NEW YORK (Reuters) -Irenic Capital Management built a sizable stake in Workiva ( WK ), arguing the financial reporting software maker needs to improve its operating efficiency, refresh its board and consider a potential sale.

Irenic owns roughly 2% of Workiva ( WK ) and has met with management numerous times to discuss possible changes to help the $4.7 billion company perform better, according to documents seen by Reuters and two people familiar with the matter. 

Specifically, the New York-based hedge fund is urging the Ames, Iowa-headquartered company to collapse its dual-class share structure, make all board members stand for election every year and add two newcomers, including Irenic executive Krishna Korupolu, to the board, the sources said.

Irenic is pushing for Workiva ( WK ) to review strategic alternatives with fresh board oversight, capitalizing on strong private equity appetite for financial software companies, said the sources who were not allowed to discuss the private talks publicly. Workiva ( WK ) previously fielded interest from a private equity firm three years ago.  

The hedge fund has not ruled out nominating directors if the two sides can't reach an agreement, the sources said.

A representative for the company was not immediately available for comment while an Irenic representative declined to comment.

IRENIC TARGETS WORKIVA AFTER STOCK DECLINE

Irenic ranks among the top 10 investors in Workiva ( WK ) and its push for changes is becoming public less than three weeks after the company held its investor day.

Workiva's ( WK ) stock price dropped 5.2% on September 9 as investors worried about management's commitment to profitability and their go-to-market efficiency, which measures a company's ability to drive revenue growth through sales and marketing investments, investors said. On the same day, the S&P 500 index was mostly flat.

The company supplies top-of-the-line financial reporting tools used by roughly 90% of Fortune 500 companies, including soft drink maker Coca-Cola, energy company Chevron and United Airlines, to make filings with regulatory agencies, including the Securities and Exchange Commission.

Since Julie Iskow became Workiva's ( WK ) CEO in April 2023, the company's stock price has fallen nearly 19% compared with a 20% average gain for its proxy peers and a 70% surge for the S&P 500 during the same period.

Irenic has been frustrated with the company's financial performance with the company trading at a 27% discount to application software rivals like Workday and ServiceNow, the documents show. 

The hedge fund argues the discount is being fueled by a poor balance between growth and profitability, something it has asked management to address immediately, the sources added.

IRENIC TARGETS WORKIVA'S LONG-SERVING DIRECTORS

Irenic has twice sent letters to Workiva's ( WK ) board to lay out its concerns and proposed improvements, the people said.

The hedge fund also expressed considerable concern about the company's governance, noting that five of its seven directors have served on the board since 2014.

It is highly unusual for Irenic to join the board of a public company and in the three years since its launch, its executives have sat on only two public company boards.

The firm was founded by former Elliott Investment Management executive Adam Katz and former Indaba Capital Management executive Andy Dodge and has been involved when companies like Arconic, Barnes and Couchbase went private and mounted activist engagements at News Corp and Theravance Biopharma.