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spk08: Thank you for standing by, and welcome to the Qualtrics fourth quarter and fiscal year 2021 earnings conference call. At this time, all participants are in listen-only mode. After the speakers' presentations, there will be a question-and-answer session. To ask a question at that time, please press star then 1 on your touchstone telephone. As a reminder, today's conference call is being recorded. I would now like to turn the conference to our host, Mr. Stephen Wu, head of FP&A and Investor Relations.
spk15: Please go ahead. Thank you. and welcome to Qualtrics' fourth quarter and fiscal year 2021 earnings conference call. On the call, we have Zig Serafin, CEO, Chris Beckset, President, and Rob Bachman, CFO. Following prepared remarks, we'll 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'll make statements that represent our expectations and beliefs concerning future events that may be considered forward-looking under federal securities laws. 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. Please refer to the press release and the risk factors and MD&A sections of our SEC filings, including our most recent 10Q, and our 10-K that will be filed for the fiscal year 2021. We'd also like to point out that the company presents non-GAAP measures in addition to and not as a substitute for financial measures calculated in accordance with GAAP. To see the reconciliation between these non-GAAP and GAAP measures, please refer to our press release filed earlier today and our investor relations presentation, both of which are posted on our investor relations website. With that, I will turn it over to Zig.
spk03: Thank you for joining us today. Q4 was an outstanding quarter, and it caps off a record year for Qualtrics. Revenue for the quarter was $316 million, up 48% year over year. And this was our fourth consecutive quarter of robust growth, bringing our annual revenue for fiscal year 21 to $1.1 billion. And not only did we pass the $1 billion revenue milestone, we're accelerating through it. Q4 subscription revenue was up 61% year over year. And annual subscription revenue in 2021 was up 51% year over year to $871 million. And this is phenomenal growth at our size and our scale. Because of this strong momentum, we expect total revenue in fiscal year 22 to of 1.402 billion to 1.406 billion, representing 31% growth year over year at the midpoint. Experience management is becoming as critical to business success as any CRM or HR system. And the ability to understand how your customers and your employees are feeling and then take action on that data is just golden. We have a 10-year head start on this market. And as our growth demonstrates, we also have a significant opportunity ahead. In a world where it's easier than ever for customers to change service providers and where employees are leaving their jobs at record rates, the experiences that companies deliver have never been more important. Our 128% net retention rate in Q4 illustrates that we're quickly becoming a strategic partner for enterprises. Our XM operating system is a single, secure, cloud-native platform that enables organizations to bring together all of their experience data, customer, employee, product, and brand, and then analyze it and take automated action to continually improve the experiences that they deliver. And with our acquisition of Clarabridge, the leader in omni-channel conversational analytics, we're changing the game again. Clarabridge adds a critical new layer to our platform that helps organizations discover everything that their customers and employees are saying, wherever they're saying it, including in social media, email, support calls, chats, and product reviews. Our customers are designing products, services, and experiences that their customers want next by acting on customer feedback from anywhere. and they're designing new ways of working by listening to their employees. Amid the great resignation, we're seeing strong growth in our employee experience product line as companies look to attract and retain the best talent, increase employee engagement, and improve productivity. Let me give you an example, or at least a couple of examples of what we saw from this quarter. You know, as travel resets, Southwest Airlines has an ambitious goal of adding a significant number of employees to its workforce in 2022, which is a challenge for any company in this labor market. Southwest expanded its relationship with Qualtrics and invested in our candidate experience solution. So from the interview process all the way through to onboarding, they can understand and act on the most important moments along a candidate's journey to the company. We also formed an exciting new relationship with Comcast. They're investing to create a culture of feedback across all of their customer-facing teams. In Q4, they chose Qualtrics to get closer to their advertisers and publishers by understanding their experiences with the company and then training their teams based on that data. Qualtrics will help them strengthen these critical relationships and empower their sales and service teams to deliver greater results. We're seeing a groundswell of customer adoption across all of our product lines. And in Q4, we expanded or formed new relationships with leading organizations like AXA, Cummins, BP, Mitsubishi Motors, HSBC, and the state of Maryland. At the end of 2021, we had 143 customers spending $1 million or more annually. And that is a 93% increase year over year. And we added 3,000 customers in 2021. And today, more than 16,750 organizations around the globe are using Qualtrics to build deeper relationships with their customers and employees. And we continue to innovate with an intense focus on our customer success. Because all of our products are built on our XM operating system, We can innovate faster and enable our customers to unlock more value than ever before. In Q4, we launched Experience ID. This is a major platform innovation that provides a single, unified view of everything that people are sharing within an organization. Experience ID enables organizations 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. Ultimately, we're helping them build deep, trusted relationships at scale. And now we have more than 5 billion experience IDs in our system. Our platform is the system of action. And when it's connected with systems of record, such as their CRM or customers' HR systems, or systems of engagement, such as e-commerce or mobile apps. Anyone can turn insights into action with clicks, not code, using our powerful workflow engine. As we rapidly grow our ecosystem, we have more than 275 integrations with companies like SAP, Salesforce, Zendesk, and ServiceNow, nearly three times more at this time last year. That lets organizations collect experience data and quickly act on it in the systems that they use every day. We continue to invest in areas that will supercharge our growth and deliver greater value to our customers. One of those areas is in key verticals. In November, we acquired healthcare analytics company SurveyVitals, extending our leadership in healthcare. The company is approved to administer all 11 CAP standards, which are standards that assess the patient's experience. In Q4, Trinity Health chose us as its experience management platform across 88 hospitals and hundreds of health and well-being services. With Qualtrics, they'll be able to gather feedback and take action to deliver better experiences for providers, patients, and their families, both in person and virtually. International is another key growth lever for us. And the investments that we're making to support increasing demand for experience management outside the U.S. are paying off. In the quarter, 30% of revenue came from international, which is a company