Good afternoon, ladies and gentlemen. My name is Catherine, and I'll be your host operator on this call. After the prepared comments, we will conduct a question and answer session. Instructions will be provided at the time. Please note this call is being recorded on August 4th, 2020, at 5:00 P.M. Eastern Time. I'd now like to turn the meeting over to your host for today's call, Adam Terese, Director of Investor Relations at Workiva. Please go ahead.
Good afternoon, and thank you for joining us for Workiva's second quarter 2020 conference call. Today's call has been pre-recorded and will include comments from our Chief Executive Officer, Marty Vanderploeg, followed by our Chief Financial Officer, Stuart Miller, who will then open the call up for a live Q&A session. Jill Klindt, our Chief Accounting Officer, will also be on the call. A replay of this webcast will be available until August 11th. 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 the third quarter and full fiscal year 2020.
Workiva cautions that these statements are not guarantees of future performance. All forward-looking statements made today reflect our current expectations only, and we undertake no obligation to update any statement to reflect the events that occur after this call. Please refer to the company's annual report on Form 10-K and subsequent filings for factors that could cause our actual results to differ materially from any forward-looking statements. Also, during the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliations of non-GAAP to GAAP measures and certain additional information are also included in today's press release. With that, we'll begin by turning the call over to our CEO, Marty Vanderploeg.
Thank you, Adam, and thank you to everyone for joining today's call. Despite challenges from the COVID-19 pandemic, we are pleased with our second quarter 2020 finance results, which exceeded guidance for revenue and operating results. Our results reflect our employees' resiliency and their dedication to our customers. Our sales and marketing teams have successfully transitioned to a virtual environment, and we now have greater visibility into the second half of the year. As a result, we are reinstating full-year guidance, which is close to our pre-pandemic full-year guidance for revenue. Stuart will provide further details about our financial results and outlook later in the call. In Q2, demand for our platform improved across all of our growth vectors, which include EMEA, Wdata, and our platform solutions for integrated risk, Global Statutory Reporting, and the U.S. government.
Our partnerships with technology companies and advisory firms remains an important catalyst for our long-term growth. We are proud that three of the four largest advisory firms in the world are now Workiva partners. Customers are embracing our new platform's capabilities as we further streamline their complex business and reporting processes by connecting teams, documents, and data from initial sources to final reports. Our new platform also increases our flexibility and speed when developing new solutions, enabling us to enter more markets faster than ever.
For example, our Federal Energy Regulatory Commission reporting and ESEF solutions were both launched on the new platform. After identifying the opportunity, we quickly moved from concept to launch within a few months. Developing and delivering new solutions on our platform will continue to be a key driver to our success. As we discussed last quarter, we switched to virtual marketing events in response to COVID-19.
We have been pleased with the large attendance at our virtual events and the number of sales leads generated. Next month, we will host our annual Amplify global user conference virtually. This year's timely theme is building trust in business data and supporting business continuity in an age of transformation. Over 4,500 people have already registered to attend. At Workiva, culture is a key driver of our success. Every day, whether we are in our offices or working remotely, our employees create an award-winning workplace that attracts and retains top talent. Recently, Computerworld named Workiva one of the 2020 best places to work in IT. Fortune named us a 2020 best workplace in New York. In closing, we are pleased with our second quarter results and our team's ability to effectively execute during this challenging time.
We remain well-positioned and confident in our ability to capitalize on the many opportunities that lie ahead of us. With that, I will turn it over to Stuart Miller.
Thank you, Marty. Following the initial shock of COVID-19 in March, we began to see a more predictable cadence to closing deals, particularly in June and into July, suggesting that our customers and prospects are settling into a new normal. I want to highlight one market development related to COVID-19.
