Workiva Inc Q1 FY2024 Earnings Call

Good afternoon, ladies and gentlemen, and welcome to Workiva First Quarter 2024 Earnings Call. My name is Ellie, and I will be your host operator on this call. After the prepared remarks and prepared comments, we will conduct a question-and-answer session. Instructions will be provided at that time. I would now like to turn the meeting over to your host for today's call, Mike Rost, Senior Vice President of Corporate Development and Investor Relations at Workiva. Please go ahead.

Good afternoon, and thank you for joining us for Workiva's first quarter conference call. During today's call, we will review our first quarter results and discuss our guidance for the second quarter and full year 2024. Today's call has been prerecorded and will include comments from our Chief Executive Officer, Julie Iskow, followed by our Chief Financial Officer, Jill Klindt. We will then open the call up for a live Q&A session. A replay of this webcast will be available until May 9, 2024. 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 would 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 2024. These forward-looking statements are subject to known and unknown risks and uncertainties. Workiva 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 CEO, Julie Iskow.

Thank you, Mike, and thank you to everyone on today's call. Jill and I look forward to sharing our Q1 results. We'll also discuss our outlook for Q2 and updated guidance for the full year 2024. Q1 was another solid quarter. Subscription revenue grew at 20% and total revenue grew at 17%, which drove a beat to the high end of our revenue guidance. And operating margin came in slightly above the top range of our Q1 guide. In Q1, we once again saw broad-based demand across our solution portfolio. ESG was yet again one of our top solutions for new bookings, followed by strong execution in both our financial reporting and GRC solutions. Consistent with the past several quarters, we continue to see outpaced growth in our large contract customers, driven by additional solution sales into our installed base. In Q1, the number of contracts valued over $100,000 increased 24%. Those over $150,000 increased 29%, and contracts valued over $300,000 were up 34%, all compared to Q1 of 2023. Despite these positive proof points, we still saw a cautious buying environment. Nonetheless, I remain confident in our ability to successfully execute our growth strategy and advance our productivity initiatives. We have the strategy, the team, and the platform to deliver results. Our platform remains a key differentiator for our new logo wins and account expansion deals. Workiva is the only platform that brings financial reporting, ESG, and GRC together in one secure, controlled, audit-ready environment. We are the platform for assured integrated reporting. I'd like to highlight three integrated reporting wins that we signed in Q1. First, a top 10 U.S. bank expanded use of the platform with an investment in ESG. This was the 11th solution purchased by this bank. This eleven-year loyal customer was engaged with two big 4 advisory firms for an ESG transformation project. Workiva was the clear ESG solution of choice based on the connected value of the platform. The big 4 firm that's driving the CSRD transformation engagement at this bank will be delivering the project. Second, we signed a six-figure account expansion deal with a North American financial cooperative that added to their investment in Workiva with GRC. The purchase of the controlled management solution complements their previous investment in ESG, SEC, and financial services solutions. This company first purchased the Workiva platform for funds reporting in 2019. The opportunity with a co-sell with a big 4 advisory firm that was engaged in a GRC platform replacement at this company. The same big 4 firm will be providing delivery for this project. And third, we signed a four-solution new logo Assured Integrated Reporting deal with a Canadian-based real estate and asset management company. They purchased Workiva's management reporting, controls management, risk management, and ESG solutions. This was a true platform win. In this opportunity, there were multiple solution alternatives being evaluated for ESG, risk management, and controlled management. It was not just the strength of our individual solutions, but it was also the connected platform approach that made Workiva the clear winner. This opportunity was a co-sell with a regional advisory firm who will be providing delivery for the project. Let's move on now to one of our top booking solutions for seven quarters in a row. And yes, I said seven quarters. ESG. Sustainability continues to be front and center in board rooms and C-suites across the globe. Our sustainability solution is driving pipeline expansion and success in winning both new logos and account expansion deals. We already support sustainability reporting for some of the world's most complex companies, now including over 30% of the Fortune 100. I'd like to highlight three ESG wins from the quarter. First, a Fortune 50 telecommunications company purchased our ESG solution to support their global ESG reporting initiatives. This company has been a loyal SEC customer for four years. At the time of the initial purchase, they chose to continue their manual processes for sustainability reporting using office productivity tools. But with the new regulatory requirements on the horizon, including the CSRD in Europe, the company engaged a specialized ESG regional advisory firm that worked with Workiva on a co-sell for this deal. This partner will be providing delivery for the project. Second, we signed a six-figure new logo deal for ESG with a privately held European-based retailer. This opportunity was a co-sell with their trusted design agency, a Workiva partner that's been working with them on their integrated report for many years. Design agencies are an important stakeholder in the financial and sustainability reporting processes for many firms in Europe. So, the design reporting features available in our platform are a significant differentiator for CSRD deals, and they also provide an opportunity for these design firms to drive enhanced value to their clients. Our clients' long-trusted relationships with these design agency partners instill further confidence in the purchase of Workiva. In addition to the influence from the design agency, this opportunity was a co-sell and will be delivered by the big 4 firm. And third, we signed a multi-six-figure account expansion deal with a U.S.