WalkMe Inc. (WKME) has delivered a strong financial performance in the first quarter of 2024, with revenue reaching $68.6 million, which aligns with the upper end of their guidance. The company also reported a non-GAAP operating margin of 6% and a free cash flow of nearly $17 million.
A key product update was the introduction of WalkMeX, an innovative AI contextual copilot designed to enhance workflow integration. The company is poised to double its net new annual recurring revenue (ARR) by year-end, driven by strategic investments in AI talent and platform automation.
WalkMe's partnerships and training initiatives with global companies and system integrators are creating a high demand for its platform, as evidenced by the inclusion of digital adoption platforms in one-third of all RFPs from a global SI.
The company's successful quarter was further highlighted by a significant public sector deal with the State of California DMV. WalkMe has raised its full-year operating income guidance and forecasts a Q2 revenue between $69 million to $70 million, and a non-GAAP operating income of $2.3 million to $3.3 million. For the full year, revenue is expected to be between $279 million to $283 million, with a non-GAAP operating income of $12.5 million to $15 million.
Key Takeaways
- WalkMe's Q1 2024 revenue hit $68.6 million with a non-GAAP operating margin of 6%.
- The company generated $17 million in free cash flow and ended the quarter with $340 million in cash and equivalents.
- WalkMeX, a Gen AI contextual copilot, is set to launch on June 18, aiming to enhance AI adoption within workflows.
- The company plans to double net new ARR by year-end and is investing in AI capabilities and back-end automation.
- WalkMe has increased its full-year revenue and operating income guidance, with expected Q2 revenue of $69-70 million.
Company Outlook
- WalkMe forecasts Q2 revenue in the range of $69 million to $70 million and non-GAAP operating income between $2.3 million and $3.3 million.
- Full-year revenue is anticipated to be between $279 million and $283 million, with non-GAAP operating income expected to range from $12.5 million to $15 million.
Bearish Highlights
- The company has learned from past challenges with competitive pricing pressure and is now focused on retaining customers through improved service.
Bullish Highlights
- WalkMe has 42 customers with over $1 million in ARR and a strong renewal rate due to better processes and support.
- The company is confident in sustaining margin expansion and has seen positive feedback for WalkMeX from customers.
Misses
- There are no specific misses reported in the earnings call summary.
Q&A Highlights
- Executives discussed the unique position of WalkMeX in the market, with no similar products identified.
- They expressed confidence in sustaining margin expansion and the company's use of its own product to improve operational efficiency.
- The company's strong financial performance has led to discussions about strategic alternatives and potential M&A opportunities.
WalkMe's commitment to innovation and growth is evident in their strategic investments and product developments. The company's focus on enhancing its platform through AI and automation, coupled with a solid financial foundation, positions WalkMe favorably in the hyper-automation and RPA market. As WalkMe continues to execute its growth strategies, the market will watch closely for the impact of WalkMeX and the company's ability to meet its ambitious ARR targets.
InvestingPro Insights
WalkMe Inc. (WKME) presents an intriguing financial profile with several key indicators that highlight the company's current position and future potential. As the company navigates through its growth phase, there are several InvestingPro Tips that shed light on its financial health and market outlook.
InvestingPro Tips suggest that WalkMe holds more cash than debt, which is a positive sign of financial stability. This is particularly important as the company continues to invest in AI talent and platform automation. Additionally, with 3 analysts having revised their earnings upwards for the upcoming period, there is a sense of optimism surrounding WalkMe's profitability and growth prospects.
In terms of performance metrics, WalkMe's gross profit margins remain impressive at 84.4%, as per the latest data. This high margin indicates the company's ability to manage its cost of goods sold effectively and retain a substantial portion of its revenue as gross profit. Furthermore, analysts predict that the company will be profitable this year, aligning with the company's own raised guidance and expectations for increased operating income.
When looking at the InvestingPro Data, WalkMe's market capitalization stands at $782.38 million, reflecting investor valuation of the company. Despite not being profitable over the last twelve months, with a P/E ratio (adjusted) of -19.98, the company's strategic initiatives and product developments like WalkMeX could be pivotal in turning this around.
For readers interested in a deeper dive into WalkMe's financials and performance, there are additional InvestingPro Tips available at https://www.investing.com/pro/WKME. These insights could be particularly valuable for potential investors or current shareholders looking to understand the nuances of WalkMe's financial trajectory. Plus, by using the coupon code PRONEWS24, users can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking even more comprehensive analysis and data.
