Workiva Inc - Class A

We progressively added Workiva as we believe it is a beneficiary of the ongoing software consolidation trend, particularly in the context of AI. The company is positioned well in the regulated high-stakes financial reporting space, which is distinct from other software applications. We see significant potential for value creation as AI tools are integrated into their offerings, enhancing customer value. The current market mispricing presents an opportunity, as we anticipate strong returns driven by the company's unique advantages and the growing demand for its services.

Workiva (WK) was one of the largest detractors from relative performance year-to-date. The Fund's stock selection was primarily a source of underperformance, particularly in the Information Technology sector, where Workiva was mentioned alongside other underperformers. The manager noted that the market entered a 'show me' phase, penalizing the biggest AI spenders, which included Workiva. This suggests a lack of confidence in its future performance amidst the current market dynamics.

Workiva, a cloud platform for financial reporting and compliance, fell -18%. We reduced our position on persistent weakness due to a combination of multiple compression and weak sentiment regarding AI monetization. This reflects concerns about the company's ability to capitalize on AI trends, which are critical for growth in the current market environment.

Workiva Inc. is a leading provider of cloud-based reporting solutions, integrating financial reporting, sustainability management, and governance, risk, and compliance into a sharable, data-integrated, and audit-ready environment. Over 40% of the Company’s revenue comes from its SEC filing service, which is utilized by 95% of the Fortune 100. Despite its strong business model and a 97% customer retention rate, Workiva has yet to generate a profit, leading to its shares trading at a 25% discount compared to peers. Irenic Capital, which holds a 2% position, is advocating for governance enhancements and operational changes to improve profitability, suggesting that the company could achieve significant margin improvements and attract strategic interest for acquisition.

Workiva has been a bright spot in our portfolio, outperforming the Russell 2000. Despite the broader concerns regarding AI disruption in the software sector, we believe these fears are overblown. Businesses rely on application software for mission-critical operations, and the notion that AI will replace established systems like ERP is unfounded. Our confidence in Workiva stems from its strong business model and the essential role it plays in enterprise operations, which we expect to continue driving its value in the long term.

Workiva, Inc. (WK) was a bright spot within Technology, posting a strong 27% return. This performance stands out in a quarter where many technology stocks struggled, particularly in the semiconductor and technology hardware industries. The manager's positive view on Workiva is underscored by its ability to deliver solid returns amidst broader market challenges, indicating a strong underlying business and potential for continued growth.