-based Fortune 500 global payments company for ESG. This customer also owns Workiva's SEC, controls management, risk management, policy and procedures, and management reporting solutions. Since this firm has more than 30% of its revenue outside of the U.S., our CSRD-related platform features for double materiality assessments were critical in the decision criteria for this client. This opportunity was a co-sell with a big 4 firm that will be providing delivery for this project. I'll now turn to financial reporting. Our financial reporting solutions go well beyond SEC. They also include multi-entity reporting, private company reporting, management reporting, ESEF, and industry-specific solutions. In Q1, financial reporting continued to contribute significantly to both new logos and account expansion deals. I'd like to highlight three financial reporting wins from the quarter. First, we closed a mid-six-figure new logo deal with a U.S.-based privately owned hedge fund. This was for our fund reporting solution. This deal was sourced and will be implemented by a regional advisory firm. We have seen an increase in private investment firms purchasing our fund solution now that they're subject to recent SEC regulatory disclosure requirements. Second, we closed a three-solution new logo deal with a South American bank. The bank purchased a multi-six-figure deal for SEC reporting, global statutory reporting, and ESG. This deal was sourced and will be implemented by a big 4 advisory firm. And third, an Australian bank invested in Workiva's platform as a new customer with a multi-solution platform purchase that included private company reporting, global statutory reporting, and ESG. Our financial reporting solution replaced their legacy reporting systems and was a competitive win over multiple ERP vendors. This opportunity was a co-sell with a big 4 advisory firm that will be providing delivery for this project. With increasing stakeholder scrutiny, establishing an integrated enterprise-wide governance, risk, and compliance program is a strategic priority for many organizations. At the core, GRC programs include processes for controls, risk, and audit management. I'd like to highlight three GRC deals that closed in Q1. First, an International Specialty Insurance and Reinsurance Group became a new platform customer with a multi-six-figure investment in our audit, controls, risk management, and SEC solutions. This opportunity was sourced by a big 4 firm that was actively working with the company on an outsourced GRC project. The company decided to bring the GRC work in-house and will use Workiva's platform to support their SOX, audit, and risk management processes. This project will be implemented by the big 4 advisory firm. And second, the European-based pharma and medical supplies company purchased our risk management solution to complement their ESG purchase to manage ESG risks. This new logo deal was a co-sell and will be implemented by a big 4 advisory firm. Workiva was selected as the vendor of choice in this competitive deal since we were the only solution to provide capabilities that address not only GRC-specific requirements but also supported their future CSRD reporting needs. And third, we signed a new logo deal with the European-based automotive parts manufacturer who purchased our audit controls and risk management solutions. This was a competitive deal against a GRC platform provider. The opportunity was sourced and will be delivered by a global professional services firm. I'll move on now to an update on global regulations. On March 6, the Securities and Exchange Commission announced that it adopted its long-awaited climate disclosure rule. This new rule is set to enhance and standardize the disclosure of climate-related data and associated financial risks. The goal is to provide investors with consistent, comparable, and reliable data in annual reports and registration statements. Since the announcement, there have been several legal challenges to the rule. Energy companies and business groups contend that the rules amount to environmental regulation and therefore, overset the SEC's legal mandate. On the other side, environmental groups, including the Sierra Club and Natural Resources Defense Council have countered that the rules don't go far enough. On April 4, the SEC announced that it exercised its discretion to stay the final rules pending our view in the eighth Circuit U.S. Court of Appeals. The SEC is just one of many stakeholders that organizations must factor in as they transform their sustainability data collection and reporting processes. As we've communicated in the past, regardless of regulatory mandates, companies have been purchasing and will continue to purchase software to report sustainability and financial information. The regulatory timing and enforcement in Europe is much clearer. As highlighted in several of our Q1 client wins, we're seeing CSRD requirements driving purchasing decisions in both the U.S. and Europe. Q1 did bring further clarity on the digital disclosure requirements for CSRD. On February 8, the European Financial Reporting Advisory Group, or EFRAG, announced its public consultation on the draft ESRS XBRL taxonomy. With the CSRD, the EU stated that it aims to bring sustainability reporting on equal footing with financial reporting. This includes requirements around digital disclosure using XBRL. The draft CSRD taxonomy published the first week in February will utilize the European Single Electronic Format, ESEF, which is