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spk01: Thank you for standing by and welcome to the Qualtrics third quarter fiscal year 2021 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, today's program may be recorded. I would now like to introduce your host for today's program, Stephen Wu, head of FP&A and investor relations. Please go ahead, sir.
spk13: Thank you, and welcome to Qualtrics' third quarter fiscal year 2021 earnings conference call. On the call, we have Zig Serafin, CEO, Chris Beckstead, President, and Rob Bachman, CFO. Following prepared remarks, we will open the lineup to answer questions. Our results, press release, and a replay of today's call can be found on the Qualtrics Investor Relations website. During today's call, we will make statements that represent our expectations and beliefs concerning future events that may be considered forward-looking under federal securities law. These statements reflect our views only as of today and should not be relied upon as representative of our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For further discussion of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC, including our annual report on Form 10-K for the fiscal year ended December 31, 2020, and our quarterly report on Form 10-Q for the quarter ended September 30, 2021. That will be filed with the SEC. With that, I'll turn it over to Zix.
spk03: Well, thank you, Steven, and also thank you, everyone, who's joining us here today. Q3 was an outstanding quarter, and our strong momentum continued as revenue in the quarter rose to $272 million, which is up 41% year-over-year. Subscription revenue rose to $220 million, up 49% year-over-year. And we ended the year with more than 782 million in current remaining performance obligations, which is a 58% increase year over year. And we're in the midst of a massive shift in how companies engage with and build relationships with their customers and their employees. And this shift is fueling the $60 billion plus TAM for experience management. Our leadership position has never been stronger. As we continue to innovate and define the category that we created, and as companies accelerate their adoption of Qualtrics across industries. Let me give you just one example, which is from this quarter. Peloton, they're a phenomenal company. They're transforming the fitness world by delivering an incredible member experience. Peloton is a longtime customer, and in Q3, they standardized on Qualtrics as their experience management platform. One of their core values is to obsess over every touchpoint of the member experience. I love this. They're using Qualtrics to listen to their community across these touch points and then to share feedback across the entire company. This drives their strategic priorities and then allows them to be able to improve member journeys at every turn. Qualtrics is about forging deep relationships between the organization and the people who matter most, which are the employees and their customers. And we have a single cloud native platform that allows companies to bring together all of their experience data and their operational data across the four core experiences of any business, customer, employee, product, and brand. And the services that we provide are helping to transform retail, travel, and entertainment, to reimagine student experiences in K-12 and higher ed, and to manage critical vaccination and health services around the world. In Q3, Market leaders like CrowdStrike, DoorDash, LL Bean, NASCAR, BMBA, ServiceNow, and many, many more also chose Qualtrics to help them drive their experience transformations. And for these customers, experience management has never been more important. People are sharing their feedback about companies everywhere, both directly and indirectly. And that's happening in support conversations, chat, social media posts, product reviews, and dozens of other places. With our acquisition of Clarabridge, the leader in omni-channel conversation analytics, we can help our customers discover what's being said about them across all of these unstructured sources. This feedback exists at such a scale that without Clarabridge, companies might never find the meaningful, actionable insights that drive business outcomes. So this acquisition... along with our acquisition of Journey Orchestration Leader UserMind, puts us even in a stronger position to listen and act on experience data. We're already integrating these strengths into our newest platform innovation, Experience ID. Experience ID delivers a single, unified view of all the feedback customers and employees want a company to know about them over time. It enables companies to zoom in on the detailed preferences of individual customers to personalize their experiences. And then they can zoom out to get powerful views by segments such as teams or geographies to identify new market opportunities while also giving companies the ability to build deep, trusted relationships at scale. So for example, in Q3, we expanded our relationship with Dish Network to build an industry-leading customer experience program across the company's pay TV and consumer wireless brands DISH has been rated number one in customer satisfaction by J.D. Power and their own customers for the last four years. And they're building on that momentum to design the same trusted experience for their wireless brands. And now they're adding EmployeeXM to better connect employees to their customer-centered culture and to help DISH to attract and retain talent in an increasingly competitive market. It's clear that our product strategy is working. And as we continue to innovate across our platform to keep all of our customers a step ahead, for example, even before the White House proposed