Workiva Inc. (NYSE:WK) Q2 2024 Earnings Call Transcript

Workiva Inc. (NYSE:WK) Q2 2024 Earnings Call Transcript August 1, 2024

Workiva Inc. misses on earnings expectations. Reported EPS is $0.16 EPS, expectations were $0.18.

Operator: Good afternoon, ladies and gentlemen. My name is Didi, and I will be the host operator on this call. After the prepared comments, we will conduct a question-and-answer session. Please note that this call is being recorded on August 1, 2024, at 5:00 p.m. Eastern Time. I would now like to turn this 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.

Mike Rost: Good afternoon and thank you for joining us for Workiva’s second quarter conference call. During today’s call, we will review our second quarter results and discuss our guidance for the third 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 August 14, 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 third 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 be turning the call over to CEO, Julie Iskow.

Julie Iskow: Thank you, Mike, and thank you to everyone on today’s call. Jill and I look forward to sharing our Q2 results. We’ll also discuss our outlook for Q3, our updated guidance for the full year 2024, and a revision to our long-term financial model. Workiva is once again in a beat and raise position. We delivered solid results in Q2 with subscription revenue growing at 18% and total revenue growing at 15%. These results drove a beat to the high end of our revenue guidance. We also delivered a Q2 operating margin well above the midpoint of our guide. We’ll be raising our full year revenue guidance based on record quarterly bookings and a more optimistic market outlook. In Q2, we saw a healthy improvement in the buying environment marked by broad-based demand across our entire solution portfolio.

This demand was driven by a number of multi-solution and large contract platform deals, whether from new logos or account expansions, we’re encouraged by our win rates, our deal sizes and our platform wins. We delivered standout performance in ESG this quarter, which was yet again a top booking solution. We also drove continued momentum in Europe in both financial and ESG reporting. The value of our platform continues to resonate. We win with our platform, we win with our partners, and we win with assured integrated reporting, which now includes carbon accounting, the most consistently regulated part of ESG. I’ll move on now to deal highlights. I plan to continue to take the time on our earnings calls to highlight some of our key wins across our solution portfolio.

These customer wins provide meaningful insight into our business, including the combination of solutions we’re selling, the location and the types of customers we’re selling to and the role that our partners play in the process. The deal disclosure provides important information related to the breadth of our solution portfolio, the types and the sizes of the deals we’re disclosing and the evolution of our business into a platform company. In short, we’re providing you with this information to offer deeper insight and perspective on our business. I’d like to kick off our deal highlights for the quarter with 3 assured integrated reporting wins. First, a top European-based energy company joined as a new customer investing in 6 solutions on our platform.

This mid-6-figure deal for SEC reporting, controls management, multi-entity reporting, ESS, management reporting and ESG has 3 of the big 4 firms engaged in an open RFP process. Workiva was the only vendor evaluated that could address the requirements for financial reporting, GRC and ESG and a single platform. Two of the big 4 firms have been selected to deliver services for this multi-solution transformation project. Second, we signed a 6-figure account expansion deal with the North American Life Sciences Company. This company has been a loyal customer of Workiva for 11 years. This quarter, they purchased ESG as their fifth solution on our platform, complementing their investment in SEC and controls audit and risk management. This opportunity was a co-sell with the big 4 advisory firm that was engaged in an ESG project at this company.

The same big 4 firm will be providing delivery for the project. And third, we signed a mid-6-figure 4 solution new logo deal with a top European bank. This bank purchased Workiva’s ESS, ESG controls management and bank regulatory reporting solutions. Workiva was selected as part of a financial transformation project to replace legacy point solutions across the bank. Workiva was the only solution evaluated that have the capabilities to address the financial reporting, ESG, GRC and Basel Pillar II reporting and disclosure requirements that this bank required. The opportunity was sourced and will be delivered by a Big 4 advisory firm. I’ll move on now to financial reporting. Our portfolio of financial reporting solutions continues to play an important role in both the landing of new logos and account expansion.

While SEC remains an essential solution for many of our customers, our financial reporting solutions extend well beyond that. Our financial reporting solutions are sold into public companies, private companies and federal, state and local governments for a wide range of use cases, including multi-entity reporting, ESEF, private company reporting and industry-specific use cases. In Q2, financial reporting contributed substantially to our growth. I’d like to highlight 3 financial reporting deals from the quarter. First, we closed a multi 6-figure new logo deal for ESEF with a European-based information services company. This multi-entity organization has complex reporting requirements for ESEF and is transforming their reporting processes as part of an SAP S/4HANA migration.