already required for EU publicly listed companies in reporting their annual financial statements. The European Single Electronic Format, which is based on in-line-XBRL will be the same standard used for sustainability disclosures. Workiva is a global leader in XBRL and already supports over 1,200 organizations in their XBRL reporting using the ESEF format for annual financial disclosures. Similar to the process used for financial reporting, companies will have to tag their CSRD disclosures with a digital XBRL taxonomy, having a unique definition for every data point. This draft XBRL taxonomy has more than 1,000 data points with a wide range of types, including GHG emissions, water and energy consumption, head count, pollution, and the number of narrative disclosures. Workiva stands ready to serve our clients with these new XBRL requirements. In fact, Workiva clients already have the ability to explore and test this new CSRD XBRL taxonomy with their disclosure data. The publishing of this new XBRL taxonomy reinforces the requirement that financial and sustainability information will need to follow a consistent disclosure process. This is what Workiva does. And this is what Assured integrated reporting is all about. The sustainability regulations in Europe go beyond the CSRD. Just last week, the European Parliament approved the corporate sustainability due diligence directive, moving one step closer to formal adoption by the European Union. Referred to as the CS3D, this regulation will require companies to track and report the adverse human rights and environmental impacts of their operations and their value chains. It also requires that they put in place appropriate compliance measures. The directive applies to EU companies with more than 1,000 employees and a global revenue of over EUR 450 million. It also applies to non-EU companies generating that same amount of revenue within the EU, EUR 450 million. Companies will be required to integrate mandatory human rights and environmental due diligence into their policies and risk management systems. Companies that do not comply with the CS3D may face sanctions from national and administrative authorities, including fines of up to 5% of their global revenue. Let's move on now to platform innovation. In Q1, we continued to deliver new capabilities that address our customers' ever-changing requirements. Delivering features that enable our customers to comply with regulations that demand standards are released, and of course, well ahead of regulatory deadlines is a strong differentiator for Workiva. In Q1, we released enhancements to our ESG solution to support the draft ESEF XBRL taxonomy. These capabilities enable customers to explore the CSRD tagging requirements defined in the new ESEF standard that was released in February. We also released new features for financial reporting, including support for U.K. ESEF 2024 and additional country-specific tax disclosure taxonomies. We are a global leader in XBRL tagging, fast, efficient, and accurate. And yes, we've been using AI in our tagging for years. Speaking of AI, Q1 also saw the release of new enhancements to the generative AI capabilities that we launched last year. We've built AI into our platform, and we're delivering capabilities our customers can trust. In Q1, we released a new generative AI information assistant. It's available anywhere in the Workiva platform. It provides a conversational prompt to get details about our solutions, best practices, and enablement. This is just one example of delivering an AI solution that works for our customers, leveraging trusted data sources and providing immediate value. For the balance of 2024, we'll continue to focus R&D on the pace of product innovation, consistent execution, and enhancing our high-performing differentiated platform. You can expect to see continued development in response to the ever-changing requirements for ESG, more comprehensive GRC functionality, and enhanced capabilities throughout the platform to support our reporting and disclosure use cases. I'll move on now to say a few words about our guidance. Taking into consideration the current demand environment, we were pleased with our subscription revenue growth for Q1. With respect to our future outlook, Jill will provide the numbers for our updated revenue and profit guidance for both Q2 and full year 2024. What you'll see in this guide is that overall, we remain first and foremost focused on growth. Unlike other SaaS companies, we remain cautious on the top line as the current measured buying environment may persist until we see changes in market conditions. We are increasing our full year non-GAAP operating margin guide by over 100 basis points as a result of increasing operating leverage, and we remain committed to improving our productivity and performance. We are confident in the resiliency of our business, the continued demand for our assured integrated reporting platform, and our ability to expand in our large and relatively unaddressed TAM. Regulations around the world are increasing in both scope and complexity. Our customers are faced with greater investor scrutiny, more rigorous audit requirements, and an increased need to manage material risk and disclosures. Companies need transparency, compliance with regulation, and accuracy in reporting and disclosure. We provide solutions that companies need in both good times and challenging times. In closing, I'd like to thank our talented team of dedicated employees. Their commitment to our values and the way they support our customers, our communities, and each other has yet again earned us a spot on the list of Fortune's 100 Best Companies to work for, and it's our sixth consecutive year winning this award. Workiva again ranks in the top 50 on this list. This award celebrates the world-class culture we've created and maintained. Thank you to our customers, partners, and shareholders for your continued trust in Workiva. 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. With that, I'll now turn the call over to you, Jill.