vaccination mandates for large U.S. employers, we released our Employee Experience Vaccination and Testing product to help organizations navigate this new phase of the pandemic. This product allows customers to securely confirm vaccination status, collect test results, and then screen for COVID-19 symptoms all on our XM platforms. And customer demand has been unparalleled. Also, on the employee side, the great resignation has made retaining talent many CEOs' top priority. So in Q3, we launched EX25, which gives organizations a real-time, predictive view of the 25 most impactful engagement and retention drivers like trust, safety, respect, and work-life balance. And on the brand experience side, we launched Brand Impact Simulator to help companies identify the right mix of brand attitudes and strategies to improve key outcomes like customer acquisition, website traffic, and subscriptions. Our ecosystem continues to grow. In Q3, EY wants the dedicated competency to drive end-to-end experience management solutions from strategy to design and enablement to implementation, all combining EY's professional services, and Qualtrics technology. We also partnered with DXC to create a first-of-its-kind product in managed workplace services to drive employee engagement and productivity with real-time insights. And a new partnership with global HR consulting firm Mercer is helping top brands better understand their employees so they can develop impactful benefits programs during a crucial time for employee retention and hiring. We continue to see strong international growth as the demand for experience management grows around the world. In the quarter, customers including Kyoto University, MercadoLibre, NL Post, Repsol, Sky, and YMCA New South Wales all chose Qualtrics to empower their experience transformations. And we're investing locally to support our growing customer base in EMEA. In Q3, we announced plans to more than double our EMEA workforce by 2024 and open an expanded headquarters and R&D center in Dublin early next year. We're also expanding in APJ and announced plans to grow our local employee base in APJ by more than 5X in 2024. We also just opened up our new regional headquarters in Sydney and a new data center in Singapore to serve our customers across the region. In closing, We had another quarter of exciting employee growth in Q3. We added 485 new employees, and we have hundreds of open positions around the world. At Qualtrics, one of our core values is operating as one team in everything that we do, and that was on display in Q3. From our leadership team to our new Q3 hires, I am incredibly grateful for the talented employees that we have.
spk06: It's the right team.
spk03: building on the industry-leading XM platform. And to all of our customers, thank you for continuing to trust us and enabling experience breakthroughs for your own employees and customers. We have a great future ahead as we grow together. And with that, I'm going to turn it over to Rob to talk about the numbers.
spk02: Thanks, Zig, and good afternoon, everyone. Today I'll cover our Q3 results and our outlook for Q4. Q3 was another outstanding quarter as we had strong performance on both the top and bottom line. Total revenue was $271.6 million in the third quarter, up 41% year over year. Subscription revenue in the third quarter was $220.3 million, up 49% year over year, driven by both strong new business sales and expansions. Professional services and other revenue was $51.3 million for the third quarter, representing 15% growth year-over-year. Our remaining performance obligations, representing all future revenue under contract, ended the quarter at $1.36 billion, up 67% year-over-year. This metric includes both new and renewal software contracts, along with our professional services business. Current remaining performance obligations, which is all future revenue under contract that is expected to be recognized as revenue in the next 12 months, was $781.5 million, up 58% year over year. Current and total RPO continue to benefit from a lengthening of average contract duration for both new customers and renewals. In Q3, strong expansion across our customer base, drove our dollar-based net retention rate to 125%. Customers spending more than $100,000 in annual recurring revenue grew 38% year-over-year to 1,668 customers. Turning to margins, our Q3 non-GAAP gross margin was 79%, approximately 262 basis points higher than the year-ago period. This increase is mainly due to the continued mixed shift towards subscription revenue and higher gross margins in our professional services business. Subscription has increased from 76.9% of our total revenue in Q3 of 2020 to 81.1% in Q3 of 2021, as we focus on driving software usage on our platform and continue to grow our partner ecosystem to provide expanded experience management services to our customers. Our non-GAAP operating profit for the third quarter was $13.3 million, resulting in a non-GAAP operating margin of 4.9% compared to 1.3% in Q3 of 2020. This expansion was driven by our strong top-line performance and overall gross margins. Operating cash flow for Q3 was $0.4 million compared to negative $90 million in the year-ago period. Free cash flow in the quarter was negative $13.1 million compared to negative $107.2 million in Q3 of 2020 due to operating margin expansion and significantly lower cash payouts related to SAP equity-based awards. $2.9 million of cash outflows in Q3 was related to the cash settlement of stock-based payment liabilities compared to $96.9 million in the year-ago period. As a reminder, free cash flow may fluctuate on a quarterly basis due to the timing of cash collections, and we believe it's best to assess our cash flow performance over a longer term. We ended the