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Workiva Inc (NYSE:WK)
Q1 2020 Earnings Call
Apr 30, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Workiva Inc., First Quarter 2020 Earnings Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today Adam Terese.

Adam Terese -- Director of Corporate Development and Investor Relations

Good afternoon and thank you for joining us for Workiva's first quarter 2020 earnings conference call. Today's conference call is pre-recorded. This afternoon, we'll begin with comments from our Chief Executive Officer, Marty Vanderploeg; followed by our Chief Financial Officer, Stuart Miller. A replay of this call will be available until May 7. 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'll be making forward-looking statements regarding future events and financial performance, including guidance for our second quarter and commentary on our full year 2020.

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 earnings press release.

With that, we'll begin by turning the call over to our CEO, Marty Vanderploeg.

Martin J. Vanderploeg -- President, Chief Executive Officer and Director

Thank you, Adam, and thanks to everyone for joining the Workiva first quarter 2020 conference call. Our hearts go out to the people directly affected by COVID-19 and we are grateful for the essential workers and community leaders around the world who are on the front lines. At Workiva, we are doing everything we can to protect our employees and their families during this difficult time. We are grateful that all of our employees are able to work from home and that we are able to fully compensate the small number of employees who do not have roles outside of our physical offices. To keep our team connected and focused, I host a weekly live-stream Q&A to offer updates, insights, advice and support to all employees.

As a cloud-based technology company with a highly distributed workforce, the shift to work from home has been smooth for us. With cloud platforms and digital channels, it's been mostly business as usual. We continue to deliver the highest levels of performance availability and security. Our technology, global infrastructure and operating model along with our 24/7 customer support enable our customers to work from home in a controlled, secure environment with their most sensitive data. This ability to work from anywhere is becoming the new baseline. We believe that Workiva will be a key player in this broad-based shift to remote work, which will drive increased demand for our reporting and compliance platform for years to come.

Workiva entered this global crisis from a position of financial strength. We believe we are in a stronger, more flexible financial position now than ever before including nearly $500 million in unrestricted cash and short-term investments. We are pleased with our first quarter 2020 financial results, which exceeded guidance for revenue and operating results. However, like many other companies, the month of March delivered some unprecedented challenges as we saw a number of customers and prospects delay software purchases. In March, we restricted non-essential business travel and we transitioned to all virtual sales meetings even though our traditional sales process has been disrupted. In many cases we are finding it easier to access people and we are having engaging conversations with customers and prospects.

In fact, most of the companies that delayed first quarter purchases are back in our pipeline. Stuart Miller, our CFO will provide more details about our financial results later in the call. In times of rapid change, our commitment to each other and our customers remains the same. Workiva is driven by our values, which sustain us in these uncertain times. We are a strong resourceful company and we are moving forward staying focused on our goals and objectives. We continue to execute on our growth vectors, which include EMEA, Wdata and our platform solutions for integrated risk, global statutory reporting and the U.S. government. And we are continuing to hire people in the areas where we see the most potential for growth. Despite COVID-19, we remain confident that Europe will comprise 25% to 30% of our total revenue over time.

We recently launched a new solution to help mid-sized companies comply with the European single electronic format commonly known as ESEF. Our new solution offers limited functionality specifically for this market. Because this solution resides on the Workiva platform, customers are able to upgrade to our more comprehensive ESEF solution and leverage additional platform capabilities at any time. We also plan to continue extending the capabilities of our platform into additional industry verticals. Earlier this week, we announced that we will be working with utility pipeline and other energy companies many of which are existing customers, automate data integration and streamline reporting to the Federal Energy Regulatory Commission known as FERC.

Last June, FERC adopted XBRL as its reporting standard. With our connected reporting platform and our leadership in XBRL, Workiva is ideally positioned to capture this market. In response to COVID-19, we shifted all marketing activities to virtual channels. As a result, our annual amplify user conference will be hosted virtually later this year. In March, our two-day virtual event Amplify GO was attended by nearly 2,400 customers, prospects and partners and was our largest event to-date. I want to thank our amazing employees for their ongoing dedication and commitment to delivering our platform and supporting our customers and partners around the world.

With that, let me turn it over to Stuart Miller, our CFO.