The strength of the Workiva Financial Reporting solution with the expanded option for future CSRD reporting was a key differentiator. ERP transformations have become an important trigger event in some of our deals. Upgrading an ERP, for example, the S/4HANA or switching an ERP or financial consolidation system often creates the need for broader financial transformation. These events provide a great opportunity for us to land a new logo or expand our solution footprint with an existing client. This transformation opportunity was a co-sell with the Big 4 and a regional advisory firm, both of which will be involved in the implementation and delivery for this customer. Second, we closed a 7-figure account expansion deal with the U.S. Federal government department.

It included both financial reporting and GRC. Workiva helps agencies deliver assured integrated reporting by uniting financial data and non-financial data with governance, risk and compliance measures in 1 secure, controlled audit-ready environment. This account expansion represents further use of the Workiva platform across some of the 40-plus agencies under this federal department. This opportunity was a co-sell and will be implemented by a big 4 advisory firm. Our support for the federal market was further showcased by our July 12 announcement where we communicated that the U.S. Department of Treasury has approved Workiva to be listed within the financial management quality service management office marketplace. Inclusion within this marketplace means that Workiva solutions and services have been evaluated for adherence to federal standards and common capabilities.

Workiva is a FedRAMP-authorized cloud service provider that delivers solutions to streamline and improve the integrity of financial reporting and GRC processes for federal agencies. And third, we closed a 7-figure account expansion deal with a top 5 global financial services firm. This included the expansion of existing solutions for multi-entity reporting ESEF and bank regulatory reporting for Basel Pillar 2 or 3, European Banking Authority stress testing, capital adequacy assessment and living will. This 5-year loyal customer now utilizes 10 financial reporting and industry-specific solutions across the Workiva platform. This deal was a co-sell and will be implemented by a regional advisory firm. I’ll turn now to GRC. At their core, GRC programs include the management of controls, risks, policies and operational audits.

Our GRC portfolio has a close adjacency to our financial reporting and ESG solutions. This is truly a better together value proposition. Let’s take a look at three GRC deals that closed in Q2. First, a South American aerospace company became a new platform customer with a multi 6-figure investment in our controlled management, risk management, SEC and global statutory reporting solutions. This opportunity was sourced by a big 4 firm that was actively working with the company on a GRC project. The project will be implemented by the big 4 advisory firm. Second, a top 10 U.S.-based bank purchased our enterprise risk management solution to support risk assessment, risk metrics and risk reporting. This multi-6-figure account expansion complements the bank’s previous investment in Workiva, which includes 11 other solutions.

This opportunity was a co-sell and will be implemented by a regional consulting firm. And third, an American Crypto Exchange purchased 4 GRC solutions as they scale their business globally in this highly regulated industry. This new logo deal was a competitive win over a GRC specific solution provider. Our comprehensive support for controls, risk, audit and policy management all on 1 single platform, along with the global reach of Workiva were differentiators in this opportunity. This opportunity was a co-sell with a regional advisory firm who will be implementing this project. Let’s move on now to 1 of our top booking solutions for 8 quarters in a row, ESG. The demand for our sustainability offering continues to grow. And while regulation is a clear driver, it is significant that the demand is growing even without regulation in the U.S. As a result, our ESG solution is driving pipeline expansion and booking success with wins in both new logos and account expansion.

I’d like to highlight three of these ESG wins from the quarter. First, we landed a multi 6-figure new logo customer, a European-based industrial company who purchased our ESG solution along with GRC to support their global ESG reporting initiatives. This was a competitive deal with 2 European-based ESG solution providers. Workiva was differentiated in this opportunity with our fit-for-purpose ESG solution and the capability to support ESG risk management as part of the process. ESG in combination with GRC is a clear, better together value proposition. This opportunity was sourced and will be implemented by a regional consulting firm. Second, we signed a multi-6-figure account expansion deal for ESG with the top Canadian bank. This was the eighth solution this bank has purchased from Workiva.

This opportunity was a co-sell with the big 4 advisory firm, who will also be providing services for the project. And third, we signed a two solution account expansion deal with a Fortune 100 retailer. They purchased Workiva’s ESG and policy management solutions. This client now has 6 solutions on the Workiva platform. This ESG and associated policy management win is a great example of how many U.S. organizations are purchasing ESG well ahead of U.S. regulations. This retailer announced a net 0 commitment in 2022, and they’ve invested in Workiva to plan, track and report on their progress to these important ESG commitments. This opportunity was a co-sell with a regional advisory firm who will be providing delivery for the project. To expand on our sales momentum and to further capitalize on the ESG market opportunity, we announced the launch of Workiva Carbon on June 18.

