAAP measures and certain additional information are also included in today's press release.
With that we'll begin by turning the call over to our CEO Marty Vanderploeg.
Hello, and thank you for joining today's call.
<unk> the team delivered a solid quarter and continued to execute at a high level once again delivering financial results above our guidance, we beat the high end of our Q1 guidance in revenue and operating results.
In Q1, we outperformed in multiple solution areas, including our DRC CSR and ESG solutions.
For the quarter subscription and support revenue grew 26, 1% and total revenue grew 24, 4%.
We had strong new logo growth, adding 93, net new logos and delivering a 27% increase from Q1 2021, and the number of customers with contract values over $100000.
We also achieved our highest revenue retention rate of 97, 7%.
The current global macroeconomic and geopolitical environment has led to volatility in the public markets.
We did see a significant reduction in the number of Ipos in Q1.
As a result, new sales of our capital markets and FCC solutions were impacted.
Even with these global challenges we are still on track to meet our guidance for this year, which Joe will talk about later in the call.
We remain confident in the resiliency of our business and the future growth opportunities across our solution portfolio, where.
<unk> mission is to power transparent reporting for a better world and we believe that we have the team and the technology to expand that are large and relatively unaddressed Tam.
The FCC's new proposed climate related disclosure requirements is a perfect example of our growing opportunity the.
The proposed mandate would require the following.
The disclosure of climate related risks governance financial impacts and greenhouse gas emissions.
Assurance for greenhouse gas emissions for accelerated and large accelerated filers and then in line EXPAREL tagging requirement.
The addition of our financial statements footnote for climate related financial statement metrics and <unk>.
Climate disclosures that would be subject to assurance and external audit review.
These proposed regulations send a strong signal that investors and regulators want accurate transparent investor grade disclosures.
So we're kiva platform enables our SEC and ESG solutions to work in tandem so customers can easily create audit ready disclosures and file directly with the SEC.
Our kiva, we use a continuous release cycle and deliver new enhancements across our single instance, multi tenant platform.
This enables our R&D teams to remain focused on rapidly developing technology and capabilities that create customer value and deeper customer engagement.
A few of our recent platform enhancements include.
And ESG explore for framework management.
Porting teams can now quickly access in explorer disclosure guidelines from internationally recognized ESG frameworks, such as SaaS B Tcf D. In the U S D Gs and cri to make informed decisions and identify material disclosures and metrics.
We also recently made multiple enhancements to our <unk> solutions to extend <unk> leadership position.
We released new capabilities for DRC data management and data connectivity that better enables ERC teams to evaluate account adjustments and managed risk related data modifications.
With real time data.
Our partners continue to make investments to expand there where kiva practices, we had a number of large partner related wins during the quarter.
The European Division of a big four advisory firm invested in the <unk> solution to support their managed service that deliver statutory reporting services to their clients.
This was a replacement of a legacy technology vendor.
Another example is a large European energy service provider that engage with both a big four firm and a regional partner in their selection of <unk> to support a financial reporting transformation project.
This newer kiva client purchased multiple solutions, including ESF, GSR and management reporting.
These two deals are examples of the trends, we see across our growing partner ecosystem. The purchase of multiple solutions larger deal sizes and the delivery of services by our partners.
On April one we acquired <unk> port a leading ESF financial reporting provider that has been delivering EXPAREL conversion software in Europe for more than a decade.
<unk> solutions help organizations quickly and efficiently file EXPAREL reports.
We are excited to welcome this talented team door Kiva and extend our global ex BRL leadership.
Last month, where chemo was named to Fortune's 100, best companies to work for.
For the fourth consecutive year.
This year, we moved up 41 spots coming in at number 20.
This award celebrates the World class culture, we've created that we're kiva.
As a testament to our employees' commitment to our values and the way they support our customers communities and each other.
In closing we are pleased with our first quarter performance. We believe we have the right team the right technology at the right time to capitalize on the increasing global opportunities to power transparent reporting for a better world.