J. Stuart Miller -- Executive Vice President and Chief Financial Officer

Thank you, Marty. I'll comment on our financial position, review our business model and then explain at a high level why we beat our Q1 guidance. Next, I'll discuss Q1 2020 results versus Q1 last year and finish with forward guidance. We believe Workiva is well-positioned financially to weather the storm from COVID-19. Indeed, we believe Workiva has never had a stronger or more flexible financial position than we do now. At March 31, Workiva had $496 million of unrestricted cash and short-term investments. The first maturity on our funded debt occurs in more than six years. Our debt obligations have no restrictive financial covenants. We believe our business model mitigates many of the challenges posed by COVID-19 for six reasons. First, demand for our solutions is relatively insulated from the business cycle.

Software to assist larger enterprises with regulatory compliance and performance management is needed in both good times and bad. Second, our cloud-based platform is designed for team members to collaborate remotely, including those who work from home. On-premise systems cannot compete as well in this environment. Third, we enjoy high revenue retention rates because our customers love the design and functionality of our software and the high quality of our customer service. Our platform saves time, reduces risk and eliminates many of the tedious aspects of financial and managerial reporting. We think our value proposition is compelling relative to alternatives and markets we serve. Fourth, most of our customers pay us annually in advance for a subscription to our software platform.

These contracts renew fairly evenly among the four quarters of the year. As a result, around 90% of the subscription revenue we recognize every quarter comes from deferred revenue. Fifth, no customer accounts for more than 1% of our revenue. Our 10 largest customers account for less than 5% of our revenue in the aggregate. Sixth, the sources of our revenue are diverse. Footnote 8 to the financials in our 10-Q breaks out revenue contribution by industry of our customers. Shifting now to our financials, as always, I will talk about our results and guidance on a non-GAAP basis. Refer to our press release for a reconciliation of our non-GAAP and GAAP results and guidance. I'll talk about how well we did against guidance first. We beat Q1 2020 revenue guidance at the midpoint by $2.75 million.

Higher subscription revenue accounted for about a third of the beat, while higher Services revenue contributed the balance. We beat guidance on Q1 operating income by a relatively wide margin. I'd like to explain the $8 million positive operating income swing at a high level. The revenue beat I just mentioned accounted for a third of the swing. Expenses accounted for the remaining two thirds of the beat as follows. Travel and entertainment expenses were just over a $1 million better than forecast due to COVID-19 travel restrictions. Medical care expenses were almost a $1 million better than forecast due to postponement of discretionary medical visits from COVID-19 restrictions and a higher percentage of our employees electing the high deductible medical insurance plan.

Sales commission expense was about a $0.5 million better than forecast due primarily to a change in our sales commission structure. Fees paid to recruiters, consultants and legal advisors were $0.5 million better than forecast. The remainder of the beat on Q1 operating income just above $2 million came from hiring at a slower pace than forecast, some of which was related to COVID-19. Now, turning to a comparison of Q1 2020 to Q1 last year; we generated total revenue in the first quarter of $85.8 million, an increase of 22.6% from Q1 2019. Breaking out revenue by reporting line item, subscription and support revenue was $68.4 million, up 21.8% from Q1 2019. New solutions, new logos and conversions to solution-based licensing helped drive strong revenue growth in Q1 2020.

56% of the increase in S&S revenue Q1 came from existing customers. The balance of the increase came from new customers added in the last 12 months. Professional Services revenue was $17.4 million in Q1 2020, an increase of 26% from the same quarter last year. Growth was driven by helping customers migrate to inline XBRL, additional revenue in setup and consulting and organic XBRL growth. As a reminder, the first quarter is seasonally the high point for our revenue from XBRL tagging, since most of our publicly traded customers prepare their 10-Ks in the first quarter. Turning to our supplemental metrics; we finished Q1 with 3,507 customers, a net increase of 141 customers from Q1 2019 and a net decrease of three customers from Q4 2019. On a gross basis, 73 customers churned in Q1, which is a normal level of churn for us and we added 70 new logos in Q1, which is below normal for us and was due to the impact of COVID-19.

