Behind The Numbers – Workiva (WK)

Workiva (WK) provides a cloud-based connected and reporting compliance platform that enables the use of connected data and automation of reporting across finance, accounting, risk, and compliance. Workiva’s primary product is Wdesk, a cloud-based enterprise SaaS platform that enables companies to collect, manage, report and analyze critical business data in real time. Wdesk also allows companies to manage and file financial and compliance documents to regulatory agencies. After the close yesterday, the company reported its Q2 results:

-EPS of ($0.06) vs ($0.15) estimate – Beat
-Revenue of $83.9M vs $80.6M estimate – Beat
-Revenue increased 14.1% Y/Y
-Subscription Revenue increased 16.9% Y/Y
-3,512 Customers vs 3,421 Y/Y
-Revenue Retention Rate of 94.5%
-716 Customers with ACV of >$100K, up 28% Y/Y
-342 Customers with ACV of >$150K, up 44% Y/Y

Stifel analyst Tom Roderick would raise his price target to $75 from $68 last night saying that with the shock and awe of the March quarter solidly in the rear view mirror, Workiva sounded a dynamically different tone on its earnings call. This tone change is roughly 180 degrees away from where the company was at when it issued Q1 earnings, where some 40 deals had slipped from planned Q1 closures and the return of demand seemed uncertain.

CEO Marty Vanderploeg would say that demand for the platform improved across all growth vectors, which include EMEA, Wdata and their platform solutions for Integrated Risk, Global Statutory Reporting and the U.S. Government. Their partnerships with technology companies and advisory firms remains an important catalyst for long-term growth and they are proud that three of the four largest advisory firms in the world are now Workiva partners. He also highlighted that that the company began to see a more predictable cadence to closing deals particularly in June and into July suggesting that their customers and prospects are settling into a new normal.

Mandate Delayed?

When we first discussed this stock in the Q1 Key Debates section, we talked about a particular European mandate. To be more specific, The European Securities and Markets Authority (ESMA) had established a mandate (effective after 01/15/2021) that requires all public companies in the EU to convert to a single electronic reporting format while submitting financial statements. The mandate is enforcing companies to change from PDF to Inline XBRL (iXBRL), meaning reports can be read and understood by both machines and humans.

Unfortunately, on the conference call last night, management would highlight one market development related to COVID-19 in which the Financial Conduct Authority, or FCA, has opened a consultation on whether it should delay the initial ESEF reporting deadline by year. In the Q&A session, when asked how their customers and potential customers over in Europe are thinking about this mandate, management responded, “We were using the mandate not as an opportunity to sell a point solution, but as an opportunity to get a meeting with the right people at the front end to sell the platform. And we’re seeing a lot of success with that. So we don’t see the potential delay slowing down that motion at all. So in fact, we’ve already made quite a bit of penetration into those accounts and broadened the discussion beyond the mandate.”

Stifel would also that as noted in their prior checks, they have gotten the impression that the mandate was being phased in gradually anyhow, and they think the bigger driver for WK in Europe around ESEF will be the conversation of digital transformation. “We see no reason why those conversations stall out, particularly as more and more finance department employees will be managing Connected Reporting on a work from home virtual basis. We believe that Europe is still gradually creating new growth opportunities for WK.”