Good afternoon, ladies and gentlemen. My name is Sarah, and I will be your host operator on this call. [Operator Instructions] Please note that this call is being recorded on October 30, 2023, at 5:00 p.m. Eastern 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 Third Quarter Conference Call. During today's call, we will review our third quarter results and discuss our guidance for the fourth quarter and full year 2023. 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 November 6, 2023. 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 fourth quarter and full fiscal year 2023. 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. We'll begin by turning the call over to CEO, Julie Iskow.

Thank you, Mike. But before I begin my prepared remarks about our quarterly results, I want to take a moment to acknowledge what's going on in our world. This is an extremely tragic, painful, and uncertain time. It's especially so for those who have a connection to the impacted regions. And this may include some of you on our call today. While there's a lot that can be said, it is our hope that resolution is reached and peace will prevail. I'll now move on to our operating results. Workiva delivered another solid quarter, achieving subscription revenue growth of 21% and a non-GAAP operating profit that beat the high end of our guidance by nearly 340 basis points. As highlighted at our September Investor Day, Workiva continues to stand out from the SaaS crowd given that we solve problems our customers must address. Companies need transparency. They need to comply with regulation and they need accuracy in reporting and disclosure. Workiva provides solutions that are necessary in good times and in challenging times. Our opportunity and our technology are such that we are becoming a world's leading platform for transparent reporting and regulatory disclosure. Why? Because our strength is where data consistency and data integrity and accuracy are critical and where narrative is required. This is highlighted by the deals we're winning and the references our customers are providing. We showcased many of these success stories at our Amplify User Conference, including companies like Hershey, that shared on the main stage of value they receive from our connected solutions across financial reporting, GRC and ESG. I'd also like to congratulate Hershey for recently receiving the Innovation Excellence Award for ESG metrics and reporting from Verdantix. This is the second consecutive year that our Workiva customer has won in this category.…

Thank you, Julie. Let's turn to our results. First, I will give an overview of our key financial highlights for the third quarter 2023, and then I will provide Q4 and full year 2023 guidance before opening the line for questions. We are pleased to report that we beat the high end of revenue guidance by $2.2 million primarily due to strong subscription revenue growth, along with higher-than-expected services revenue growth. We beat our breakeven guidance on Q3 operating results, generating $5.3 million of operating profit. As Julie mentioned, stronger revenue, coupled with improved efficiency and productivity were the primary drivers of the beat. Our continued focus on growth and operating leverage is showing in our operating results. Now let's go through some key results and highlights for the quarter, starting with revenue. We generated total revenue in the third quarter of $158.2 million delivering growth of 19% from Q3 2022. Subscription revenue was $143.4 million, up 21% from Q3 2022. Yet again, this quarter, both new logos and account expansions helped drive strong revenue growth with 43% of the increase in subscription revenue coming from customers added in the last 12 months. Professional services revenue was $14.8 million in Q3 2023, up by 3.5% compared to the same quarter last year. The growth was driven by higher XBRL services revenue, which outpaced the year-over-year decline in setup and consulting revenue. As we mentioned in our previous 2023 earnings calls, we are in the process of transitioning more of our lower-margin setup and consulting professional services to our partners. As we execute on this plan, we expect setup and consulting services revenue to decline year-over-year for 2023. Moving to our performance metrics. We added 85 net new customers in Q3 for a total customer count of 5,945, a growth of…

[Operator Instructions] Your first question comes from the line of Adam Hotchkiss with Goldman Sachs.

I guess to start, Julie, I'd love to dig a little deeper on the drivers of outperformance in the quarter. It looked like you had meaningfully higher average ACVs and maybe a little bit slower growth on the new logo side. And so I'd just love to understand from a rate of change perspective relative to the first half of the year what are driving those 2 things? And whether you saw a quarter-to-quarter impact from a macro perspective or that continues to stay stable from a headwind perspective. Just would love to understand those dynamics.

Sure. Very pleased with our growth around account expansion, which is probably what is driving it most significantly. Certainly, we're seeing the macro as we talked about, both Jill and I, in our requirements. But it really is broad-based across the entire portfolio that we're seeing the bookings grow. And again, focus on multi-solution and account expansion, that really was where we saw the most strength in our results this quarter.

Great. That's helpful. And then just on the guidance. I was wondering if you could talk a little bit more about the implied deceleration there. Like you said, you've had 4 or so quarters of improving NRR and feels like what needs to happen to get to that -- to get to your guidance as for things to fall back to 2022 levels when I know capital markets was a much more meaningful headwind for you. So I guess, my question is, is this just conservatism combined with a more difficult comp? Or is there something else from a quarter-to-quarter perspective that we all should be aware of here? Really appreciate that.

So this is Jill. And really, what we were doing for Q4 is we're being very prudent with how we put together our guidance because of the macro factors that we're seeing, some of the elongated deal cycles like we talked about, geopolitical factors. We didn't feel comfortable going outside of where we already were for the full year. And so we do have a potential for upside, as always. But we would just put that together in a way that was very prudent as we said on the call.

