Good afternoon, ladies and gentlemen. My name is Mandeep, and I'll be your host operator on this call. After the prepared comments, we will conduct a question-and-answer session. Instructions will be provided at that time. [Operator Instructions] Please note that this call is being recorded on February 20, 2024, at 5:00 PM Eastern. 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 fourth quarter and full fiscal year 2023 conference call. During today's call, we will review our fourth quarter results and discuss our guidance for the first quarter and full year 2024. Today's call has been pre-recorded 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 February 27, 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 first 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. The Workiva team closed out 2023 with solid Q4 results, delivering subscription revenue growth of 18% and a non-GAAP operating profit that beat the high end of our guidance by 367 basis points. For the full year 2023, we exceeded guidance for the targets that we set in both February and Q3 of 2023. Our solid performance resulted in a revenue growth rate of 20% in subscription revenue and 17% in total revenue. These results were driven by broad-based, strong demand across our solution portfolio. Consistent with the past several quarters, we continue to see outpaced growth in our large contract customers. This is driven by additional solution sales into our install base. In Q4, the number of contracts valued over $100,000, increased 21%. Those over $150,000 increased 27% and contracts valued over $300,000 were up 32%, all compared to Q4 of 2022. Although 2023, brought with it a tough macro environment, we finished the year strong and we believe we're set up for durable growth in the years to come. Our platform is a key differentiator in the marketplace. Workiva remains 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 assured integrated reporting wins that we signed in Q4. First, a Fortune 50 U.S. multinational food company rounded out their platform with investment in GRC. The purchase of the controlled management solution complements their previous investment in ESG, SEC and management reporting. This 10-year loyal SEC customer was engaged with a Big Four advisory firm in a 2023 ESG implementation project and this firm recommended Workiva as the technology of choice for GRC. This same firm will…

Thank you, Julie. For our call today, I will be discussing the financials and key metric highlights for the fourth quarter and full year 2023. Following that, I will provide commentary and guidance for Q1 and full year 2024, before opening the line for questions. I'm pleased to report that we have exceeded our Q4 revenue guidance by $2 million. This beat was driven by strong subscription revenue growth, as well as higher than expected services revenue. We also beat our guidance on Q4 operating results, generating $12.7 million of operating profit, a 430 basis point improvement versus Q4 2022. Stronger revenue, improved efficiency and productivity, and lower travel expenses drove the beat, reflecting our focus on growth and improved operating leverage. We generated total revenue in the fourth quarter of $166.7 million, delivering growth of 16% from Q4 2022. Subscription revenue was $148.8 million in Q4 2023, up 18% from Q4 2022. Once again this quarter, a combination of new customers and account expansions contributed to our strong revenue growth. New customers added in the last 12 months, accounted for 47% of the increase in subscription revenue. Professional Services revenue was $17.9 million in Q4 2023, down 37 basis points compared to the same quarter last year. A decline in set-up and consulting revenue was mostly offset by growth in XBRL services. As I have previously mentioned, we are currently working on shifting our lower margin setup and consulting services to our partners. We are actively implementing this plan and anticipate that the revenue from setup and consulting services will continue to decrease throughout 2024. Moving to our performance metrics; we added 89 net new customers in Q4 for a total customer count of 6,034, a growth of 370 customers from Q4 2022. Our gross revenue retention rate of…

[Operator instructions] Our first question comes from a line of Rob Oliver with Baird. Please go ahead.

Great. Thank you. I will limit myself to one, although that will be difficult. I guess my question will be on the 2024 guidance, and I'd love to get a little bit of a better sense from you, Julie, or you, Jill, about some of the factors that you've considered in setting that guidance, specifically macro, which I know you touched on in your prepared remarks, as well as continued ESG momentum and things like capital markets. And I think, above all, and I think, Jill, you may have mentioned it at the very end of your remarks about the subscription guidance, but just how to think about that breakout between subscription growth and services, which I know is in decline, purposefully. Thank you.

Sure. Hi, Rob. And not an unexpected question. I think you actually answered much of it. Multiple reasons for the guide and the first one is, yes, even with our very strong Q4 and our value proposition resonating with our customers, we are still seeing that uncertainty in the market. And we call it this measured customer buying environment and as I did highlight in my comments, still some softness in IPO market there. So our response, of course, is to provide prudent guidance there. The second reason, and you touched on it, too, we've already communicated our intentional slowdown in our non-XBRL low margin services revenue as we move that setup and consulting work to our partners. And, of course, this is by design, and it's part of our growth strategy. So we've talked about that quite a bit. So that plays in. And then finally, we're expecting lighter subscription revenue growth, which is driven by the softer bookings that we saw in 2023 and we were consistently communicating in 2023 as well that we face the tough macro. So having said all of that, of course, we are very pleased with our subscription revenue growth in Q4. As I mentioned in the comments, our value proposition is resonating with customers and our prospects. We absolutely remain optimistic about the long-term durable growth market and going after that large untapped TAM. And we have a differentiated platform as well as differentiated solutions, and it's a true platform that brings customers significant value.