In early March, 50 new deals in our pipeline carried our highest rating for probability to close by month end. Of the 50 deals, 10 did close in March and 32 returned to the pipeline of which 30 would have been new logos. Normally, a very high percentage of these types of deals would have closed by month end. Our revenue retention rates remain strong. Our subscription and support revenue retention rate was 94.5% for the first quarter of 2020, compared to 95.7% for the same period last year. Almost half of the attrition in a quarter came from M&A, de-listings and bankruptcies. Looking ahead, we expect a higher incidence of bankruptcies and de-listings. On the positive side, we expect less pressure from M&A in the near term. With add-ons, our subscription and support revenue retention rate improved to 110.9% for the first quarter of 2020 compared to 110.7% in Q1 2019.

Our progress with larger subscription contracts continues to be promising. The number of contracts valued at over $100,000 per year totaled 670 in the first quarter of 2020, up 36% from Q1 the prior year. The number of contracts valued at over $150,000, totaled 308 customers in the first quarter, up 49% from Q1 2019 results. Moving down the P&L, gross profit totaled $64.3 million in Q1, up 25.5% from the same quarter a year ago. Consolidated gross margin was 74.9% in the latest quarter versus 73.2% in Q1 2019, a net expansion of 170 basis points. Breaking out gross profit, subscription and support gross profit totaled $56.6 million, equating to a gross margin of 82.9% on S&S revenue, a contraction of 30 basis points compared to Q1 2019.

Additional head count to help upgrade customers to our next generation platform was the primary driver of the contraction. Professional services gross profit in the first quarter was $7.6 million, equating to a 43.7% gross margin, compared to 32.7% in Q1 2019 due to improved utilization. Research and development expense in Q1 totaled $21.4 million, up 6.5% from Q1 2019, primarily due to higher compensation costs. R&D expense as a percentage of revenue improved to 25% in Q1 2020 from 28.7% in Q1 2019. Sales and marketing expense for the quarter increased 42.6% from Q1 2019 to $33.4 million, reflecting our investment in sales talent, primarily to drive bookings in EMEA, integrated risk, global statutory reporting and U.S. government. General and administrate expenses totaled $8.7 million in Q1, up $1.9 million compared to Q1 2019.

G&A expenses as a percentage of revenue increased 40 basis points to 10.1% due to additional headcount, higher software expenses and increased rent expense. We posted an operating profit of $800,000 in Q1 2020 compared to an operating profit of $900,000 in Q1 last year. Workiva's operating margin in Q1 was substantially better than our guidance as I discussed earlier. Turning to our balance sheet and cash flow statement, at March 31, 2020, cash, cash equivalents and marketable securities totaled $496 million, an increase of $8.1 million compared to the balance at December 31, 2019. In Q1 2020, net cash provided from operating activities totaled $4.7 million compared with cash provided of $5.1 million in the same quarter a year ago.

At the end of each quarter, we review outstanding invoices to determine, which ones present a collection risk due to a variety of factors including credit risk, consistent with ASC 606. We removed the invoices at risk taking the amounts out of both accounts receivable and deferred revenue until payment is collected, which is when we begin to recognize revenue. At March 31, 2020, we classified $6 million of receivables to this reserve account, up $1.7 million from the reserve at year-end in anticipation of the impact of COVID-19. The increase in this reserve account reduced deferred revenue by equal amount and therefore it reduced billings at the end of the quarter. Remaining performance obligations on subscription contracts continue to vary from deferred revenue as we implement multiyear contracts with annual billing terms for some customers.

Turning to our guidance, for the second quarter of 2020, we expect total revenue to range from $80.3 million to $80.8 million. We expect subscription revenue to grow at a rate in the low teens compared to Q2 last year. We expect services revenue to show the normal seasonal decline from Q1 and in addition we expect to post Q2 services revenue below last year's Q2 results. You may recall we had a onetime contribution of services revenue from a regulatory change in Q2 last year. We expect non-GAAP operating loss to range from $6.8 million to $7.3 million in Q2 2020. The depth and duration of the economic disruption from COVID-19 is unknown. While we have a large pipeline of new deals, we have limited visibility on when the deals will close. So we are suspending specific guidance for full year 2020. However, we are providing some directional guidance for the rest of the year. Relative to the guidance that we gave in February, we now expect full year 2020 revenue to grow at a slower pace and operating margin to improve.

