Workiva Inc
NYSE:WK
Earnings Call Analysis
Q3-2023 Analysis
Workiva Inc
The company has made significant strides in enhancing its platform capabilities, notably by introducing generative AI to all customers in North America, which has been met with strong enthusiasm. This innovative edge has solidified their leadership in transparent reporting and regulatory disclosure, underpinned by a unique approach that ensures customer data security and eliminates major concerns associated with the use of AI tools like ChatGPT.
Financially, the company exceeded its revenue guidance by $2.2 million due to robust subscription revenue growth and an uptick in services revenue. The return to non-GAAP operating profit marked a key achievement in the third quarter, reflecting a successful blend of revenue strength and operational efficiency. Additionally, the company observed a 19% growth in total revenue year-over-year for the third quarter of 2023, driven by both new customer acquisitions and account expansions. Professional services have also seen growth, despite a strategic shift to outsource lower-margin services.
With an addition of 85 net new customers in the third quarter, the company's customer base now stands at 5,945, representing a healthy growth rate. Not only has the company managed to retain customers effectively with a gross revenue retention rate above the 96% internal target, but it also increased its net revenue retention rate to 112%. Moreover, the company enhanced its contract value metrics with a notable increase in contracts valued at over $100,000, $150,000, and $300,000 per year.
The company has adopted a prudent stance in forecasting its fourth-quarter and full-year revenue guidance due to macroeconomic uncertainty and longer sales cycles. They've projected Q4 revenue in the range of $164 million to $165 million and raised the full-year guidance slightly, with a non-GAAP operating income range of $3 million to $4 million. Acknowledging the current headwinds while being cautiously optimistic reflects the company's responsible fiscal management practices.
An important theme underlined during this earnings call is the ongoing focus on improving margins. The company aims to sustain margin growth momentum into the fiscal year 2023 and beyond, emphasizing a long-term strategy for growth and increasing operating leverage. This commitment forms the basis for potential non-GAAP operating profits in the coming year.
Despite broader economic challenges, the company has consistently secured deals, with a steady quarter-over-quarter environment and no significant changes in the deal inertia. Their approach to larger deals has been gradually heightened, requiring higher-level approvals within organizations, which is a testament to the widening scope and scale of the company's client engagements.
The Executive team has noticed an increase in competitive noise within the ESG market landscape, with many companies claiming ESG capabilities. However, they remain confident in their differentiated offering of a comprehensive platform encompassing financial reporting, ESG, and GRC, which no competitor matches. Viewing competition as a market validator, the company believes its established market position and expansive solution gives them an edge.
The company doesn't provide specific metrics regarding contributions from partners to quarterly bookings or sales. Nonetheless, they have seen success in transitioning more services to partners, which, apart from deepening those relationships, has been crucial in the company's growth strategy. The focus now is on co-selling collaborations with partners, leveraging a partner-first approach to further expand and enrich the partner ecosystem, a strategy that is expected to bring forth additional growth opportunities.
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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. We'll keep a 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 [ Virdantex ]. This is the second consecutive year that our Workiva customer has won in this category. The value our platform provides is also modified by the continued large contract account expansion that we saw in the third quarter. We continue to see outpaced growth in our large contract customers. In Q3, the number of contracts valued over $100,000 increased 24%. Those of $150,000 increased 26%, and contracts valued over $300,000 were up 38%, all compared to the third quarter of 2022.
Our platform is a strong and key differentiator in the marketplace were determined the only platform that brings financial reporting, ESG and GRC together in 1 secure, controlled audit-ready environment. We are the platform for Assured Integrated Reporting. I'd like to highlight 3 Assured Integrated Reporting wins that we signed in Q3. First, a Fortune 500 energy company purchased 3 GRC solutions, including audit, internal controls, and risk management. This was to complement their previous investment in SEC management reporting and ESG. This 11-year loyal SEC customer was engaged with the big 4 advisory firms in transforming their GRC program. and the big 4 advisory firm recommended Workiva as the technology of choice. This firm will also be providing delivery for the project.
Second, a North American-based airline that purchased SEC in the second quarter of this year went all in on the Workiva platform in Q3. They added a 5-solution account expansion that included ESG and [ 4G RC ] solutions SOX, audit, enterprise risk management, and IT risk and controls. This deal was a competitive win of our point solution GRC provider. The strength of our connected platform and the ability to support both SEC and ESG reporting reinforces Workiva better together approach. It also contributed to the competitive differentiation in this platform expansion. This assured integrated reporting win was a co-sell with a regional advisory firm that will also be handling the project delivery of both the GRC and ESG solutions.