That I will turn the call over to Jill.
Thank you Marty and good afternoon, everyone.
Today, I will talk about our results and guidance on a non-GAAP basis refer to our press release for a reconciliation of our non-GAAP and GAAP results and guidance.
As Marty mentioned, we delivered a solid Q1 and exceeded first quarter guidance.
Q1, 2018 revenue guidance at the midpoint by $2 2 million.
So that's in essence services revenue contributed to the beat.
We beat guidance on Q1 operating results at the midpoint by $5 $3 million the revenue beat coupled with slower hiring and lower G&A makes up the majority of the operating loss.
Turning to Q1 2022 results versus Q1 near Port.
We generated total revenue in the first quarter of $129 7 million showing growth of 24, 4% from Q1 2021.
Breaking out revenue by reporting line item.
Subscription and support revenue was $107 1 million up 26, 1% from Q1 2021.
New logos and nutrition helps drive strong revenue growth from Q1 2022.
66% of the increase in SMS revenue in Q1 came from new customers added in the last 12 months.
Professional services revenue was $22.6 million in Q1 2022.
16, 9% from the same quarter last year.
Higher ex BRL services revenue due to an expanding customer base and the inspection FERC <unk> BRL services was the primary driver of the increase.
Turning to our supplemental metrics.
We finished Q1 with 4408 customers a net growth of 608 customers from Q1, 2021, and a net growth of 93 customers from Q4 2021.
This performance shows the strong start to 2020 with Q1, historically being our seasonal slow period for adding new logos.
Our subscription and support revenue retention rate was 97, 7% for the first quarter of 2022 and.
An increase compared to 95, 1% for the same period last year.
While we are pleased with this result, and it reflects our focus on customer experience and continued investment in our platform.
We believe this metric may normalize closer to our historical average.
With add ons, our subscription and support revenue retention rate declined to 109, 2% for the first quarter of 2022 compared to 111, 2% in Q1 2021.
We attribute the majority of this decline through our capital markets business.
The number of larger subscription contracts continues to show growth in.
In the first quarter of 2022, we had 1124 contracts valued at over $100000 per year of 27% from Q1 in the prior year.
A number of contracts valued at over $150000 totaled 603 customers in the first quarter up 32% from Q1 2021.
The number of contracts valued over $300000 totaled 186 up 42% from Q1 2021.
The $300000 contract value category continues to show the highest year over year growth.
Moving down the P&L.
Gross profit totaled $100 million in Q1 up 22, 9% from the same quarter a year ago.
Consolidated gross margin was 77, 1% in the latest quarter versus 78, 1% in Q1, 2021 and that declined a 100 basis points.
Breaking out gross profit.
Subscription and support gross profit totaled $89 4 million.
Equating to a gross margin of 83, 4% on SMS revenue.
Traction of 160 basis points compared to Q1 2021.
The decline was primarily driven by increased compensation related expenses versus Q1 2021.
Professional services gross profit in the first quarter was $10 $7 million.
Traction of 30 basis points versus Q1 2021.
Waiting to 47, 3% gross margin.
Research and development expense in Q1 totaled $32 $7 million up 35% from Q1 2021 due to new head count investment compensation related expenses and increased server he said versus Q1 2021.
R&D expense as a percentage of revenue increased to 25, 2% in Q1 2022 of 23, 2% compared to Q1 2021.
Sales and marketing expense for the quarter increased 38, 2% from Q1 2021 to $51 $8 million as we continued to expand our sales team returned to travel and invested in marketing events.
General and administrative expenses totaled $16 $7 million in Q1 up $4 $5 million compared to Q1 2021.
The increase was driven by higher compensation professional fees and TNT.
We posted an operating loss of $1 $2 million in Q1, 2022 compared to an operating profit of $7 $5 million in Q1 2021.
Turning to our balance sheet and cash flow statements.
At March 31, 2022, cash cash equivalents and marketable securities totaled $524 million.
Decrease of $6 $9 million compared to the balance at December 31, 2021.