quarter in a strong cash position with approximately $589.9 million in cash and cash equivalents. Turning for a minute now to the Clarabridge acquisition, please note that the acquisition closed on October 1st. ClearBridge results are not included in our Q3 results but are included in our Q4 guidance. As part of the purchase price accounting, the acquired deferred revenue will be written down significantly. Growth and operating margins will be negatively impacted by this write-down because for a period of time, we will incur 100% of the expense but won't recognize 100% of the revenue. Moving now to our Q4 and fiscal year 2021 business outlooks. We expect total revenue for the fourth quarter to be $296 million to $298 million, representing 39% growth year over year at the midpoint. Within this, we expect subscription revenue to be in the range of $242 million to $244 million, representing 51% growth year over year at the midpoint. Clarabridge is expected to contribute $16 million in subscription revenue and $2 million in professional services revenue in the fourth quarter after adjusting for the purchase price accounting of deferred revenue. We expect non-GAAP operating margin in the range of negative 1% to 0% and non-GAAP net loss per share of 4 cents to 2 cents, assuming 550 million weighted shares outstanding. For the fiscal year 2021, we expect total revenue in the range of $1.056 billion to $1.058 billion and subscription revenue in the range of $854 million to $856 million. At the midpoint of the ranges, this represents a subscription revenue growth of 49% year-over-year and a total revenue growth of 38% year-over-year, respectively. We expect non-GAAP operating margin in the range of 2.5% to 3.5%. We expect a non-GAAP net income per share between $0.02 and $0.04, assuming 515 million weighted shares outstanding. Longer term, as we execute on our growth strategy, we believe that our best-in-class subscription gross margins will provide the leverage and flexibility to continue to invest into this large market opportunity. We believe this investment will provide durable and sustainable long-term growth. Thank you for joining today's call. With that, Zig, Chris, and I are happy to take your questions, and we'll turn it over to the operator.
spk01: Certainly. Once again, if you have a question at this time, please press star, then 1. Our first question comes from the line of Raymond Lynch from Barclays. Your question, please.
spk06: Yeah, hey, congrats. That's an amazing quarter. Can you talk a bit about the acquisition in a broader context, again, a little bit? Like how broadly applicable will that be, and how do you see this kind of going into market with what you're offering at the moment versus where you could expand into? So, you know, because it does seem like it's opening up a big avenue for you. Thank you.
spk03: Great question, and thank you for asking. So first off, we have published materials when we announced the acquisition that, you know, it's important to get that context as well. But, you know, I'll summarize, which is, number one, the acquisition of ClareBridge, and, of course, we also acquired UserMind. But if you look at the combination, it just strengthens our position as the number one experience management platform. What it does, it helps organizations to even more deeply understand what their customers and their employees are doing to be able to ultimately advance experiences for those core stakeholders. If you look at Clarabridge, they're the industry-leading AI-powered NLP, natural language processing, natural language understanding capability that when it comes to experiential data and infused into our platform, It will help people to be able to capture actionable insights from any form of customer interaction, any form of feedback channel. It could be social. It could be product reviews. It could be chat, call center, contact center, conversational-based interactions that are taking place. And if you think about Qualtrics, Qualtrics is a system that helps you to be able to ask the right question at the right time based upon the context of what a human being is doing, a customer or an employee. Clarabridge basically captures and connects with what people are sharing regardless of what's been asked. It's what they volunteered to tell people through different channels. What's their intention? What are their emotions? And that often comes in the form of unstructured signal, unstructured data, right? So that combination just changes the game on the capability set that's available in the market in experience management. The user mind, you know, I'll be very brief on that, is a journey orchestration system. It's a powerful platform. It advances and accelerates some of the work that we've been doing organically in our system. The combination of these two capabilities are nicely connected to the innovation we have around experience ID. And, you know, we think that the combination of those technologies with what we're doing at experience ID is further advances people's ability to be able to go build deeper relationships with customers as well as employees.
spk06: Very exciting. Thank you. Well done.
spk01: Thank you. Thank you. Our next question comes from the line of Brent Bracelet from Piper Sandler. Your question, please.
spk12: Thank you. I guess the first one for Zig here, three straight quarters of better than 45% subscription growth is certainly impressive. I guess what stood out to me this quarter was the net retention rate of 125%. That's now above pre-COVID levels of 122. Can you just talk a little bit about what is driving that? Is it just really stronger attach rate of employee experience? Trying to understand what is driving these net retention rates to go above pre-COVID levels.
