Workiva Inc.
Q1 2020 Earnings Call Transcript

Published:

  • Operator:
    Ladies and gentlemen, thank you for standing by, and welcome to the Workiva Inc. First Quarter 2020 Earnings Conference Call. . I would now like to hand the conference over to your speaker today, Adam Terese.
  • Adam Terese:
    Good afternoon and thank you for joining us for Workiva's First Quarter 2020 Earnings Conference Call. Today's conference call is prerecorded. This afternoon, we'll begin with comments from our Chief Executive Officer, Marty Vanderploeg, followed by our Chief Financier, Stuart Miller. A replay of this call will be available until May 7. Information to access the replay is listed in today's press release, which is available on our website under the Investor Relations section.
  • Martin Vanderploeg:
    Thank you, Adam, and thanks to everyone for joining the Workiva first quarter 2020 conference call. Our hearts go out to the people directly affected by COVID-19, and we are grateful for the essential workers and community leaders around the world who are on the front lines. At Workiva, we are doing everything we can to protect our employees and their families during this difficult time. We are grateful that all of our employees are able to work from home and that we are able to fully compensate the small number of employees who do not have roles outside of our physical offices. To keep our team connected and focused, I host a weekly live stream Q&A to offer updates, insights, advice and support to all employees. As a cloud-based technology company with a highly distributed workforce, the shift to work from home has been smooth for us. With cloud platforms and digital channels, it's been mostly business as usual. We continue to deliver the highest levels of performance, availability and security. Our technology, global infrastructure and operating model, along with our 24/7 customer support, enable our customers to work from home in a controlled, secure environment with their most sensitive data. This ability to work from anywhere is becoming the new baseline. We believe that Workiva will be a key player in this broad-based shift to remote work, which will drive increased demand for our reporting and compliance platform for years to come. Workiva entered this global crisis from a position of financial strength. We believe we are in a stronger, more flexible financial position now than ever before, including nearly $500 million in unrestricted cash and short-term investments.
  • Stuart Miller:
    Thank you, Marty. I'll comment on our financial position, review our business model and then explain at a high level why we beat our Q1 guidance. Next, I'll discuss Q1 2020 results versus Q1 last year and finish with forward guidance. We believe Workiva is well positioned financially to weather the storm from COVID-19. Indeed, we believe Workiva has never had a stronger or more flexible financial position than we do now. At March 31, Workiva had $496 million of unrestricted cash and short-term investments. The first maturity on our funded debt occurs in more than 6 years. Our debt obligations have no restrictive financial covenants. We believe our business model mitigates many of the challenges posed by COVID-19 for 6 reasons
  • Operator:
    . And your first question will come from the line of Brian Peterson with Raymond James.
  • Alexander Sklar:
    This is Alex Sklar on for Brian. Marty, first one for you. This is in your prepared remarks, but can you just talk more about the resiliency of Workiva's platform and a work-from-anywhere environment? And with that, I think you talked about demand potentially picking up. Are you already seeing that in the current environment, catalyzing greater number of conversations or leads? And then I had a follow-up for Stuart.
  • Operator:
    Adam, are you still online?
  • Adam Terese:
    Yes.
  • Stuart Miller:
    Your phone is muted, Marty.
  • Alexander Sklar:
    Maybe I'll pass one for Stuart here while...
  • Stuart Miller:
    Yes, sorry, Marty's phone was muted.
  • Alexander Sklar:
    Yes, okay.
  • Stuart Miller:
    Go ahead.
  • Alexander Sklar:
    All right. Well, I guess, just talk about the visibility on the backlog. The RPO growth this quarter, especially in light of the commentary you gave on the March late stage pipeline. Is there any reason from a Workiva standpoint that you wouldn't be able to implement or go live on any portion of that next 12-month balance? Understanding customers may ultimately push timing, but just curious on your own ability to meet all that backlog.
  • Stuart Miller:
    No, I don't think there's any restriction from our perspective on that. Most of the onboarding we do or virtually all the onboarding we do is remote anyway. Did you hear me, sorry?
  • Alexander Sklar:
    Yes, yes. And then did we lose Marty on the first question?
  • Stuart Miller:
    Yes. I think he's trying to dial back in.