first. Finally, we've already received a tremendous response to our acquisition of Clarabridge. This is particularly because companies are looking to replace point solutions with a single experience management platform that can meet all of their needs. Clarabridge is one of the most advanced intent, emotion, and sentiment understanding systems, and it's now uniquely part of our platform. And as part of this, Clarabridge is creating opportunities for us to expand rapidly into digital, voice, and social media analytics. A great example is Barclays Bank. Barclays has been using Qualtrics for many years, and in the quarter, they added Clarabridge technology to enable analysis of unstructured customer feedback for their retail bank. So now Barclays will have a single system to get a 360-degree view of everything the customers are saying, whether it's in social, in the call center, wherever they're saying it. And this will help them uncover opportunities across financial segments and ultimately power their digital or any experience that they provide as a driver for growth and efficiencies. At the beginning of 2021, we strengthened our leadership team with executives from growth companies like Microsoft, Salesforce, Twilio, and Adobe. We made another strategic hire in Q4 with a DP Brightful joining to lead our global sales organization. DP comes from Salesforce, where he was the most recently global chief revenue officer of Salesforce Health, a multi-billion dollar business unit. And today, we are announcing the appointment of two incredible new board members, marketing executive Omar Johnson, who has led marketing teams at Apple and Beats by Dre, and Ritu Bhargava, a longtime technology leader from SAP and Salesforce. Attracting and retaining talent like this has helped us build an incredible foundation for our company. And Q4, It was another great hiring quarter with more than 400 new employees joining Qualtrics. Q4 is a powerful finish to our first year as a public company, and I couldn't be more proud of the results our team is driving, and I want to thank them for their hard work. We're clearly building Qualtrics for long-term, durable growth. And with that, I'm going to hand it over to Rob to discuss more detailed results.
spk02: Thanks, Zig, and good afternoon, everyone. As Vig noted, we had an excellent finish to 2021. I'll now touch on some of the Q4 highlights and then go into our outlook for Q1 and the full calendar year 2022. Total revenue was $316 million in the fourth quarter, up 48% year-over-year, and $1.076 billion for fiscal year 2021, up 41% year-over-year. Fourth quarter and full year total revenue contribution from Clarabridge was was $21 million net of recognized purchase accounting adjustments. Subscription revenue for the fourth quarter was $259 million, up 61% year-over-year. For the full year, subscription revenue was $871 million, representing growth of 51% year-over-year. Clarabridge contributed $20 million of subscription revenue in the fourth quarter and full year 2021. Professional services revenue was $57 million for the fourth quarter and $205 million for the full year, representing 7% and 9% growth year-over-year, respectively. Clarebridge contributed $1 million of services revenue in the fourth quarter and full year 2021. Calculated billings for Q4 were $514 million, up 54% year-over-year, and $1.293 billion for the full year, up 47% compared to last year. Calculated billings included approximately $55 million from Clarabridge in the fourth quarter, which had an opening deferred revenue balance of $36 million after being subject to a one-time purchase accounting write-down. The seasonality in the Clarabridge business is such that almost half of the annual calculated billings occur in Q4. Our remaining performance obligations representing all future revenue under contract ended the year at $1.733 billion, up 51% 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 $1.012 billion, up 57%. year over year. Our standalone dollar-based net retention rate increased to 128% in the fourth quarter, which reflects the strong upsell motion we are seeing in our existing customers as they expand their usage across different experience pillars and deeper within each product family. We will begin including Clarabridge in this metric in Q4 of 2022 after the one-year anniversary of the acquisition. customers spending more than $100,000 in annual recurring revenue grew 45% year-over-year to 1,940 customers. And as Zig mentioned earlier, our customers spending more than $1 million in annual recurring revenue grew even faster at 93% to reach 143 customers from 74 customers at the end of 2020. Turning to margins, As we discussed on our last call, gross and operating margins will be negatively impacted by the purchase price accounting write-down in the Clarabridge acquisition because, for a period of time, we will incur 100% of the expense but won't recognize 100% of the revenue. Our Q4 non-GAAP gross margin was 76.6%, consistent with the year-ago period. Subscription revenue continues to increase as a percentage of total revenue. from 75.1% of our total revenue in Q4 of 2020 to 81.9% in Q4 of 2021, as we focus on driving software growth on our platform. Our non-GAAP operating profit for the fourth quarter was $0.3 million, resulting in a non-GAAP operating margin of 0.1% compared to negative 2.2% in Q4 of 2020. We delivered a non-GAAP operating profit in each quarter of 2021. Purchase price accounting related to the ClearBridge acquisition negatively impacted our non-GAAP operating margin by approximately 200 basis points in Q4. Operating cash flow for Q4 was $14 million compared to negative $98 million in the year-ago period. Free cash flow in the quarter was negative $60 million compared to negative $145 million in Q4 of 2020. This year-over-year improvement is due to operating margin expansion and significantly lower cash payouts for SAP equity-based awards. In Q4 2021, $3 million of cash outflows was related to the cash settlement of stock-based payment liabilities compared to $105 million in the year-ago period. Q4 2021 was also impacted by the purchase of our Provo headquarters for $67 million. 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 year in a strong cash position with approximately $1.015 billion in cash and cash equivalents. Moving now to our Q1 and fiscal year 2022 business outlook. We expect total revenue for the first quarter to be $324 million to $326 million, representing 36% growth year-over-year at the midpoint. Within this, we expect subscription revenue to be in the range of $270 million to $272 million, representing 45% growth year-over-year at the midpoint. We expect non-GAAP operating margin in the range of 1% to 2%, and non-GAAP net loss per share of 2 cents to 0 cents, assuming 580 million weighted shares outstanding. For the fiscal year 2022, we expect total revenue in the range of $1.402 billion to $1.406 billion and subscription revenue in the range of $1.177 billion to $1.181 billion. At the midpoint of the ranges, this represents total revenue growth of 31% and subscription revenue growth of 35%. year over year, respectively. Clarabridge is expected to contribute $100 million in subscription revenue and $110 million in total revenue in 2022. We expect non-GAAP operating margin in the range of 1 to 3 percent and a non-GAAP net loss per share between two cents and zero cents, assuming $595 million, weighted shares outstanding. In closing, and as Zig said, we had an outstanding quarter and are extremely excited about the significant and attractive market opportunity ahead of us. Qualtrics is well positioned to build on our strong foundation and market leadership position, which gives us continued confidence in our 2022 outlook. With that, Zig, Chris, and I are happy to take your questions, and we'll turn it back to the operator.