The Financial Conduct Authority, or FCA, the U.K. regulator, has opened a consultation on whether it should delay the initial ESEF reporting deadline by a year. While the comment period lasts another month, we expect the FCA to approve the delay for U.K. companies. Of the 5,300 companies affected by the ESEF mandate, approximately 1,400 are headquartered in the U.K. Our expectation of a delay of the mandate for the U.K. market has had no material impact on our outlook for EMEA. Turning 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 address our performance against Q2 guidance first. We beat Q2 2020 revenue guidance at the midpoint by $3.3 million. Higher subscription revenue accounted for most of the beat.
We succeeded in collecting a high percentage of the receivables that we had held in reserves at the end of Q1. The pandemic had less of an impact on collections than we had anticipated in March. We beat guidance on Q2 operating income by more than $5 million. The revenue beat I just mentioned accounted for 2/3 of the swing. Lower employee travel and entertainment and medical care expenses accounted for the remaining third of the beat on operating income. Now turning to a comparison of Q2 2020 to Q2 last year. We generated total revenue in the second quarter of $83.9 million, an increase of 14.1% from Q2 2019. Breaking out revenue by reporting line item, subscription and support revenue was $70.7 million, up 16.9% from Q2 2019. New logos and new solutions helped drive strong revenue growth in Q2 2020.
53% of the increase in subscription and support revenue in Q2 came from new customers added in the last 12 months. The balance of the increase came from companies who have been our customers for more than one year. Professional services revenue was $13.2 million in Q2 2020, an increase of 1.2% from the same quarter last year. Growth in revenue from setup and consulting overcame a small decrease in e Xtensible Business Reporting Language services relative to Q2 last year. Turning to our supplemental metrics. We finished Q2 with 3,512 customers, a net increase of 91 customers from Q2 2019, and a net increase of five customers from Q1 2020. The average annual contract value of a new logo signed in Q2 2020 was 34% higher than the same value for a churned account in Q2. Our revenue retention rates remain strong.
Our subscription and support revenue retention rate was 94.5% for the second quarter of 2020, compared to 95.4% for the same period last year. Almost half the attrition in the quarter came from M&A, delistings, and bankruptcies. With add-ons, our subscription and support revenue retention rate was 107.9% for the second quarter of 2020, compared to 114.5% in Q2 2019. The decline reflects winding down conversion of customer contracts to solution-based licensing, as well as pandemic-related impacts on both price increases and solution churn. We continue to increase our number of larger subscription contracts. In the second quarter of 2020, we had 716 contracts valued at over $100,000 per year, up 28% from Q2 the prior year. The number of contracts valued at over $150,000 totaled 342 customers in the second quarter, up 44% from Q2 2019 results.
Moving down the P&L, gross profit totaled $62.4 million in Q2, up 16.4% from the same quarter a year ago. Consolidated gross margin was 74.4% in the latest quarter versus 73% in Q2 2019, a net expansion of 140 basis points. Breaking out gross profit, subscription and support gross profit totaled $59 million, equating to a gross margin of 83.5% on S&S revenue, a contraction of 30 basis points compared to Q2 2019. Additional headcount to help upgrade customers to our new platform was the primary driver of the contraction. Professional services gross profit in the second quarter was $3.4 million, equating to a 25.7% gross margin, compared to 22.8% in Q2 2019. Research and development expense in Q2 totaled $21.5 million, up 7.6% from Q2 2019. Primarily due to higher compensation costs. R&D expense as a percentage of revenue improved 25.6% in Q2 2020, from 27.1% in Q2 2019.
Sales and marketing expense for the quarter increased 23.5% from Q2 2019 to $32.3 million, primarily reflecting our investment in sales talent to drive bookings growth. General and administrative expenses totaled $10.5 million in Q2, up $3.1 million compared to Q2 2019. G&A expenses as a percentage of revenue increased 240 basis points to 12.5% due to severance costs, additional headcount, and higher software expenses. We posted an operating loss of $1.9 million in Q2 2020 compared to an operating profit of $86,000 in Q2 2019. Workiva's operating margin in Q2 was better than our guidance, as I discussed earlier. Turning to our balance sheet and cash flow statement. At June 30, 2020, cash equivalents, and marketable securities totaled $509 million, an increase of $12.5 million compared to the balance at March 31, 2020.