  • Alexander Sklar:
    Okay. Well, maybe another one for you then, Stuart. On the backlog growth, it accelerated some even with the...
  • Stuart Miller:
    I'm sorry. Say that again?
  • Alexander Sklar:
    Even with the commentary -- yes, the backlog growth accelerated on the full RPO, not just the next 12 months one, which is impressive, I think, given you're comping SBL last year. I just was curious if you'd call out any of your kind of 4 to 5 growth opportunities as having an outsized contribution?
  • Stuart Miller:
    Yes. I would say -- just to remind you on the RPO side, some of the growth there is due to our signing 3-year deals with 1 year to pay, and so that's picking up the -- that's accelerating on the RPO side. But we did show good deal size growth in Q1.
  • Operator:
    Next question is from the line of Rob Oliver with Baird.
  • Matthew Lemenager:
    It's Matt Lemenager on for Rob. So the question was in the 30 -- I guess it would be the 32 deals that got pushed or, I guess, returned to the pipeline, was there any recurring message or theme there? I realize it was COVID-driven, but it wasn't people -- the discretionary spend for maybe around CFO suite or accounting suite being kind of pushed to the back burner as kind of near-term, other IT trends took priority. Or just kind of looking -- is there any theme or message that happened in those 32 deals that got pushed?
  • Stuart Miller:
    Let me see if Marty is not -- still on, so I guess I'll place...
  • Martin Vanderploeg:
    Can you guys -- can anyone hear me now?
  • Stuart Miller:
    Yes, we can now, Marty. You want to take that one?
  • Martin Vanderploeg:
    Yes. It was on the right line. They didn't have me connected, I'm sorry, because I could hear everything, and same number. Anyway, I apologize everybody. Back to the resiliency question, the -- in 2008, when we started the company, we were very much focused on cloud in the very early days, and we said we were always going to make a 100% web tool, web- and a cloud-based tool. And we've heard tremendous number of positive things from our customers doing this as they all move to work from home. I think some of them had already been doing it, but everyone was able to achieve what they needed to in terms of activities that they were actually doing in our product. In terms of seeing lead, it's too early to say. We really -- I can't say for sure, but we have seen some upticks in definitely inquiries when a lot of our competitors have software that's on-prem. So it's early days, but again, I really believe that this will help us in the long run.
  • Stuart Miller:
    Marty, you want to comment on the Matt's specific question about the 32 logo -- the 32 deals that went back into the pipeline? Did you do you see any theme there on why they went back, why they were postponed?
  • Martin Vanderploeg:
    Well, I would say this. The end of March, everybody was in a state of shock, and everyone was trying to understand how it was going to affect their cash flow. There were two categories to those from my perspective. One was industries that saw an immediate drop in cash flow like airlines or even credit card companies, things like that, obviously, hospitality, those were put on hold indefinitely, and we have several of those occur. The second category was, very prudent, CFOs saying, "Hey, let's just put the brakes on new deals, anything we're spending that's new for the next 2 or 3 months to see how this all shakes out." And most of the stuff that we saw slip was in that category where they're just being prudent in saying, "Let's see what's going to happen. Obviously, none of us have ever seen anything like this and how it affects the economy." That shock is sort of settling out now, and we're starting to see a lot of activity. So we're optimistic that things are going to slowly come back to normal in terms of our sales process.
  • Matthew Lemenager:
    That's helpful, Marty. And then my other question would just be on -- for your sales quota-carrying folks, are you making any changes to, I don't know, things like expanding the amount of quota they're required to carry, just maybe assuming some of the close rates won't be as high, and so kind of to get to the numbers we thought maybe at the initial plan that people need to carry more quota. Or any changes around that to kind of sales go-to-market?
  • Martin Vanderploeg:
    No, not yet. This is two months old. We're two months we're into this. And so we are -- we're not going to do anything knee jerk. We're watching what's happening. We're happy with our pipeline right now. But again, no one's been through anything like this. So we just don't know how it's going to play out. But we don't have any plans to make any dramatic changes to our sales team or the size of their patches or our quotas.
  • Operator:
    Your next question is from the line of Terry Tillman with SunTrust Robinson.