Our next question comes from the line of Matt Bowe [ph] with William Blair. Please go ahead.

Great. Thanks for taking my question. I wanted to follow up with one more on the guidance and specifically on the margins. So you did a really nice job outperforming in Q4. I think that operating margin was about 8% and then if I look at the guide, you're at about 3% for Q1 and full year of '24. So what's driving that decline going into next year? What areas are you investing in that's causing that to be down from 4Q?

We're pleased with the improvement we've shown in the margins, the non-GAAP operating profit. I think you might recall, Jill mentioned there's some seasonality to those expenses, so there would be some fluctuation. But overall, we remain focused on both the growth and productivity. So as we enter the year, we do want to provide ourselves some flexibility with where we want to invest and where we can accelerate growth and go after our TAM. So we do think about some incremental investments across the key growth areas we have while we're still delivering the margin expansion as we scale and optimize the business. So it really is that and we do believe over time, we'll continue to increase the non-GAAP operating margin, but just being thoughtful about hiring and efficiency and productivity, but we do intend to invest where we see growth opportunity and again, accelerating our movement toward going after the TAM.

Oh, and as Julie mentioned, lightly around some seasonality related to Q1, so we do have seasonality related to some expenses in Q1 with all of our employee annual increases take effect on the 01 of January and so we do see some uptick in expenses, especially around compensation starting in Q1 as compared to Q4. So you will see that in the guide for the quarter as well.

Our next question comes from the line of Dan Jester with BMO Capital Markets. Please go ahead.

Great. Thanks for taking my question. Maybe we can spend a moment talking about sort of the international opportunity in Europe specifically. I think in your prepared remarks, you said something like, roughly 50% roughly growth in subscription revenue international. I hope I caught that number right, but it sounds like you're making substantial progress in selling in Europe. So maybe you just expand about the momentum there and maybe compare and contrast to how you see the moments in the US if there's any differential there. Thank you.

Sure. I'll jump in on that one first, Jill. We executed well in Q4 in Europe. It was our top bookings quarter. It was a record bookings quarter. For the full year 2023, we did improve to deliver 15% of our revenue from outside of the Americas. I think it's up from 11.5% in 2022. So we grew our revenue outside of the Americas by 50% for the full year and very pleased with the momentum. Got some signature wins there, multi-solution, six-figure deals, partners are strong and contributing to our bookings. Value prop of assured integrated reporting is resonating there and we're very optimistic about it. We've had some focused work streams there. We've been very intentional about it. As I've mentioned, leadership's been strengthened and the team is selling more platforms and multi-solution deals. I will say, despite the progress, we are still very open about the need for improvement there. We made some fundamental ground-based changes there, but a lot of opportunity for us and we are going to continue to go after the unaddressed TAM globally. So a lot of progress there.

Our next question comes from a line of Terry Tillman with Truist Securities. Please go ahead.

Hi, this is Dominique [ph] on for Terry. Just wanted to go back to the international opportunity; considering you all have entered APAC most recently, could you give us an update on how the partner first strategy is progressing in that region and how we should think about that growth relative to North America and Europe?

Sure. That's a newer region for us. We also had record bookings quarter there as well. Our strategy there, because we are so much less known there, is through our partner network. Another reason why our strengthening of our high-performing partner ecosystem is so important and we are focused on that globally. So our go-to-market there relies very heavily on the partners and continuing on with strengthening those relationships. But again, new nascent area for us over the past few years, but growing strong and continue to do so.

Our next question comes from the line of Ryan Krieger with Wolfe Research. Please go ahead.

Hey guys, thanks for taking the question. So I just had a quick one on kind of the macro and the retention rate. It was a little bit surprising to see NRR tick down two points in 4Q after trending up for four quarters in a row. So did you guys actually see the macro environment get more difficult in 4Q versus kind of 3Q? And then how should we kind of think about retention trending from here and how is the macro trended through January and February?

Thanks for asking the question. We're really actually pleased that year-over-year that NRR continued to increase. We did not see the macro change from Q3 to Q4. We think it's staying pretty consistent with the similar challenges quarter-over-quarter and related to NRR, it can move around quarter-to-quarter. It's something that we of course want to continue to drive forward. We're still focused. Well, we've always as a company been focused on selling into our base and you see progress in that with some of the metrics around our customers who spend greater than $100K, greater than $150K, greater than $300K with us. And so I think that we're glad that it's continuing to increase year-over-year and do expect it to move around a little bit but continue to make progress and so, yeah, thanks for the question.

Our next question comes from a line of Steve Enders with Citi. Please go ahead.

Hi, this is George [ph] on for Steve. Thanks for taking the question. Just one for me; on the, you talked about some of these ESG regulations coming down the pipeline, CSRD, California, and SEC's upcoming decision. I would just love to hear a little more about what you're seeing from an urgency of buying from customers at this point with these things now, clearly on the doorstep and if you expect 2024 to be, really a step function year or more gradual pace of adoption? Thanks.