This new offering advances our ESG and our sustainability platform to support organizations requirements for carbon accounting, the tracking and the disclosure of carbon emissions for Scopes 1, 2 and 3 and decarbonization. The launch of Workiva Carbon was supported by the acquisition of Sustained Life, which we also announced on the launch date. Workiva Carbon is a platform play. This is a strategic addition to our platform that we believe will make our ESG solution an overall assured integrated reporting platform even more relevant. ESG plays a pivotal role in both landing new customers and account expansion on the platform. And the addition of carbon accounting, the most regulated part of ESG will only make the platform more valuable. So why is carbon accounting so important?

From a market perspective, there were 3 primary drivers of this emerging ESG discipline. First, those companies that have made net viewer commitments under the science-based target initiative, which is over 4,200 companies must track their carbon emissions, in accordance with the TCFD methodology. These companies need technology to support their carbon tracking and decarbonization efforts. Second, carbon accounting is a requirement for many in the global supply chain. The CDP, a nonprofit organization that manages a global disclosure system for companies to track their environmental impacts reported in November 2023 that 23,000 companies representing 50% of the global market cap now report their emissions data to the CDP. Many organizations are investing in carbon and ESG disclosure because it’s a requirement for them to keep their customers.

And third, carbon emissions disclosure is the part of ESG that is the most consistently regulated worldwide. This includes regulations such as the Corporate Sustainability Reporting Directive, the pending SEC Climate Disclosure Rule and California’s Climate Corporate Data Accountability Act and Climate-related Financial Risk Act. So why launch a carbon solution now? Well, based on our market assessment, we believe that adding carbon accounting capabilities will accelerate our success in ESG. Having met with thousands of organizations on the topic of ESG, what we’ve consistently heard is that many prospects and customers prefer to purchase their carbon and ESG reporting solutions from a single vendor. We’ve also observed that carbon accounting is an immediate need for those at the beginning stages of their ESG journey.

In many of our deals, carbon accounting is the first solution they’re looking to buy. And finally, it’s clear that carbon accounting is a core requirement for CSRD in Europe for the proposed SEC climate disclosure rule and for the California Climate Rules. With carbon accounting as part of the Workiva platform, our initial focus will be on those companies with spend management and activity-based requirements for Scope 1, 2 and 3 emissions and those companies addressing the requirements for the Corporate Sustainability Reporting Directive. Workiva Carbon enables organizations to measure, manage, collaborate and report on emissions data to support their net zero supply chain and regulatory reporting requirements. Workiva Carbon combines technology and expertise from the Sustained Life acquisition with the power of the Workiva platform.

As I mentioned earlier, Workiva Carbon is a platform play. The strategic acquisition of Sustain Life accelerated our launch of Workiva Carbon. Sustain has been helping companies with their carbon accounting and their emissions reporting across industries worldwide since its inception. We believe that Sustained Life has the best technology and the most talented team of the 40-plus companies that we evaluated. At this point, we’ve integrated the sustained team. We’ve launched the solution and we’re actively in the market selling Workiva Carbon. We’re excited about this new product launch, the growth opportunities it provides and how it further elevates the value of the Workiva platform. With an improved buying environment, we believe that we have the opportunity to accelerate our growth across our solution portfolio and in key geographic markets.

While executing on these growth opportunities, we’ve also continued our delivery of improved productivity. For example, in Q2, we delivered a 240 basis point improvement in margin compared to Q2 of 2023. I’d like to make it clear that there have been significant shifts in our business in response to considerable changes in the market over the past few years. The size, the sophistication and complexity of the sustainability opportunity has evolved quickly, and we’ve chosen to aggressively go after this growth opportunity. There’s also a time element around this opportunity based on defined regulatory time lines. We believe the time is now to go after this market opportunity and it is because of this that we will continue to invest in our go-to-market teams.

As we adapt to the market environment and refine our financial plan, we’ve made a change to our long-term operating model, which includes the long-term target for communicated back in 2022. Today, we’re providing an update to this long-term value framework to reflect our medium-term and long-term targets. The details of this are on Slide 21 of our Q2 investor presentation, which can be found on our Investor Relations web page under the News and Events dropdown and is a link in your earnings call webcast for. Jim will walk through the details shortly. To be clear, we are focused on both growth and productivity. We will continue to make progress, and we believe we will drive improved operating leverage over time. As a reflection of our confidence in our long-term growth opportunity and our financial outlook, today we announced that our Board of Directors has authorized the repurchase of up to $100 million of our Class A common stock.

This share repurchase program may help reduce the rate of our share dilution going forward, and it’s driven by our belief that our share price is undervalued given our long-term growth opportunity. In closing, as I’ve said many times before, we believe we have a durable business with multiple growth levers to drive long-term growth. These strategic levers include our platform, our solution, global expansion and our partner ecosystem. With our leadership and investment in ESG, GRC and financial reporting, with our unique ability to address organization’s most critical reporting challenges and with the loyal relationships we have with our customers and our partners, Workiva remains well positioned to extend our market leadership. I’d like to thank our customers who put their trust in us and our partners for their investment in their Workiva practices.