  • Terrell Tillman:
    I do appreciate also the extra color that you all added this quarter as it relates to the sales activity and pipeline. So that was helpful. I appreciate it. First question just related to -- you all had an announcement a couple of weeks ago as it relates to sales leadership change, Scott Ryan leaving or resigning. It looks like Julie is taking over more responsibilities. So what I was curious is if we could just learn a little bit more about the decision-making and what catalyze that. And I think in that press release, it talked about broader sales leadership changes and a focus on sales efficiency. So would just love some more color on what exactly happened and kind of the driver of it?
  • Martin Vanderploeg:
    Sure. If you recall, when I got the CEO title here a little over 1.5 years ago, I was the acting Chief Operating Officer at the time. And that happened rather abruptly, and we knew that eventually we wanted a new COO. That's what we wanted. And so this is sort of the manifestation of going back to that traditional model of having a COO and not a Chief Revenue Officer. And a company our size clearly doesn't need both. The second thing is we brought Scott in to really upgrade -- we were a transactional company, smaller deal size. And we really brought him in to bring us up that deal size ladder in terms of the talent, sales process and the skills of the sellers. And he did a good job of getting us substantial improvement there. He also brought in a lot of other managers and helped bring some of our other managers up the learning curve, and also brought in a leader for services when he was CRO. And then when Julie came in and sort of got her legs, we realized that it was -- we had one extra layer and really didn't need both titles. At the same time, Scott had said that he had been in the sales leadership job a long time, want to take a short break and maybe look for another company where he could do the same type of thing he did for us. So we -- it was a joint agreement to have him move on, and we worked out a joint deal. And we're not replacing him, as we mentioned. A couple of other sales leaders also were -- left the company, and we feel we have a very lean and very good sales management team now. We really didn't need the excess layers. But Scott really brought us along to a good place, and it was a good time in terms of being efficient at the top of the org.
  • Terrell Tillman:
    Okay. And I guess, Stuart, a follow-up question, just relates to the 111% revenue retention in the quarter. For 2Q, kind of any perspective directionally on how to think about that? And even for the full year, again, I know you're not giving guidance for the full year. But just how to think -- or what would be a base case for a revenue retention as you see it?
  • Stuart Miller:
    So as you indicate, we don't give guidance on that number. It's -- as you know, it's a buildup that includes add-on solutions and price increases, and it's net of solution churn. So we were pleased with the number that we posted in Q1, and we're pleased with the pipeline of new deals, both new logos and add-on sales. And as we indicated, we don't have visibility on when those deals are going to close. As I indicated in my remarks, second quarter, we have such great visibility on revenue, as you know, because of the business model that we felt comfortable giving guidance on Q2. But until COVID duration and depth is greater visibility, we're not going to have visibility on closing new deals at the end of Q2 or Q3.
  • Operator:
    Your next question comes from the line of Stan Zlotsky with Morgan Stanley.
  • Sarah Quander:
    This is Sarah on for Stan. Kind of following up on your prior comments. In the past, you viewed growth as being balanced between new logos and add-on sales. And I was wondering to what extent is this still kind of your growth equation? Or in reaction to COVID, are you seeing it leaning towards one or the other?
  • Martin Vanderploeg:
    I really don't see a change there. I think we're still going to see about 50-50 of add-on sales and new logos. And I think that a lot of the new logo activity or more of it will be in Europe, but I still see a lot of new logo activity in North America as well. So we really think it's going to remain about a 50-50 clip.
  • Sarah Quander:
    Got it. And then a quick follow-up. Are you seeing any customers asking to come back and essentially downsize their contracts or adjust payment terms in reaction to your business reacting to COVID?
  • Stuart Miller:
    Yes. We haven't seen too much of that, honestly. We're aware of the -- we certainly watch our renewal activity and track who's in what industry that might be affected. But so far, that hasn't been a big issue.
  • Operator:
    Our next question is from the line of Tom Roderick with Stifel.