spk08: Thank you. Again, ladies and gentlemen, if you'd like to ask questions, please press star then 1 on your touchtone telephone. One moment, please, for our first question. Our first question comes from Kirk Materni of Evercore ISI. Your line is open.
spk05: Hi, yes, thanks very much. Congrats on a great end of the fiscal year. Zig, I was particularly struck by just the jump in net retention rate quarter over quarter and obviously the large deals this quarter. Can you just talk about what's maybe driving that in terms of expansion within one product use case or are you really starting to see your companies, you know, expand to a broader adoption of the platform as a whole. I was just wondering if you got some more color on that front in terms of what's impacting those two particular metrics. Thanks.
spk03: Yeah. Thank you, Kirk, for the question and a great call out. Look, I think that that NRR metric and the update there actually reinforces what's happening around the use of our platform. Customers are deepening their relationships with us. They're consolidating point solutions and, At the same time, what's happening is C-levels, including CEOs, are getting involved in making Qualtrics a mission-critical component of their overall strategy to understanding their customer, particularly around understanding the 360 view of the customer and how they're serving the customer across different channels, whether it's digital or whether it's the in-store experience, whether it's people working in the field serving another business, for example, whether it's call center activity, just bringing all of that together and standardizing on one system. And, of course, they're coupling that with a capability set around product, product experience, and our entire employee experience suite, which is another extremely important differentiating aspect of what we do as a company. The combination of these things are really important in how they end up taking effect inside of a company. And we continue to see strong demand based on those dynamics as well. So that's what's factoring into the metrics that you saw there in Q4. But, frankly, there's fundamentals that continue to play out given the nature of how we built our technology as well as the way that we engage with customers.
spk05: That's super helpful. Maybe just one follow-up for Rob, Rob. Are you going to be giving the contribution from Clare Bridge on a quarterly basis? I was wondering if you are. We could just get that for one queue. And then, you know, how should we think about, you know, the guide for this year looks great, but, you know, based on sort of the momentum in the core business, it sort of, you know, assumes a little bit of a decel in the core business. I was just wondering if there's anything you'd call in on that. I realize comps get tougher for you guys, but anything else to, you know, to sort of speak to on that front? Thanks.
spk02: Yeah, happy to chat on those topics. We're quickly, as we've talked about in the past, working to integrate ClareBridge into the business, and that's a key priority and a known success factor for us as we go forward. We wanted to give some color to you and to the market around ClareBridge for the forthcoming year, but going forward, we'll see the results integrated in how we report them out. And then in regards to the guidance going forward, I'm incredibly pleased with the guidance I would reiterate our focus on driving that long-term durable growth. You see that in the guidance. In particular, I'd call out 35% growth in subscription on an annual basis in our guidance as we go. This significant growth at our size and scale, and it represents our forward-looking view of the business.
spk05: Super. Thanks, guys. Congrats. Thank you.
spk08: Thank you. Our next question comes from DJ Hines of Canaccord. Your line is open.
spk15: Hey, guys. Congrats on the great quarter here and finish of the year. Zig, curious, what in your view is going to be the biggest business benefit from the evolution from XM Directory to experience IDs? Just help me understand that.