In Q2 2020, net cash provided from operating activities totaled $7.1 million, compared with cash provided of $18.8 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 remove the invoices at risk and take the amounts out of both accounts receivable and deferred revenue until payment is collected, which is when we begin to recognize that revenue. At June 30, 2020, we classified $5.6 million of receivables to this reserve account, up from $3.2 million of receivables at June 30, 2019. This reserve account reduced deferred revenue by an 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 multi-year contracts with annual billing terms for some customers. Turning to our guidance. As Marty indicated, we are reinstating guidance for full year 2020 based on improved visibility on new business, both pipeline and deals closing. Our new full-year guidance is close to our pre-pandemic full-year guidance on revenue and substantially improved on operating loss. We are factoring in the expected impact of COVID-19 on our business and results of operations based on information available to us today. For the third quarter of 2020, we expect total revenue to range from $84.3 million-$84.8 million. We expect subscription revenue to grow at a faster rate than services revenue in Q3. We expect non-GAAP operating loss to range from $5.2 million-$5.7 million.
For full year 2020, we expect total revenue to range from $341.5 million-$342.5 million. We expect non-GAAP operating loss to range from $11.5 million-$10 million. We will now take your questions. Operator, we're ready to begin the Q&A session.
Ladies and gentlemen, just as a reminder, if you'd like to ask a question, please press star and then the number one on your telephone keypad. Once again, that is star and the number one. Your first question comes from the line of Tom Roderick with Stifel.
Gentlemen, thank you for taking my questions. Congratulations on a great finish to what was starting out to be a tough quarter. Well done on that. I guess I want to go back to 90 days ago, and Marty, you had talked about a number of deals. I think at the time there were some 50 deals that had kind of slipped out of closures and into the next quarter. 40 of them were kind of put back in the pipeline, maybe it's 32 were put back in the pipe, but regardless, it was a pretty big number. Would love to just hear about what you did with the sales team, any strategic changes, any spiffs you put in place. What did you do in terms of getting the sales team to help close those deals?
As you look at the pipeline, I'd love to hear a little bit more about what you're doing also to replenish the pipeline, because it sounds like a lot of those deals did in fact close this quarter, close rates are up. Talk a little bit about more of the pipeline replenishment as well. Thanks.
Well, good question. The first comment I would say is that, of those deals that slipped first quarter, we had a pretty typical distribution. A number of those closed, a number of those are still in the pipe for this quarter and potentially next quarter, and some went away. I mean, the examples the industries that are still suffering from COVID-19, hospitality, airlines, things like that, those deals are not going to come back anytime soon.
One category didn't sort of outpace the rest, but we closed some slipped, and some are on long-term hold for sure. In terms of our sales team pivoting to virtual selling, we've really been pleased with that, not only in closing deals but building pipe. When you take into consideration a certain percentage of the economy is damaged, and you really can't sell to those industries I mentioned previously, the rest of the economy is really, as Stuart said, come back to a new normal, and we're seeing pipe building very similar to what we did in the past. The closure rate is also coming back to sort of the norms before COVID. With the exception of those damaged industries, or I should say stressed industries, for the time being, we're seeing things sort of normalize and come back to normal.
Things look pretty good from three months ago. The shock definitely affected everybody, but now after some time has settled in, we're just seeing normalcy sort of returning.
That's great to hear, Marty. Thanks for that. Stuart, you mentioned Europe just a little bit in your comments. You referenced the FCA evaluating a one-year delay. I guess what I'd love to hear is, how are your customers and potential customers over in Europe thinking about this ESEF mandate? I know that it was meant to be sort of a multi-phase implementation anyway, so it wasn't like a Y2K event where you either did it by January 15th or you didn't. Do you think that this FCA evaluation slows down the pipeline in the U.K., or is it sort of irrelevant where customers are thinking about digital transformation anyway, and you're still ramping your own build over there in terms of sales headcount and marketing spend to improve awareness?