I’d also like to thank our talented team of dedicated employees. Together, we believe we can make an even greater impact and accelerate our mission to power transparent reporting for a better world. And with that, I’ll now turn the call over to you, Jill.

Jill Klindt: Thank you, Julie, and good afternoon, everyone. I will be covering five topics today. First, I will cover the financials and key metric highlights for the second quarter of 2024. Second, I will walk you through our financial model, reflecting updated medium-term 2027 targets and adding a longer-term 2030 model. Third, I will highlight the $100 million share repurchase program we announced today. Fourth, I will discuss our Sustained Life acquisition. Then finally, I will provide commentary and guidance for Q3 and the full year 2024 before opening the line for questions. . As Julie mentioned, we beat the high end of our Q2 revenue guidance, driven by strong subscription revenue growth. We also beat the midpoint of our operating margin guidance, generating $3.6 million of operating profit, a 240 basis point improvement versus Q2 2023.

We generated $177.5 million of total revenue in the second quarter, delivering growth of 15% from Q2 2023. Subscription revenue was $160.7 million, up 18% from Q2 2023. A combination of new customers and account expansions continue to contribute to our strong revenue growth. New customers added in the last 12 months accounted for 49% of the increase in subscription revenue. Professional services revenue was $16.8 million, down 8% from Q2 2023, driven by a decline of setup and consulting services revenue. We anticipate that progress on our strategy to shift lower margin setup and consulting services to our advisory and consulting partners will lead to a continued decrease in setup and consulting revenue throughout 2024 compared to 2023. I’ll now move on to our performance metrics for the quarter.

One note, these metrics do not include any impact from the Sustain.Life acquisition. We had 6,147 customers at the end of Q2 2024, a growth of 287 customers from Q2 2023. Our gross revenue retention rate of 98% was well ahead of our 96% internal target, and our net revenue retention rate was 109% for the quarter. In addition, 67% of our subscription revenue was generated from customers that have multiple solutions. This compares to the 62% reported in Q2 2023. We are pleased with this trend and the progress it shows as we continue to focus on expanding relationships with our largest customers. The account expansion trend is also reflected in our large contract customers. In the quarter, we had 1,768 contracts valued at over $100,000 per year, up 20% from Q2 the prior year.

The number of contracts valued over $150,000 totaled 1,015, up 23% from Q2 2023, and the number of contracts valued over $300,000 totaled 356, up 31% from Q2 2023. Moving on to our operating results. Gross profit totaled $139 million in Q2, up 18% from the prior year. Gross margin improved year-over-year by 240 basis points, increasing to 78%, this was driven by improved leverage in compensation and cloud computing costs versus the same quarter a year ago. We posted operating profit of $3.6 million compared to the Q2 2023 operating loss of $600,000. We are pleased with the continued improvement, which was driven by revenue growth and managing controllable expenses. At June 30, 2024, cash, cash equivalents and marketable securities decreased $97 million sequentially to a balance of $741 million, driven by our acquisition of Sustain.Life.

We had no change in cash from operating activities in Q2 2024. In short, this was a timing issue Q2 bookings were strong, but a combination of late in Q2 invoicing and slower Q1 bookings led to a wide swing in receivables. We expect to see a catch-up of collections in Q3. Let’s move on now to our second topic. As Julie mentioned, we have updated our long-term financial model. We first communicated the current long-term model at our Investor Day in September of 2022., but as Julie discussed, much has changed in the market and in Workiva business since that time. We remain committed to both growth and operating leverage. The details of these changes can be found on Page 21 of our Q2 investor presentation. The presentation is located on our Investor Relations web page under the News and Events drop-down.

It can also be accessed as a link in your earnings call webcast viewer. I’ll highlight three changes to the financial model for you. First, we have provided an updated medium-term target for full year 2027 and a new longer-term target for full year 2030. Second, we are improving 2027 targets for gross margin and G&A while maintaining the existing target for R&D. We believe that we can achieve these margin targets by year-end 2027 or prior. Third, the 2027 target for sales and marketing has been changed from 32% to 41%. Cumulatively, our medium-term operating margin target has changed from 22% to 16%. We are targeting a 24% or higher operating margin in the longer term, as we scale and double our business in the coming years, our 2030 model reflects an improvement in our operating leverage.