Full transcript - Walkme (WKME) Q1 2024:
John Streppa: Good morning and thank you for joining the WalkMe First Quarter 2024 Earnings Call. I’m John Streppa, Investor Relations for WalkMe and today I’m joined by Dan Adika, CEO and Co-Founder; Scott Little, Chief Revenue Officer; and Hagit Ynon, our Chief Financial Officer. Before we begin a few housekeeping items. First, we are continuing to incorporate a video element to help showcase our technology and some of the great things we are achieving here at WalkMe, I encourage you to go to out IR website ir.walkme.com to watch live or a replay which will be available following the conclusion of our presentation. Second, for the Q&A portion of the call following our prepared remarks, if you would like to ask a question, please raise your hand in the application or press star nine on your phone. I'll call on each person and unmute your line. At that time, you will also be prompted to unmute yourself either through the application or by pressing star six on your phone. Certain statements we make today may constitute forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995 that relate to our current expectations and views of future events. These forward-looking statements are subject to risks, uncertainties, and assumptions, some of which are beyond our control. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including those set forth in the section titled risk factors in our annual report on Form 20-F filed with the Securities and Exchange Commission on March 18, 2024, and other documents filed with or furnished to the SEC. See our press release dated May 22, 2024 for additional information. In addition, certain metrics we will discuss today are non-GAAP metrics. The presentation of this financial information is not intended to be considered in isolation or as a substitute for or superior to the information prior to and presented in accordance with GAAP. We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. We believe that these measures provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management and its financial and operational decision making. Further, throughout this call, we provide a number of key performance indicators used by our management and often used by competitors in our industry. For more information on the non-GAAP financial measures and key performance indicators, including the reconciliation tables, see our press release dated May 22, 2024. With that, I'll hand it over to Dan.
Dan Adika: Thank you, John, and good morning, everyone. We're off to a great start in 2024. We're seeing strong execution across our strategic priorities to accelerate our top line growth. We ended the Q1 with revenue of $68.6 million, which is the high end of our guidance range and a strong expense management with a non-GAAP operating margin of 6%. We generated nearly $17 million in free cash flow in the first quarter alone, which was more than all of 2023 combined and nearly doubled what we generated in the fourth quarter. We laser focused on delivering the best experience to our customers. We're seeing a very positive trend on all aspects in our customer journey. The first quarter marked the biggest renewal quarters in terms of ARR up for renewal, and I'm happy to share that we had our best renewal rate in the past six quarters. We improved our quality of service in every aspect from support to service quality through our customer success organization. And this also shows in our large customer space. We now have 42 customers paying us over $1 million in ARR, and we're seeing customers in that cohort expanding with us. Our DAP and over 100k ARR customers, although we did not demonstrate an increase in number of customers, and some of it was due to account consolidation in our system and some app consolidation on their side. But overall, the total ARR for both segments grew as we continue to see big expansions. We are accelerating growth, and we are on track to double net new ARR by the end of the year. I'm very pleased with our performance this quarter as we are continuing on our path to delivering on our plan. In addition, Gen AI has created a huge growth opportunity for WalkMe. As innovators, we're strengthening our position as a critical platform for organization to successfully implement Gen AI into their most critical workflows. I spent the last few months speaking with our leading customers and learning their approach to Gen AI. They recognize the huge opportunity and change in the market. Enterprises are rushing to infuse Gen AI in every junction of every workflow. The success and scale of AI transformation will be the success of inserting Gen AI capabilities into the daily processes of every single employee right in the flow of work. BCG is telling their clients that 70% of their AI efforts need to go into change management and process related to people. Think about it for a second. In order to truly make Gen AI work for employees, they have to know what AI can do for them and its capabilities, how to build the right prompt to get what they need, and they have to know when and where to use it and how it fits to their daily workflows. This is just too complex. If organization wants to get Gen AI in front of all of their employees, they must find the path to success, and that path is to be contextual in the flow of work and make AI seamless for the employees. With that, I'm very proud to introduce WalkMeX. WalkMe’s new Gen AI contextual copilot. It's a completely new experience for the employee in the enterprise. WalkMeX allowed them to use Gen AI capabilities in the flow of work on top of any workflows. We combine the power of general purpose LLMs with our proprietary DPY technology that understand visual interface like a human does, and we created a new kind of copilot, and always on copilot that offers proactive AI assistant contextually in the flow of work. We're basically making AI real for everyone. WalkMeX offered AI power capabilities such as AI answers, assistant reading, generative writing, form validation, and text to action automations that only WalkMe can deliver across any application. WalkMeX can also work with any other copilot service. We believe that every company in the world need WalkMeX to ensure the success of their Gen AI strategy. We've started using WalkMeX internally, and it's showing improvement in our support and IT departments. We're now exposing it to select few customers and exploring endless use cases together. As you can hear, I'm very excited about WalkMeX and about the future of WalkMe. For 12 years, we've been building 1,000s of copilot experiences on top of the best enterprise application. And now, Gen AI has opened so many new use cases and so many new possibilities for us. WalkMeX and AI transformation will be huge expansion growth drivers for our business in the future quarters. We're officially launching WalkMeX to realize, our annual customer and partner event, on June 18th. But we're not stopping here. For years, we've had the best attendant contextual automation, thanks to our deep UI technology, and now we're adding back end automation as well. WalkMe will be the only DAP in the market to offer full attendant and unattended automation baked right into the platform. This open ups a completely new dimension of use cases for our customers. They can now create workflows that will trigger back end action aside with UI actions, a full automation experience. With our focus on people first, our contextual DPY technology, Gen AI capabilities, and now back end automation, we are strongly positioned to disrupt the hyper automation in RPA market. Stay tuned for upcoming releases as we start incorporating these capabilities into our platform. Overall, Q1 has been the perfect kickoff to what will be a very important year for WalkMe. We have so much innovation rolling out now and with a very strong balance sheet, we are making strategic investment and I'm sure our powerful technology will forever change the way Gen AI and automation are operated in the enterprises. From quarter-to-quarter, it's becoming much more clear to me that the opportunities for WalkMe are endless. We are driving the adoption of new technologies and powering them with automation, data, and new experiences. We are laser focused on accelerating growth and doubling net new ARR in 2024. That is our main KPI for 2024. The company is producing cash and committing to making the necessary investment needed to accelerate performance. We already moved 25% of R&D to focus on our AI product and will be investing in acquisition of additional AI talent and functionality. These past few quarters have been a big transformation journey for WalkMe. We tackled every process and every challenge and proved that we are a strong and resilient company that is highly adaptable to change. I want to take this opportunity to thank our employees for all their hard work and amazing execution. We are truly one WalkMe. And with that, I'll hand it over to Scott to discuss our go to market.