Sure. I think we continue our perspective, not a step function hockey stick, but long, durable growth. But thank you. It's a great question, a timely question. We get it a lot, particularly given the visibility of ESG in the media and we do keep a close eye on legislation, have been monitoring the speed of adoption and of regulation themselves. So, for us and what we're seeing, I can tell you this, that ESG remained one of our top solutions in bookings performance for Q4 and it's been in the top three booking solutions for several quarters now. We continue to add Fortune 500 clients to our already elite roster of ESG account expansions and talked earlier about the partner strategy here. The partner first strategy is really driving results for us. I would say vast majority of our ESG opportunities, particularly in the upmarket, continue to be either sourced or co-sold with a Workiva advisory or technology partner. So we're continuing to see strong demand for the Workiva ESG solution, even without the regulation. Yes, political debate around the ESG acronyms and anti-ESG sentiments, certainly, but we see stakeholder demand for the transparency and non-financial data increasing. So many of the U.S. companies are going to have to comply with CSRD as well. So we are seeing the stable demand for it and seeing that with even without the regulation passing in the U.S., but we definitely see in some conversations now CSRD surfacing more as a reason to buy.

Our next question comes from a line of Alex Sklar with Raymond James. Please go ahead.

Great. Thank you. I'm going to try to squeeze in a two-part follow-up here to Rob and Matt's questions. Just first, in terms of the prudence and the growth outlook that you've spoken to, did anything change in terms of how you approach the guide from a macro-conservatism level versus the prior couple quarters? And then second, on the profitability side, in terms of the comment about leaving yourself some flexibility for growth investments, is there anything you're watching in terms of execution or macro that would have you not make some of those growth investments for later in 2024? Those are pretty much shut at this point. Thanks.

So related to the prudence on the guide, there's no change to the way that we are operating as far as how we look at where we're setting our models. We, as you know, we're a company that will continue to beat our guidance. We're careful and prudent about how we set these numbers. We expect to be able to beat them and so it's very consistent with how these models were put in place. Related to the profitability and the potential for investment in 2024, we're of course watching that top line and we can and would adjust based on different macro factors and if we had additional challenges above what we were expecting in bookings and revenue, but that's, again, no change to how we would have done this in other years. We're just careful about how we are managing the business and as Julie talked about, really focused on growth and profitability and so I think that you can expect us to continue to operate this year in a similar way to how we have in past years.

Our next question comes from the line of Brad Reback with Stifel. Please go ahead.

Great. Thanks very much. Julie, if my math is correct, I think you've added 80 people over the last five quarters combined. Can you give us a sense of what the hiring plans are for '24?

Sure. Again, our theme is where we see the opportunity to invest in increased growth and go after our TAM. We will do that. We're being very thoughtful about hiring. It's become easier to hire the right talent for the right roles. I was just looking at our numbers for last year. We had, high north, well north of 100,000 applications at Workiva last year. So the team is strong. We're being thoughtful about who we're putting in those roles, but we'll continue to hire where we see opportunity for investment.

You can see that. I would chime in, Brad, on the guide that implied within that guidance is that, of course, we will be hiring. We'll focus on, as Julie had talked about before, the best potential for growth and the best potential for success, whether it's a geography, whether it's solutions and we're going to be really thoughtful about where we put those resources, but you will, as you can tell from the guide, you will see us hiring, continuing to hire in 2024.

That's great. And then, Julie, maybe higher level, if we think about the 16% sub guide, and I understand the conservatism there, but if we step away from the current period, maybe look a little bit longer term, what do you think the normalized organic sub growth rate is of the business today?

I guess you're asking, will we be getting back to, maybe that 20% growth? Our subscription guide, yes, 16% growth guide of 16% at the midpoint for 2024. And we're focused on that. We do aspire to get back there. 16% is not the limit to our upside, of course. Therefore, we're not happy with it. We're hopeful to see return in cap markets, adoption of ESG software to address the new regulations, and just overall improved software spending environment. So, we, again, see the long term durable growth market, significant TAM, and we're going to go after it.

Our final question comes from the line of Adam Hotchkiss with Goldman Sachs. Please go ahead.

Great. Thanks for taking the question. Julie, it's pretty clear you're making progress on the multi-solution front, but I'd be curious if we could go a layer deeper. How should we think about what your solution penetration looks like in your average customer today and how you think about how that white space evolves either this year or just over time broadly?

Sure. I will say we have thousands of customers, and I don't have the number right in front of me, but we have a lot of white space there with adding additional solutions to the base that we have. Our install base is truly one of our most significant assets today. We just crossed over the 90% of the Fortune 100. We've got 85% of the Fortune 500. We have 80% of the Fortune 1000, and there is a lot of room there to have additional solution sales and platform sales to the base that we have. So, very optimistic. We highlighted a number of them on the call today. Our team is, again, getting strengthened when it comes to selling multi-solution and platform. So, when we look at our growth opportunity, this is a huge growth factor for us and, again, that's how we're approaching the TAM.

This does conclude today's call. You may now disconnect.