Net use of cash from operating activities in Q1, 2022 totaled $900000 compared with cash provided of $11 $5 million from the same quarter a year ago.
Turning to our guidance.
I first want to call out that the financial impact of our April 1st parse part acquisition is not included in our updated 2022 guidance.
While we expect the parse part results will be accretive to our 2022 results our work to fully transition the parse part financials to U S. GAAP is ongoing.
We will include further details when we release, our Q2 2022 results.
For the second quarter of 2022, we expect total revenue to range from $125 $5 million to $126 $5 million.
We expect subscription revenue will continue to grow at a faster rate than services revenue in Q2.
We expect non-GAAP operating loss to range from 13 million to $12 million.
Net loss of 27 to <unk> 25 on a per share basis.
Our share count will be approximately $52 7 million weighted average shares.
For the full year 2022.
We are raising guidance for revenue.
And now expect total revenue to range from 534 million to $536 million.
We expect non-GAAP operating loss to range from 32 million to $30 million or a net loss of 71 to <unk> 67 on a per share basis.
Our share count will be approximately 53 million weighted average shares.
And in 2022, we expect to post positive free cash flow for the sixth consecutive year.
Our current 2022 assumptions are dependent on a variety of factors that are subject to change.
And that we believe are appropriately prudent for the current environment.
In closing I would like to Echo Marty's excitement about our placement on Fortune's 100 best companies to work for.
To all of our key dance. This achievement reflects what I see every day, it's a pleasure to work alongside you at this great company. Thank you.
We will now take your questions operator, we are ready to begin the Q&A session.
Thank you at this time, if you do have a question. Please signoff by pressing star one on your telephone keypad. Additionally, if you'd like to remove yourself from the queue. You May also press star one at that time as well again that will be star one for questions. We'll hear first today from Matt Stotler with William Blair.
Hey, yes. Thank you for taking the questions maybe I'll start with just one on guidance.
Obviously.
Solid results for the quarter ratio full year Q2, implying a little bit of a sequential decline in revenue. So I would love to maybe just touch on that what's embedded in that guidance and specifically.
Just touching on one the tough head count environment right in terms of whether thats, along getting sales cycles implementation cycles to the geopolitical impact on spending intentions, especially in Europe , and then three obviously any changes specific to that capital markets component of the SSC components.
Versus the guidance, you've given and.
In February would be helpful. Thank you.
Sure. Thanks, Matt I think we're probably going to tag team. This one if you've got a lot in that question.
So.
To start off on the on the revenue guidance you are correct. It does show and.
A decrease in that revenue quarter over quarter and indicate that through the end of the year.
As we stated we wanted to make sure that we're appropriately prudent in the way that we've been moving forward with the with our guidance for the year. There is a lot going on.
Reflecting some of the items you just mentioned in your question.
And we want to make sure that we are giving.
Very prudent guidance, so that we can make sure too.
Continue to overachieve that.
But we do feel very strongly that the guidance will be provided for the year.
Well within.
Well within our range to meet and capital markets was another piece of that question.
Given a little bit.
<unk> round that obviously, we know that the.
The <unk>.
Overall capital markets has decreased everybody's well aware of this.
That doesn't mean that it has completely dried up for US there is still a lot of secondary offerings that we're working through and there are companies that are ready to be going public that we do have some business there.
And that is true.
Correctly included within our <unk>.
Within our guidance and I think that Marty do you want to hit on some of the other portions of that around.
Head count difficulty hiring geopolitical environment.
Yes.
In terms of the decline between Q1 and Q2 before we do that there is some seasonality there too is that right Joe.
We do have seasonally high services revenue in Q1. So that's also a piece of it.
But we expect the.
Services and.
And recurring revenue to increase quarter over quarter, obviously, so that's that.
It's mostly a seasonality thing youre seeing there in terms of the quarter.
The quarter to quarter decline.
In terms of hiring.
Yes. It is.
Really tough market out there right now I think everybody's.