Scott Little: Thanks, Dan, and good morning, everyone. I'm pleased with the progress we made in the first quarter executing against our plan and making another step towards our goal to double net new ARR in 2024. We had a good quarter across the organization with strength in our partner, public sector, and enterprise businesses as planned. Last quarter, we highlighted the change in our go-to-market approach by leading with workflows and bringing the ROI that our platform delivers into the conversation across the life cycle of our customers. From presales, to implementation to customer success, customer value and ROI are the common themes as we focus on the workflows that organizations use to execute the business. Our sales force is engaged and enthusiastic about how this is resonating with our customers and performing throughout the sales cycle. We are very excited about the expansion opportunities we have in front of us as we're increasing the reach of our platform and meeting our customers where they are seeing the biggest friction within their organizations. WalkMeX is a fantastic opportunity as workflows are increasingly reengineered to include AI in the updated tech stack. Our capability to deliver context for a customer across their application environments is unique to WalkMe. This innovative approach to UI recognition using our patented deep UI technology is amazing, and I've never been more excited about the opportunity in front of us. On the partner front, the Alliance and Channels team continues to improve and impress. I'm pleased to share that we've added Cognizant (NASDAQ:CTSH) as a certified WalkMe partner. With their global reach, I'm confident this partnership will yield fast results and value. We continue to see growth in the number of our partner employees that are being trained to sell and deliver our platform, which is a great leading indicator of the demand that they are seeing in the market. To highlight this point, we recently learned from one of our global SIs that nearly one-third of all RFPs they are now receiving include a digital adoption platform as part of the requirement. On the public sector side, we had a great quarter, which included a number of expansions, as well as a very important land with the State of California DMV, likely a welcome sign for those of you who drive a vehicle in California. We continue to grow our pipeline from both new business and existing expansions, and we're well positioned to execute on our growth goals in 2024. In the quarter, we added new customers such as Ithaka Harbors, Aptean, and Shift4 Payments, while expanding our relationships with great customers like the Department of Veteran Affairs, National Marrow Donor Program, and TPG Telecom Limited as they continue to see the value and ROI of our platform directly impacting their business and driving the adoption of their workflows. I'm incredibly proud of the team and the progress we've made. With that, I'll hand it over to Hagit to review our financials.
Hagit Ynon: Thank you, Scott, and good morning, everyone. I'm pleased with the result of the first quarter as we continue to improve our business model, generating nearly $17 million in free cash flow and a non-GAAP operating margin of 6%, while achieving the high-end of our revenue guidance range. We continue to focus on growth drivers as we move ahead into the year and make necessary investment required. We expect Q1 to be the low point of our revenue growth on a year-over-year basis as we focus on accelerating our net new ARR throughout 2024 into 2025. Our innovations in AI will be a catalyst for future growth opportunities over time. Gen AI continues to attract increased IT investment within our enterprise customer base. And with WalkMeX, they can ensure ROI from the technology investments. With that, let's turn to the numbers. I would like to know that when discussing gross margin, operating expenses, operating income, net income, and free cash flow, I will be referring to non-GAAP numbers. Our total revenue for the Q1 was $68.6 million at the high-end of our guidance range. We grew subscription revenue for the quarter by 6% year-over-year with a subscription gross margin of 90.7%, a new high. We are pleased with this best-in-class gross margin level. Our professional services revenue for Q1 was $4.1 million, slightly below our plan, but in line with our internal partner strategy and the shift to outcome based project. We are forecasting a similar level of PS revenue in the coming quarters. PS gross margin was 20% in Q1, a significant improvement from a nearly breakeven in the first quarter last year, driven by better workforce utilization. Our total gross margin for Q1 was 86.5%, up from 82.8% in Q1 of last year. Gross profit was $59.3 million, up 9% year-over-year. For Q1 OpEx, we outperformed our initial plan, largely driven by employee related cost, additional efficiencies, and a one-time saving in G&A that we expect will not occur again in the second quarter. We are committed to invest in our future growth opportunities as we balance our profitability with accelerating growth opportunities. R&D expenses were $10.2 million, representing 15% of revenue in line with last quarter. We continue to invest in our core platform, strategic data products, and AI capabilities, including additional talent to support our AI initiatives. Sales and marketing expenses were $36 million or 53% of revenue, an improvement from 60% in Q1 of last year. We believe that we are well resourced for the near-term growth opportunities, and we look to add additional headcounts in the coming quarters. G&I expenses were $8.7 