spk03: Look, I think there's, if you look at the market landscape of technology that people use to try to understand the human being that an organization is serving, there's nobody that has truly been able to go and create a, you can call it, think of it as an authentic, real-time view of how people feel and what their sentiments are and, frankly, know what to go do with that as a result of that type of data. And so, what used to be called XM Directory that is now the Experience ID, helped companies to be able to build out an understanding of who their customers are, map that data based upon different demographics, preferences, trends, behaviors, and then use that data set to make some of the most business-critical decisions. For example, how do you shore up a particular segment of customers and fix problems that might be contributing to revenue churn? Or how do you end up better shaping a product experience that the product team needs to be paying attention to. The beautiful thing about XID is not only have we created a very unique way of capturing that type of data as it flows into the organization through any channel that someone is providing that data through, structured, unstructured, the call center, the social experience, the research that you might be conducting, any of those. Not only can you do that, But the idea that you can now actually action on it in a relevant and contextually oriented way is a game changer. And our approach here is to build a unique technology, a unique capability that helps to move the ball forward. And that then manifests in the way that our products are connected to XID. So every one of our products, if you look at the employee experience portfolio, if you look at our product experience portfolio, if you look at our customer experience portfolio. Every one of those products is built on the XID. And that's very unique because what it means is across the enterprise, across marketing, across customer care, across HR, people are able to tap into that type of data set. They can look at the relationship between what's happening with a customer and then the ultimate output on the behavior of that customer. Or they can look at, for example, how an employee is interacting with a customer and So there's some very unique properties here. It's not just capturing that data and how you do so, what you do with it, how you action on it, how to become a part of the workflow of what the company's doing. And everything that I'm describing here, we have built to be a platform. And because it's a platform, it's extensible. It can be information that you end up pulling into other systems inside of a company. It's information you can pull in from other systems that exist inside of a company into our platform. And, of course, an ecosystem can build upon that platform, right? And that's really how we think about that. It is a powerfully unique capability that we're building, and you're going to continue to see us focus on that. We've got a lot of momentum behind it.
spk15: Yeah, that's great. Super helpful color there. Maybe just a follow-up. I'll direct it at Rob. Can you give us a sense for the magnitude of spend uplift in you're seeing when an existing customer layers Clarabridge on top of their existing Qualtrics use. I mean, it's going to be a while before we see this included in net revenue retention, so it would be helpful just to get some context there.
spk02: Yeah, the context I would give you, DJ, is I think similar to some of what we talked about when we closed the acquisition. Clarabridge has about 400 customers, and as we indicated at the time, we're coming up on or approximate to 100 million run rate. So you can get an average spend per customer there just based on those numbers. And over time, we would expect to see as existing Qualtrics customers add on ClareBridge, it will be a similar type of spend and potentially upwards of that as they leverage the power of the Qualtrics platform. But that will directionally give you an idea of what their average spend is.
spk15: Yeah, perfect. Okay, thanks, guys. Congrats again. Thank you.
spk08: Thank you. Our next question comes from Mark Murphy of J.P. Morgan. Your line is open.
spk10: Thank you very much, and I'll add my congrats as well. I guess maybe for all of you, there is some consideration in the investment community of whether software spend might have been pulled forward as a category. In the last 12 months, I'm just curious what crosses your mind when you hear that debate because you're exceeding, you're guiding above, the retention improved. It kind of looks like all systems go. So I'm just curious if you are seeing something different or perhaps – extra tailwinds in the pipeline from reopening activity? You know, you've got activity with airlines and hotels or, you know, maybe the employee experience in HR side because of all the dynamics with hybrid work and, you know, tight labor markets or something else.
spk06: Hey, Mark. Chris Baxter here. I'll start and appreciate the congrats. You know, we're seeing really strong demand in the fourth quarter. which was just continued strengthening over the course of the year. As you recall, we had a really tough compare in the fourth quarter, and the type of growth that we experienced in a balanced way really indicated in a positive way for us that we're in a strong demand environment for our particular solutions and the value that our customers are getting from experience management. When you look at the combination of customer ads that we had in the year, over 3,000 customers added in the year, coupled with the customers that we have growing their spend, the number of million-dollar-plus customers almost doubling over the prior year, and really across the product portfolio overall, really pleased with the dynamic that we're seeing and continued strong pipeline as we start into 2022 as reflected in our guidance.
spk03: Mark, I'll just add to this. This is Zig here. I mean, look, number one, Companies that we engage with, which is a very strong and growing market, are looking at experience management as a competitive differentiator. They know how vital it is now to operate your company based on experience, both on the employee side, given how much the world has changed in the last two years, and especially on the customer side, right? And this is really, really important. And I think when we entered into the pandemic, people started to use our platform to be able to make some of the most business-critical decisions as we're exiting or sort of entering into the post-pandemic phase. We're seeing people heighten their desire to use our platform and, frankly, to use it in a much more concentrated manner where they're consolidating these point solutions that have existed across companies. And so these are some of the factors that we're seeing playing into the robust demand that we see ahead of us.
spk08: Thank you. Our next question comes from Keith Wise from Morgan Stanley. Your line is open.
spk01: Perfect. Good afternoon, everybody. And this is actually Stan Zlotsky sitting in for Keith. Maybe just a high-level question. Obviously, Clarebridge seems to be having a very good momentum, and especially, you know, this first quarter under the Qualtrics umbrella. Maybe, you know, what are some of these early proof points that you're seeing of the combined platform that led you to, you know, take up the guidance for ClaraBridge for 2022? And then I have a quick follow-up.
