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spk04: Good afternoon and welcome to Medallia's fourth quarter fiscal 2021 earnings conference call. Joining us for today's call are Medallia's CEO, Leslie Stretch, and CFO, Roxanne Ullman. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded, and if you require any further assistance, please press star 0. With that, I would like to turn the call over to Roxanne Ullman for introductory remarks. Roxanne?
spk01: Roxanne Ullman Thank you, Gabriel. Welcome to Medelia's fourth quarter and fiscal 2021 earnings conference call. We issued our earnings release a short time ago and furnished the related form 8K to the SEC. To access the press release, please see the investor relations section of our website. With me on the call today is Leslie Stretch, President and CEO of Medelia. Before we begin, please remember during the course of this call, we expect to make forward-looking statements about the operations and future results of Medallia that may vary and involve many assumptions, risks, and uncertainties, including those related to the COVID-19 pandemic. To the extent possible, our forward-looking statements seek to take into account the impact of COVID-19. However, the crisis that this pandemic has created is very fluid and the situation is constantly evolving. If any of the risks or uncertainties related to the forward-looking statements develop, or if any of the assumptions related to the forward-looking statements prove incorrect, actual results could differ materially from those expressed or implied on our forward-looking statements. For a discussion of our risk factors associated with the forward-looking statements, please refer to the text in the company's press release issued today and to our periodic reports filed with the SEC, including our Form 10-Q, dated December 9, 2020. We disclaim any obligation to update any forward-looking statement. On the call today, we will refer to both GAAP and non-GAAP financial measures. The non-revenue financial figures discussed today are non-GAAP unless they are stated that the measure is GAAP. Please refer to a press release for the reconciliation of GAAP to non-GAAP financial performance and additional disclosures regarding these measures. Additionally, in conjunction with the release of our earnings report, we have posted on our website at medallia.com, under the investor relations section, additional charts that identify trended metric performance that we believe will aid in understanding and evaluating our performance over time. Now, I'll turn the call over to Wesley.
spk02: Thank you, Roxanne. Good afternoon, everyone. Before I begin my prepared remarks, I'd like to once again thank each and every medallion for their hard work in FY21. I was pleased with the way our team stayed focused, stayed connected to our customers, and grew our business during the year. Our opportunity in FY22 looks good. For our Q4 FY21, we had record SaaS revenue, record top-line revenue, record new logos, and record go-lives. To be precise, we had 172 go-lives in the quarter. Now, nearly 50% of our enterprise customers have over 1,000 users. We added 67 new enterprise logos, bringing us to over 1,070 enterprise customers with annual contracts, over 40% up from the prior year. Our employee experience customer count rose to over 130. Bookings from new customers in Q4 was nearly 50% of total bookings versus 40% in FY20. This illustrates the strength of our platform, as well as our significantly improved ability to land and expand. This is great for the long-term health of our business. Regarding cross-sell of additional modules, we now have approximately 35% of enterprise customers with four or more modules in use. We now have nearly 1,800 customers on annual contracts. This includes approximately 700 mid-market customers, up over 75% from when we last disclosed this metric on our Q2 call. With our mid-market momentum, the average selling price is now approximately $250,000 annual contract value, a more natural land and expand SaaS level. Turning to our new wins during the quarter, just over a year ago, we announced our investment in public sector to position us for success in federal, state, and local government. Our investments are beginning to pay off. Medallia is emerging as the system that keeps all other systems citizen-aware. New U.S. federal government wins in the quarter include agencies such as the Department of Education, the Federal Reserve, the Department of Agriculture, and the U.S. Postal Service added employee experience capabilities in Q4 and are now leveraging Medallia for both customer and employee engagement on one platform. New state, local government, and education logos in the quarter include New Jersey Port Authority, the City of Edmonton, the State of Nebraska, the State of Indiana, and Ohio State University is leveraging Crowdicity, our ideas platform, to accelerate collaboration with students to reimagine the campus experience post-COVID-19. The need for medallia in the public sector is not unique to North America. Horsham District Council in the UK is using our ideas platform, Crowdicity, to better connect with their community. The Royal Mail is leveraging the power of video, using living lens to bring feedback to life. The National Health Service continues to expand their usage of Medallia. In Q4, they again expanded