million or 13% of revenue, down from 14% in Q4 and below the 18% in Q1 last year. We believe that our G&A expenses will return to a similar level of Q4 as we benefited from better than anticipated collections and other one-time savings that we do not expect to repeat going forward. Q1 operating income was $4.4 million or 6.4% of revenue, an improvement from a loss of $8.8 million or a negative 13% in Q1 last year. Net income for the quarter attributed to WalkMe was $6.9 million or 10% of revenues, compared to a loss of $6.7 million or a negative 10% of revenue in Q1 last year. Net income per share for the quarter was $0.07 using $96.6 million fully diluted weighted average shares outstanding, compared to a loss of $0.08 in Q1 of last year. In Q1, we generated $16.6 million in free cash flow, an improvement from the cash burn of $8.3 million in Q1 last year. Our free cash flow margin for the quarter was 24%, compared to a negative of 13% last year. On free cash flow, we benefited from seasonality and strong collections that were well ahead of our expectations. Going forward, we will continue to generate cash, but not at these levels. For the full-year, including our result for the first quarter, we expect to be ahead of our original plan. We ended the quarter with $340 million in cash, cash equivalent, short-term deposit, and marketable securities. We continue to explore opportunities to deploy our capital in ways that can help to accelerate our growth. Turning now to guidance. We are pleased with the progress in the first quarter and we believe we have turned the corner on our year-over-year revenue growth. We remain committed to increase growth throughout 2024 and expect our subscription revenue to be higher for the remainder of the year, compared to what we saw in the first quarter. Given our outperformance in the first quarter and expectation that we will see some improvement in operating leverage throughout the year, we are raising our full-year operating income guidance. For the second quarter, we expect revenue in a range of $69 million to $70 million and a non-GAAP operating income in a range of $2.3 million to $3.3 million. For the full-year of 2024, we expect revenue in a range of $279 million to $283 million and we are raising our non-GAAP operating income guidance to a range of $12.5 million to $15 million. Thank you. And now we will take your questions.
A - John Streppa: We will now turn to the Q&A portion of the call. [Operator Instructions] Our first question will be from Scott Berg from Needham, followed by Josh Baer from Morgan Stanley. Scott, your line is now open.
Scott Berg: Hi, everyone. Nice quarter. Thanks for taking my questions. I guess a question for either, Dan or Scott. Your quarter end of the year, you certainly sound more positive, or at least more convicted on your ability to get to your ARR goals to double that on a year-over-year basis. I guess, how do we think of the composition of that ARR this year versus maybe prior years? Is it more balanced towards net new customers, cross sells expansion? Is it -- I guess, customers in the above a 100k cohort or maybe the 1000k cohort. Any, you know, maybe additional color on what that looks like this year would be helpful? Thank you.
Dan Adika: Sure, I will start. Scott, feel free to add. So I think it keeps similar, I would say, trends. Mainly, we're seeing expansions, big expansions with that customers and with existing customers. We do have obviously new logos that we're adding in, but with the new offerings that we're adding and obviously with the promise of DAP, we are focusing a lot with our existing customers and focusing on large enterprises. So that's the result that we're seeing. Obviously, as Scott mentioned, partners and fab, this is another engine that we're starting to see coming in, in the past few quarters.
Scott Little: Yes, here's my comment, Scott. We were executing against the plan that we put in place, and the plan's working. So for me, we're an upmarket enterprise play, and I think the tenor of the revenue will be in line with what we've been saying for the last year or so. Heavy on expansions, but we are not walking away from a new client acquisition. You know, look at what we did at State of California, that was a big win for us in a big state. And, in the public sector business, I tend to talk a lot about fed and I'm very proud of the fed business. But, gosh, we've had a nice uptick in the last couple of quarters and the other portion of our public sector for state and local. And, that's really encouraging for us. So we will get new logos, but they'll come in the areas that we've been planning. And most of the revenue, most of the strength has been in expansions.
Scott Berg: Very good. Helpful. And then, Hagit, to know your net revenue retention number is a trailing 12-month, metric. It ticked down, one more point in the quarter. Does it trough-out here in Q1, Q2, or how do we think about that metric here, you know, through the balance of the year?
Scott Little: Yes. I will take it, so as I said, we had our best renewal rate quarter, and obviously, we're showing, four trailing quarters. So, yes, we think it's going to start picking up. As Hagit mentioned, we feel that we turn the corner on almost every metric, and that's something that we'll see. As you know and we said in previous quarter, Q1 ‘23 was our lowest quarter in terms of on renewals, and this was our best quarter in terms of renewal. Not just percentage wise, but also the size of up for renewal was, I would say, almost by far the biggest that we have so far in the company. So we're very pleased with the performance.