Consistent message, we get about 80% of our hiring goal last quarter.
And it's just really tough I think we're doing better than most.
Adding really high quality people, but we're just running a little behind so that's and then.
<unk> is come up slower than.
We anticipate and as well we are being conservative on that estimate so.
That contributes to.
Most of the decline in spending.
Okay.
That's helpful and just to.
Maybe just.
I have one more in there in terms of the <unk> acquisition.
Very very interesting capability that youre, adding there.
Essentially ECF conversion any any early thoughts are.
Around the strategy or initial interest and traction with upgrading or using that as a platform to introduce.
Customers to the full <unk> platform and driving that conversion over time.
Yes.
Obviously.
They were very successful in the ESF.
Likewise, we achieved our goals, but our goals are much different we're selling higher end solution that takes care of the whole reporting process and does the ease of tagging.
Their solution is just a end of process conversion to an EXPAREL document.
They've been very successful well over 800 logos and a large percentage of those logos.
Our large companies so with GDP and all the other hurdles you have in Europe to get the customers.
He was a very attractive way to have access to a lot of new logos and so.
That was one of the.
One of the primary reasons for doing it a second was that.
They just announced a recommended I should say the European Union that they were going to require reporting 50000 companies on the ESG stuff in EXPAREL was going to be a part of that and so.
There's going to be a large low end component in that 50000 in.
And there'll be a lot of companies that just do that quickly at the beginning like we've talked about so it was really a way to access.
And get access to.
Being introduced to customers very quickly.
And we see that low end solution as an entry point for a lot of different other applications as well.
Very talented team culture was a really good match and the leadership are really really good guys. So.
There was a really easy decision frankly.
Got it very helpful. Thanks again.
We'll hear next today from Alex Sklar with Raymond James.
Thanks, maybe just starting off following up on Matt's Part-score question, but I can appreciate you are waiting for the full accounting to be done, but can you give us any bounds on what that might contribute in terms of revenue or profitability for the year and does that affect any of your plan. Your European investments that you had at the start of the year.
Thanks.
So did mentioned that it'll go ahead, Creatives, Oh, sorry marni.
Go ahead go ahead.
We did mentioned that it will be accretive to work to our overall results.
And we will provide.
Guidance inclusive of the <unk> results with our Q2 call.
And I think Marty you can chime in on the second part of that.
What was the second part.
I'd say around if it's going to change how to move forward in Europe , I believe Oh, yeah, Yeah, Yeah, No I know, where our investment profile for our platform in Europe is staying the same.
We don't have any change of plans there. It's just a very big market with a lot of opportunity and we're at the very.
Early stages of exploiting that market so no change in those plans.
Okay.
Sticking with Europe for the second question, but.
We think we're getting to the kind of the end of the first ESF deadline in Europe , and I'm curious kind of what your plans or how youre thinking about re targeting those prospects for kind of phase III.
It does get to be a little bit more difficult.
Well, yes of course, we're going to be attacking on two fronts.
The <unk> team will continue to.
To.
Go after customers.
No.
Uh huh.
They are a significant number but theres still quite a few out there.
In terms of boss, we continue to go at customers.
Talking about financial reporting platform doing a comprehensive annual report being able to integrate with data and then tag it with ESF.
ESF tagging requirement so.
When we approach a customer that's already doing aesop tagging. We approach. It is this is sort of a comprehensive platform for reporting and streamlined you're reporting process eliminate risks and gives you more control and so that's the.
Same way, we did it in North America, exactly the same and as I've mentioned.
Bolt on type solution in the U S had.
A large percentage of the market and over time, we just took it all so there's a lot of value add going from a bolt on solution to a.
Complete reporting platform, but understand there is a lot of very small companies and companies who are don't want to change the reporting platform the reporting process and with that we have a solution. So we're able to stay in the account.
And so other things besides.
Maybe we can sell integrated risk or trc solution or who knows but.
The combined strategy of having two solutions is really going to help us.
Move in Europe . So.
Okay.