Yeah, it's a good question. As we'd indicated before, Tom, we were using the ESEF mandate not as an opportunity to sell a point solution, but as an opportunity to get a meeting with the right people at the front end to sell the platform. We're seeing a lot of success with that. We don't see the potential delay coming out of FCA on ESEF is slowing down that motion at all. In fact, we've made quite a bit of penetration into those accounts and broadened the discussion beyond ESEF. As I indicated on my earlier comments, it didn't affect our forecast, and it really hasn't affected our staffing.
Outstanding. I'll jump back in the queue. Thank you, guys. Nice job.
Thanks.
Thanks.
Our next question comes from the line of Alex Sklar with Raymond James.
Thanks. Stuart, just a question. Retention held really strong in Q2. I was wondering if you could characterize the step down in the add-on revenue. How much of that is just math around the lapping of SBL?
Yeah. Certainly, it was a combination of SBL and not taking price increases, particularly for companies that were renewing in industries affected by COVID, and then a bit of solution churn, particularly from companies that were affected by COVID. Specifically, it is hard to isolate SBL, but as we have said in the past, it accounted for probably a couple of hundred basis points of the move.
Okay, great. Thanks. Marty, you mentioned in the prepared remarks, the partner channel, you highlighted three of the top four global consulting partners. I'm just curious if you've seen any changes in terms of partner involvement in deals or partner resources being devoted to Workiva versus prior quarters?
Yeah. We're really happy with our partner activity right now. Partners are starting to recognize that not only can they make money deploying our solution and advising customers on how to use it, they can also build a real practice around it. We're seeing a lot of our partners, not just the big ones, taking us very seriously and engaging with their clients. That's been a really positive thing for us. Like we've said all along, it takes a while to build that momentum, but we're really seeing it pay off now.
All right, great. Thank you.
Thanks, Alex.
Your next question, line of Terry Tillman with Truist Securities.
Hey, guys. This is actually Nick Ivan Negulic on for Terry. Thanks for taking our questions. The first one was kind of pivoting back toward the ESEF mandate opportunity. I was hoping you guys could give us an update on how conversations are progressing with both large organizations and maybe the lower end of the market, in which you're addressing them with the W for ESEF solution. Could you just give us an update on both sides? I guess as a follow-up, are you seeing any changes in terms of competitive dynamics in EMEA?
Let me start just by saying that, sort of echoing what Stuart said, ESEF is sort of one of the mechanisms we use to get to customers and to talk to them. We've had a lot of engagement over ESEF. We are starting to close deals on the bottom two-thirds of the market. On the high end of the market, the top one-third where we sell platform sales, not our scaled-down product, we haven't seen any effect there. Those are large companies. They're making platform-type investments to satisfy more than just ESEF. They may be doing SEC in there. They may be doing all sorts of different types of compliance and internal reporting things. It's been a nice entry into those big companies, and we haven't seen any change and don't expect any, but it's going very well.
On the bottom two-thirds of the market, we're getting really good engagement. Like I said, we're starting to close some business. Again, there's a certain percent of those companies that are going to carry on no matter what. They want to get it handled, and they want to comply and be good citizens. We've had good luck engaging, and we don't see this delay in the U.K. really affecting our advancement in the market.
Got it. Okay, that's helpful. Then I guess just kind of pivoting more toward go-to-market. With the hire of Julie earlier this year, I was wondering if you guys could potentially touch on some of the operational enhancements she's put in place and if these enhancements are leading to increased efficiencies in certain areas of the organization. Thanks.