Your next question comes from the line of Steve Enders with Citi.

Okay. Maybe you can just dig in a little bit more on what you're kind of saying or what you're seeing out there in the deal environment. Was there any, I guess, incremental change from this quarter to last quarter, or I guess, so far in October and the scrutiny that you're seeing in the deals or other factors that are impacting things there?

I would say there is not much change. I mean, the same issues we're seeing it is that deals are being more scrutinized. And it's also in part because we have larger deals, right? And those require more signatures and so we're going up further in organizations over the last couple of quarters. So we're seeing that more and more. We haven't seen any difference, any decline or increase that's notable. Again, we have a diverse platform. We're seeing strength in bookings on all across the board. But yes, we're running into the macro challenges and getting on calls with lots of companies that are thinking harder about their purchases, and we don't lose deals. Some have slipped into this in this quarter next, but there's nothing significant in the change between last and this quarter.

Okay. All right. That's helpful. Thanks for clarifying that. And then just on -- I think you made a comment in the prepared remarks about the ESG environment becoming increasingly competitive. So, I guess, maybe has something changed there? Is the competitive landscape shifted here in the past couple of quarters? Or how would you kind of characterize what that environment in ESG looks like today versus the past?

There are a lot of companies saying they do ESG. There are point solutions that we see out there, focused. There are carbon accounting solutions, a lot of legacy providers. There's just a lot of companies out there. None of them, of course, do what we do and have a full comprehensive platform that provides financial reporting, nonfinance or ESG and GRC. So we are the only provider there. We're just hearing a lot of noise in the market -- a lot of marketing, but I would say, for us, the competition is a validator of the market. And again, large undressed TAM. Companies, of course, will be attracted to it. But we feel confident in our position.

Your next question comes from the line of Daniel Jester with BMO Capital Markets.

It was great to hear a couple of the European domiciled company wins in the prepared remarks. Maybe can you just expand on Europe and the trajectory there, how you see in the pipeline build. And should we expect new logo momentum there to improve as we go into 2024?

Sure. I mean we had a strong quarter in Europe. We're very pleased with our momentum. Again, it was one of our top looking solutions for the quarter. We had some signature wins there, yet again, multi-solution 6-figure deals. And importantly for us, our value prop of assured, integrated reporting is really resonating, where the CSRD passed in November, more clear guidance here in July. That is exactly what we have to offer, which is the requirement of financial, nonfinancial integrated in one report with assurance. And we're seeing some wins driven by these requirements and just a lot of interest there. So yes, we expect more strength in Europe ongoing.

Great. And then just on the partner ecosystem, again, a lot of positive commentary about sourcing from partners and from co-selling. Can you just remind us what percentage of new bookings are sourced or co-sold today? And again, as we think about the trajectory into next year, how should we be thinking about the opportunity to sort of deepen and broaden the partner ecosystem?

You speak about the numbers, Jill, and I'll take.

Yes, sure. So we don't give metrics around the portion of our bookings or sales that we have in the quarter that come from our partners. But we've been, of course, passing more of our services over to our partners, the setup and consulting services, and that's been going really well. We've talked about that at length. And we're pleased to how that's further engaging those partner relationships. And Julie, do you want to take that?

I mean key tenet of our growth strategy. We continue to work hard along with our partners. We're doing a lot of co-sell. We've done a lot of enablement with our partners and our own internal team is increasing their expertise in terms of selling with partners. It's a partner-first approach on set up and consulting, as Jill has said, but it's also moving that direction for our solution. So we see a lot of room there for growth and acceleration with our partner ecosystem, which continues to strengthen.

Your next question comes from the line of Alex Sklar with Raymond James.

Julie, I want to follow up on your answer to Daniel's question right there. Just on the partner sourced deals, as you're approaching kind of the 2024 planning, does the success you've seen from the partner channel year-to-date at all changed your view on sales and marketing, hiring or leverage that you think you can get from your existing team?

I would say not at this time, we co-sell along with our partners. We get -- we're getting more deals sourced from our partners, but our teams are very much engaged at this time. I don't anticipate reducing spend for that reason. We do see them helping us to expand in accounts, bringing leads our way, and we have good relationships on the sales side on both our partners and our own organization. So continuing to focus on growth, we'll continue to hire where it's necessary to do so to keep the relationships moving and expand our footprint.

Okay. Great. And Julie, just one more follow-up, one more for you. Just I wonder as for the applicability of the platform and your own interest levels outside of the current kind of assured integrated reporting strategy. And with that kind of -- can you just talk about kind of the strategy as far as enabling partners to build on the Workiva platform?

Sure. That is a part of our growth strategy, certainly to enable builders and partners to do that, and we're beginning to do that with some of our partners today and our alliances. And our platform, as we talked about here in my remarks, but also at our Investor Day, we talked about moving towards a platform for transparent reporting and regulatory disclosure. We have found as we have built out best-of-breed solutions for financial reporting, investor breed solutions for ESG and GRC, that our platform is now suited for a wide variety of regulatory disclosure requirements. So you will see us continuing to do that. And I gave a few examples on the call this afternoon as well. So that is the direction we are moving.