Scott Berg: Excellent. Thank you. Congrats, again.
Dan Adika: Thanks, Scott.
John Streppa: Thank you, Scott. Our next question will be from Josh Baer from Morgan Stanley, followed by Pat Walravens from JMP. Josh, your line is now open.
Josh Baer: Okay. Great. One for Dan and then a follow-up for Hagit. Dan, I was just hoping you could talk a little bit about the competitive landscape specifically for WalkMeX for the copilot of copilots. Like, what else are you seeing out there, and how's WalkMe positioned?
Dan Adika: Yes. So, obviously, this is a new product as I said, we're launching it from our research, we didn't see something that comes near to it. It's a new approach that basically, I would say, combine the walking capabilities, with the general LLMs. So this is something new. As we said, we're not going to be the LLM even though we are offering our own AI answers product. We're coming from a different approach, which is how we can make it contextual in the flow of work to the employee, and that's something that is very unique to WalkMe. We didn't see anything like that in the market. And when I talk with our customers and I talk with many people that, you know, leading the AI and being enterprises, they are very excited with what we have. We already rolled it out, with few customers and ourselves internally. So this is why we're super excited, and currently, we didn't see anything like it in the market.
Josh Baer: Great. Thanks, Dan. And, Hagit, obviously, great free cash flow generation, and you made some comments. Can you remind us on the seasonality of free cash flow, how to think about that for the rest of the year, but then also, how free cash flow margin should trend generally relative to operating income margin? Thank you.
Hagit Ynon: Yes. Hi, Josh. So free cash flow, yes, we had a great free cash flow with 24% margin for the quarter. On seasonality perspective, Q1 is -- we are actually enjoying from the strength in collection in Q1 and also with the outperformance in the operating income. We are not expecting to maintain the same level in the coming quarters, we will continue to generate cash. But for the full-year, I can tell you that we see an improvement in the free cash flow margin, compared to our original plan.
Josh Baer: Great. Thank you.
John Streppa: Great. Thank you, Josh. Our next question will come from the line of Pat Walravens followed by Michael Berg. Pat, your line is open.
Austin Cole: Hey there. This is Austin on for Pat. I was hoping maybe you could just touch on, Dan, the adoption of the discovery product and shadow AI, and the interest, that you're seeing in those products? Thanks.
Dan Adika: Sure. So one, some of it is baked to our offering and as we mentioned before, we're seeing more and more employees using it. So overall, it's good progression. We're seeing it as part of DAP and not necessarily a standalone. So, we're happy with what we're seeing. Obviously, we're rolling out more and more and more features, but we don't have numbers for a specific product line as this is something that is more baked as a module into our pricing, but overall, we're very pleased, with that. So hope it…
Scott Little: I remember, for us, this is a treasure map, right? For us and for our customers. When we roll out discovery, we know where the opportunities are. So we see it as a great stepping stone, and it has been a great stepping stone for us in the enterprise space. It's been a nice uptick.
Austin Cole: Great. And then just maybe a quick follow-up for Scott as well. You touched on the federal business. Can you just give us a sense for how that business is, ramped in Q2 versus Q1 and maybe what to expect for the rest of the year?
Scott Little: Yes. In general, we're expecting Q2 to be in line with where Q1 was. I mean, the big quarter for us is always Q3 because of the end of the federal government's fiscal year. The good news for us is we got through all of the -- and all the other federal businesses too. We got all the funding bills done. So, you know, we always ring our hands as we're waiting for funding and that to come through. So now we're waiting for the money to drop into the programs that we've been working on and so far so good. But the big money is, typically for us in Q3.
Austin Cole: Awesome. Thank you.
John Streppa: Great. Thank you, Austin. Appreciate the question. Our next question will come from the line of Michael Berg from Wells Fargo, followed by a question from Jackson Ader from KeyBanc. Michael, your line is now open.
Michael Berg: Hey there. Congrats on the quarter. Thanks for taking my question. I just had a quick clarification on the cost the large customer account trends. How can we think about how that is trended when you account for normalization of the account roll-ups you mentioned on the call? I have a follow-up.
Scott Little: Yes. Sure. So as I mentioned, ARR for both cohorts grew as we're seeing, big expansions. At the beginning of the year, we're doing obviously some account consolidations, obviously, in our salesforce. There were mergers and acquisitions, and refresh our database. So that was one reason. The second piece that I mentioned is if there is application consolidation within our customers, that can move a customer between being a DAP or not being a DAP. So, overall, we're very pleased because the ARR grew in both segments, and we are seeing more and more G2Ks adding to that list, and we're seeing the average ARR and the ARR grow for those customers. So, overall, it's a very positive sign for us.
Dan Adika: Yes, we're really pleased with the overall enterprise for the business. So and that's where that cohort lives.