Moving on to the topic of share repurchase. As Julie mentioned and as highlighted today in our Form 10-Q and press release, our Board of Directors has authorized the company’s first ever $100 million share repurchase program. We see this as an attractive use of capital while still allowing us to invest in our growth. More details can be found in our Form 10-Q filing. The fourth topic of the day is the acquisition of Sustain.Life. On June 18, we announced the acquisition of Sustain.Life as part of the rollout of Workiva Carbon. As Julie highlighted, this was a strategic acquisition for Workiva. We have hit the ground running with a great Sustain.Life team and the solution is already integrated into the Workiva business. As disclosed, we paid $100 million for this acquisition.

Sustain.Life is a roughly 50 employee company that had their solution in the market for just over 2 years. Given their scale, the employees will be readily integrated into Workiva. And given the early stage of their growth, acquired revenue is not significant. Our focus will be on selling Workiva Carbon on our platform to both our existing customers and for new logo opportunities. Turning now to our guidance for Q3 and the full year 2024. Julie emphasized that we saw a healthy improvement in the buying environment in Q2 with broad-based demand across our entire solution portfolio. Our strong first half performance, along with improved sales momentum gives us the confidence to raise our full year revenue guide. For the third quarter of 2024, we expect total revenue to range from $182 million to $183 million.

We expect services revenue will be down compared to Q3 2023. With a decline in setup in consulting services revenue, partially offset by growth in XBRL services revenue. We expect non-GAAP operating income to range from $6.5 million to $7.5 million or a non-GAAP net income of $0.22 to $0.24 on a per share basis. Our share count will be approximately 55 million weighted average shares. For the full year 2024, we expect total revenue to be between $727 million and $729 million. We expect total services revenue to be down slightly. We expect XBRL services revenue will continue to grow at a low single-digit rate. For setup and consulting revenue, we expect a similar rate of decline from what we saw in 2023. We expect our subscription revenue growth to be over 17% at the midpoint.

We are increasing the midpoint of our guidance for non-GAAP operating income to range from $29 million to $31 million or a non-GAAP net profit of $0.94 to $0.98 on a per share basis. Our share count will be approximately 55 million weighted average shares. We believe we will post a positive free cash flow margin of 11% for the full year 2024. In conclusion, we are encouraged by the improvement in the buying environment. We believe our focus on our strategic growth levers, assured integrated reporting and ESG position us well to accelerate growth and drive long-term operating leverage in our business. Thank you for joining the call today. We are now ready to take your questions. Operator, please begin the Q&A session.

Q&A Session

Operator: [Operator Instructions] And our first question comes from Terry Tillman of Truist Securities. Your line is open.

Terry Tillman: Yes. Hi, Julie, Jill and Mike, thanks for taking my questions and congratulations on the improved bookings. I think you said record bookings, if I’m not mistaken. I had a question on the midterm model. So for 2027 I don’t think I have this mistaken, but I think at 1 point, you all had kind of a flag in the ground in terms of $1 billion in revenue. Does that still hold? And then this is a pretty meaningful increase in the sales and marketing investments, are you committed to growth acceleration or any more you could share on kind of how you could see growth accelerate into ‘27? And I have a follow-up.

Julie Iskow: First, yes, you heard right. It was a record bookings quarter for us. Indeed, even though it was a Q2 quarter. And yes, we are committed to the numbers around that $1 billion. So we’ve not changed that. We will be above $1 billion.

Terry Tillman: Okay. Well, kind of related to the first question though, Julie, just relates to these increased growth investments, I mean, how quickly could you see an inflection or reacceleration in subscription revenue like before ‘27. Any more color there? And I did have a follow-up on carbon.

Julie Iskow: Sure. We do expect the acceleration of the revenue. I mean, we are focused on growth. We aspire to get back to the high teens 20% subscription revenue in the future. We’re selling a differentiated solution into a large, relatively unaddressed TAM, we are also hopeful we’ll see a return to cap markets, continued adoption of our ESG software to address new regulations and stakeholder demands and just an overall improved software spending environment. So the answer to your question is yes, we will – we expect to see an acceleration towards the 20%.

Terry Tillman: Sounds good. And I guess on carbon, so congratulations on the unveiling of that. Just any more color you could share in terms of what kind of economics you could get with that, whether it’s an installed base deal or a new customer deal? And really, what would be the first metric we would see, is it 100,000 customers 150, 300. Just anything where we could foresee a KPI where this is reflecting success. Thank you.

Julie Iskow: I can let Jill talk numbers. But this is not a – we’re going after direct carbon revenue, and that’s the main metric. We talked about it being a platform play being very strategic for us. We believe it will make our ESG solution and our assured integrated reporting platform, again, even more relevant. So the goal is to expand on our sales momentum and further capitalize on ESG and the market opportunity on the platform, very early now to tell and probably give numbers on exactly what you’re asking around. But the why for carbon is there’s a market demand, a growth opportunity aligned well with our strategy of assured integrated reporting.

