Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Subscription revenue grew by 18% and total revenue by 15%, exceeding the high end of revenue guidance.
- Record quarterly bookings and a more optimistic market outlook led to an increase in full-year revenue guidance.
- Strong performance in ESG solutions, which was a top booking solution for eight consecutive quarters.
- Continued momentum in Europe, with significant wins in financial and ESG reporting.
- Launch of Workiva Carbon, supported by the acquisition of Sustained Life, to enhance ESG and sustainability platform capabilities.
Negative Points
- Professional services revenue declined by 8% due to a decrease in setup and consulting services revenue.
- Despite improvements, the company remains cautious about the macro and political environment affecting future bookings.
- Net revenue retention rate decreased to 109%, indicating some pressure on expansion within existing accounts.
- The updated long-term financial model includes a lower medium-term operating margin target, reduced from 22% to 16%.
- The acquisition of Sustained Life, while strategic, is not expected to significantly impact revenue in the short term.
Q & A Highlights
Q: Julie, Jill and Mike, congratulations on the improved bookings. I think you said record bookings, if I'm not mistaken. I had a question on the midterm model. So for 2027, I don't think I have this mistaken, but I think at one point, you all had kind of a flag in the ground in terms of $1 billion in revenue. Does that still hold? And then this is a pretty meaningful increase in the sales and marketing investments. Are you committed to growth acceleration or any more you could share on kind of how you could see growth accelerate into '27?
A: (Julie Iskow, CEO) First, yes, you heard right. It was a record bookings quarter for us. Indeed, even though it was a Q2 quarter. And yes, we are committed to the numbers around that $1 billion, so we've not changed that. We will be above $1 billion.
Q: Okay. Well, kind of related to the first question though, Julie, just relates to these increased growth investments. I mean, how quickly could you see an inflection or reacceleration in subscription revenue like before '27? Any more color there? And I did have a follow-up on carbon.
A: (Julie Iskow, CEO) Sure. We do expect the acceleration of the revenue. I mean, we are focused on growth. We aspire to get back to the high teens 20% subscription revenue in the future. We're selling a differentiated solution into a large, relatively unaddressed TAM. We are also hopeful we'll see a return to cap markets, continued adoption of our ESG software to address new regulations and stakeholder demands and just an overall improved software spending environment. So the answer to your question is yes, we expect to see an acceleration towards the 20%.
Q: Sounds good. And I guess on carbon, so congratulations on the unveiling of that. Just any more color you could share in terms of what kind of economics you could get with that, whether it's an installed base deal or a new customer deal? And really, what would be the first metric we would see, is it 100,000 customers, 150, 300? Just anything where we could foresee a KPI where this is reflecting success.
A: (Julie Iskow, CEO) I can let Jill talk numbers. We're going after direct carbon revenue, and that's the main metric. We talked about it being a platform play being very strategic for us. We believe it will make our ESG solution and our assured integrated reporting platform, again, even more relevant. So the goal is to expand on our sales momentum and further capitalize on ESG and the market opportunity on the platform. Very early now to tell and probably give numbers on exactly what you're asking around. But the why for carbon is there's a market demand, a growth opportunity aligned well with our strategy of assured integrated reporting.
Q: Julie, for you first. Just I was wondering if you could expound a little bit on the improvement in the buying environment, if there were particular sectors that were drivers? And what was it that caught your attention? Were there deals that have lingered in the pipeline that suddenly picked up steam? I think you mentioned some increased deal momentum, if I'm remembering properly around ESG. So just any color around that improved buying environment that you cite would be great.
A: (Julie Iskow, CEO) Sure. I'm glad you asked the question, Rob, because it's one with a different answer this quarter than we've had in recent quarters when the question has been asked. As I mentioned in the prepared remarks, we saw a healthy improvement in the buying environment. It was marked by broad-based demand across the entire solution portfolio. Again, record bookings quarter leads to optimism. And while we, yes, continue to see a soft IPO market, and we can't conclude the market is back, I mean, we saw some great platform deals closed, a few of which I highlighted on the call. We saw large contract customers increase multi-solution deals, platform plays. We just remain optimistic about the value we're delivering to our customers, and we're seeing our platform resonate in the market.
Q: Can you talk about how execution with your EMEA team has been trending this year? And just where customer appetite is for ESG reporting in Europe, just given the ramping CSRD requirements heading into next year?
A: (Julie Iskow, CEO) Sure, with pleasure. Our momentum continues to build in Europe. We had a very strong Q2, we're pleased with the momentum we're seeing. And as we mentioned last quarter, we're up now at 15% of revenue outside of North America, which is primarily Europe. Highlighted in my prepared remarks, we continue to have some signature wins there, multi-solution, six-figure deals with partners assured integrated reporting, that integrated report, it resonates. Our value proposition is resonating. So we continue to see the momentum. Now despite the progress, I will say we're still very open. We have been and continue to be about the need for improvement there, but we've got great sales leadership, we are getting our strategies in the various geos defined and executed on, and CSRD is absolutely showing some green shoots there, and we've had some early customer wins driven by the requirements. So very optimistic and momentum.
Q: Just on the net retention side, can you just parse out what you saw in the quarter from new customers versus back to base, it's great to hear about the improved buying environment, but we did see retention tick down again to 109. So any pressure to call out there on the expansion side? And then how should we think about that metric maybe moving into the second half?
A: (Jill Klindt, CFO) Yes. And this is one that it can move around a little bit, there's a little bit of noise, but we did call out in the prepared remarks that we had about 49% of our revenue came from new customers added in the last 12 months. That is higher than it has been in the past couple of quarters. So we did see over the past few months more newer customers adding into revenue, and this is always going to fluctuate around a little bit, but we're still very encouraged by what we saw in Q2, and we do think that we can continue to improve that in our metric.
Q: I'd be curious just to start, Jill, or I'm sorry, Julie, what you're seeing just more broadly on the demand side for ESG. I know we had previously talked about that ramping up relatively slowly. But now that we're approaching some of the first deadlines around CSRD, what's your view on just more broadly the adoption cadence that these companies are taking relative to the regulatory requirements? Are you hearing sort of broader-based global adoption cadences? Or are you hearing folks waiting until particular pieces of their business are subject to specific regulatory deadlines?
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