Michael Berg: Got it. Very, very helpful. And then another follow-up. So you have the WalkMeX platform coming out here next month. You saw a demo earlier, and it seemed very impressive and pretty differentiating from what else is out on the market today. I guess a couple of questions on that front. One, how can we think about the feedback from customers in the pilot so far? And, b, anything to point to in terms of monetization or even how customers are willing to pay extra for this platform given the potential value it can deliver?
Dan Adika: Sure. Sure. So one, the feedbacks are amazing. This is why and I mentioned in my script, they're moving more and more headcounts to focus on those products. So people are telling us, look. We have such a big mission to move more and more and more employees to use generative AI, and it's just not easy. And with walk WalkMeX, it's just making sense. So they want the WalkMeX functionality. They want to see it being deployed. So we're very happy. We actually have a list of customers that's waiting for us to go and push it. Regarding, monetization, we already roll out few features of WalkMeX and not the full product, and we monetize it as a consumption based model. In terms of WalkMeX, we're going to try a few approaches between seat based and consumption. We're seeing more and more customers like the consumption model when you're like, hey, we improved ex-amount of workflows for you. So we would try it out. Obviously, we're launching it in June 18. But there are, I would say, huge demand, especially when companies already invested, a lot of money in generative AI and making it as a top priority. WalkMeX just making sense because, again, we are a people centric company, and all our product is around how we can empower people, and connecting them to such an amazing technology like generative AI. That's what every business wants and every enterprise wants. So when they see it and you saw the demo, it just makes sense to them. So we're super excited with what's coming. So, obviously, in the upcoming quarter, we'll have more concrete data on that. But, from initial, I would say, demand and initial response, we're super happy.
Scott Little: And I would add to that, from my perspective. I'm coming up on two years at the company, and I've seen us bring out a lot of capabilities, a lot of functionality, but I have not seen the kind of uptake from our early adopter customers and our early, customers that we've talked to product about, and certainly not what I've seen from my own Salesforce (NYSE:CRM). So my sales team is over the moon about having this conversation to talk about, because that's where the money is right now. People in the enterprise are spending money around things related to AI, and we have the secret sauce to help them get value out of that. So very exciting for me and very exciting for my sales team.
John Streppa: Great. Thank you, Michael. Appreciate the questions. Our next question will come from the line of Jackson Ader from KeyBanc, followed by Tyler Radke from Citi. Jackson, your line is open.
Kyle Diehl: Great. Thanks. This is Kyle Diehl on for Jackson Ader. Maybe just a quick one on the sales and marketing. I think we've seen it come down year-over-year on an absolute basis for a few quarters, and it was called out that there might be some incremental headcount or incremental spend, possibly here. Where would you guys be focusing that spend? And is there an opportunity to accelerate that given the profitability improvement here, for growth in the next couple quarters?
Scott Little: Hey, this is Scott. I'll take it. I'm hiring, so from my perspective, I'm -- I've got room in my plan to hire. I'm hiring both salespeople as well as, pre-salespeople. So, [Indiscernible] has graciously let me have some of that money, so I'm excited about it.
Kyle Diehl: Okay, great. And then maybe a quick follow-up just on the overall macro. Has there been any improvement that you guys have seen, versus the fourth quarter? I know that you guys have called out some of the best renewal here in the last couple of quarters. What's driving that? Is there any macro within there? And then how do you guys see that playing out for the remainder of the year in terms of how we're going to factoring the guidance?
Dan Adika: So I will start. So, obviously, we're still conservative and everything that relates to macro, but specifically regarding the renewal rate, I will take all the credit and give it to our team. It has nothing to do with macro. It's just us doing a better job, better processes. As I said, [Indiscernible] joined last year. You really transformed the organization, and it shows in the numbers. If there would be an uptick and improvement in macro, great. We'll see better improvement. But we went into this quarter and we're doing the renewals well ahead of time. The teams are working together. We added so much functionality and focused on service and support. I can -- I'm proud of our -- the way we're putting our customers or support teams is, like, world class, and just seeing in the numbers? So we know what we needed to fix, and we fixed it. So we're going to take the credit on that and not give it to the macro.
Scott Little: Yes. And I would add to that. You know, we've had conversations before on this call in the past, end of ‘22, first-half of ‘23, where we did not anticipate the pressure the competitive pressure on price, and we lost some deals. We're not making that mistake anymore. And I would argue that part of the reason we've had such a good renewal quarter is where we did see competitive pressure. We were able to blunt it with good performance and better service, and we renewed those customers rather than having a churn. So, I get two wins out of that, right? I keep a happy client, and I've got an opportunity to then take that client and expand them in the second-half of 2024. So it's a double win for us.
John Streppa: Great. Thank you for the question. Our next question will be from Tyler Radke from Citi, followed by Kevin Kumar from Goldman Sachs. Tyler, your line is now open.
Matt Pride: Hi, this is Matt Pride from Citi. You know, curious if you made a -- if you've made any operational changes that drove the margin expansion during the quarter? And, you know, curious on your confidence level if -- on future margin expansion and if it's sustainable given investments in WalkMeX?