Well, yeah, happy to answer that. Julie has been a great addition for our company. She has brought a lot of operational discipline. As I mentioned the last call, I was trying to do two jobs, and it was not going as well as it could. She has brought operational discipline, a lot more metric-driven decisions. In terms of go-to-market, we have really sort of focused on packaging how we're going to go to market in terms of positioning, communication in terms of value. We've spent a lot of time investing in that, also seller skills, and she's done a great job on all that. We feel like the stuff she's doing is definitely going to improve sales efficiency and go-to-market efficiency. I could have more to talk to you about if COVID hadn't come in the middle of it.
In terms of anecdotal type of things and what I observe in the company itself, it's going very well.
Got it. Okay. Thanks, guys.
Thank you.
Our next question comes from [audio distortion] with [audio distortion].
Perfect. Thank you so much, guys. Hopefully everybody's doing well in the current environment. Couple questions from me on the ESEF mandate. As much as U.K. is considering potentially delaying, have you heard any kind of rumblings about the rest of EMEA potentially also putting that discussion on the table?
I have not. I'm sure that it's being bounced around, but I have not heard anything official. I tend to think that in the current state of the European Union, I don't think they're going to necessarily be concerned about moving forward. Obviously, they're doing better than us on COVID in general. Even if they do, as Stuart has said many times, we have not built that into our forecast in a significant way. Even if it's a delayed a year, as I mentioned, it's still going to be something that will give us a chance to talk to new prospects and existing customers. Even before COVID, we had thought that there was a chance that we'd get delayed a year.
That just seems to be what most of these regulatory things do, and we've seen it in others, and we had built a model that more or less accounted for that already.
Okay. Perfect. Thanks.
We really haven't seen it happen in Europe, but if it does, it's not something I'm very concerned about. It's still going to happen, and the conversations are still taking place.
Right. No, it's just a matter of time. Makes sense.
Yeah.
Maybe just a follow-up for Stuart. Can you help us unpack the $5.6 million of allowance for receivables that you guys now have and how that impacted billings in the quarter? Just the kind of the moving pieces of billings declining 2% year-on-year. I just want to make sure we have it all correct.
The way to think about it is to compare it to June 30, 2019. The $3.2 million that was in the reserve last year at June 30, and then $5.6 million. If you were to look at a pro forma change in short-term billings, short-term billings would have been up 6.6% if you adjusted both numbers for that, if you added back those reserves for it.
That change, that's a year-on-year change, or is that sequential?
Yeah, that's the year-on-year change. The sequential one, I think that's the right way to look at it because our business is seasonal, right? Particularly when it comes to billings. The $6 million one was at the end of March this year. That, if you look at it as a percentage of the combined number, so receivables plus the add back, the total was at $6 million, was about 11.6% of the total. At 3/31, it was about 11.9% at 6/30.
Got it. Okay. Maybe we can follow up a little bit more online. Thank you so much. I appreciate it.
You bet. Thanks, Dan.
Your next question comes from the line of Mike Grondahl with Northland.
This is Mike, line for Mike. Thanks for taking our questions. Maybe first off, just on the 10-Q on the segments, seems like it's pretty broad-based across the different silos, even a couple points of growth in energy year-over-year. Anything to call out there as far as surprises in the quarter? More strength in certain industries?
I would say that the one that's really showing a lot of promise is Global Statutory Reporting. We're seeing very good sized deals and the competition there is much different. It's an older technology competition. All of the growth vectors showed very good progress through the first half of the year. Global Statutory Reporting really stood out.
Got it. Maybe just comment on changes in the last couple of quarters in the potential M&A market pipeline there?
I'll let Stuart comment on that. Go ahead, Stuart.
Yeah, we continue to look at opportunities brought to us and initiate conversations ourselves. I think it's fair to say that the pandemic has caused most of the companies that might be interested in selling to slow down on the M&A front. I would say it's been relatively quiet.
Okay, you do have a follow-up question from the line of Tom Roderick with Stifel.