Thank you, Julie. For our call today, I will discuss the financial performance and key metrics for the first quarter of 2024. After that, I will provide insights and guidance for Q2 and the full year 2024, followed by a Q&A session. As Julie mentioned, we exceeded our Q1 revenue guidance due to robust subscription revenue growth. We also achieved operating results at the upper end of our guidance, generating $6 million in operating profit, which is an 830-basis point improvement compared to Q1 2023. We reported total revenue of $175.7 million in the first quarter, reflecting a 17% increase from Q1 2023. Subscription revenue reached $155 million, an increase of 20% compared to Q1 2023. The growth is attributed to new customers and account expansions. New customers added in the past year represented 45% of the subscription revenue increase. Professional services revenue was $20.7 million in Q1 2024, remaining unchanged from the same quarter last year. A decrease in setup and consulting revenue was balanced by growth in XBRL services. We are progressing with our strategic plan to transition lower-margin setup and consulting services to our advisory and consulting partners. We expect revenue from setup and consulting services to continue to decline in 2024 compared to 2023. Regarding our performance metrics, we had 6,074 customers at the end of Q1 2024, an increase of 320 customers from Q1 2023. Our gross revenue retention rate was 98%, exceeding our internal target of 96%, and our net revenue retention rate rose to 111% in Q1 2024 from 109% in Q1 2023. We anticipate fluctuations in this rate due to factors like currency, seasonality, and solution mix of sales. In Q1 2024, 66% of our subscription revenue came from customers with multiple solutions, up from 63% in Q1 2023. We are encouraged by this trend as we strengthen relationships with our largest customers. This expansion is also evident among our large contract customers. In Q1 2024, we had 1,696 contracts valued at over $100,000 per year, a 24% increase from the previous year. Contracts worth over $150,000 numbered 961, rising 29% from Q1 2023, and contracts exceeding $300,000 totaled 332, up 34% year-over-year. Now, turning to our operating results, gross profit reached $136.5 million in Q1, an increase of 20% from the previous year. Gross margin improved by 220 basis points year-over-year, reaching 78% in Q1 2024, driven by better compensation leverage and lower cloud computing costs compared to the same quarter last year. Operating expenses rose by 8% from Q1 2023, resulting in a 610 basis point improvement in our margins compared to the prior year. Our emphasis on process automation and efficiency contributed to improved productivity and margin enhancements compared to Q1 2023. We reported an operating profit of $6 million in Q1 2024, in contrast to an operating loss of $7.3 million in Q1 2023. We were satisfied with the leverage we achieved. The improvement in operating profit was driven by revenue growth, disciplined investments, and controlled expenses. As of March 31, 2024, our cash, cash equivalents, and marketable securities increased by $25 million sequentially, bringing the total to $838 million. Operating activities in Q1 2024 generated $25 million in cash, compared to $6 million in the same quarter last year. Our free cash flow margin for Q1 2024 was 14%, an improvement of over 1,000 basis points from Q1 2023. Now moving on to our guidance for Q2 and the full year 2024. As Julie mentioned, the macroeconomic environment remains uncertain, and customer buying patterns are cautious. However, we remain focused on execution and are optimistic about opportunities for long-term growth. For Q2 2024, we expect total revenue to be between $174 million and $176 million. We anticipate a decline in services revenue compared to Q2 2023, driven by the shift I mentioned regarding our low-margin setup and consulting services to our partners, alongside flat to slightly decreased XBRL services revenue. We expect our non-GAAP operating income to range from $2 million to $4 million, with a net income of $0.16 to $0.19 per share. We expect approximately 55 million weighted average shares outstanding. Seasonality may impact our quarter-over-quarter revenue and expenses. Our Q2 2024 operating margin guidance reflects a seasonal decrease in XBRL services revenue and fluctuations in expenses. For the full year 2024, we expect total revenue to be between $709 million and $723 million and total services revenue to remain flat. We anticipate continued low single-digit growth in XBRL services revenue. For setup and consulting revenue, we expect a similar decline to what we observed in 2023. Our subscription revenue growth is expected to be just over 16% at the midpoint. We are raising our guidance for non-GAAP operating income to a range of $27 million to $31 million, or net profit of $0.96 to $1.03 per share. Our share count is expected to be around 55 million weighted average shares, and we anticipate a positive free cash flow margin of 11% for the full year 2024. To reiterate Julie’s comments, while we aim for growth, we are also looking for leverage in our business. With strategic investments, we believe we can achieve the best long-term returns. Before we move to the Q&A session, I want to highlight three key points. First, ESG reporting is becoming increasingly necessary, and our platform is well-positioned to help companies meet this requirement. Second, we are very pleased with the growth in our large accounts during Q1. Expanding within our existing customer base is vital for our growth and reinforces our customer relationships. Lastly, our emphasis on deriving leverage from existing resources has led to an increase in our full-year operating margin guidance. We are seeking efficient ways to grow in our large and relatively untapped total addressable market. In conclusion, I want to thank our employees for their dedication and passion, which has contributed to our recognition as one of Fortune's 100 Best Companies to Work For for the sixth consecutive year. It is your efforts that enable us to have a positive impact on our customers, partners, shareholders, and employees. We are now ready to take your questions.