Dan Adika: Yes. So, yes, we did do, I wouldn't say big changes from operational standpoint in terms of headcount or moving people around, but we are using our own product. Like, for example, we're using WalkMe answers as part of WalkMe Act and we put it on our support site and we drove support tickets by 16%. Obviously, that shows in our number. Our engineering team, obviously, they're using AI. They're much more productive, and they're writing fast -- they're writing code faster. So we're obviously a technology company, and we're leveraging our own tools and obviously other tools to just be much, much better. So we prove that we can improve the margins, while hitting the high-end of our guidance and obviously providing the best results in terms of renewals. So we're using technology the right way and it shows in our numbers. Regarding sustainability on those margins, yes, we think we can keep it. Obviously, we can go in and invest when we need, but, overall, we're going to meet the expectations and the guidance that we provide.
Hagit Ynon: I think as to what Dan said we do have plan in place, and we will continue to invest in our people and headcounts and in our growth drivers. We will continue to increase our headcount in the coming quarters as well. We haven't done something specifically within the quarter. We haven't gone through a reef or something similar or the opposite. We do have been able to enjoy from the outperformance in Q1, as indicated in my script. And we see some additional benefits on the operating leverage in the coming quarters as well. That's why we actually increased our guidance on the operating income for the year. On OpEx expenses, I can tell you that we will see more or less the same level as you've seen in Q1, and we are very much focused on investing in our R&D and in our go-to-market organization.
Matt Pride: Got it. And one more, shifting gears a little bit. Has your willingness to consider, strategic alternatives, M&A changed at all over the last three to six months?
Dan Adika: So, obviously, with such a strong cash balance that we have, we're considering all options. We're actively discussing about many different options in our board. Nothing to report yet, but, obviously our board and our team is super happy with the results. $16.6 million of, cash flow in Q1. As I mentioned, more than the entire 2023, obviously, give us, stuff to think of.
Matt Pride: Got it. Thank you, guys.
John Streppa: Great. Thank you, Matt. Our next question will come from the line of Kevin Kumar from Goldman Sachs followed by Raimo Lenschow of Barclays. Kevin, your line's open.
Kevin Kumar: Hi, thanks for taking my question. I wanted to ask a follow-up to the margin question. I think the operating income guidance for next quarter is down a bit sequentially. Is that a function of, Dan, I think your comments on shifting more R&D resources to AI and, I guess, in general, over the next couple of quarters, how -- where are the kind of maybe the sources for operating leverage, in line with kind of the full-year guide that you gave? Thanks.
Hagit Ynon: Yes. I think, we've shared it with you last quarter as well. We are very much focused on accelerating our growth and probably less on operational efficiency -- less on operating income. We will we have raised, the guidance for the year, and we do anticipate to continue to invest in, as indicated, in our business, in our headcounts, and with additional areas of growth. Also take into account that there are some seasonality, that needs to be taken into account. So for example, Q2 we have several marketing events. We had a very successful Analyst Day in May. We have -- we have President Club. We have the our customer event, realize event in in June as well. So, yes, we are very much focusing on efficiencies and continue to leverage the margins. But overall and again, it's important to mention also the best-in-class gross margin of the subscription. But we are very much focused on continuing to invest in in our growth.
Kevin Kumar: That's helpful. Thanks. And then I want to ask about partners, WalkMe added Cognizant, to that list. And so, Scott, maybe can you talk a bit about the traction you're seeing from the partner ecosystem and, you know, how they're contributing to new ARR and kind of how that kind of is it, faring in comparison to your expectations?
Scott Little: It is in line with my expectations. In fact, it's a little better. So, we put a lot of wood behind the arrow in terms of spend with our partner group. As Hagit said, that's an area where we did not make significant changes in ‘23 in terms of our spend profile. In fact, we grew it a little bit. So, I'm very excited about what we're doing now. You look at our top GSI partners, Deloitte, KPMG, Accenture (NYSE:ACN), all of them have done well for us in the quarter, and we're expecting them to do well for us in the second-half. Remember, we attached to their change management, business. That's where we get that's where we get involved. They come in and do a big change program in support of an SAP, HANA update or an update for Oracle (NYSE:ORCL), an update for Workday (NASDAQ:WDAY), then, it's that group that comes in and brings us to the table. So the more we see those coming down, the more we see those involving an opportunity for us to include WalkMeX. It's just going to accelerate for us. So long-winded way of saying very pleased with our overall performance and super glad to add, you know, another high-end GSI to the space.
Kevin Kumar: Got it. Thank you.
John Streppa: Great. Thank you for the question, Kevin. Appreciate it. Our next question will come from Raimo Lenschow from Barclays followed by Keith Bachman from BMO. Raimo, your line is open.