spk03: Sure. Great question. Thank you. First off, Look, the underlying technology, as we've said all along, is so important. We have a platform that we've designed to unlock value with speed for customers. It's a single code base. It has been designed to very simply allow new use cases, new innovations, not only for us and what we deliver to the market, but also what customers are able to do. This is a really important technology. differentiator. We're not stitching together a whole combination of different things that have been built over a long time. It's been very intentionally designed. And even as we acquire in some specific places, you're going to see us plumb that into the platform so that customers actually can get high utility and quickly given the underlying functionality and how that works within the underlying XMOS. So that's point number one. Point number two is that The fact that you can turn on capabilities around employee experience, and there's a whole portfolio of capability there, along with customer experience, product experience. You're seeing more and more customers finding value in other departments, which opens up opportunities in other budget centers. And we're able to uniquely accommodate that, and frankly, quickly. as people look to get more and more utility out of the platform. And the fact that these products are all running on that single system is also a unique advantage. Third thing, there's a market consolidation. And we're finding more and more examples of cases where, you know, legacy vendors point solutions that, you know, have decades old architecture or are frankly limited in their ability to, you know, supply some of the capability that customers want, they're being replaced. We had several, you know, large examples of that in this quarter and many, you know, many, many other examples where people are consolidating. And, again, as we've said in previous earnings calls, we're well-suited to meet the enterprise demands of customers as they make consolidation decisions where they can end up enabling the use of the system as an enterprise standard that goes alongside CRM and HRRS systems.
spk12: Certainly seems to be resonating with customers. I guess one quick clarification for Rob. On the Clara Bridge, I think at the time of the acquisition, you talked about that as a $100 million business growing 25%. You're guiding to, I think, $18 million contribution in Q4. Post-purchase accounting, is that the right runway? Should we think about this as an $80 million kind of business, you know, next year, contribution to revenue next year?
spk02: Yeah, thanks, Greg. I think you're on the right track here. As mentioned in my prepared remarks, we do have that significant write-down to the deferred revenue, and that impacts Q4 as well as several quarters beyond that. So if you were to annualize the $18 million guidance and then apply a 25% growth rate, as we previously indicated, you'll get approximately $90 million for the business, and a range of $90 to $95 million would be a good initial estimate for 2022.
spk12: helpful color. Thank you all.
spk01: Thank you. Thank you. Our next question comes from the line of Keith Weiss from Morgan Stanley. Your question, please. Excellent.
spk14: Thank you guys for taking the question. Maybe sticking on the topic of Clara Bridge, really interesting acquisition by you guys, really opening up the scope of the data that's being brought into the system and that you guys could sort of run your AI models and machine learning models against. This is probably more of a product question. Is there any guidelines we should think about on a go-forward basis? Like what type of data is the right data to bring into the broader kind of XM system? And what would be out of bounds? Like is there a kind of data type we shouldn't be thinking about, like as you guys increase that scope over time? And then for Rob, like a clarification question, I appreciate the 90 to 95 million for calendar 22. In thinking about those deferred revenue impacts, though, the deferred revenue write-down, isn't it most stark in the first quarter out of the gate? And then, like, as those customers get billed over time, the deferred revenue impacts tend to fade over time. So should we think about a fading of that deferred revenue write-down over the next couple of quarters as you sort of rebuild those customers, if you will?
spk03: Okay, so let me take the first part of that, and I'll let Rob speak to the second. So this is Vic here. So first off, the type of data, you know, the Clarabridge platform is extremely impressive. We've been working with them for the last four years. My own background is, you know, partly is I've spent time in the natural language understanding area, and, you know, there's something deeply to appreciate about how the Clarabridge team has built the platform Focusing on industries, they have about 150 industry models that can analyze text and speech using deep and specific industry use cases. They can capture important nuances in conversational context, as well as just basically any form of unstructured, you know, information. But, you know, the idea of applying that to industry-specific scenarios, like say a healthcare insurance provider, And what that provider, you know, the signal might be between a provider and a member or between an online shopper and a virtual associate on a chat. You know, they have unmatched capabilities in the marketplace in their ability to be able to hone in and be able to not just understand and analyze the words, but having the ability to leverage the power to discover and understand critical human nuances such as effort, emotion, intent. You know, where's the friction? And so there's nothing like that in the market that's operating at this level of scale, 23 languages plus that that system supports. And so the form of data can be any form of human expression of which you're actually using that technology to indicate something about an experience that helps to be able to connect more with what human beings are even telling you indirectly. And that can be applied to social context. It can be applied to chat. It can be applied to contact centers. There's other use cases we've seen inside companies where they want to be able to, you know, pull in data that they have access to through just behavioral browsing patterns, and they want to be able to better understand use cases in that sense. So, you know, we're not going to limit that. But at the same time, you know, there's some really, you know, natural places where we're able to advance what our customers are doing today and give them even more value. And that was part of what we had outlined when we announced the acquisition, where we said, look, if you think about Qualtrics, you know, up to this point, we've helped companies to be able to engage with their stakeholders, their customers and their employees by asking the right question at the right time in the context of what that person's doing. And now what we're doing is we're enabling the ability to discover what the hidden signals and other things that are, you know, things that people are telling you in the context of customer care, in the context of a digital experience on a website or in an app. At the same time, that same capability can be used with specific models for what's going on around your brand, what's going around employee experience scenarios is an example as well. And so, you know, we are well positioned to, accelerate some of the things that they've been able to do with the technology by applying it to products that we've built, which will unlock more value for customers. So that's how we think about it. Rob? Thank you.