  • Thomas Roderick:
    Glad to hear you guys are both doing well, and the team is staying as healthy as it can be. So it's a great start with where we're at right now. I would love to chat a little bit more -- I apologize, I had a little trouble getting in the call. So you may have addressed it in the first few minutes, Marty. But relative to the European expansion plans, opportunity is still there. I'm guessing your efforts at hiring people and looking at potential M&A targets with your solid balance sheet, I'm guessing that's probably been pushed back a little bit. But perhaps you can go into a little bit more detail about how you're tactically able to proceed in an area where you didn't perhaps have as many boots on the ground as you wanted, you're looking to hire. How much does that sort of set you back from a timing standpoint? And what's the urgency of customers over there to move forward with digital transformations in light of January 15, 2021, mandate?
  • Martin Vanderploeg:
    Well, yes, several aspects. First off, the -- yes, the M&A activity has definitely slowed. And as I've always said, we're going to be very careful doing acquisitions to make sure we get something that checks most of the boxes we're concerned about, but that has slowed. I would say that our ability to recruit people in EMEA has not changed that much. We're finding that we've been able to continue to recruit salespeople and the delivery people quite effectively there. We're a little bit behind, but it really wasn't a COVID thing. It's -- our EMEA team is very thorough when they hire, and they've got a very good track record of hiring good talent and having very low attrition. So I would say it's more about them being more careful and making sure we have the best people possible. And then in terms of our growth strategy, we're continuing in EMEA. We haven't slowed that at all, and we're seeing good reception from the customers. It's quite amazing, and our pipeline is growing at the exact rate we anticipated. So we're pretty pleased with EMEA, and we're going to continue to expand there. It's really greenfield for us in many ways. It's really greenfield in terms of how late we went into EMEA.
  • Thomas Roderick:
    Yes. Perfect. Got it. And then now that you've fully lapped the SBL impact in the model, and maybe more importantly, you've gotten -- your customers up on this sort of all-you-can-eat plan. How does that sort of roll through the way you think about churn? I mean customers now that they're sort of on this all-you-can-eat, that wouldn't seem like even if they have fewer employees, the number of seats they would utilize would go down. So I guess churn would be exposed to the usual suspects of bankruptcies and M&A and some of the things that Stuart talked about. But can you just sort of talk through churn as a concept going forward, and how that might differ from the past with your -- all your customers on SBL now?
  • Martin Vanderploeg:
    Well, going out of limb, I don't think SBL really affects churn. I think what's happened is we have given customers -- as we talked about before, the customers are always limited by the number of seats they had, and they would make careful decisions on when they'd expand. I think a lot of customers have expanded a number of seats. We've seen the number of users go substantially higher since we enacted SBL. So it makes it more sticky in general. I really haven't seen a decline of end users, and maybe that's something that will come as COVID goes through its life cycle here. But remember, we do stuff that's regulatory in general and stuff that's downstream in the reporting process. And it's really mission-critical or it's required by the government. So our churn -- I'm glad we're talking about this a lot because that's probably the thing that is -- we're most proud of, is we have a very low churn rate, and that just induces incredible stability in our financial model. So I'm really not that concerned about churn from an SBL point of view, and I don't think companies that are going to stay in business are going to look at us any differently after COVID.
  • Operator:
    You have a question from the line of Mike Grondahl with Northland Capital.
  • Michael Pochucha:
    This is Michael on for Mike. Maybe just one quick one on the FERC announcement yesterday. Can you give us a rough idea of just the number of logos in that space?
  • Stuart Miller:
    It's about 600, isn't it, Marty?
  • Martin Vanderploeg:
    Yes. I think it's 660, roughly, somewhere in there, mostly good-sized companies. And so -- and like we said in the press release, a lot of them our customers already ready, and they've been bugging us about whether we were going to do this. What we're finding is customers see more and more XBRL coming. It's coming all over the world for all the regulatory agencies, slowly but surely. And these -- our customers want us standardize on one platform to do all their XBRLs. So a lot of our SEC customers was pestering us about this, and we really didn't want to commit to it until FERC put out their taxonomy, which happened a couple of months ago. And then we went through the due diligence of understanding how it would affect our product and our go-to-market. But we're really well positioned, as we said in the press release, to take a significant amount of that market.
  • Operator:
    And there are no other questions at this time.
  • Adam Terese:
    Great. Well, thank you, everybody. We appreciate it.
  • Martin Vanderploeg:
    Yes, I think we're done, Adam. Thank you.
  • Operator:
    Thank you again for joining today's conference call. You may now disconnect.

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