We will now take your questions. Operator, we're ready to begin the Q&A session.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And your first question will come from the line of Brian Peterson with Raymond James.

Alex Sklar -- Raymond James -- Analyst

Yeah. Hi, thanks. This is Alex Sklar on for Brian. Marty, first one for you, this is in your prepared remarks, but can you just talk more about the resiliency of Workiva's platform and a work from anywhere environment? And with that, I think you talked about demand potentially picking up. Are you already seeing that in the current environment catalyzing greater number of conversations or leads? And then, I had a follow-up for Stuart. Thank you.

Operator

Adam, are you still online?

Adam Terese -- Director of Corporate Development and Investor Relations

Yes.

Alex Sklar -- Raymond James -- Analyst

Your phone is muted, Marty. Maybe I'll just ask one for Stuart here.

Adam Terese -- Director of Corporate Development and Investor Relations

Yeah. Sorry, Marty's phone was muted.

Alex Sklar -- Raymond James -- Analyst

Yeah. Okay.

Adam Terese -- Director of Corporate Development and Investor Relations

Go ahead.

Alex Sklar -- Raymond James -- Analyst

All right. I guess just talk about the visibility on the backlog. The RPO growth this quarter especially in light of that commentary you gave on the March late stage pipeline, is there any reason from a Workiva standpoint that you wouldn't be able to implement or go live on any portion of that next 12 month balance? Understanding customers may ultimately push timing, but just curious on your own ability to meet all that backlog?

Adam Terese -- Director of Corporate Development and Investor Relations

No. I don't think there's any restriction from our perspective on that. Most of the onboarding we do or virtually all the onboarding we do is remote anyway. Did you hear me, sorry?

Alex Sklar -- Raymond James -- Analyst

Yeah, yeah. And did we lose Marty on the first question?

Adam Terese -- Director of Corporate Development and Investor Relations

Yeah. I think he's trying to dial back in.

Alex Sklar -- Raymond James -- Analyst

Okay. Well, maybe another one for you then Stuart. On the backlog growth, it accelerated some even with the -- even with the.

Adam Terese -- Director of Corporate Development and Investor Relations

Sorry, say that again.

Alex Sklar -- Raymond James -- Analyst

Yeah, the backlog growth accelerated on the full RPO not just the next 12 months one, which is impressive I think given your comping SPO last year. I just was curious if you'd call out any of your kind of 4% to 5% growth opportunities as having an outsized contribution?

J. Stuart Miller -- Executive Vice President and Chief Financial Officer

Yeah. So just to remind you on the RPO side, some of the growth there is due to our signing three-year deals with one-year pay. And so that's picking up -- that's accelerating on the RPO side. But we did show good deal size growth in Q1.

Alex Sklar -- Raymond James -- Analyst

All right, great. Thank you.

Operator

Next question is from the line of Rob Oliver with Baird. Please go ahead with your questions.

Matt Lemenager -- Robert W. Baird & Co. -- Analyst

Hey, Marty, Stuart. It's Matt Lemenager on for Rob.

J. Stuart Miller -- Executive Vice President and Chief Financial Officer

Hi, Matt.

Matt Lemenager -- Robert W. Baird & Co. -- Analyst

So my question was in the 30, I guess it'd be the 32 deals that got pushed or I guess returned to the pipeline. Was there any recurring message or theme there? I realized it was COVID driven, but was it people, the discretionary spend for maybe around CFO suite or accounting suite being kind of pushed to the backburner is kind of near-term other IT trends took priority or just kind of look -- is there any theme or message that happened in those 32 deals that got pushed?

J. Stuart Miller -- Executive Vice President and Chief Financial Officer

Let me see if Marty is not still on, so I guess I'll take.

Martin J. Vanderploeg -- President, Chief Executive Officer and Director

Can you guys -- can you anyone hear me now?

J. Stuart Miller -- Executive Vice President and Chief Financial Officer

Yeah. We can now Marty. You want to take that one?