spk02: Thanks for your question. Yeah, there is some modest fading of that deferred revenue haircut over time. And so I agree with you on that point. The range that we've provided accounts for some of that in what we've indicated, that $90 to $95 million.
spk01: Okay, thank you. Thank you. Our next question comes from the line of Kirk Maturin from Evercore ISI. Your question, please.
spk08: Yeah, thanks very much, and congrats on a nice quarter. Zig, I was wondering actually if you could talk a little bit about the appointment of your chief medical officer, who I believe starts next month with you all. I just thought it was interesting. You guys have an amazing sort of horizontal platform, but that appointment seems to also indicate – you know, that there's certain experiences and certain verticals that it might make sense to have more domain expertise around in healthcare in this case. I was just kind of curious how we should think about, you know, that appointment relative to your maybe efforts in other verticals going forward or if this is sort of a special case and obviously a somewhat unique industry. Thanks.
spk03: Yeah, great question. Thanks, Keith. First off, you know, industries are very important to us and, you know, The fact that we built our platform to generally serve a very wide number of industries is an advantage, and that shows up in the growth and way in which the ecosystem is forming around our system. That said, there are many industries where we go really deep. Again, my reference point earlier to the Clarabitch topic, where the 150 industry-specific models creates a further differentiation, and these models are built overnight. They've been built over many, many, many years, and they're tuned, and there's a tooling environment, and So that becomes something that further accelerates our strengths. But in healthcare specifically, we hired Dr. Adrienne Boise, who comes from the Cleveland Clinic, and she is a practicing neurologist, a really well-known and highly respected leader. And, you know, healthcare is an area that is deeply important to us as an organization, to us as people. It's part of the culture of, you know, Qualtrics and, you know, frankly goes back to the roots of the company in some respects around just what we want to do to be able to advance the healthcare experience for people. But we're also finding that many of the companies and healthcare providers, you know, both on the practitioner side as well as on the patient experience side, look at the power of our platform as an opportunity to partner deeply with that industry and ultimately advance things. And so Dr. Adrian Boise is going to be playing an important role in that. I think this is building on momentum that we have in that industry today. And this is simply another really important step that we're taking along that path. So Chris, do you want to elaborate a little bit on that? Chris Beck sits here as well.
spk05: Yeah, I just had the privilege of meeting with Dr. Boise, and her long-held passion for the patient experience and the importance of transforming this is just refreshing. If you watch some of her TED Talks, it's really inspiring to see how long she's been at work advocating for it. And so the opportunity to join with 12Tricks to use technology to further advance that is there in an industry that's absolutely transforming. And we see, you know, that market alone is just tremendous for us in terms of we think about the future for what this can be for the patient experience. So just really excited about what she brings to the table and help us to win in that space and to have an impact.
spk03: There are certain industries where, you know, you're seeing digital transformation opening up a complete experience transformation. And there's some, there's just, you know, there's massive inflection points that are underway, and I would say healthcare is a really good example of that right now, where the patient experience, the provider experience is undergoing a massive transformation, and that's partly what's driving, you know, our engagement and our focus. Super. Thanks very much.
spk01: Thank you. Thank you. Our next question comes from the line of Mark Murphy from J.P. Morgan. Your question, please.
spk09: Yes, thank you, and I'll add my congrats on a great quarter. First question for Chris and Rob. I am curious if you're seeing any mix shift between the CX and EX bookings patterns, basically interested if the effects of the pandemic and then reopening, the great resignation you mentioned, and companies dealing with hybridized workforces, is it causing companies to reprioritize the employee experience sentiment and employee relationships a bit more than previously?