spk03: Sure. Hey, Sam, thanks for the question. So, and I'll start this, and Chris might have a few points to add to this. I mean, look, what we're seeing is a very strong level of demand as a result of what we've done with Clarabridge, combining that into our platform. And, in fact, if anything, it's rocket fuel for how people are looking at standardizing on our XM platform. You know, you asked about some examples. You know, one of them would be what we're doing with HSBC. Actually, it was Barclays. This is an example. So Barclays, you know, this is a bank that's been working with us for a number of years. But on the retail bank side, in Q4 – they basically said, look, let's create a 360 view of everything that their customers are telling them. Okay. So whether it's call center, whether it's social chat, wherever it might be happening and be able to use the system combined with Clara bridge to uncover opportunities across different financial segments and ultimately use that data to be able to power digital or any experience, the driving for better growth and efficiency in the way that they're engaging with their customers. And part of this is actually, more broadly speaking, where customers have historically used point solutions for social media monitoring, for example, or to do voice analytics in the call center, or to analyze the chat stream. And what we're doing now is we're creating the ability to, first, save costs on the combination of those point solutions now being consolidated. But secondly, even more importantly, is create one strong source of data that on what customers are wanting your organization to know to make stronger decisions on a day-to-day basis, regardless of how they're engaging, right? So now you're bringing together the social data, the call center data, the chat data, the product review data. You're combining that with structured information, and you're putting that into the experience ID as part of the single repository of understanding the customer. You know, other examples would be like Expedia. They were an upsell, and the team – you know, help us be able to sort of expand the opportunity there. And so there's been a number of customers like that that we've got coming through. But that's what's the larger theme here. And as I said, it's like rocket fuel being brought into the combination of what our platform has to offer for customers and the markets that that expands us into.
spk06: Yeah, I'll just add a couple of additional thoughts in terms of the confidence and the guidance. Q4 is a really important quarter for Clarabridge. They do a lot of deals in that quarter. This is their largest quarter. And as you can see in the results, it was an outstanding quarter for their first quarter as part of Qualtrics. So that definitely contributed to our confidence. And then really exceeding expectations on early momentum with the two sales organizations working together. We had an opportunity in the quarter where the Clara Bridge team was unaware of an opportunity with a customer within the existing Qualtrics customer base that was right in their sweet spot. We were able to close that deal in quarter. which is very encouraging considering ClearBridge typically has had longer deal cycles historically than we've had. And the ability to close that deal in quarter gives us some confidence that we are going to be able to shorten their deal cycles and be able to get strong early momentum. And then just the excitement around how the sales organizations are getting enabled. We just had our sales kickoff. The excitement and energy level was fantastic. A lot of enablement. getting the pitch together of what the combined companies can bring to our customers, and our sales organization is geared up, ready to go, and expand Qualtrics into the broader customer base.
spk01: Perfect. That's very helpful. Thanks, Jess. And a quick follow-up on the inorganic contribution in the quarter. Thank you for calling out the $55 million from Clairbridge and Billings, but could you give us a sense for how much it added to RPO and CRPO?
spk02: Yeah, it's similar in regards to the growth rate impact. Actually, it's very similar to CRPO and RPO to the impact it had to calculate billings.
spk01: Perfect. Thank you so much. Thank you.
spk08: Thank you. Our next question comes from Bob and Shah of Deutsche. Your line is open.
spk11: Great. Thanks for taking my question and echo my congratulations. You guys talked a lot today about the strong adoption you've seen in employee engagement, I guess not only today but over the last several quarters. But in terms of prioritization of employee experience relative to your other products, mainly customer experience, are you seeing any changes in how customers are prioritizing one category over the other?
spk03: You know, I would say, if anything, they're prioritizing a single platform. And that's a major differentiator advantage because of just the superior architecture that we've built with this system over many years. And if you just take a step back and look at how companies operate, you say, okay, well, how am I doing with my customers? How am I doing with my employees every single day? How am I doing with my products? And do they make sense for the market that I'm trying to attract? And how does it show up in my brand? I mean, these are the four core experiences of business. And we find more and more senior executives at the C-levels, including CEOs, engaging in making a decision to consolidate and create one platform We're extremely well positioned for that, just because of the nature of our technology and how we built it and how we end up engaging and partnering with customers. Nobody else in the marketplace has a system like this. So what happens is a customer might start with us on the employee experience side, and then pretty quickly they want to get going on the customer experience side, or they might get going on the product side, and that continues. We've seen that as the trend, and if anything, the NRR rate that we highlighted in Q4 is is evidence of the fact that that's taking place, including the number that Chris also highlighted earlier on the number of $1 million-plus customers and the rate of growth that we've had in that in the last year.
spk11: Got it. Super helpful. Just a quick follow-up for Rob. If I'm looking at your guidance for margins next year and in terms of your investments, over the course of the year, can you maybe just provide any additional context into the impact of whether it's clear bridge right down versus kind of return to office costs or maybe additional investments that you're going to make into the product to go to market? And just on top of that, like any specific regions that are focal points over the course of the upcoming year?
spk02: Yeah, there's clearly a very robust market opportunity ahead of us. And as we've said before, we'll continue to invest to capture that. There will continue to be some headwinds relative to the purchase price accounting for Clarabridge, as you know. Those normally last for about a year post-acquisition, maybe 15 months. So you'll see that for a period of time. And we are certainly hopeful and believe that in-office and travel will come back to some degree. Now, at the same time, we will continue to manage this business with discipline. We're nimble in the way that we manage our spend and do so to focus it on areas that for that growth that we've talked about. So really happy with the guidance, which, again, reiterates our comfort level with our non-GAAP operating margin profit and positivity. So that's how we're thinking about those things. will be smart but clearly invest for the growth that is ahead. Those investments, as you indicated, will come in product. You've heard us talk about some of those, but it is across that expanding the platform and the capability that exists. And then in region, you'll hear us continue to talk about this amongst the significant opportunities that still lies ahead of us in the EMEA region. We continue to partner with SAP closely internationally and in that region, as well as the APJ region, as well as further expansion into the Latin America market. So it really is a global push.
spk11: Super helpful. I forgot to go. Thank you.