And third, it's not just about account expansion. We're landing with the platform, including a 3 solution new logo win with a Spain headquartered utility who purchased ESEF reporting, ESG, and controls management. This assured integrated reporting win was sourced by a Big 4 advisory firm. There were 2 other Big 4 firms involved in this deal competing for the implementation work, and all 3 had a previous relationship with the client and all 3 have established Workiva consulting practices.
We win deals like these because our customers see the value in our experience, our ecosystem and our capabilities. We have unrivaled experience. First, we've been doing investor grade reporting for more than a decade. Second, we have a quickly maturing ecosystem of over 200 partners. Partners want to work with us because of the opportunity for commercial success that it creates for them. Third, we are the world's leading platform in [indiscernible] for financial and nonfinancial data. And finally, our regulatory reporting expertise is unmatched. We have the expertise on SaaS so that the day of regulatory changes go into effect, our customers can be compliant, and we have a diverse and growing portfolio of best-of-breed solutions, and it's all within a true platform.
Let's move on to a top looking solution yet again for the quarter. ESG. Companies continue to purchase ESG well ahead of regulations. As highlighted in recent comments by [ Chair Gensler ] from the SEC, 81% of the Russell 1000 are currently disclosing their climate risks. With increased stakeholder focus on sustainability, we are seeing a more defined ESG technology purchasing process, including formal RFPs and ESG transformation projects. Our ESG account expansion activity remains strong, in both our differentiated platform and our partner first strategy are contributing to our win rate in this increasingly competitive environment.
I would like to highlight 3 ESG wins for the quarter. First, A Germany headquartered retail firm purchased our ESG solution to support their broader ESG transformation project that was driven by the CSRD. There were multiple ESG solution competitors vying for this deal with the customer ultimately choosing Workiva in alignment with their broader project scope. This new logo win was sourced by a Big 4 advisory firm.
Second, a U.S.-based Fortune 500 consumer financial services company expanded their use of our platform during Q3 by purchasing ESG to complement their existing SEC solution. This was a competitive win over an incumbent GRC point solution provider. This opportunity was sourced by a Big 4 advisory firm and was also a co-sell with the climate accounting technology partner. This deal will be implemented by the Big 4 advisory funds.
And third, we signed an account expansion deal with a top U.S.-based private health care company. This was a competitive deal that went to RFP with multiple vendors involved. This company had purchased and successfully implemented the Workiva private company financial reporting solution back in 2022. We Supporting more even with the co-sell and the sales process, we're both a Harvard Accounting Partner and a Big 4 advisory firm. This project will be implemented by the Big 4 firm.
I'll turn now to financial reporting. In Q3, we continued to see demand in financial reporting in both new logo and account expansion activity. While ESG was a much highlighted topic of conversation on our recent Amplify event, many of our long-time customers were there to talk about financial reporting. Financial reporting for Workiva is not just SEC. It also includes, for example, global statutory or multi-entity reporting, private company reporting, management reporting and our capital market solution.
The conversations I had with customers focused on topics including investment fund reporting, finance transformation, Workiva's role in ERP projects, and supporting a company's private to public journey. While we continue to win new logos and SEC this quarter, there are 3 financial reporting deals that showcase the breadth of our financial reporting solution. First, one of the U.K.'s largest financial services firm purchased our banking solution to address the requirements for setting internal capital targets. This risk reporting use case is their seventh regulatory reporting solution that they purchased since becoming a customer in 2018. This account expansion pushed them over the $1 million ARR mark and it highlights how our platform supports many vertical regulatory use cases with standard platform functionality.
Workiva supports a wide range of banking specific use cases, including resolution plans, CCAR and DFAST, call reports, [indiscernible] planning, and [indiscernible]. This demonstrates how, as I described earlier, we are fast becoming the platform for transparent reporting and regulatory disclosure. Second, we closed a new logo win for final reporting with a top 10 U.S.-based private equity firm. Workiva was selected based on the comprehensive support for data integration, financial statements, prospectuses, shareholder reporting, and XBRL to support SEC filings. This deal was sourced and will be implemented by a regional advisory firm.
And third, we closed a large financial reporting account expansion with the top U.S. public university system. This university system originally purchased the Workiva platform for their annual consolidated financial report back in 2021. This implementation was at the university system level, which consolidated results across its network of institutions. The success of the initial implementation led to the customer expanding Workiva platform across its network of 9 universities and 5 medical campuses. This opportunity was sourced and will be implemented by a regional advisory partner.
I'll talk now about the activity we're seeing in GRC. With increasing stakeholder scrutiny, establishing an integrated enterprise-wide governance risk and compliance program is a strategic priority for many organizations. Workiva is a recognized leader in GRC, which is a broad market segment that includes internal audit, controls, risk management and policy management.