spk05: I think that trend is absolutely there. We're seeing employee retention, employee hiring becoming a CEO priority. So the conversation around that is elevated within the customers that we're talking to, which is fantastic. And so definitely seeing momentum on the EX side, and that's being reflected in our numbers. So we're really pleased with that, and that's a trend we only expect to continue going forward with that product being, you know, really timely and really impactful for our customers. And so that's definitely a trend.
spk09: Okay, understood. Thank you. And, Zig, as a quick follow-up, you mentioned what sounded like very aggressive plans. to double headcount in EMEA and to quintuple in APJ by 2024. I think typically revenue tracks pretty closely with headcount for software companies. Those are big numbers. Are you seeing more robust signals internationally that are maybe driving you to want to hire so rapidly there?
spk03: We're investing for growth. That's been you know, part of our operating equation for quite a while, and we try to do so in a way where it enables durable growth over time. And that's the whole purpose behind that. I think there's also really good evidence of examples of what our customers are seeing and what they're wanting to do with our platform. You know, the names that I called out in, you know, the earlier summary, I think represents that, and we're continuing to see momentum, and that's what we're doing. We're investing for the future.
spk14: Thank you.
spk01: Thank you. Our next question comes from the line of Terry Tillman from True Securities. Your question, please.
spk04: Yeah, thanks for taking my questions. And my preamble is congrats as well for me. And also good luck tonight with the jazz opener. Two quick questions. And I don't know if this is for Zig or Chris, but I really enjoyed that October 19th press release. It was talking about, like, bad customer experiences and the correlation to revenue impact and lost loyalty or reduced loyalty. And, you know, there were industries that probably didn't want to be where they were on that list, like the ISPs, government, mobile phone companies, and then further down, like the fast food streaming and supermarkets. I actually read the press release, it sounds like, right? But I'm curious, like, is your seeing strength in the new logos or existing customers that are really wanting to further lean into this? Are you seeing a more recent pattern recognition on those that aren't getting it right right now on NPS or bad experiences, and they're feeling like, hey, we've got to do something? Or does it tend to correlate more with the ones that are at the bottom of that list in that press release in terms of they tend to be the ones that are really spending more money on your software right now? And then I had a follow-up.
spk03: Yeah, I mean, look, it's good to read the press release and some of the context that's there. I also believe it comes down to the leadership in every major industry and who the who the company is. In every industry, there are the leaders who are transforming. There's the ones that are disrupting, and then there's the ones that are kind of iterating their way through. What I will tell you is we're seeing a heightened level of focus on getting people's arms around not just seeing what the experience metric is, but the actions that are being taken. And so I think more than ever, we're seeing people realize that there's a very low tolerance for poor experiences. The switching costs are super low for consumers and their ability to be able to switch from one provider to another. Obviously, there's a war for talent, being able to keep your employees. How do you run your company now in your organization in a way where experience deeply matters and it's not just a function of what physical environment people come into, but there's a lot of other factors that are in play. And so it's completely rewiring the way that people think about running their organization, regardless of the industry that they're in. And all of these types of things are heightening the attention and saying, like, look, you've got to operate a little differently. You've got to sort of step back and say, how do you look at things from an outside-in perspective? You need the right tools to design the right experiences and not take eight months to do so. You know, speed matters. Agility matters. being able to scale decisions that you're making on rewiring the way your product is being delivered into the market, making decisions that are time-sensitive given what's going on with supply chain issues, making decisions around how do you attract a new part of the workforce that you need to get more than your fair share of the market of people that are out there looking to switch jobs, as an example. And more than anything is operationalizing the customer experience side of the equation to make basically make the systems that you've invested in, your CRM, your marketing automation system, your workflow engines, make those things actually perform in a much more focused way based upon that customer. And that's, you know, these are all the dimensions that set up the Qualtrics experience management platform and how we built it to actually solve problems in a much more relevant way than ever. And that's also partly why you're seeing the move around consolidation and also people taking on more and more of the use cases of the platform.
spk04: Got it. That's great. Thanks, Nick. I guess, Rob, just real quick in terms of it's kind of been a repeated thing that you've been talking about, and it's been good in terms of the contact duration, lengthening both on renewals and new customers. You know, how are you thinking about that into the fourth quarter or next year? Do you still have some more of that to come? Thank you.
spk02: Yeah, we still expect a bit more of this. We see a bit of runway for several quarters. Given the fact that we've called it out for each quarter since our IPO, we'll certainly be clear with this group and publicly around when we see that actually tapering off. But we do see that continuing for several quarters into the future.