We are now opening the floor for a question-and-answer session. Our first question comes from Steve Enders from Citi.

Okay. Great. I guess maybe just to start, I would like to hear what's going on with ESG conversations post the SEC clarification, and maybe some of the contestation there along with the CSRD. Like has the tone of those conversations changed or the drive to look for ESG solutions in the market? Just how has that kind of evolved over the past few months?

Sure. This is Julie. Thank you, Steve, for the question. I am sure it's on the minds of many. It's a great question given the visibility of ESG. The SEC did issue their climate disclosure rule and then put a stay on the rule a month later. We believe the publishing of the rule did provide companies with a lot of clarity on what will be required in detail to build a roadmap and how they'll have to comply. As you know, Workiva has 92% of the Russell 1000 as clients. So, we have a very healthy share of large accelerated and accelerated filers who are going to need to comply. Now, although they put the stay on the rule, the SEC has stated that it intends to vigorously defend the validity of the climate rules. The previous climate change-related disclosure guidance they cited a lot is still very much enforced. But you're right, nine cases were filed challenging that climate rule, and several cases on the other side, too — but we'll see what happens there with the lawsuits, and they're in the circuit court right now. But as we've communicated in the past, regardless of the regulations, regardless of the mandates, companies have been and are going to continue to purchase software to report sustainability and financial information. In the category of customers, yes, that we call box checkers or compliant companies, we do believe there may be some delay in purchasing, but we believe, again, the publishing of these rules will provide a lot of clarity. Again, we have 92% of that Russell 1000 clients, and we'll have a healthy share. So, from our perspective, the SEC is just one of the many stakeholders that organizations have to factor in here for sustainability data collection and reporting. So, we've not yet seen any withdrawal from that. We see, again, a lot of conversations happening. There's still California coming, even with CSRD in Europe and so forth. So, the conversations have not changed, given that law. There's just a lot of clarity on what it will be when it comes.

