Workiva Inc. (NYSE:WK) Q4 2024 Earnings Conference Call February 25, 2025 5:00 PM ET Company Participants Katie White - Senior Director, Investor Relations Julie Iskow - Chief Executive Officer Jill Klindt - Chief Financial Officer Conference Call Participants Rob Oliver - Baird Alex Sklar - Raymond James Dominique Manansala - Truist Adam Hotchkiss - Goldman Sachs Daniel Jester - BMO George Kurosawa - Citi Jake Roberge - William Blair Operator Good afternoon, ladies and gentlemen. My name is Nick, and I wil ...

Workiva Inc. Investor Presentation February 25, 2025 Safe Harbor This presentation includes forward-looking statements. All statements contained in this presentation other than statements of historical facts, including any statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words "may," "will," "could," "would," "should," "expect," "plan," "assume," "anticipate," "intend," ...

Revenue Growth - Workiva's total revenue increased to $738.7 million in 2024, up 17.2% from $630.0 million in 2023[236] - Subscription and support revenue reached $667.6 million in 2024, reflecting a year-over-year increase of 19.5%[249] - Total revenue for 2024 increased by $108.6 million, or 17.2%, to $738.7 million compared to 2023, driven primarily by a $109.0 million increase in subscription and support revenue[268] - Subscription and support revenue accounted for 90.4% of total revenue in 2024, up from 88.7% in 2023[267] - Total revenue for the year ended December 31, 2024, was $738.68 million, a 17.2% increase from $630.04 million in 2023[338] - Subscription and support revenue increased to $667.65 million in 2024, up 19.5% from $558.65 million in 2023[338] Customer Metrics - The number of customers grew to 6,305 in 2024, compared to 6,034 in 2023, indicating a steady increase in customer base[249] - The total number of customers increased by 4.5% from December 31, 2023, to December 31, 2024, indicating continued demand for the company's services[268] Retention Rates - The gross retention rate was 97.4% as of December 31, 2024, down from 97.9% in 2023, while the net retention rate improved to 111.9% from 110.3%[251][253] - Workiva's annual contract value (ACV) metrics showed that 71.2% of subscription and support revenue came from customers with an annual contract value of $100k+, up from 66.3% in 2023[255] Employee Growth - The company expanded its full-time employee headcount to 2,828 in 2024, a 12.0% increase from 2,526 in 2023[236] Financial Performance - The net loss for 2024 was $55.0 million, an improvement from a net loss of $127.5 million in 2023[266] - Gross profit margin improved to 76.7% in 2024 from 75.6% in 2023, reflecting better cost management[267] - Operating expenses rose to $643.16 million in 2024, up 12.7% from $570.34 million in 2023, driven by increased research and development and sales and marketing costs[338] Investment and Expenses - Research and development expenses rose by $20.1 million, or 11.7%, to $192.9 million in 2024, mainly due to increased compensation and professional service fees[271] - Sales and marketing expenses increased by $60.2 million, or 21.0%, to $347.2 million in 2024, driven by higher compensation and marketing costs[272] - General and administrative expenses decreased by $7.5 million, or 6.8%, to $103.0 million in 2024, primarily due to lower stock-based compensation[273] Cash Flow and Liquidity - Cash flow from operating activities for the year ended December 31, 2024 was $87.7 million, an increase from $70.9 million in 2023[280][282] - As of December 31, 2024, the company's liquidity sources included cash, cash equivalents, and marketable securities totaling $816.4 million[276] - The company's cash and cash equivalents increased from $256.1 million in 2023 to $301.8 million in 2024, representing an increase of approximately 17.8%[334] Debt and Financing - The company issued $702.0 million of 1.250% convertible senior notes due 2028, with net proceeds of $691.1 million, and used $396.9 million to repurchase $273.8 million of 1.125% convertible senior notes due 2026[277] - The board authorized a share repurchase program for up to $100.0 million of Class A common stock, but no repurchases had been made as of December 31, 2024[278] - Total contractual obligations as of December 31, 2024, amounted to $1,004.4 million, with $809.9 million related to convertible senior notes[288] Market and Economic Conditions - The company faces potential impacts on sales of sustainability solutions due to domestic and global policy uncertainties[238] Asset and Liability Management - The company's total assets increased from $1,218.9 million in 2023 to $1,368.5 million in 2024, marking a growth of approximately 12.3%[334] - The total liabilities increased from $1,308.3 million in 2023 to $1,410.2 million in 2024, which is an increase of about 7.8%[335] - The accumulated deficit grew from $652.6 million in 2023 to $707.7 million in 2024, indicating an increase of approximately 8.4%[335] Deferred Revenue - Deferred revenue increased from $380.8 million in 2023 to $457.6 million in 2024, reflecting a growth of about 20.2%[335] - Deferred revenue increased to $73.84 million in 2024, up from $60.11 million in 2023, indicating strong future revenue potential[348] Other Financial Metrics - Interest income increased by $13.5 million to $39.4 million in 2024, attributed to a higher investment balance and interest rates[274] - The company recognized foreign currency transaction losses of $551,000 in 2024, compared to losses of $1,154,000 in 2023[302]