Alright, great. Thank you.
Yes.
We'll hear next from Joe mirrors with trust.
Hey, Thanks for taking my question guys.
Regarding capital markets I believe you've talked about single digit market share there and just acknowledging that you've recently triple the size of the sales team.
And with the market kind of in a slower pace right now as this is a time, where youre able to make those initial conversations with new customers potentially work on growing that market share even though the revenue may not be coming in right now.
Oh absolutely.
You talked to the investment bankers they would tell you the same thing there so.
There is a large number of companies waiting to go public.
And as Joe mentioned, we're still getting business and cap markets, we're still.
Talking to customers and it's just a large number of companies that still want to access the public markets. So.
As I mentioned, we didn't perform as well as we planned in both SEC and cap markets this quarter.
But.
Two factors there one as you know a lot of that will come back to us in a subsequent quarter as soon as those markets open up and.
And second off.
Our growth strategy, our long term growth strategy is more focused on <unk>.
Solutions like DRC in ESG, and GSR, and our management reporting annual and quarterly reporting and all of those did well this quarter.
And so when I look at the Big picture.
I was very pleased with the quarter and this in the sense that the.
Solutions that still have a lot of Tam runaway Forrest did really well.
And this FCC dip in this dip in cap markets.
As more of a macro thing that will that will smooth out sooner or later so.
That's really how we're looking at it I was just very pleased with all of the uncertainty with the inflationary issues.
With the Ukraine situation.
All of our solutions.
They are fairly well, some outperformed ESG and GSR and DRC all outperformed in that environment and are continuing to grow.
So long term were very positive.
In fact, those over performance is made up.
Over half the difference that we had seen in terms of a drop off in the FCC in the cat market. So overall I was pleased with the quarter in light of what the macro economic situation was so.
Yeah.
That's helpful. Thanks, and then just as a follow up on ECS.
The UK had allowed companies to comply at least six months later than the rest of the EU are you seeing any any difference or pickup in conversations UK customers recently, thank you.
Yes.
That's.
Our fourth area of focus for both.
Our European team and the new <unk>, we're both focused on U K.
Get as many of those logos as we can as well so.
And we're seeing activity there obviously.
It's the largest ETF market and as you mentioned it was delayed so it actually was helpful that it was delayed we could focus on the other ones and then pivot to that so.
A lot of activity.
Okay.
Anything further Mr. Mears.
Thanks, So much that was all I appreciate the help.
Thank you, we'll move on to Andrew <unk> with Baron Berg.
Okay.
And Mr. <unk>. Your line is open if you still have a question.
Can you hear me.
Yes, we can now okay. Thanks just.
Just had a question on FCC solutions I think you mentioned that was impacted this quarter just wondering.
I guess I assume that that the financial reporting product, specifically would see some conversion upside given some of those companies went public I was just wondering if you can elaborate how that went in Q1 and if you still think that will potentially accelerate over the next few quarters.
I guess when you say accelerate you mean.
Do you mean continue to decline or to or to.
Exactly you start pick up yes.
First off.
The.
The decline in FCC was a result of just a lack of new filers, we did well on new logo basis from.
The existing base and from the customers that have gone public recently, so we did well there but.
You typically don't plan for a 95% reduction in capital markets activity in one quarter like we saw so.
All in all I was pleased with the FCC in terms of the environment. We were in the team did well and we saw good activity there got a significant number of new logos. So.
But when you take out a completely take out the new segment of it is it's hard to make that up.
Do I see that continuing well I mean, we will continue to perform well in FCC and we won't we won't perform where we want to until until the cat market comes back some it doesn't even have to come back anywhere near where it was weak.
We plan for a certain number of new companies every year in our forecasting and but again the pivot back to my point, we're really pleased to other solutions, we made a past the ground in terms of.
Any.
The reduction in <unk>.
Those two solutions so from my point of view to see those.
Early Pam solutions do so well in such a bad environment was really really positive for us. So.
Thanks, and then.
On the ESG.