Martin J. Vanderploeg -- President, Chief Executive Officer and Director

Yeah. I was on the right line [Indecipherable] connected. I'm sorry because I could hear everything and same number, anyway, I apologize everybody. Back to the resiliency question, the -- in 2008 when we started the company we were very much focused on cloud in the very early days and we said we were always going to make a 100% web tool, web and a cloud-based tool. And we've heard tremendous number of positive things from our customers during this as they all moved to work from home. I think some of them had already been doing it, but everyone was able to achieve what they needed to in terms of activities that they were actually doing in our product. In terms of seeing lead, it's too early to say we really -- I can't say for sure, but we have seen some upticks in indefinitely inquiries when a lot of our competitors have software that's on prem. So it's early days. But again, I really believe that this will help us in the long run.

Adam Terese -- Director of Corporate Development and Investor Relations

Marty, do you want to comment on Matt's specific question about the 32 logo, 32 deals that we went back into the pipeline. Do you see any theme there on why they went back -- why they were postponed?

Martin J. Vanderploeg -- President, Chief Executive Officer and Director

Well, I would say this, the end of March everybody was in a state of shock and everyone was trying to understand how it was going to affect their cash flow. There were two categories of those from my perspective. One was industries that saw an immediate drop in cash flow like airlines or even credit card companies, things like that, obviously, hospitality. Those were put on hold indefinitely and we had several of those occur. The second category was very prudent CFOs saying hey, let's just put the brakes on new deals, anything we're spending that's new for the next two or three months to see how this all shakes out. And most of the stuff that we saw slip was in that category where they're just being prudent and saying let's see what's going to happen. Obviously none of us have ever seen anything like this and how it affects the economy. That shock is sort of settling out now and we're starting to see a lot of activity. So we're optimistic that things are going to slowly come back to normal in terms of our sales process.

Matt Lemenager -- Robert W. Baird & Co. -- Analyst

That's helpful, Marty. And then my other question was just beyond -- for your sales quota carrying folks, are you making any changes to things like expanding the amount of quota they're required to carry just maybe assuming some of the close rates won't be as high and to kind of to get to the numbers you thought maybe at the initial plan that people need to carry more quota or any changes around that to kind of sales go-to-market?

Martin J. Vanderploeg -- President, Chief Executive Officer and Director

No. Not yet. This is two months old. We're -- two months we're into this, and so we're not going to do anything knee jerk. We're watching what's happening. We're happy with our pipeline right now, but again no one's been through anything like this, so we just don't know how it's going to play out, but we don't have any plans to make any dramatic changes to our sales team or the size of their patches or in our quotas.

Matt Lemenager -- Robert W. Baird & Co. -- Analyst

Okay. All right. Thanks guys.

Adam Terese -- Director of Corporate Development and Investor Relations

Thanks, Matt.

Operator

Your next question is from the line of Terry Tillman with SunTrust Robinson. Please go ahead.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Yeah. Hey Marty and Stuart and Adam. Appreciate taking my questions and do appreciate also the extra color that you added this quarter as it relates to the sales activity and pipeline. So that was helpful. I appreciate it. First question just relates to you all had an announcement a couple of weeks ago as it relates to sales leadership change, Scott Ryan leaving or resigning. It looks like Julie is taking over more responsibilities, but what I was curious is if we could just learn a little bit more about the decision-making and what catalyzed that? And I think in that press release you talked about broader sales leadership changes and a focus on sales efficiencies. So I would just love some more color on what exactly happened and kind of the driver of it?

Martin J. Vanderploeg -- President, Chief Executive Officer and Director

Sure. If you recall when I got the CEO title here a little over a year-and-a-half ago, I was the Acting Chief Operating Officer at the time and that happened rather abruptly and we knew that eventually we wanted them to see all that's what we wanted. And so this is sort of a manifestation of going back to that traditional model of having the COO and not a Chief Revenue Officer. A company our size clearly doesn't need both. The second thing is we brought Scott into really upgrade -- we were a transactional company, smaller deal size and we really brought him in to bring us up that deal size ladder in terms of the talent, sales process, and the skills of the sellers. And he did a good job of getting us substantial improvement there.