Hey, guys. Thanks for taking the follow-up. Marty, I was hoping you could just go into a little bit more detail on the Next Generation Cloud Platform here. We're getting some nice feedback from customers that have seen it, played with it, perhaps even using it already, that feel like it's really kind of a game changer with respect to how remote employees can interact with each other. They can sort of be in the same line and edit the same line at the same time, things like that. I guess the question I'd have for you is, number one, are you getting a better reception on the product with respect to adoption as more and more of your customers' employees are working from home? Secondarily, what's sort of the monetary add-on opportunity as you roll this product out?
Does it interact better with some of these add-on features, whether it's Wdata or Global Statutory or some of the other products? Just love to hear a little bit more about how you're thinking about monetizing that, because it does seem like it's a little bit of a functionality game changer.
Well, I would say first off that our rolling out of NextGen has been a very pleasant surprise. It's been very stable and has really performed well. When you rebuild a platform the size of ours, that's a big undertaking, and we've been extremely pleased with how that's turned out. In terms of the leverage we're going to get from that platform, remember, we've gone to a truly modern microservices architecture. For instance, FERC and W for ESEF, those two solutions I mentioned in the prepared remarks at the beginning, we created specific solutions for those in just a couple of months and packaged them and are selling them already and generating bookings. We aren't going to see direct new revenues from switching customers from classic to NextGen.
What we see in 2021, the leverage we're going to get there is we're going to be able to package more and more specific solutions for sellers to put in their bag. That's really where we get the leverage.
Yeah. Then just perhaps one quick follow-on on that. Wdata, would love to just hear a little bit more about that. Customers that are adopting it, what is that doing to the deal prices, and who are you looking at or who are they looking at as potential alternatives for Wdata? Is this more of a data prep tool type of solution like an Alteryx, or is it pretty much something historically they've just done it manually?
It's a, let's say, a baby version of what Alteryx does, but it's put together for our particular product and our particular customers. It is sort of a data prep tool, but the big thing for us is connectivity. You can bring your data in there and do all the things you need to prep data for our solutions and our use cases, which customers love. The really good thing is we can connect to a large number of source systems, not just ERPs, but CRM tools and tools like Concur, all the Salesforces. You can pull in data that's not just back-office data, but front-office data, and we're seeing customers using the platform more and more for that. Wdata, like I said, was the missing link in the platform. When we do a platform sale with Wdata, we're getting considerably higher annual contract values.
In terms of product, it was the missing piece for us having a true platform. That's really how to look at it.
That's great. That's it for me. Thank you, guys. I appreciate it.
Thanks, Tom.
Thanks, Tom.
Your last question comes from the line of Rob Oliver with Baird.
Thanks, guys. It's Matt Lemenager on for Rob. I had one on the growth in customers greater than 150,000, which has held fairly steady, and I guess just comparing that with the growth in customers greater than 100,000 has kind of decelerated a little bit. Is there anything to unpack there? It seems like maybe it's more platform sale on the traction, but just kind of seeing that growth in 100,000 has come down a bit, at least compared to two or three quarters ago, while the growth in 150,000 is holding in strong. Anything to think about there?
Hey, Matt, Stuart. A, we're really happy to be growing them both at those kinds of levels during the time of COVID. I do think that the growth of the over 150,000 does reflect strength on selling the platform. The 28% is down a little bit, and I do think that that's reflective of the impact of COVID more than anything else.
Okay. Got it. Yeah, Stuart, I was just going to ask on cash flow, sometimes you've provided additional color on the calls around operating cash flow or how to think about that. You've been operating cash positive, and it sounds like collections were strong in the first half. Is there anything you want to point people to looking at the second half of the year, anything around cash flow?
Yeah. Not specifically around the second half of the year. We're pleased to be nicely cash flow positive on the first half of the year. I'll leave it at that.
Okay. Sounds good. Thanks, guys.
Thank you, Matt.
Thank you.
Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.