spk01: Thank you. Our next question comes in the line of DJ Hines from Canaccord. Your question, please.
spk13: Hey, thanks, guys, and congrats on the awesome results. Zig, just one from me. Is there a way to think about the mix of quantitative versus qualitative experience feedback that you deliver to customers and maybe how that might change with Clarabridge? And, you know, look, the reason I ask, right, there are a handful of companies out there kind of focused on the experience narrative, which is a bit different than what you're doing today. So curious how you see that market and whether it fits in with, you know, the Qualtrics vision.
spk03: Yeah, our platform enables both qual and quant and the mix of both. So, for example, as you learn more about the experience of a particular stakeholder, particular customer segment, for instance, and you're, let's say, designing a new product and you want to test it, you want to do A-B testing, you'll use our platform to hone in, zoom in. There's also you know, ecosystem of partners that are building on top of our platform that extend specific, you know, I would say sometimes industry-specific use cases. And so that's also the beautiful thing about our environment is that, you know, it creates consistency, speed, and you leverage the same data set. And then probably most important is, like, what do you do with that information? Like, you can do, you know, quantum qual – maybe to design a product. How do you put that into the market? How do you get it right in terms of the positioning of the branding around it, the packaging? The beautiful thing about that is that we enable that whole life cycle, right? And then once you put it in the market, how do you keep tuning it and making sure that you're not only getting it right with one customer but getting it right with different segments of customers and the moments that matter the most, right? for different types of customers, and that's where the actioning and workflow part of our system is a massive differentiator. And I would say probably most important is what this platform does once you have quant and qual data and you've got statistically significant information about what to go do, put it into action, operationalize, and make a difference for a company. So that's part of the design points of how we've been operating.
spk13: Got it. Okay. Thank you. Hopeful.
spk01: Thank you. Thank you. Our next question comes from the line of Yoon Kim from Luke Capital Markets. Your question, please.
spk11: Oh, thank you. Hey, congrats on the quarter. I have a question on the experience ID. Can you just talk about the monetization strategy there and how it fits with your XM directory product that you have? And then also, strategically, is this really to drive broader adoption of your existing solutions or is You know, are you looking to, or is this a precursor to more new products that's going to be released that takes advantage of that?
spk03: Yeah, thanks for asking. So, look, Experience ID is a major new innovation in our platform, and it builds on the XM directory. Frankly, it sort of becomes the superset. We have about 4 billion profiles today in our XM directory. The Experience ID takes that forward. It brings in capabilities from Clarabridge and from UserMind. It captures every form of customer feedback, so from the call center transcripts, the social media posts, product reviews, survey data. You can pull in data from third-party platforms into the system. It helps teams to understand an individual's emotion, effort, intent. And here's the thing, across the entire journey, within a company and of that customer based upon different segments. You've got segmentation, you've got journey orchestration. So it's not like you're just visualizing a journey. You're actually putting into an operating system the ability to now scale what happens when one customer has a great experience, how do you accentuate that, where another type of customer or customer segment might have something that is negatively affecting what would be expected. And how do you action on that and create workflow quickly? So XID is this core. It's this core kernel where you start to understand a more authentic, more intimate understanding of what the relationship opportunity is between an organization and the customer or the employee, right? And then how do you end up operationalizing that at larger scale given the fact that not every human being is the same? So you've got different segments, you've got different things that people expect given where they might be in their life cycle with that customer. So how we monetize that, it's part of the platform. It actually enables the applications that are built on top of the platform, and there's effectively a different level of functionality that we deliver through the packaging of apps that are built on the platform. So here's the differentiator. and this is why it's been built into the XM operating system.
spk11: Okay, great. So should we expect to see more new releases of product that leverages that, or do you expect your existing solutions to take advantage of that technology?
spk03: Well, we already have solutions that are taking advantage of it, and there certainly will be more. So we're very, very excited about what we're doing with this capability and, frankly, how it just changes the game around how customers build deeper relationships with their own customers and employees.
spk11: Sounds good. Looking forward to it. Rob, I have a quick question on strong net expansion rate. You already explained a lot of it, but how much did early renewals contribute to that strength in that number?
spk02: Yeah, there's no material impact here to the early renewal. If you look into the calculation methodology, it's a revenue-based metric that we use. So what you're seeing is the revenue derived from the customers over the last one-year period compared to that same cohort in the year prior is 125% greater.