And I know in Q4, you had said this was a top four solution just wondering Kevin probably the core product price was lower this quarter. Just wondering is have you seen even more activity in Q1, particularly with the SEC.
Comments now comment period not underway.
And maybe.
On that topic when you when you think about how potentially to package it alongside financial reporting.
How do you how should we think about that let's say fast forward to when this ruling comes out.
Well.
Yeah activity.
<unk> is very positive I mean, we're seeing the pipeline grow very fast.
We had a good quarter, although Q1 is always slower as you know, but we had a good quarter in the.
And our ESG solution.
And we're very optimistic this year in terms of how that solution will grow.
Obviously the SEC.
Proposal is very exciting to us because at some in some way shape or form everybody is going to have to when that's finalized.
Everyone's going to have to comply.
So we will package it different ways clearly right now we're looking at potentially three different <unk>.
Packaging configurations to.
Depending on where people are in their journey their ESG journey and the size of the company and what is more material than in other industries. So.
Yes, we're seeing a lot of activity and.
Obviously the SEC.
Proposal is exciting for us because it would mean every customer would have to do something at some level. So that's something that we'll see how it plays out but right now we're very optimistic.
Great. Thank you.
We'll hear now from Mike Grondahl with Northland Securities.
Yes.
Did you just as it relates to Mike.
Hi, parse part Russell.
Roughly what was 2021 revenues.
And of those 800 plus clients.
How many do you think.
So we're kiva.
Solution into.
Kind of what percentage of that 800 is a good target for you.
The revenue I'm reluctant to comment on because we're still you know they were on a cash accounting basis, and we're still converting to <unk>.
U S GAAP so.
Obviously, we'll give you all of that in Q2, but the end of Q2, but.
In terms of how many of those we convert.
The number that we're looking to have somewhere between a third and a half we would convert over the next several years.
And Thats, just primarily based on looking at the size of the companies that they have and are in their customer list and.
And then assuming some percentage of that.
The larger companies would eventually.
Bioware Kiva solution so yes.
Yes, we're very optimistic that it will be a really good source of opportunities for our platform and we have a direct way to get into there were already a customer so.
And the <unk> team has a very high customer satisfaction. So we're very.
Said that was one of the primary reasons, we did the deals have access to all of those customers.
Sure.
Have you started calling on them or when does that kind of start.
That'll start this quarter, we started to make some initial touch.
Touch points, but when you acquire a company there's a lot of stuff you go through the land them and get them acclimated.
And then start to communicate with customers what that means to them and so.
We're doing a lot right now just.
Actual meeting the system and.
And so we will start in there also.
Selves are in heavy logo.
Acquisition mode right now so we will start doing that.
Towards the end of this quarter and next quarter, we will start aggressively looking at.
How we go after those customers.
Got it okay. Thank you.
And once again, if you do have a question that will be star one at this time, we'll move now to Brad Reback with Stifel.
Great. Thanks, very much so if I look at the $5 35 mid point of the range Guide can you give us a sense on what the capital market's expectation is in so much as do you expect it to return to some level of growth here in the back half of the year or is that more of a 'twenty three occurrence at this point.
I think we're planning on it.
Moderator some in the last quarter of the year.
I don't anticipate it coming back to even third of where it was at the end of last year. So that's what we've worked into the forecast now.
Pretty concerned.
Frankly, yes, just so we're clear when you say moderating moderating increase or continuing to decline.
Okay.
The moderating increase.
I mean.
The way I do I, just talked to a lot to the.
Investment bankers, what Theyre seeing and there is a sense that companies will start going public again in September we will see.
It depends on a lot of issues, we can't predict right now, but that's how we modeled it.
Great. Thank you very much.
Uh huh.
And with no other questions at this time I would like to turn things back to our presenters for any closing remarks.
Yeah.
Thank you all for joining.
Yes.
And that will conclude today's conference. Thank you all for joining US you may now disconnect.
Please wait the conference will begin shortly.
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Yes.
Okay.
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