spk08: Thank you. Our next question comes from Brian Peterson of Raymond James. The line is open.
spk12: Congrats on the quarter, and thanks for taking the question. So just one for me. Zig, you mentioned point solutions a couple of times in the call, and I'm just curious, if we're looking at a Fortune 500 customer, how many point solutions would they typically have? And if you guys are coming in and it's a net new logo for you, how many point solutions are you displacing?
spk03: You know, it varies, but what's important is there are different budget centers that our market engine is optimized for. and so if you go into the call center you know there are outdated approaches to voice analytics for example if you go into the team that might run the chat interaction system that might involve yet a different analytics tool or they might even have one as an example but they got budget for it they're thinking about how to you know connect the dots between what's going on and how they make their decisions if you go into the customer care area or if you go into the marketing department, you'll find there's a whole other area which is around social monitoring, but also social care. And, you know, these are just scratching the surface of point solutions that are often outdated in the approach or they're limited in their capability set. And, you know, if you also go on to the side of just market research, you know, and how people do studying of You know, what market segments are important and where to take their brand. That's a whole other set of vendors that people end up using. So what's important is not only recognizing that these budget pools exist, but what we've uniquely done is we have designed a system where individual departments want to opt in to be a part of using our system inside of a company. And we have a structural advantage as a result of that because of the fact that we built a single code base. We built a workflow engine that can help a company to operate across departments. We can help a CEO to be able to get a single view of the entire customer experience that they have going, not looking at it in shards and then get stuck in ultimately playing guessing games on where to go next. These are extremely important properties that we didn't build overnight. As I mentioned, we've got about a 10-year advantage. It takes a long time to go build this. And so, you know, as a consequence of that, we do end up, consolidating point solutions that are existing in the marketplace, and that's to our advantage, and that's partly what shows up in these NRR numbers that we talked about, or in the rate of growth that we have on million-dollar-plus customers, or the 100,000-dollar-plus customers that you saw as well.
spk08: Thank you. Our next question comes from Gabriella Borges of GS. Your line is open.
spk07: Good afternoon. Thanks for taking my question. Zig, you mentioned point solutions a couple of times there. Would love to get an update on the competitive environment more holistically, and particularly if you're seeing any changes with one or two of your competitors that may be going through M&A, and also with potentially taking budgets that have been previously allocated to consulting companies. Thank you.
spk03: Sure. Hi, Gabrielle. Thanks for the question. So I'll add on to my last answer a little bit and just expand a bit, just given that you provided a different lens on that question. So, you know, what I think is interesting and important to note is when you're building a new technology category, this is not a marketing exercise. It's fundamentally rewiring the way that things work by building a new way of solving problems and actually, you know, changing the game and the value that customers get out of it. It starts with technology. It connects with the services and experiences that we deliver. It has deeply a connection to the nature of the data sets that we end up creating and curating for customers, and then what you do with it, given the nature of action and workflow. And so, you know, if you look at the larger market, whether, you know, it's customers and companies that build customer engagement tools or whether it's research vendors or whether it's companies that might be delivering components for customer care, the list is long. Naturally, as you're building a new market, you will find people react and say, well, I want to participate in that market. One of the things that they might try to do is do some M&A and they'll try to stitch it together and build out a new marketing positioning approach to it. At the end of the day, that's quite welcomed because it creates more awareness around the technology category. But in the end, what it comes down to is what unique value is being created for customers. And so it's very difficult to stitch your way into a new category through X number of acquisitions and say, hey, I have the same thing. Fundamentally, it comes down to the technology architecture. We've built a superior software architecture with XM as an operating system. We have created a platform that allows ecosystems and ecosystem to be able to come in and create vibrant new solutions on top of that system. And we are uniquely taking advantage of that single software platform by innovating with product capabilities in ways and in a pace in which competitors are not able to keep up to it. If you look at, for example, in our guidance, the level of software R&D that we are going to be investing in in 2022, there's nobody else out there that will be able to match that. But it's not important What's not so important is the number itself as the rate at which we end up unlocking new use cases, new product capabilities that are on top of that system. And so when customers engage with us, they expect us to be able to innovate at that rate because it changes the game relative to the point solution vendors or maybe the services and consulting-oriented vendors that they may have been using. And in so doing, we unlock an even larger adjustable market. I think we all have noted that we participate both in the traditional research marketplace, which is a multi, multi, multi-billion dollar market, but we're also engaging in the market around continuous everyday improvement and how you engage with employees and how you end up engaging with customers. And that's a significant market as well. And we're bringing those markets together under one umbrella as far as how we think about TAM. But unlocking that requires both the software technology architecture and and the go-to-market engine, which was very well, you know, questioned earlier. These questions were asked, which is, hey, what are you doing in that? And we have a very unique advantage, the combination of the go-to-market system and how that works with our software architecture. And that's what's contributing to the metrics that we published today.
spk07: I appreciate that, Kala. One follow-up for Rob. Rob, how are you thinking about longer-term operating leverage in the model? It sounds like 2022 is a little bit of an investment in the integration year with Clarabridge. So maybe just give us a little bit of a longer-term view as well as to how we should be thinking about margins. Thank you.
spk02: Yeah, we're certainly consistent with the long-range model that we produced a year ago around the time of the IPO, and we expect to see trending towards that model over time. I think you've noted correctly on 2022 how we're investing and continuing to drive that growth. And then when you get in the out years, you'll see trending towards that long-range model.