I'd like to highlight now 2 GRC deals that closed during the third quarter. First, A European global mobility company purchased 3 GRC solutions, including audit, controls, and enterprise risk management. This new logo deal was sourced and will be implemented by a Big 4 advisory firm. We were ultimately chasing this competitive deal over 4 GRC point solution vendors. We were the only solution evaluated by the client that could provide capabilities that not only address GRC specific requirements but also supported their ESG and global statutory reporting needs. This is the power of having an Assured Integrated Reporting platform.
And second, a Fortune 1000 financial services company expanded their investment in Workiva with policy management. It was their tenth solution with Workiva. This customer uses solutions across the portfolio, including financial reporting, ESG and banking-specific solutions. This product expansion was sourced by a regional advisory firm who previously implemented the Workiva controls and audit management solutions earlier in 2023.
Moving on to capital markets. The IPO market showed some renewed activity during the third quarter. While the number of new IPOs remains limited, we did see an increase in interest in those companies preparing for an IPO and those companies investing in their private to public journey. We're pleased with how we're competing for the IPO deals as they emerge. In Q3, we supported the S-1 process for one of the top tech IPOs of the quarter. This is a great example of how we deliver value to companies on their private to public journey. This customer first purchased our private company in [indiscernible] back in 2021. Our capital market solution was initially purchased in late 2022 with the completion of the IPO work in Q3. This company also purchased our SEC solution in Q3 to support their post IPO process. While we are seeing some signs of the market opening up, we're not yet forecasting a comeback of IPOs in the fourth quarter.
Moving on to our update on global regulations. Regulators have been very active since our last earnings call. In Q3, the SEC issued numerous announcements targeted at listed companies and new regulations for private equity firms. First, on July 26, the SEC issued new cybersecurity disclosure rules, which will significantly increase the pressure on the organization to perform more risk assessments, improve internal controls, and prepare for an increase in external audits.
Next, on August 23, new rules for private equity fund reporting were issued. These rules mandate that investment firms provide quarterly statements detailing information regarding private funds performance, fees, and expenses. The rules also require PE firms to disclose fund reports quarterly and obtain an annual audit through each private fund. And on September 7, the SEC issued a sample [ comment ] letter to companies regarding their XBRL disclosures. We believe that this action by the SEC signals that there may be greater scrutiny for XBRL data quality and filings, which impacts all of our SEC listed customers. Both our platform and our XBRL tagging services team will support our customers as they continue to navigate through this heightened regulatory scrutiny.
As it relates to the proposed SEC climate disclosure rule, there are no material updates from the past quarter. While there have been some discussion on the SEC providing further guidance on the Climate Disclosure rule in October. As of the time of this call, no new rules have been communicated. In his September testimony to the House Financial Services Committee, Chair Geismar was very clear that there was no guaranteed October date and that the commission will potentially issue new rules once all of the comments have been reviewed and the economic impacts have been documented. We still believe that the SEC is likely to implement climate disclosure rules in the near future. Their gentle house testimony was specific on the number of organizations that already disclose climate risks. He was also clear about the commission's goal to provide consistency and comparability to those disclosures. Standardized climate disclosure rules would enforce this consistency.
While the SEC is still in the rule-making process, there were no climate disclosure loss passed by the state of California that may have natural impact on ESG reporting. On October 7, Governor Mission [indiscernible] law 2 important climate disclosure regulations. The laws are SB 253 and SB 261. SB 253 is the Climate Corporate Data Accountability Act. It applies to all U.S. companies with total annual revenues in excess of $1 billion doing any business in California. This is predicted to impact over 5,300 business entities operating in California. These companies annual report Scope 1, Scope 2 and Scope 3 emissions. Reporting is set to begin in 2026.
SB 261 is the climate-related financial risk act. It applies to U.S. companies with total annual revenues in excess of $500 million in the do business in California. It mandates disclosure of climate-related financial risks and measures for risk reduction aligning with the international recognized TCFD framework. Reporting begins in 2026 with biannual reporting instead of annual. Outside of the U.S., there was continued regulatory activity around the CSRD. After approving enterprise sustainability reporting standards on July 31, the standard setting committee EFRAG with busy at work defining interoperability with ISSC related to IFRS S1 and S2 and the legacy South framework. Interoperability comments were also provided for the frequently used GRI framework.
In August, there was further discussion on the draft materiality assessment implementation guidance. This has been a priority topic given that there will be many first-time filings with this regulation. On October 18, the European Parliament confirmed in a vote the approval of the E SRS. They also rejected a resolution calling for limitations to be introduced on these standards. The ESRS will now formally be adopted before the end of the year and shortly after published in the Official Journal of the European Union.