Operator: Thank you. Our next question comes from Rob Oliver of Baird. Your line is open.

Rob Oliver: Great. Good afternoon, everybody. Julie, for you first. Just I was wondering if you could expound a little bit on the improvement in the buying environment, if there were particular sectors and that were drivers? And what was it that caught your attention? Where it deals – were there deals that have lingered in the pipeline that suddenly picked up steam. I think you mentioned some increased deal momentum, if I’m everything properly around ESG. So just any color around that improved buying environment that you cite would be great. And then I had a quick follow-up for Jill.

Julie Iskow: Sure. I’m glad you asked the question, Rob, because it’s one with a different answer this quarter than we’ve had in recent quarters when the question has been asked. As I mentioned in the prepared remarks, we saw a healthy improvement in the buying environment. It was marked by broad-based demand across the entire solution portfolio, again, record bookings quarter leads to optimism. And while we, yes, continue to see a soft IPO market, and we can’t conclude the market is back, I mean, we saw some great platform, deals closed, a few of which I highlighted on the call, we saw large contract customers increase multi-solution deals, platform plays. We just remain optimistic about the value we’re delivering to our customers, and we’re seeing our platform resonate in the market.

Rob Oliver: Great. Thank you. Helpful. And Joe, just for you, a follow-up to Terry’s question on the revenue target, which again was not included in the slide deck, so by a mission. I think you just you guys just affirmed that it still stands, but can you just remind us what that $1 billion target year is of achievability?

Jill Klindt: We’ve not set a specific year, but at this point, for the 2027 model, we would be well over $1 billion. And then for the 2030 year, we would be more than double where we would – where we’re at today, it would be our expectation – be the expectation.

Rob Oliver: Got it. So there’s no current. It’s – because there was some debate about whether this was a 2026 or 2027 target when you set the $1 billion. And what you’re saying is, we’re just going to get to $1 billion?

Jill Klindt: Correct. By the time that we get to that 2027 model year though, we do expect to be well over $1 billion on an annual basis. .

Rob Oliver: Clear. Okay. Really helpful. Thank you, guys, very much appreciate it.

Jill Klindt: Thanks.

Operator: Thank you. Our next question comes from Steve Enders of Citi. Your line is open.

Steve Enders: Okay. Great. Thanks for taking the questions here. Good to hear the buying environment is getting better. I guess, how is the pipeline shaping up at this point? And I guess, how you kind of viewing how that’s shaking out for the rest of the year to give the confidence in the rates here.

Julie Iskow: Sure. We’re continuing to build pipeline and won’t make forward-looking statements here, but I will give it a positive. We are – again, our platform is resonating in the market. There’s reception to our launch of Workiva Carbon as well as the portfolio across the platform. Just great momentum. Also in geos. We’ve had strong quarters, which you know. So we are pleased with our momentum in the geos that we’re investing in and focusing on and again, platforms resonating.

Jill Klindt: And as a result of the great quarter that Julie mentioned we had for Q2, that is the main driver of our raise on revenue through the end of the year. .

Steve Enders: Okay. That’s helpful context there. And then I guess, with the Sustain.Life acquisition, I guess, is there any – how should we think about the inorganic contribution to the outlook, either from a revenue perspective or the impact that’s having on the EBIT outlook?

Jill Klindt: As I – in the prepared remarks, you heard me talk about the size of Sustain.Life, and it was a relatively small company, about 50 people. They’ve only had their product in the market for a couple of years. And so the impact from Sustain.Life is fairly small on our business. The majority of that outperformance and the majority of the raise in our guide for revenue really is coming from organic business. It’s – that’s the focus.

Julie Iskow: And I’ll add by reiterating, I mean, we’ve been talking to thousands of customers, and we found that, again, carbon accounting is an immediate first need for many prospects that are at the beginning stage of their ESG sustainability journey with us. And yes, it’s a core requirement in CSRD and other regulations, but we found many customers want a single vendor for carbon accounting and ESG, and we want to be there and grab that opportunity.

Steve Enders: Okay. Great to hear. Thanks for taking the questions.

Julie Iskow: Thank you.

Operator: Thank you. Our next question comes from Jacob Roberge of William Blair. Your line is open.

Jacob Roberge: Hi, thanks for taking the questions. Can you talk about how execution with your EMEA team has been trending this year? And just where customer appetite is for ESG reporting in Europe, just given the ramping CSRD requirements heading into next year?