Raimo Lenschow: Yes. Thank you. Hey, two quick questions from my end. Dan, if you -- if I think about WalkMeX, obviously, it's your technology and Gen AI combined. Like, how much of -- how much of a domain benefit do you have that you understand the space already? And the nature of the question is that historically, everyone was, oh, like, [Aydin] (ph) I can solve all world problems, and you guys have a problem, but you kind of understand the space so much better. So can you talk a little about that marriage of your domain knowledge of how to solve this problem? And then, you know, how [Jenny Aydin] (ph) kind of makes it more powerful. And then one maybe more number questions. On the, DAP customer numbers, I don't know if you've mentioned it before. I think in Q4, we were at 199, and now we're at 195. Does that mean we had, like, four attritions? Can you talk speak to that? Maybe that's for Hagit. Thank you.
Dan Adika: Sure. I will start with that because it's the shorter answer. As I said, there was some account consolidation. So we had two DAP customers that one acquired another, for example, or we consolidated accounts, so the number went down. But it's not that we lost a lot of customers. The opposite of what we're selling. We're seeing that the ARR is growing. So I explained it, majority of it was technicality and stuff like that. And moving to the AI, and what we're seeing today, if you're using AI, and obviously I invite you to come to our realize to see it in in action, we showed that in our Analyst Day, but you need to know how to prompt. If I would write a certain prompt and you will write a certain prompt, and I will do it much better for you, I will get much better result. There is a concept in AI and Generative AI called context. You need to have the right context. If you're telling the AI and pretend that you are a sales rep being WalkMe and you need to do X, Y, Z and you give it all the context, you will get a much better answer. And in order for people to maximize the value of Generative AI, they need to know how to prompt to get the right result. They need to know the context, and they need to know where and where -- when and where to use it. Those three things are something that are context based, and this is where our proprietary technology is coming in. We are basically sitting with the user, and we know exactly what they need to do. So what WalkMeX does, it basically allows every, employee to use AI, Gen AI, in their flow of work, and they don't even know they're using it. We're doing it for them. We're prompting for them. Why? Because we know exactly what they're trying to do. We're setting the right context. We're setting the right, prompt. So they're getting the best out of Generative AI without thinking how to use it, that's one. The second piece is using AI today is a very much disjointed experience. You go to one tool, you have their own AI. You go to another tool, you have their own AI. Each one is different. You need to know the differences and the nuances. WalkMeX sold it. Very similar to what we're doing. We're basically making it one very single experience for the user. As I said, we're all focused about the people element and the human element, and that's what brings the power of WalkMeX. And you can't do it without our engine that, one sits on top of every application, contacts throughout, and can be triggered all the time. So I'm setting the script and, you know, you need to see it in order to fully understand it, but we're calling it an always on copilot. It's something that is, coming to you. You don't need to go and ask for it. So one way to think about it, and it's a quote from our customer, today Gen AI is a tool model. You go, U.S. answers, and you get the results. With WalkMeX, it's a push model. We're pushing it to you. We know what you're trying to do. Let's say you are a sales rep and you're doing something in salesforce. We can use AI to understand that you're doing now something wrong, that you're feeling that field incorrectly and so on. You don't need to go and open AI and say, is that, answer is accurate? Can I improve it? And so on and so on, so that difference of bringing AI to people and making it real for them, that's why our customers are super excited with WalkMeX, because it actually make AI real and boost the adoption of AI within the organization. And it's proprietary to what we do, as I said, in the past 12-years.
Raimo Lenschow: Yes. Okay, that's good. I can thank you.
John Streppa: Thank you for the question. Appreciate it. Our last question for the day will come from the line of Keith Bachman from BMO. Keith, your line is now open.
Brad Clark: Hi, this is Greg Clark on for Keith Bachman. Thanks for taking my question. As you set out on your goal to double net new ARRs for the year and progress toward that and what that implies for ARR growth? How do you think about the convergence of your ARR growth and your subscription revenue growth over time, particularly as we're thinking about beyond this year, without providing any exact, context? How should we just think about sort of the path to those two metrics? Thanks.
Dan Adika: Sure, sure. Great question. Thank you. So as we said, we're on our path and, basically, we hit our targets in Q1, and we're on our path to double the net ARR for the year. So as I said, we're happy with the first quarter and the start of the year. Obviously, if we will do that and the ARR growth will be double-digit, obviously, that's a lagging indicator. So that means that subscription revenue will be double-digit the following year. So whatever ARR growth will end of 2024, that's probably going to be their revenue, the subscription revenue growth for 2025. So, obviously, our subscription revenue growth slowed down mainly because of the performance of 2022 and 2023. But, obviously, if we are accelerating it in 2024, we will see a subscription revenue acceleration in 2025. And, obviously, if we will continue to increase our net new ARR in 2025, the same pattern will follow in 2026.
Brad Clark: Great. Thank you.
John Streppa: Great. Thank you, Brad for the question. That concludes our question-and-answer session. I'll now hand it back to Dan Adika, our CEO and Co-Founder for closing remarks. Dan, the floor is yours.
Dan Adika: Sure. Thanks, John. So I want to everyone, thank you for joining. Obviously, we're very excited with all the innovations, especially with WalkMeX. And so we're welcoming everyone to join us and realize on June 18, to see it live, hearing from our customers. We're very excited with the opportunities there. And, of course, like always, I want to thank our amazing employees for all the hard work and our customers and partner. So thank you so much for your time.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.