spk07: Thank you.
spk03: Yep. Thank you.
spk08: Thank you. Our next question comes from Terry Tillman of Truisk Securities. Your line is open.
spk04: Yeah, good afternoon, everyone, and congrats from me as well. I have just two quick questions, first on just the partner ecosystem. Zig, you've talked a lot in the past, and we've seen lots of press releases both on EX, CX, product experience, et cetera. You clearly have a lot of momentum in the business. How much benefit are you getting from a lot of these kind of stakes in the ground with these go-to-market partners, or is that still more into the future? And then I had a follow-up on international.
spk03: Sure. I'm going to let Chris start with that, and then I'll just tackle it and keep a couple points.
spk06: Yeah, it's been a major focus for us as we've thought about scaling the business and being the leader in this space, the importance of having that ecosystem, having the right partners, both from a technology perspective, but also from a consulting other services. And we're really pleased with the progress we made in 2021 for laying the foundation. But as we think about the relative contribution from some of those, both from a lead gen as well as involvement, there's a lot of opportunity ahead for those to continue to expand and grow. We've talked about what we've done with SAP, extending that with ServiceNow and others. Great momentum on all those fronts as well as with some of the major service providers. And so it's going to be a key for us as we get to this scale and size for us to, you know, have this long-term durable growth that we've talked about for this to continue to contribute on a more significant basis going forward and the foundations we made in in 2021, we expect continued growth from those efforts.
spk03: Well, it's a big differentiator, and I can't overstate how important that is because, you know, in my comments, I noted that there's more than 275 integrations today that we have, and that's more than three times more than what we had at this time last year. And what's important is not just that we have a larger growing vendor universe of companies who are connecting to us or, for example, those companies who end up enabling the implementations or build strategy and consulting around our system. What's important is that they're getting deeper. So the nature of, for example, the integration that might take place for an employee-facing use case and employee-facing systems are creating, for example, more time and context-sensitive ways of enabling an experience or taking a corrective action. And so those are pathways towards becoming a deeper part of the way that companies operate. And the fact that customers, our customers, are pulling in these other vendors and saying, hey, you've got to integrate with Qualtrics, is also another important sign of the fact that, you know, we're building this platform right. But again, to Chris's point, too, we also think there's a significant opportunity ahead of us. We're just in the very early innings of that relative to what we think the possibility will be there, and it's partly why we're staying focused around how ecosystems, the way that we design our platform, is not only an advantage for us, but it's also an advantage for the partners that we're working with.
spk04: You got it. And just the other part of my question, thanks for the answer there, Zig and Chris. On the international business side, it hit a major milestone of 30%. Curious from what you're seeing in the pipeline and just all the things you have focused on go-to-market investments, Should this continue to step up? I know it's a race against, it's in a race here with North America that appears to be doing very well. And then you have like international, Latam and APAC and the different parts of the business. But I'm just kind of curious about international. Could that get to like 40% of the business by the end of 22? Just trying to understand its proportion of the total. Thank you. Yeah.
spk06: Yeah. Great question. And, we're really pleased with what happened internationally in 2020, 2021, and the investments that we've been speaking about that we've made there are paying off and continue to pay off. You know, especially excited about the EMEA performance in the fourth quarter of the year was just absolutely phenomenal. And as we've talked about, you know, one exciting thing about that growth lever is in the long term, you know, international is a huge market opportunity, right? In the long, long term, There's no reason why it couldn't be half. It's going to take time to get there, as you mentioned. Our North American business continues to exceed expectations and perform really well, and it's hard to grow too fast as a percentage, given how fast North American business is growing. But the trend we expect to continue with international going there, we're continuing to make significant investments this upcoming year to continue to grow there. We love our international leadership and the hires we've made there. are phenomenal at continuing that growth. And then with Clarabridge, Clarabridge has a significant presence in Europe, and that will give us another kind of differentiation and expansion internationally as well. So definitely going to be a continued theme for us as we think about the long-term sustained growth and a lever for years to come.
spk08: Thanks. Thank you. Our next question comes from Arjun Bhatia. William Blair, your line is open.
spk09: Perfect. Thanks for taking my questions and all of my congrats. Maybe to start off with Zig, longer term, I'd just love to hear how you're thinking about the opportunity to expand further into customer engagement, right, whether it's proactive customer service or marketing or social response, et cetera. It certainly seems like an adjacent market for you and seems like there may be some natural synergies there. Just help me understand how strategically you're viewing that opportunity for Qualtrics.
spk03: Yeah, RJ, thanks for the question. I mean, look, I'll put it sort of briefly, which is yes. And more, you know, if you look at the dynamic of how our system is being used, people are connecting us with, you know, call it customer engagement, systems of record, et cetera, et cetera. But we're going to watch for where the high growth opportunities exist. A lot of what we do is customer led. And, you know, frankly today, if you were to double click on our customer experience business, the multiple product modules, the way that those modules work together across different budget centers inside of a company is a powerful combo, but it's also lining us up very closely with other systems that are quite complimentary. And we're going to, we'll look at the market much in the same way that you just described.
spk09: Perfect. Thank you. And then one follow-up, if I can. I noticed you opened a new office in the D.C. area, and obviously, Clearabridge is based out of there. Can you just talk about the presence that you have in the public sector, and what does the opportunity there look like, and when do you expect maybe meaningful contributions from the federal opportunity.