Revenue Growth - Subscription revenue grew by 22% in Q4 2024, contributing to total revenue of $200 million, a 20% year-over-year increase from $167 million in Q4 2023[5] - Total revenue for the full year 2024 reached $739 million, a 17% increase from $630 million in 2023[11] - Total revenue for Q4 2024 reached $199.889 million, a 19.9% increase from $166.653 million in Q4 2023[21] - Subscription and support revenue increased to $180.897 million, up 21.5% from $148.788 million year-over-year[21] - Guidance for full year 2025 projects total revenue in the range of $864 million to $868 million[11] Customer Metrics - Customers with annual contract value over $500,000 increased by 32% year-over-year, reaching 181 customers[7] - Workiva's gross retention rate was 97% and net retention rate was 112% as of December 31, 2024[6] Profitability and Loss - GAAP net loss for Q4 2024 was $9 million, compared to a net loss of $4 million in Q4 2023, resulting in a net loss per share of $0.16[6] - Non-GAAP net income for Q4 2024 was $19 million, up from $18 million in the prior year's fourth quarter, with non-GAAP net income per diluted share of $0.33[6] - GAAP net loss for 2024 was $55 million, significantly improved from a net loss of $128 million in 2023[11] - Net loss for Q4 2024 was $8.815 million, compared to a net loss of $4.196 million in Q4 2023, reflecting a 110.5% increase[21] - The company experienced a net loss of $8.815 million in Q4 2024, compared to a net loss of $4.196 million in Q4 2023[32] Cash Flow and Liquidity - Free cash flow for 2024 was $86 million, compared to $69 million in 2023, with a free cash flow margin of 11.7%[11] - Net cash provided by operating activities for Q4 2024 was $43.970 million, compared to $24.342 million in Q4 2023, a 80.7% increase[25] - Free cash flow for Q4 2024 was $43.161 million, up from $23.950 million in Q4 2023, marking an increase of 80.5%[32] - Cash and cash equivalents as of December 31, 2024, were $301.835 million, up from $256.100 million in 2023[23] - Cash, cash equivalents, and restricted cash at the end of the period increased to $302.350 million in Q4 2024 from $256.721 million in Q4 2023, a rise of 17.7%[30] - Workiva had cash, cash equivalents, and marketable securities totaling $816 million as of December 31, 2024[6] Operating Expenses - Operating expenses for Q4 2024 totaled $167.520 million, a 21.1% increase from $138.281 million in Q4 2023[21] - Research and development expenses for Q4 2024 were $50.607 million, up from $42.555 million in Q4 2023, reflecting an increase of 18.4%[30] Deferred Revenue and Assets - Deferred revenue increased to $457.608 million in 2024, up 20.2% from $380.843 million in 2023[23] - Total assets increased to $1.368 billion in 2024, compared to $1.218 billion in 2023, marking a 12.3% growth[23] Margins - The GAAP operating margin for Q4 2024 was reported at (6.6)%, an improvement from (5.6)% in Q4 2023[32] - Non-GAAP operating margin for Q4 2024 was 7.4%, slightly down from 7.6% in Q4 2023[32] - The company provided guidance for a GAAP operating margin of (14.3)% for the year ending December 31, 2025[34] Stock-Based Compensation - The company reported stock-based compensation expense of $26.271 million for Q4 2024, an increase from $20.736 million in Q4 2023[25] Gross Profit - Gross profit for the year ended December 31, 2024, was $566.625 million, representing a 19.1% increase compared to $475.817 million in 2023[21] - Gross profit for subscription and support increased to $148.693 million in Q4 2024, up from $123.675 million in Q4 2023, representing a growth of 20.2%[30] - Non-GAAP gross profit for subscription and support reached $151.880 million in Q4 2024, compared to $124.973 million in Q4 2023, reflecting a 21.5% increase[30]