Julie Iskow: Sure. With pleasure. Our momentum continues to build in Europe. We had a very strong Q2 we’re pleased with the momentum we’re seeing. And as we mentioned last quarter, we’re up now at 15% of revenue outside of North America, which is primarily Europe, highlighted in my prepared remarks, we continue to have some signature wins there, multi-solution, six-figure deals with partners assured integrated reporting, that integrated report, it resonates. Our value proposition is resonating. So, we continue to see the momentum. Now, despite the progress, I will say we are still very open. We have been and continue to be about the need for improvement there, but we have got great sales leadership. We are getting our strategies in the various geos defined and executed on, and CSRD is absolutely showing some green shoots there, and we have had some early customer wins driven by the requirements. So, very optimistic and continue of the momentum.

Jacob Roberge: Okay. Very helpful. And then for the customers in Europe that aren’t using your financial reporting solution, how are you getting your foot in the door for ESG reporting? And what solutions are you competing with in that market? I think you referenced the industrial win that you had where you beat out two other companies. So, it would be just great to understand the context behind that.

Julie Iskow: So, the – we land on almost most – in most regions with financial reporting in some form of it, whether it’s an annual interim or private company reporting or multi-entity reporting and also ESG in Europe with the CSRD coming. The competition we have, again, is there – we have talked about this prior that it’s very quite question [ph], might be one because it’s just targeted at our capability rather than a platform play. In Europe, especially, it’s again the integrated report. Very well understood, it’s the financial data with the non-financial or financial reporting with ESG along with assurance. And that’s what’s resonating in the market. So, whether we land with financial reporting, whether we land with ESG or something beyond in the GRC controls, we continue to have the platform being the main point of focus.

Jacob Roberge: Great. Thanks and congrats on the results.

Julie Iskow: Thank you.

Operator: Thank you. Our next question comes from Alex Sklar of Raymond James. Your line is open.

Alex Sklar: Hi. Thank you. Julie or Jill, just following up on Rob’s question, the better demand backdrop, can you just help frame was this better backdrop kind of did it persist the entire quarter and into July? Is there any way you can kind of quantify from the KPIs, there was faster sales cycles or conversion rates just relative to what the past few quarters were, and then in terms of the back half outlook, is the expectation that this better backdrop kind of persists, or did you kind of bake in any added conservatism around like, hey, maybe this is just one quarter, it’s not a new trend yet. Just curious kind of how you approach the outlook. Thanks.

Jill Klindt: As far as the outlook and Alex, thanks for the question. We were still being cautious. There is a lot going on, as you know, in the macro and political environment through the end of the year. So, we haven’t built in a large growth on our bookings at the end of the year. So, I would say that we are still being careful through the end of the year, what’s in our model and what’s in our guide. So, there is still room for upside. And I don’t know, Julie, was there anything else that you wanted to…?

Julie Iskow: I will just say that we are more optimistic given our strong Q2. And again, we are seeing a lot of proof points, as I described and as we highlighted on the prepared remarks. So, that gives us reason for optimism.

Alex Sklar: Okay. Perfect. And then I just want to dig into some of the incremental sales and marketing kind of go-to-market investments, and you called out ESG opportunity, in particular, when we look at those, the new targets, it kind of implies maybe $100 million of incremental sales and marketing versus kind of the run rate today. So, can you just talk about what that actually looks – what’s that actual investment look like? Is it just a lot more ESG dedicated sales reps, is it more on the just broader platform folks, more in Europe? I am just kind of curious to be kind of talk a little bit more about where kind of you are planning to put some of these incremental dollars? Thanks.

Jill Klindt: I mean you have already listed out a bunch of them, Alex, actually, is that we are going to get better coverage across all areas of our business. We want to make sure that we have the right coverage across our pipeline so that we can get deals closed more quickly, and more effectively. And we want to be able to make sure that we are having all the conversations that we want to have, given the demand environment and the timing that we want to achieve with this, which would be to really do this quickly.

Alex Sklar: Maybe if I just…

Julie Iskow: Just going to follow-on and say we are investing in the sales and marketing because we have an opportunity in front of us that’s large and significant, again, that TAM, but it also has a time element to it as we have described with regulation. And the first cohort of companies that need to comply with CSRD are filing their non-financial data, their 2024 data in 2025. So, there is a time element and we are going after it. And hence, we are focused on the opportunity for our platform in going after the market opportunity for growth.

Alex Sklar: Okay. I appreciate that added color. And just one clarification, in terms of kind of coverage of the pipeline, Jill, that you brought up, are you thinking now maybe there is more of an opportunity to cover some of the middle market companies that are going to have to adopt some of the CSRD rules that maybe before weren’t perfect platform that customers, I am curious what that coverage actually means in practice. Thanks.