Okay. Great. That's helpful context there. And then maybe for — well, I guess maybe just on the outlook, especially on the margin side. I mean, pretty healthy raise there. I guess, how should we be thinking about maybe what has changed from prior assumptions? And maybe what line items would be seeing the most leverage here?

I mean, Jill, you can chime in. But essentially, we're focused on, of course, productivity. As we said, top line growth is incredibly important. That's our largest focus. We'll continue to do that. But as we've been talking about on calls prior, we have been pushing hard on being very thoughtful about the roles that we hire and the people that we hire in those roles, and that we have the right activities going on to go after our large, relatively unaddressed TAM. So, we are hiring well. We're being thoughtful about the way we use our teams. We've also talked about the efficiency and the productivity and the processes and automation that we're adding into the mix because we are moving from a $0.5 billion to a $1 billion company; things need to be done differently. So, there's a lot more rigor and discipline in the way we're working. So, again, efficiencies, automation, right people, and being thoughtful about the hiring.

Really, Steve, you're going to see that across the income statement. It's going to be across all teams where we have the same motion in place, exactly what Julie is talking about. So, it will be improvement across the board.

Our next question comes from Alex Sklar from Raymond James.

Great. I think I'm just going to follow up on Steve's last question there, Jill, in terms of kind of the revenue and profitability seasonality this year. Can you just talk about some of the puts and takes on what's driving the second quarter outlook, but the higher second half of the year outlook? Any more color you can give either on the subscription versus services split? Or is there anything you're seeing in terms of demand environment in the second quarter that might not impact 2Q, but hit in the back half of the year?

Sure. Thanks, Alex, for the question. So, for Q2, we did see — there is always seasonality, especially in services revenue, XBRL services revenue from Q1 to Q2. In Q1, we have a lot of work done related to the case, and that's a larger volume, large dollars than what we see for XBRL tanning services work in Q2. The other piece that we have talked about is that the macro environment does impact — has been impacting our bookings. We have seen those extended deal cycles, and especially Q1, seasonally has lower bookings for us than any other quarter in the year. Just looking at seasonality in SMS and in subscription revenue is what we're seeing in Q2. You saw for the full year and for the second half, we still very strongly believe that for the full year growth, and as you even out over each quarter, we still have very strong expectations for the full year. And then related to expense in Q2, we do have some movement between quarters, sometimes in internal events and seasonal spending that can fluctuate quarter-over-quarter. But in looking at the full year, you can see exactly what you mentioned for the second half; we do believe that everything evens out as far as the quarter-over-quarter spend and feel very strongly and pleased with how our forecast is shaping up for the full year.

Okay. And then Julie, maybe just one for you. Given some of the prepared remarks commentary around the multi-solution customer success, and as we think about capital markets activity starting to come back here a little bit, can you just talk about how that benefits some of your nonfinancial reporting solutions? So, how much more solutions per customer does an SEC customer take versus your non-SEC based? Or maybe said a different way, how important is new public company growth for your nonfinancial reporting solutions?

We do, of course, want to keep a blend of new logos and new solutions with existing customers. That's what we strive to do, somewhere between 40-60 is about where we — the largest gap we want to have. So, we are continuing to do both new logos and new solutions. Multi-solution, I'll tell you this. Our current customer base is a tremendous asset for us. We've reported in our 10-K, we now have 90% of the Fortune 100, 85% of the Fortune 500, and 80% of Fortune 1000. Going into that installed base is a significant drive for us and a lot of effort. We go in with our partners, and our relationships with partners are absolutely contributing to strong success there with our expansion. Those multi-solution account expansion deals really do push the revenue. We go out, as you know, the market with assured integrated reporting, which means we work with our customers on financial reporting, including multi-entity reporting and management reporting, including capital markets, which you asked about. So, a lot of landings with capital markets and private company reporting, and then rolling into the other solutions of financial reporting, nonfinancial or sustainability, or ESG, along with our GRC solutions. We are resilient even without the capital markets business coming back in any substantive way right now. But because of our broad portfolio, we're heavily focused on that, and we've not baked any capital markets bookings coming into the next several months for this year, quarters for this year.