Stock Performance - Workiva stock experienced a significant sell-off, dropping 13 3% in Wednesday's trading, while the S&P 500 gained 0 6% and the Nasdaq Composite climbed 1 2% [1] EU Policy Impact - Germany and France are considering changes to the EU's sustainability reporting standards, which could impact Workiva's growth outlook as this category has been a significant part of its business [2] - The EU's Corporate Sustainability Reporting Directive (CSRD), effective since January 2023, requires companies to report on non-financial metrics, and Workiva provides a platform for this purpose [3] - Potential shifts in EU reporting requirements could lead to a significant sales shortfall for Workiva, as investors are concerned about the softening of one of its anticipated growth drivers [4] Future Outlook - Workiva will release its fourth-quarter earnings and host a conference call on February 25, where it may provide updates on its performance outlook in the EU and potential changes to CSRD reporting requirements [5] - The market may be overreacting to reports of possible policy shifts, as the extent of EU policy changes and Workiva's exposure to them remain unclear [6]

Investment Recommendation - The recommendation for Workiva (NYSE: WK) is a buy rating due to its potential to benefit from multiple secular tailwinds that support high-teens revenue growth in the next few years [1] Investment Approach - The investment approach focuses on long-term investments while incorporating short-term strategies to uncover alpha opportunities [1] - The analysis is bottom-up, emphasizing the fundamental strengths and weaknesses of individual companies [1] - The investment duration is medium to long-term, aiming to identify companies with solid fundamentals, sustainable competitive advantages, and growth potential [1] Analyst's Position - The analyst has no stock, option, or derivative positions in any of the mentioned companies and no plans to initiate such positions within the next 72 hours [2] - The article expresses the analyst's own opinions and is not influenced by compensation or business relationships with the mentioned companies [2]

Market Overview - The year-end rally in November and early December has been nearly unprecedented, driving the S&P 500 to new heights almost daily [1] Analyst Insights - Gary Alexander has extensive experience covering technology companies and has been involved with seed-round startups, providing insights into current industry themes [1]