Large EU companies will start assessing their operations through the ESRS criteria starting January 2024 and disclosing your information accordingly by 2025. Companies are letting these activities closely and they're waiting for implementation guidance on how established ESG framework mapped to the newly set ESRS standards. They're looking to understand what they'll need to disclose and how they will have to disclose it. With all this new regulatory activity with the SEC, the state of California's climate rules, the European CRD we believe that we have a large TAM in front of us in future durable demand for our Assured integrated reporting platform.
I'll move on now to provide some perspective on the macro and our focus on both growth and productivity. The geopolitical backdrop and economic uncertainty continue to impact our markets. Throughout Q3, we continue to see elongated sales cycles and increased buyer scrutiny across our portfolio. We do remain confident, however, in the many growth opportunities in front of us. driven by the value our platform delivers to our customers. Our teams will continue to work closely with our customers in solving their most complex reporting and compliance requirements. Our approach remains to be, first and foremost, focused on subscription growth and going after a large and expanding TAM.
Across the company, we're focused on driving growth first with a continued eye on productivity and performance. As highlighted by our Q3 operating margin, we're delivering on our improved operating leverage and productivity. We're building strong teams, improving our processes and incenting the right behaviors to drive this productivity. Areas that contributed to the improvement in our Q3 operating margin were continued strong subscription revenue growth and improved efficiency and productivity across the company. Margins continue to improve throughout the first 3 quarters, and we're guiding to a non-GAAP operating profit in both 2023 and 2024.
We enjoyed seeing many of you last month [indiscernible] Amplify which was largest customer user conference today. During the conference, we welcomed 5,800 in-person and virtual attendees from almost 2,000 companies, many of them from new logos. We also welcomed nearly 300 advisory and technology partner attendees at our partner [ ecosystem ]. We have loyal and devoted customers who are our biggest brand advocates. We hope you are able to hear directly from them about what makes Workiva so special and relevant.
At Amplify, we announced a number of new platform capabilities, including the availability of generative AI to all customers in North America. We received enthusiastic interest and feedback during our standing rule only AI sessions with over 40% of all attendees participating in at least 1 of these sessions. We believe that every 1 of our Workiva solutions can deliver expanded value to our customers with generative AI by harnessing best-in-class large language models embedded directly into our platform.
Our approach to Gen AI has been incredibly well received by our peers, our partners and our early adopters to our responsible implementation. We provide the assurance that no customer data or pros within our platform are ever stored or used in any way to train general AI models. By solving enterprise-grade security, we've eliminated one of the top concerns of using tools like ChatGPT. Our approach to Gen AI has been in tight partnership with our vendors, including Google, Microsoft and Amazon. We believe Workiva is the only provider in the markets that we compete in to offer such a comprehensive delivery of Gen AI. In the near term, we believe that monetization of AI will come in the form of solution differentiation and higher win rates.
In closing, I'll leave be able to see final remarks. Workiva delivered solid third quarter results, including a transition back to non-GAAP operating profit. We continue to win with the multi-solution and capital expansion strategy, resulting in strong growth in large contract customers. We're confident in our ability to execute on our strategy as we become the world's leading platform for transparent reporting and regulatory disclosure. We have a significant edge in experience and expertise with a large installed base and a growing partner ecosystem. And we have a large, relatively unaddressed TAM with the right team in place to go after it. Our opportunity is growing, and at the same time, we and our platform are getting stronger. Thank you to our fantastic team of dedicated employees for all over the world didn't just help us achieve the solid results that we delivered last quarter, but they've helped us once again achieved 2 important third-party recognitions.
First, Fortune honored Workiva with the #10 ranking on their Best Workplaces in Technology list. This is our seventh year on the list and the third year in the top 10. And second, MSCI, the top rating tool used by investors to determine which companies are included in ESG investment funds, issued Workiva another AAA rating. This is the highest rating a company can achieve. None of this is possible without the hard work of our entire team, along with their dedication and commitment to our customers and our mission of powering transparent reporting for a better world. And with that, I'll turn the call over to you, Jill.
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. I 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 404 customers from Q3 2022. Our gross revenue retention rate remained comfortably ahead of our 96% internal target metric.
Our net revenue retention rate increased to 112% for the third quarter of 2023 compared to 107% for Q3 2022. We are very pleased with the strong increase we continue to see in net revenue retention, which improved for the fourth straight quarter. The main driver of this improvement is strong account expansion activity led by the addition of new solutions. Account expansions also continued to be a strong contributor to the increase in customers with large contract values. We are seeing momentum and are optimistic that we can continue to expand the number of customers spending over $100,000 per year.