Yes, we expect those capital market bookings to remain fairly flat throughout the year, just what we've been seeing over the past few quarters.

Next question comes from Terry Tillman from Truist Securities.

This is Dominique Manansala on for Terry. Just wanted to look at some of the newer GenAI capabilities like the GenAI Infosys mentioned on the call or the ESG-specific one where users can drop disclosures. Could you share any feedback you may receive from customers thus far? And as you speak to customers and gather some GenAI leads, are there any other specific verticals or sectors you see holding the greatest potential for GenAI this year?

So, I'll comment on our industry, of course, our sector and Workiva. But thanks for the question, another hot topic of 2023 and it has rolled into 2024. We're definitely enthusiastic about the delivery of our generative AI capabilities to power new features on the platform. You mentioned a few Workiva users get large language models in-app now from Google and Microsoft and AWS integrated into our platform, secure platform; their information is not used to train those large language models. The early feedback, as you asked about from customers, is that they're appreciating being able to use those capabilities in-app, both for convenience and, of course, for data security. They can author and edit and rewrite leveraging the capabilities, and it's across all workflows in our platform. We also, as you mentioned, rolled out the capability for ESG-specific use, and we rolled out the help and training enablement capability within the platform. As far as feedback, we're watching how our users are using the capabilities. We're learning, we're understanding, and we're getting information about how they're valuing those capabilities. That's really what our initial focus is on iterating to ensure they are getting value, and we create new features and new capabilities using generative AI. Our team is looking into how it's being leveraged.

Our next question comes from Dan Jester from BMO Capital Markets.

Great. In the prepared remarks, you mentioned a really interesting European ESG, which is great to hear. I'd love to just kind of sort of a European-specific update in terms of how you're seeing demand. And I think in the recent past, you've made some changes in how you go to market and your sales organization in Europe. I'd love to sort of how you're seeing productivity today? And do you expect kind of further improvement as the year progresses in Europe?

Sure, absolutely. Thanks, Dan. Our momentum in Europe just continues to build, and we're very pleased with it, and the results we're seeing there. We mentioned last quarter, we're now up to 15% of revenue outside of North America, and that's primarily in Europe. I also highlighted in my prepared remarks we have some signature wins there, multi-solution six-figure deals with our partners. So, we're very bullish on the opportunity there. Our value prop of assured integrated reporting is resonating, particularly because of the CSRD. It is, in fact, short-integrated reporting, the financials with the nonfinancial data with assurance. I will also say, however, despite the progress, we're still very open about the need for continued improvement there, and we will continue to do that. Our strategy in Europe is working. It's intact. Messaging and assured integrated reporting resonating. So, lots of green shoots there and seeing a lot of early customer wins driven by the requirements in regulation.

Great. That's really helpful. And then maybe this is a question for Jill. To follow up on the seasonality comment before, it does look like bookings in the first quarter did slow down again sequentially. And I wonder, can you just help us understand your level of visibility into the back half? And maybe just help us remind us about sort of sales cycles and how you're thinking about the visibility in the platform today relative to a similar period in time in other years? Anything you would compare and contrast would be really helpful.

So, we do have pretty standard seasonality in our bookings year-over-year. Even as we've been talking about, when you have a tough macro environment, Q1 is always lower. We have a lot of our customers that we're working with tend to be heads down for the majority of the quarter doing their annual filings for calendar filers. And so that's pretty standard. Then Q2 and Q3 both pick up; they can be more similar, sometimes a little bit higher in Q2. I think Q4 is always seasonally our largest quarter for bookings, just as an overview of our booking seasonality.

The next question comes from Ryan Krieger from Wolfe Research.