Jill Klindt: Sure. So, I mean I think that when we think about Workiva Carbon and where we want to land that, the mid-market is a perfect place for it. I think that it’s absolutely something that we will be talking to more mid-sized companies about as they have a reporting requirement, it’s not a regulatory requirement. The being asked for this information is something we have talked about a lot, that companies are looking for ways to solve for sustainability and the way that they talk about their ESG metrics. And we think that that’s a good place for us to land Workiva Carbon.

Alex Sklar: Perfect. Thank you so much both for the color.

Julie Iskow: Alex, thank you for the question.

Operator: Thank you. Our next question comes from Adam Hotchkiss of Goldman Sachs. Your line is open.

Adam Hotchkiss: Great. Thanks so much for taking the questions. I would be curious just to start, Jill, what you are seeing or I am sorry, Julie, what you are seeing just more broadly on the demand side for ESG. I know we had previously talked about that ramping up relatively slowly. But now that we are approaching some of the first deadlines around CSRD, what’s your view on just more broadly the adoption cadence that these companies are taking relative to the regulatory requirements? Are you hearing sort of broader-based global adoption cadences, or are you hearing folks waiting until particular pieces of their business are subject to specific regulatory deadlines. I am just curious as to how folks are approaching it and how that’s evolved in the last three months.

Julie Iskow: Sure. And as we talked about before, the customer bases and prospect base, we look at as mature and already moving and having some sort of reporting in place, and then there is those that are just not going to comply until they need to and the regulations they are in place and as a forcing function. But we are – from what we have seen, we are very pleased with the way it’s performing. It remains again, one of our top looking solution now quarter-after-quarter. We are eight quarters in a row. And even without regulation, we are seeing customers buy the ESG capabilities. I mean they want to be prepared. Many know its complex. They don’t want to be left behind. They know it’s coming, and many have set science-based targets that they need to track to, as I mentioned on the market, and they want to address the needs of multiple stakeholders.

That’s really what it is. So, we are encouraged by the pickup, yes, the CSRD wins that we saw in Q2. However, even if the company doesn’t need to comply directly with CSRD, if they are in the supply chain, they will need to report on their non-financial data. So, we have consistently communicated that this will be a long durable demand market with what we believe will be growth over multiple years, but we are seeing proof points, and we are enthusiastic about the demand and the momentum we are seeing.

Adam Hotchkiss: Okay. Thanks Julie. That was really helpful. And then, Jill, I just wanted to touch back on the sales and marketing guidance change. I guess what changed versus three months ago or versus last Investor Day around the sales and marketing calculus. I fully understand you want to make sure that you are covering the pipeline appropriately. But was there more visibility on the top line, was there early indicators around sales performance that made you say, hey, it would be helpful to have more coverage here. Just anything that changed and drove the decision making here besides this just being a sort of a multiyear decision making process to guide you to where you are today?

Jill Klindt: So, I think that, as Julie talked about in her remarks, we really are looking at Workiva Carbon as a very timely opportunity. And we are, at this point, looking at ways to make investments within sales and marketing and with coverage, like we had just talked about across more areas of the pipeline, more geographies so that we can hit while the iron is hot in a lot of ways, I guess and make sure that we are taking advantage of the opportunity to close as many deals as we can as soon as possible. We are really great about retaining customers. We are really great about making customers love our platform. We know that they will. And so we want to get as many of them on as we can as these regulations are coming into play as quickly as we can.

Julie Iskow: I think the strength of our success in the market, combined with the time element and we have moved into this new category with sustainability, ESG and carbon. It was time to double down here on the investment to go after the market opportunity.

Adam Hotchkiss: Okay. Very clear. Thanks Julie. Thanks Jill.

Julie Iskow: Thank you.

Operator: Thank you. Our next question comes from Ryan Krieger of Wolfe Research. Your line is open.

Ryan Krieger: Hey guys. Thanks for taking the question. Just on the net retention side, can you just parse out what you saw in the quarter from new customers versus back to base, and it’s great to hear about the improved buying environment, but we did see retention tick down again to 109, so any pressure to call out there on the expansion side? And then how should we think about that metric maybe moving into the second half?

Jill Klindt: Yes. And this is one that it can move around a little bit, there is a little bit of noise, but we did call out in the prepared remarks that we had about 49% of our revenue came from new customers added in the last 12 months. That is higher than it has been in the past couple of quarters. So, we did see over the past few months more newer customers adding into revenue, and this is always going to fluctuate around a little bit, but we are still very encouraged by what we saw in Q2, and we do think that we can continue to improve that in our metric.

Julie Iskow: I will follow it up saying we had new customers coming from all regions and really broad-based across the portfolio.

Ryan Krieger: Awesome. Thank you.

Julie Iskow: Thank you, Ryan.

Operator: Thank you. That concludes our Q&A session and today’s conference call. You may now disconnect. Thank you for participating.