He also brought in a lot of other managers and help bring some of our other managers up the learning curve. And also brought in a leader for services when he was CRO and then when Julie came in and sort of got her legs, we realized that it was -- we had one extra layer and really didn't need both titles. At the same time, Scott had said that he had been in the sales leadership job a long time, wanted to take a short break, and maybe look for another company where he could do the same type of thing he did for us. So it was a joint agreement to have him move on and we worked out a joint deal and we're not replacing him as we mentioned. A couple of other sales leaders are also were -- left the company and we feel we have a very lean and very good sales management team now. We really didn't need the excess layers. But Scott really brought us along to a good place and it was a good time in terms of being efficient at the top of the org.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Okay. Thanks Marty. And I guess Stuart, follow-up question just related to the 111% revenue retention in the quarter. For 2Q, kind of any perspective direction on how to think about that and even for the full year again, I know you're not giving guidance for the full year but just how to think or what would be a base case for revenue retention as you see it? Thanks.

J. Stuart Miller -- Executive Vice President and Chief Financial Officer

So as you indicate, we don't give guidance on that number. As you know, it's a buildup that includes add-on solutions and price increases and its net of solution churn. So we were pleased with the number that we posted in Q1 and we're pleased with the pipeline of new deals both new logos and add on sales and as we indicated we don't have visibility on when those deals are going to close. As I indicated in my remarks the second quarter we have such great visibility on revenue as you know because of the business model that we felt comfortable giving guidance on Q2, but until the COVID duration and depth is greater visibility we're not going to have visibility on closing new deals at the end of Q2 or Q3.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Thanks.

Operator

Your next question comes from the line of Stan Zlotsky with Morgan Stanley. Please go ahead.

Sarah -- Morgan Stanley -- Analyst

Hi, this is Sarah [Phonetic] on for Stan. Following up on your prior comments, in the past your growth has been balanced between new logos and add on sales. And I was wondering to what extent is this still kind of your growth equation or in reaction to COVID are you seeing it leaning toward one or the other?

Martin J. Vanderploeg -- President, Chief Executive Officer and Director

I really don't see a change there. I think we're still going to see about 50-50 add on sales and new logos. And I think that a lot of the new logo activity or more of it will be in Europe. But I still see a lot of new logo activity in North America as well, so we really think it's going to remain about a 50-50 split.

Sarah -- Morgan Stanley -- Analyst

Got it. Thanks. And then a quick follow up, are you seeing any customers kind of asking to come back and potentially downsize their contacts or just payment terms and your actions little bit there reacting to COVID?

J. Stuart Miller -- Executive Vice President and Chief Financial Officer

Yeah, we haven't seen too much of that honestly. We're aware of the -- we would certainly launch our renewal activity and in track, who's in what industry that might be affected. But so far, that hasn't been a big issue.

Sarah -- Morgan Stanley -- Analyst

Got it. Thank you guys.

Operator

Your next question is from the line of Tom Roderick with Stifel. Please go ahead.

Tom Roderick -- Stifel, Nicolaus & Co., Inc. -- Analyst

Hey, Marty. Hey, Stuart. Glad to hear you guys are both doing well and the team is staying healthy as can be. So it's a great start to where we're at right now.

Martin J. Vanderploeg -- President, Chief Executive Officer and Director

Thanks, Tom.

Tom Roderick -- Stifel, Nicolaus & Co., Inc. -- Analyst

Would love to chat -- you bet -- would love to chat a little bit more. I apologize I had a little trouble getting in the call. So you may have addressed it in the first few minutes, Marty, but relative to the European expansion plans, opportunity is still there. I'm guessing your efforts at hiring people and looking at potential M&A targets with your solid balance sheet, I'm guessing that's probably been pushed back a little bit, but perhaps you could go into little bit more detail about how you are tactically able to proceed in an area where you didn't perhaps have as many boots in the ground as you wanted, you're looking to hire? How much does that sort of set you back from -- timing standpoint? And what's the urgency of customers over there to move forward with digital transformations in light of January 15, 2021 mandate?

Martin J. Vanderploeg -- President, Chief Executive Officer and Director

Well, you have several aspects. First off, the M&A activity is definitely slowed and as I've always said, we're going to be very careful doing acquisitions to make sure we get something that checks most of the boxes we're concerned about. But that has slowed. I would say that our ability to recruit people in EMEA has not changed that much. We're finding that we've been able to continue to recruit sales people and the delivery people quite effectively there. We're a little bit behind, but it really wasn't COVID things, it's -- our EMEA team is very thorough when they hire and they've got a very good track record of hiring good talent and having very low attrition. So I would say it's more about them being more careful in making sure we have the best people possible. And then in terms of our growth strategy, we're continuing in EMEA, we haven't slowed that at all. And we're seeing good reception from the customers. It's quite amazing and our pipeline is growing at the exact rate we anticipated. So we're pretty pleased with EMEA and we're going to continue to expand there. It's really greenfield for us in many way. It's really greenfield in terms of how late we went into EMEA.