Great. I just kind of want to add on to the question that was just asked. If we look at RPO, it grew about 20% in the quarter, but that's been steadily declining in the last couple of quarters. And then sequential customer adds were lower than a typical first quarter. So, was there anything anomalous to call out there, such as push deals or sales cycles extending? Or anything that weighed on those metrics, just because they do look a little bit lower than the typical amount? And then to the extent you can add some color, how did April trend compared to kind of Q1?

I'll start with the RPO, of course, of that question, Ryan. Thanks for the question. When we look at our RPO, for the past few years, we've been talking about that we've been moving our contracts over to being mostly three-year contracts. The majority of our contracts are now three-year terms. We did have some ebbs and flows and movements due to that changeover over the last few years, moving from annual contracts to three-year contracts, which is part of what we're seeing in the RPO metrics. CRPO was a little bit — it took out a lot of that noise, but not all of it. We do think that over the course of 2024, this will settle into a more regular seasonal cadence of RPO. And so, that's part of what we're seeing. But what we're also seeing in the RPO number in Q1 is the result of the macro factors slowing bookings that we saw throughout 2023, that we've talked about. It is down. It's something that we're watching really closely. But we feel very strongly that our model on revenue is solid, and we expect to be able to deliver on the guidance for revenue that we gave for the full year. In the second part of your question, the logo growth. You heard in the prepared remarks, 45% of our revenue in Q1 came from new customers added in the last 12 months. That is down from where it was in Q4. We have seen some slowing in new logos. A lot of that is because of U.S. markets slowing and capital markets, fewer new customers or new public companies in the U.S. When we see new logo growth, it does skew more towards EMEA, with customers or skews towards our newer areas, geographies. We still find both very important.

Our next question comes from Adam Hotchkiss from Goldman Sachs.

Great. I guess to start, I'd just be curious how you're seeing the non-EU-based global multinationals approach ESG given they're a bit later in the CSRD regulatory requirement cycle, but still have California and potentially SEC to grapple with. Is there more willingness to take a global approach to ESG here? Or are companies taking this more on a piecemeal basis depending on which geographies have pending regulation? Just curious if you're seeing anything interesting there?

Yes. I mean, a great question. ESG remains one of our top solutions in booking performance in Q1. As I mentioned on the call, it's been in the top three bookings for the last seven quarters, and we continue to add Fortune 500 clients to our already lit roster of ESG account expansions. We're now over 30% of the Fortune 100. So, we continue to see strong demand for Workiva's ESG solution even without regulation in the U.S. Yes, even with the political debate around ESG acronyms and stakeholder demand for transparency and nonfinancial data is continuing to increase. A lot of U.S. companies know they will need to comply with the state of California and other regulations, including the CSRD, though it had a change in its reporting date for the non-EU. Companies are getting ahead of it; they know it's coming, they need to maintain progress towards those. So, despite the landscape, we're absolutely seeing strong demand for ESG.

Yes. That's great. And then just on that point, I saw the ESG practitioner survey you released. One of the stats that was pretty interesting was the 81% of companies not subject to CSRD intending to still partially and fully align with sustainability disclosures. Curious, given how stringent some of those things are around scope emissions and things like that, what you think is driving the willingness to do that? And then how you think about getting from 81% of companies wanting to partially or fully aligning to actually starting to move on this?

We were not surprised by that statistic, because as I just described a moment ago, that's what we're seeing in our client base. The drivers are stakeholder demand. It isn't just the regulation; companies know it's coming. It's not a matter of if, it's a matter of when and they are getting ahead of it. It's larger companies and the more complex the company, the harder it is to comply, but they're purchasing software and getting third parties and partners to help with this, doing their materiality assessments and getting their data in shape. The same survey also showed they're beginning to trust their data more. They're getting their data in order, and software is, of course, helping with that. I'm not surprised by that statistic at all, given what we're seeing in the market today.

We don't have any pending questions at the moment. I'd now like to hand back over to the management for final remarks.

Yes. Well, thank you, everybody, for joining the call, and this concludes today's call. Please go on the Investor Relations site for Workiva and download our investor presentation for more information. Thank you.

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