spk11: Gotcha. So I'm assuming if there are renewing, they're renewing at a much larger DOI than their existing renewal.
spk02: to this, right? The same customer cohort or group of customers are now at 125% spend compared to where they were a year ago prior. Okay, great. Thank you so much.
spk01: Thank you. Our next question comes from the line of RJ Patin from William Blair. Your question, please.
spk07: Thanks. Zig, I have a question for you. I want to touch on ClearBridge again. It certainly seems like an ambitious vision to combine solicited and unsolicited feedback. I would love to hear how mature you think your customers are in their data strategies to be able to marry the solicited feedback that they're getting from Qualtrics with the unsolicited feedback from Social Contact Center. et cetera, are customers there already or do you anticipate that you'll have to maybe guide them through how to best leverage that and implement those data strategies?
spk03: Yeah, the beautiful thing about our decision to take the next step with Clarabridge is that we've been partnering with them for four years. And I think through that we also, you know, had about 40% of the Clarabridge customer base was also using Qualtrics. And we had a lot to learn from that. And so, this is simply accelerating what customers were already doing and wanting to expand into more use cases and frankly, more customers wanting to take advantage of the combination of the two systems. And also, I wanted to reiterate is all the respect that we built for the Clarabridge team and the Clarabridge technology as we worked with them and realized how much depth of innovation IP was in that platform. And that, frankly, the combination of bringing that together under one roof, connecting that to the XMOS would unlock new opportunities in the marketplace as well as in the ways that customers can use the system.
spk07: Perfect. And then maybe a follow-up. I noticed there was a pretty nice new logo slide, and you mentioned some of those new logos on the call as well. Can you just talk about how the landing point has changed? Are you seeing customers buy the entire platform up front? Are they maybe landing more with employee experience given how much elevation that's getting into the C-suite? How should we think about landing ACVs and how they're evolving?
spk05: Yeah, great question. A lot of the logos that we mentioned on the call, a lot of them were expansions. We see a lot of success from customers who get onto the platform, see value. and then grow their spend, I think you're also seeing that reflected in the 125% net retention rate, demonstrating continued strength along those lines. But we are also seeing new customers come in. So continue to see. I wouldn't say there's been a material shift other than just overall increasing momentum. But just recently, I can think about a recent conversation with a customer who had such a great experience on their employee experience, implementation about how fast it got up and the value they got that it just made it so much easier to have the conversation about expanding to a company-wide CX type of program where even though they aren't fully connecting the two, the success they've seen with the platform makes them more likely to choose us for additional products and expansions and increases our win rate when that occurs.
spk07: Perfect. That's very helpful. Thank you and congrats on the quarter.
spk01: Thank you. Thank you. Our final question for today comes from the line of Shelby Syrafi from FBN Securities. Your question, please.
spk10: Yes, thank you very much. My question is on the organic revenue. If you assume $18 million in Clara Bridge revenue for Q4, it appears that the organic revenue growth will decelerate about 10 percentage points to 31% from 41% in Q3. I want to know how much of that is conservatism versus other factors?
spk02: Yeah, thanks for the question. I think you gathered this from our tone in the Q&A and also in our prepared remarks. We're really pleased with the outstanding results that delivered in Q3 and also really pleased with the updated guidance in Q4 and for the annual period. If you look at our annual guidance that we provided last quarter, we're raising that guidance by $48 million for the full fiscal year. And I can break that down for you quickly. $18 million of that is the Clare Bridge that we disclosed. $13.5 million of that is from the performance that we had in Q3. And there's an additional raise in there of $16.5 million, indicative of the strength in the business that we're seeing. And if you take a look at the total, then take a look at the subscription revenue. With Clare Bridge, we're guiding that at 51%. If you do take that clear bridge portion out, we're guiding the subscription revenue at 42%. We continue to see great strength in that subscription growth. I'm really pleased with the guidance that we have now for the full fiscal year.
spk10: Okay, and one more. The net retention rate, very impressive. You were at 120% about a year ago. Do you think you can maintain the mid-120s for the foreseeable future?
spk02: Yeah, when you look at us historically, and I know you're doing that, you'll see that stability at above 120%. And given the market opportunity that we have and the customer base that we have, we do see stability above that 120% mark. Okay. Thank you. Yep. Thank you.
spk01: Thank you.
spk03: Thanks, everybody, for joining.
spk01: This does conclude the question and answer session as well as today's program. Thank you, everyone, for your participation. You may now disconnect. Good day.
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