spk06: Yeah. As time's gone on, we've increased our focus on different industry verticals, and one of them that we're exceptionally excited about is the public sector. As you know, our initial roots were in the academic market, and we've been at it in the public sector for years with our progress in FedRAMP and and other investments we've made in that space. And we've been increasing our presence in that area in D.C. and with Clearbridge having their headquarters out there was a tremendous opportunity for us to double down within that market, go after talent and grow. We've got aggressive hiring plans in that market to expand and grow. And as I think about the key verticals for us going forward, public sector is going to be a super important one as organizations, state, local, federal, are focused on the voice of the citizen and improving their processes and interactions. It's a great opportunity for us, a huge growth lever, along with the health care that we've talked about. And that focus, we have a dedicated and focused public sector team that sells in that organization, can speak the language and build the relationships. And it was a great year in that area. But as you know, that's an area that can drive large deals and is an area that you focus in for the long term because it takes time to build.
spk09: Perfect. Very helpful. Congrats, guys.
spk03: Thank you. Operator?
spk02: Are there any more questions?
spk15: Operator?
spk08: One moment, please. Our next question comes from Ramo Lynchka of Barclays. Your line is open.
spk13: Hey, thank you. Thanks for squeezing me in. Congrats for me as well, Ed. It was an amazing fourth quarter. I wanted to ask about the vertical opportunity. Obviously, we saw the acquisition of survey finals for healthcare in Q4. Can you just talk a little bit about you know, if you think about the evolution of a company, going more vertical is something that usually kind of represents then the next leg of the story as well. And we just talked about the public sector as well, but like, how do you see the different vertical? How do you see the verticalization of, of Qualtrics over time and that as a growth opportunity? Thank you. Yeah. Hi, Raymond. Thank you for the question.
spk03: First off, I can't overstate the importance of the word platform. We're in this very special place where we get to build a new market category. We're building a new technology category. But the approach that we're taking is a platform that can scale across many different industries. And we're constantly watching how well we are doing across a broad universe of vertical markets. really important. You know, there are companies that we can all look at in history of tech who end up getting overly focused on specific verticals and they end up building something that doesn't scale over time, right? And they end up chasing down very deep, deep pathways that are difficult to get out of. Our approach has been to build a highly extensible, scalable, flexible platform. Again, it goes back to my point about the fact that we have about a 10-year advantage in the way that we built this system and we're going to continue to invest against that platform very aggressively. Now, as we go into the go-to-market side, to Chris's point, he highlighted two examples. There are other examples. Those are not the only examples of industries that are effectively pulling us in to go and leverage the platform to create unique, differentiating capabilities for members in those industries. And so, again, the beautiful thing about it is we can – scale down and go deep, but yet leveraging the properties of the platform such that any innovations that we might end up creating within a specific industry often end up also accruing to the advantage of many other industries as well, which in total actually contributes to the ability for us to scale this company and ultimately create the kind of business results that we were talking about. So that's how we think about it. Okay, perfect. Makes sense. Thank you.
spk08: Thank you. Our next question comes from Brent Bricelyn of Piper Stanley. Your line is open.
spk14: Good afternoon. Accelerating new logo ads, accelerating ARPU, accelerating net retention. No doubt that you're seeing a lot of momentum in the business. Zig, I wanted to drill down into just the durability of the growth, specifically around employee experience. Obviously, with the labor shortage, it feels like, outside looking in, that there was a clear tailwind of the business around, cross-selling employee experience in an install base. But could you just walk us through how much runway is left? Are we, did you see, you know, a huge adoption cycle where 2022 would be more of a digestion year, you know, now that half or two-thirds of the employees of the customer base has now adopted employee experience, or are we still very early days? Just frame maybe the opportunity and durability of the employee experience kind of cross-sell and potential new land opportunities would be helpful. Thanks.
spk03: All right. Thanks, Brett. Well, I'll say this very carefully. We are in super early days. And the reality of it is we're also seeing strong demand. And that's partly what's guiding us north of $1.4 billion in 2022. But when you think about employee experience, just as an example, since you called that out, the nature of how we built a purpose-built system. It's not like we went in and said, okay, let's go repurpose some other technology and say we're in that market, because I've seen that happening. We went in from scratch, built a set of product capabilities, partnering with some of the world's leading HR practitioners and CHROs, and in ways in which is tapping into HR budgets where we're getting significantly greater allocation of how people think about their strategy and their budgets around overall HR systems. Now, that isn't because we're going to go replace HR systems. It's actually because we're becoming hand-in-hand highly complementary to the way that people are looking at connecting with the life cycle of their employees, from whether it's how they improve their recruitment tactics to how they end up onboarding a candidate to the way that they look at their technology systems and how those technology systems actually affect and shape engagement inside of a company, to how do they actually end up optimizing choices and benefits for people to make sure they've got the right comp packages and incentive systems, to how they think about inclusivity and diversity and how they actually end up running a company at scale for the reality of the modern workforce that people need to be able to go and support and engage and how they think about the well-being of people and The list is long, but what we've done is we have built a set of product capabilities, and we're innovating faster and better than anybody else in the marketplace right now. And I think it's important to pay attention because that part of that business can often be understated in sort of the impact that we're actually making on companies, and it's going hand-in-hand with what we're doing in some of these other businesses, customer experience, product experience, brand. So we're in early days. on that particular one, but yet we see a very robust opportunity ahead of us in what's happening in that employee experience area.
spk14: Helpful, Keller. Thank you.
spk08: Thank you. I'm showing no further questions at this time. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.
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