Okay. Great. And one more squeeze in here on the ESG follow-up for one of the earlier questions. Can you just reference kind of with the increased competition you're seeing from point solutions and legacy solutions. Can you just talk about kind of how you stand out in that backdrop? Is it customers looking for the full fledge work? Is it solution? Is it educational? Is it really partners that are having to help drive it. Can you just kind of elaborate on your answer to that from earlier?

Sure. We love this question because let's just highlight where we have competitive advantage. And I'll start off by saying, look, we've been doing investor-grade reporting for well over a decade. We have the partner ecosystem -- tremendous partner ecosystem, as you said, and they are very much involved in our solution and can help bring value to customers quickly. We have XBRL tagging, which we are the leader in. And we have been doing regulatory reporting for again, well over a decade, and we can ensure that our customers will be compliant when regulations change and they do frequently now. So that's just one area that we are in our experience and expertise. But we also, again, have that platform for financial, nonfinancial and GRC. And again, the world is moving in that direction, and we are the only technology platform that has all of that in one solution, one capability across the board. And then, of course, our fit for purposeness and all of the reporting to be able to ingest the data and certainly map to the frameworks and prepare those -- prepare the data for reporting to regulatory raters and rankers. And then we have design reporting as well as part of our platform now. So when you look at the comprehensiveness from source to report from end to end, Workiva stands out strong among the competition.

Your next question comes from the line of Joe Meares with Truist.

You guys have mentioned that you added 85 customers in the quarter. And I'm just curious, was this is a big driver here. I think at the Analyst Day you called out [ 185% ] year-over-year growth in ESG customer count in 2Q. Just curious what that metric looked like in the third quarter? And then I have a follow-up.

So we -- that's not a metric that we're providing each quarter. We'll keep you updated as we have additional data, but we were, as Julie had stated, we're very pleased with how ESG sales came through in the quarter, and it was our top individual solution.

And then just around the implied guidance for profitability. It was great to see that OpEx only grew 6% in the third quarter. It looks like the guidance is implying that, that growth rate is well higher for OpEx in the fourth quarter. So I'm just curious if that's just conservatism or if there's anything onetime any items that are driving that?

So with our overall guidance for Q4 and for the full year, we are, as I've mentioned, being very prudent with how we put the models together. There's just a lot going on in the global environment with the macro and geopolitically. And so we're -- I would say that we always have the potential to outperform and we would like to be able to outperform. But with the way that our models were built, again, we were just being very prudent with the numbers.

Your next question comes from the line of Ryan Krieger with Wolfe Research.

Just quick one on NRR. It's ticked up now another point and for the fourth quarter in a row. So can you just talk a little bit about the solutions in your portfolio, what's resonating most with customers from an expansion perspective? And then how do we think about it from here? Or based on what you're seeing, how much more room does it still have to run?

Sure. I mean our NRR increasing steadily. We have a lot to do with our account expansion capabilities. And GRC is 1 area where when we sell their multiple solutions on our ESG. We have very strong success when we have existing customers. So there are a number of customers that are -- a number of solutions that are land for -- and expand, but we've been putting heavy emphasis on account expansion. And that's primarily where you're seeing the NRR increase.

Your next question comes from the line of Brad Reback of Stifel.

Julie, I think you had mentioned the potential for some acquisitions post the capital raise. Can you give us a sense of what type of deals you'd be looking at?

Sure. Our capital raise, of course, good terms, and we have availability now to go after acquisitions potentially. They come in a number of forms. It may be something that brings up the platform entirely as did our prior acquisition of OneCloud, raising all capabilities across the board on the solution. We would be looking for potentially a gap closure on the platform, just added capability. We have plenty of TAM doesn't necessarily have to be that, but we might find something in adjacent market. So I think we're wide open in terms of the acquisition types that we would go after.

That's great. And then, Jill, given the environment commentary, if it remains challenging out there and the sub growth is maybe a bit below where it came in this year, would you be more aggressive on the OpEx side next year to manage margin?

So we are focused on growth. And we know that we have our large unaddressed TAM to go after. And we would make sure to be -- continue to focus on productivity and getting leverage out of our existing resources. And we'll be watching that mix very closely going into next year, I know you will be, Brad.

Your next question comes from the line of Mike Grondhal with Northland Securities.

This is Luke Horton on for Mike. So you guys gave some nice insight on the European market. It's nice to see that momentum building there. But just wanted to touch on the APAC region and if there's anything to call out here, what sort of the strategy behind this place?

Sure. I mean we've entered APAC most recently. Our approach there is with our partners, partner first where we're known less than we are, of course, in North America and even in Europe. But we are developing strong relationships and breaking it into the market. Lots of opportunity ahead for us.

There are no further questions at this time. This will conclude today's conference. We thank you for joining. You may now disconnect your lines.