Core Insights - Deloitte and Workiva have launched four new sustainability-focused accelerators aimed at helping organizations comply with the EU's Corporate Sustainability Reporting Directive (CSRD) [1][2] - The accelerators enhance governance, risk, and compliance (GRC) controls and automation within the Workiva platform, facilitating compliance with CSRD and other EU regulations [2][3] Group 1: New Accelerators - The new accelerators include the CSRD Double Materiality Accelerator, Financed Emissions Calculator, ESRS Mapping Accelerator, and Activity Log Analyzer [3] - The CSRD Double Materiality Accelerator is designed to streamline the implementation of double materiality assessments [3] - The Financed Emissions Calculator helps organizations calculate Scope 3 financed emissions using the PCAF framework [3] - The ESRS Mapping Accelerator enables faster gap assessments by mapping existing GRI disclosures to ESRS requirements [3] - The Activity Log Analyzer tracks user activities on the Workiva platform, aiding in monitoring ESG activities [3] Group 2: Market Demand and Trends - There is a growing demand for comprehensive platforms to manage ESG reporting and regulatory compliance due to an expanding global regulatory environment [3] - 88% of institutional investors prioritize companies that effectively integrate financial and ESG data, indicating a shift towards transparency in sustainability practices [3] Group 3: Company Background - Workiva is a leading cloud platform provider for integrated reporting, combining financial, GRC, and ESG data in a secure environment [4][5] - Deloitte offers a wide range of audit, consulting, tax, and advisory services, serving nearly 90% of the Fortune 500 and over 8,500 U.S.-based private companies [6]

Core Viewpoint - Workiva is experiencing a significant disconnect between its stock performance and the overall bullish sentiment from analysts, with a strong focus on its growth potential in the software sector, particularly in ESG reporting [1][3][14]. Company Overview - Workiva offers a unique portfolio of software products designed to streamline data aggregation and reporting, which are increasingly critical for businesses [2][4]. - The company's stock has declined by 4% this year and is down 42% from its all-time high in 2021 [2][16]. Business Growth and Financial Performance - Workiva reported a record revenue of $186 million for Q3 2024, marking a 17% increase year-over-year and an acceleration from 15% growth in Q2 [9]. - The company raised its full-year revenue forecast for 2024 by $6 million, now projecting between $733 million and $735 million [9]. - The number of businesses served increased by 4.9% year-over-year, with a notable rise in high-spending customers [10][11]. - Operating expenses increased by only 10% in the first nine months of 2024, leading to a reduced net loss of $46.2 million compared to $123.3 million in the previous year [12]. Market Position and Analyst Sentiment - The majority of analysts covering Workiva have assigned it the highest buy rating, with no sell recommendations [3][14]. - The average price target for Workiva's stock over the next 12 months is $104.3, indicating a potential upside of 14.3% from its current trading price of $91.49 [15]. - The stock's price-to-sales ratio has decreased to a more reasonable 7.1 from around 20 during its peak, reflecting improved valuation amidst consistent revenue growth [16]. Future Growth Potential - Workiva is focusing on ESG reporting, which is a rapidly growing area due to increasing regulatory requirements globally [7][8]. - The company estimates a financial opportunity of $35 billion across various reporting sectors, while its current market capitalization stands at $5.1 billion, indicating substantial growth potential [17].

Core Viewpoint - Workiva reported quarterly earnings of $0.21 per share, missing the Zacks Consensus Estimate of $0.23 per share, but showing improvement from a loss of $0.65 per share a year ago, indicating a significant recovery in earnings despite the miss [1][2] Financial Performance - Workiva's revenues for the quarter ended September 2024 were $185.62 million, exceeding the Zacks Consensus Estimate by 1.71% and up from $158.18 million year-over-year, demonstrating consistent revenue growth [2] - Over the last four quarters, the company has surpassed consensus revenue estimates four times, indicating strong performance in revenue generation [2] Stock Performance - Workiva shares have declined approximately 18.8% since the beginning of the year, contrasting with the S&P 500's gain of 21.2%, highlighting underperformance relative to the broader market [3] - The current Zacks Rank for Workiva is 3 (Hold), suggesting that the stock is expected to perform in line with the market in the near future [6] Earnings Outlook - The consensus EPS estimate for the upcoming quarter is $0.34 on revenues of $192.22 million, and for the current fiscal year, it is $0.95 on revenues of $727.91 million, indicating positive expectations for future performance [7] - The trend of estimate revisions for Workiva is mixed, which could change following the recent earnings report [6] Industry Context - The Internet - Software industry, to which Workiva belongs, is currently ranked in the top 24% of over 250 Zacks industries, suggesting a favorable industry outlook that could positively impact stock performance [8]