The News: WalkMe announced earnings for the third quarter (Q3) of 2023 that ended on September 30. The company’s revenue for the quarter was $67.0 million versus $63.4 million in the year-ago period, demonstrating an increase of 6%. Read the full Q3 2023 earnings release on WalkMe’s website for more information.
By the numbers for Q3 2023:
- Q3 2023 revenue of $67.0 million, up 6% year-over-year (YoY), and subscription revenue grew 10% YoY to $62.3 million
- Q3 2023 non-generally accepted accounting principles (non-GAAP) gross margin of 85%, up from 80% in the same quarter a year ago
- Q3 2023 non-GAAP operating income was $1.6 million versus a loss of ($12.5) million in the year-ago quarter
- Q3 2023 non-GAAP operating margin improved to 2% from (20%) last year
- Q3 2023 non-GAAP net income per share was of $0.04, compared with a net loss of ($0.14) per share one year ago
- Q3 2023 free cash flow (FCF) of $6.2 million, or 9% of total revenue, compared with negative ($11.2) million or (18%) of total revenue in Q3 2022
- 25% YoY growth in enterprise-wide digital adoption platform (DAP) customer count
WalkMe’s Q3 2023: Record Non-GAAP Operating Income Achieved
Analyst Take: WalkMe continues to show progress in its objectives, accomplishing operational efficiencies and reaching financial milestones. The company achieved non-GAAP profitability for the first time, and ahead of plan, with $1.6 million in operating profit. Additionally, WalkMe was cash flow positive for two quarters in a row and expects to wrap up 2023 with positive FCF for the full year. Revenue for the quarter was $67 million, a 6% YoY increase.
WalkMe has been striking a good balance as the company sharpens its business process efficiencies while continuing product innovation and improving go-to-market strategies.
Customer Wins and Solid Public Sector Growth
This past quarter, WalkMe saw success not just in getting new customers but in renewals as well. The company added 11 enterprise-wide DAP customers this past quarter to reach a new high of 194 total customers. The number of customers that have over $1 million in annual recurring revenue (ARR) grew 11% YoY to total 39. Customers with over $100,000 in ARR grew by 5% YoY, totaling 539 companies in this category at the end of Q3 2023. Two of its largest customers renewed for an extra 3-year time period, signing multimillion dollar agreements.
The federal government segment was a particular area of strength with the company awarded three new opportunities. WalkMe’s FedRAMP status has been a solid differentiator, and the company has seen strong demand in this market. Similarly, the company saw wins in local municipalities and universities.
Continued Investments in Product Innovation and Partnership Progress
The company continues its investments in its proprietary DeepUI AI technology. WalkMe Discovery and Data AI Solutions saw sustained growth and the number of employees covered grew 85% quarter-over-quarter (QoQ).
WalkMe Discovery is one of the company’s fastest growing products, with demand being spurred by the Shadow AI capabilities that were launched last quarter. WalkMe for Shadow AI comes at an opportune time as companies try to find a balance between benefitting from the many advantages of having employees use AI and mitigating its risk for the company.
A broader array of generative AI capabilities will be implemented throughout its platform. These introductions are in synch with WalkMe’s goal to make digital interactions easier, with less friction. As an example, the company is launching an AI answer capability that will give employees easier access to organizational knowledge within their flow of work.
This past quarter saw WalkMe partners contributing to both new business and the delivery of DAP to customers. The partner ecosystem has been flourishing and according to the company, more net new ARR is being affected by this partner ecosystem than ever before.
WalkMe launched the Propel Partner Program, which focuses on giving global and regional services integrators, in addition to ISV/tech alliance partners, a wide array of benefits such as dedicated training and certification and financial awards.
Looking Ahead
WalkMe provided revenue guidance for Q4 2023 in the range of $67 million to $68 million. The company expects non-GAAP operating income of $1.3 million to $2.3 million. The company expects full year 2023 revenue to be in the $266.1 million to 267.1 million range and positive FCF should remain through the year.
The company continues to have challenges with Professional Services, with revenue attributed to this category down YoY. WalkMe expects that downward shift to hold, expecting a slight sequential decline for the fourth quarter (Q4). Gross margin for Professional Services improved in Q3 2023, which is a promising sign.
Looking ahead, we can expect to see more innovation coming from the company. WalkMe is already seeing good adoption driven by introductions such as WalkMe for Shadow AI and has an interesting patent pending data validation capability to help support data hygiene. The company is likely just scratching the surface of opportunities in both of these areas.
Overall, Q3 was a good quarter for WalkMe with improvements across almost all metrics. It was good to see the strong activity in the public sector as well as a more strongly formulated partner strategy and offering. The company is poised for accelerated growth. WalkMe is well capitalized to keep investing in its product roadmap and might also explore merger and acquisition activity, which could unlock even more opportunity.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other insights from The Futurum Group:
WalkMe for Shadow AI: Guardrails and Guidance Within the Flow of Work
WalkMe’s Digital Adoption Platform Helps Drive Software Stack ROI
WalkMe Achieves Record Positive Free Cash Flow in Q2 2023
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
As a detail-oriented researcher, Sherril is expert at discovering, gathering and compiling industry and market data to create clear, actionable market and competitive intelligence. With deep experience in market analysis and segmentation she is a consummate collaborator with strong communication skills adept at supporting and forming relationships with cross-functional teams in all levels of organizations.
Sherril holds a Master of Business Administration in Marketing from University of Colorado, Boulder and a Bachelor of Arts in Psychology from Rutgers University.