In the third quarter of 2023, and we had 1,561 contracts valued at over $100,000 per year, up 24% from Q3 the prior year. The number of contracts valued at over $150,000 totaled 851 customers in the third quarter, up 26% from Q3 2022. And the number of contracts valued over $300,000 totaled $296, up 38% from Q3 2022.
Moving on to our operating metrics. Gross profit totaled $121.7 million in Q3, up 20% from the same quarter a year ago. Gross margin was flat year-over-year at 77% as higher cloud computing costs were offset by savings in employee-related spending. Operating expenses increased only 6% from Q3 2022. This modest increase is due to efforts we are making towards automation and process efficiency as well as thoughtful hiring with a focus on skills needed to drive growth and productivity. We posted an operating profit of $5.3 million in Q3 2023, a continued improvement compared to Q3 2022's operating loss of $8.4 million.
As Julie mentioned, we continue to focus on growth and productivity. This focus has helped us improve our operating leverage and stay committed to our goal of delivering improved operating margins and non-GAAP profitability for both 2023 and 2024. At September 30, 2023, cash, cash equivalents, and marketable securities increased $316 million sequentially and to a balance of $782 million, primarily driven by our August convertible note offering. Our successful issuance of convertible notes raised $700 million at a 1.25% coupon. We used $397 million of the funds to repurchase about 80% of the convertible notes we originally issued in 2019. We will use the remainder of the funds primarily for working capital and to support potential future M&A activity. Operating activities in Q3 2023 resulted in cash provided of $15 million compared with an increase in cash of $5 million in the same quarter a year ago.
Turning now to our guidance for Q4 and the full year 2023. As Julie discussed, while we remain encouraged by our opportunities to drive growth, we continue to see elongated sales cycles and increased by our scrutiny amidst a concerning macro and geopolitical environment. As such, we continue to be prudent with our guidance assumptions. For the fourth quarter 2023, we expect total revenue to range from $164 million to $165 million. By design, we expect services revenue will decline in Q4 at a single-digit percent rate. We expect non-GAAP operating income to range from $5.5 million to $6.5 million. And net income of $0.21 to $0.23 on a per share basis. Our share count will be approximately 54 million weighted average shares.
For the full year 2023, we are raising the midpoint of our revenue guidance range, expecting revenue to be between $627 million and $628 million. The high end of revenue guidance remains in line with our previously stated 2023 target. We expect services revenue to decline at a low single-digit percent rate. We are raising our guidance for non-GAAP operating results, shifting to an income range of $3 million to $4 million or a net loss of $0.54 to $0.52 on a per share basis. Our share count will be approximately 54 million weighted average shares.
The Q3 interest expense recorded in conjunction with the repurchase of the majority of our 2019 notes is driving the gap between our operating results and loss per share guidance. We continue to expect we will post positive free cash flow for the seventh consecutive year.
Now to give some directional modeling information for 2024. As implied in our Q4 2023 guidance, we will be monitoring the current macro headwinds carefully as we exit 2023. We as well as the potential impact on our revenue growth rates as we enter 2024. We expect XBRL services revenue to continue to grow at a modest low single-digit rate. We expect setup and consulting revenue to decline from 2023 to 2024. And consistent with our prior statements, we expect non-GAAP operating profit for the full year 2024.
In summary, I want to thank all of our employees and partners for their continued support and hard work. Before we turn to Q&A, I would like to reiterate 3 key points. First, we are encouraged by the opportunity ahead of us, our large unaddressed TAM, and the value our platform delivers to our customers. Second, we delivered a beat on Q3 operating margin guidance and are focused on continuing the momentum of margin improvement and anticipating a non-GAAP operating profit in fiscal year 2023. And third, we remain committed to our strategy, long-term growth and improving operating leverage.
In closing, I want to echo Julie's thanks to all Workiva employees. You are an amazing team, and I am proud to be working beside you. We will now take your questions. Operator, we are ready to begin the Q&A session.
[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 net 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, a 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. Great. 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, non-finance 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 [indiscernible].
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 2021? .
Sure. I mean we had a strong quarter in Europe. We're very pleased with our momentum. Again, it was 1 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 then.
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 source 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 change 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 higher 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 of 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 to 1 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 et solution? Is it educational? Is it really partners 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 1 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 raiders 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, we give 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, what 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. .
Great. That's helpful. 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 items you're 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 1 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, 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 an 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.
That's great. Thanks very much. 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 were 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 [ Lou Carton ] 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.