Tom Roderick -- Stifel, Nicolaus & Co., Inc. -- Analyst

Yeah, perfect. Got it. And then now that you fully lapse the SBL impact in the model and maybe more importantly, you've gotten your customers up on this sort of all you can eat plan. How does it sort of roll through the way you think about churn? Customers now that they're sort of on this all you can eat that would seem like even if they have fewer employees, the number of seats they would utilize would go down. So I guess churn would be exposed to the usual suspects of bankruptcies and M&A and some of the things that Stuart talked about. But can you just sort of talk through churn as a concept going forward and how that might differ from the past with your -- with all your customers on SBL now?

Martin J. Vanderploeg -- President, Chief Executive Officer and Director

Well, I -- going out on a limb, I don't think SBL really affects churn. I think what's happened is we have given customers -- as we talked about before, customers were always limited by the number of seats they had, and they would make careful decisions on when they would expand. I think a lot of customers have expanded the number of seats. We've seen the number of users go substantially higher since we enacted SBL. So it makes it more sticky in general. I really haven't seen a decline in users and maybe that's something that will come as COVID goes through its lifecycle here, but remember we do stuff that's regulatory in general. And stuff that's downstream in reporting process, and it's really mission-critical or it's required by the government. So our churn -- I'm glad we're talking about this a lot because that's probably the thing that is -- we're most proud of is we have a very low churn rate and that just induces incredible stability in our financial model. So I'm really not that concerned about churn from an SBL point of view, and I don't think companies that are going to stay in business are going to look at us any differently after COVID.

Tom Roderick -- Stifel, Nicolaus & Co., Inc. -- Analyst

Excellent. Really, helpful. Thank you guys. Appreciate it.

Adam Terese -- Director of Corporate Development and Investor Relations

Thanks, Tom.

Operator

You have a question from the line of Mike Grondahl with Northland Capital.

Michael -- Northland Capital Markets -- Analyst

Hi. This is Michael [Phonetic] on for Mike. Thanks for taking the questions. Maybe just one quick one on FERC that opened yesterday, can you give us a rough idea of the number of logos in that space?

Adam Terese -- Director of Corporate Development and Investor Relations

It's about 600, isn't it Marty?

Martin J. Vanderploeg -- President, Chief Executive Officer and Director

Yeah, I think it's at 660 roughly, somewhere in there, mostly good sized companies and so and like we said in the press release a lot of them are customers already and they've been bugging us about whether we were going do this. What we're finding is, customers see more and more XBRL coming, it's coming all over the world for all the regulatory agencies slowly but surely and these -- our customers want to standardize on one platform do all their XBRL. So a lot of our SEC customers was pestering us about this and we really didn't want to commit to it and tell -- put out their taxonomy, which happened a couple of months ago and then we went through the due diligence of understanding how it would affect our product and our go-to-market, but we're really well-positioned as we said in the press release to take a significant amount of that market.

Michael -- Northland Capital Markets -- Analyst

Thanks. That's helpful.

Operator

And there are no other questions at this time.

Adam Terese -- Director of Corporate Development and Investor Relations

Great. Well, thank you, everybody. We appreciate it.

Martin J. Vanderploeg -- President, Chief Executive Officer and Director

Okay. I think we're done Adam. Thank you.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Adam Terese -- Director of Corporate Development and Investor Relations

Martin J. Vanderploeg -- President, Chief Executive Officer and Director

J. Stuart Miller -- Executive Vice President and Chief Financial Officer

Alex Sklar -- Raymond James -- Analyst

Matt Lemenager -- Robert W. Baird & Co. -- Analyst

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Sarah -- Morgan Stanley -- Analyst

Tom Roderick -- Stifel, Nicolaus & Co., Inc. -- Analyst

Michael -- Northland Capital Markets -- Analyst

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