to collect more signals across both their customer and employee landscapes. Some of our commercial wins in the quarter included in financial services, Invesco, the financial advisory company. a major property and casualty insurance company, a major U.S. life insurance company, and a major U.S. regional bank. In healthcare, we own business at AdventHealth, where we are providing a contact center solution in partnership with Five9. We also signed Amplifon in Italy, the world's largest hearing healthcare company. And we're excited to announce that one of our large healthcare provider customers has gone live with their COVID vaccine patient feedback program designed to capture feedback on the vaccine experience from scheduling to administering the vaccine at their locations. The feedback will allow them to measure the quality of this critical moment for patients and to identify ways to improve the experience. As restaurants are working to serve customers with new operating models, we had many wins in Q4 in casual dining and the quick serve businesses, including Focus Brands, Dave & Buster's, TGI Fridays, A&W Canada, and Denny's. New business and hospitality continues to return. We added Resorts World and Diamond Resorts in Q4. whilst our existing hospitality enterprise customers remained active, with 94% of those customers renewing for a year or more during 2020, some of them renewing during the height of the pandemic. In Europe, we signed Volvo passenger cars, SEAT, the number one auto brand in Spain, Telecom Italia, the number one telco in Italy, BNL, a tier one bank in Italy, and of course, Salvatore Ferragamo, the great Italian fashion brand. We also signed OXO, the largest chain of convenience stores in Latin America. And at the other end of the retail spectrum, we added Harrods, the iconic UK department store. We're also seeing momentum and employee experience. We introduced our out-of-the-box diversity and inclusion solution and our digital employee experience solution. We announced new integrations with ServiceNow, Vizier, and DecisionWise. New logo wins and employee experience in Q4 included Saks Fifth Avenue, Caesars Entertainment, Twitter, and Credit Suisse. Our mid-market progress is important to highlight. As you can see from our average selling price data, we've succeeded in adding a mid-market and land and expand business. Self-service and ease of use capabilities have come on tremendously in the last year. However, it's important to note that our offering in the mid-market is significantly different from the legacy survey and market research players. We have video, voice, ideas, messaging, along with contact center and unsolicited feedback capabilities, which are unique and in high demand across all mid-market segments. Our new quick start packages for market research and academic use cases comprises video and ideas, as well as self-service survey, highly differentiated from that of the other offerings in that segment. Our professional services team excel again, with a record number of go-lots, as I mentioned. They did a fantastic job, and I want to thank them publicly on this call. Our partner ecosystem continued to mature, with highlights including a Medallia resale agreement with Deloitte USA for commercial and government and public services, GPS. Deloitte selected Criders Deeper Mind, their platform to help a leading mental health charity in the UK. Deloitte also launched Deloitte Trust ID, powered by Medallia. Trust ID is a way to evaluate and measure experience impact on a large scale. We signed IBM as a new go-to-market partner. Medallia for Microsoft Dynamics 365 is now live in the Microsoft Marketplace app source. We also signed an alliance agreement with KPMG UK. Salesforce named Medallia the fastest growing app exchange partner. And for Adobe, Medallia is the number one fastest growing and most widely engaged tech partner in Adobe's revenue share program. For ServiceNow, Medallia was named the application development partner of the year. We find several other new partners in Q4, including LivePerson for chatbots, IVR and messaging, Redbox for accessing call recordings and contact centers, and G2 for social listening, and also ChatMeter for social listening. Now, turning to our new acquisition, Decibel, just announced today. This technology extends our reach into a domain that's very important to our customers, unsolicited digital experience. This is a vital signal field that, when added to our existing capability, further extends our customer relationships and delivers even better cross-sell, up-sell, and new business opportunities. This adds to the innovation that we have built and acquired since going public, making us the most complete customer feedback system of record that makes all other systems customer aware. The best companies wouldn't build a product or a service or sell and market it without understanding their customers' positions first. Our deep profile capability allows us to add the voice of customer, feeling, and point of view to every personal interaction, and allows our users to act on an informed basis when reaching out to their customers. At the same time, this represents a powerful early warning system for both customers and employees, delivering benefits in compliance and monitoring, as well as churn risk and upsell opportunity. So you wouldn't make a sales call, send a marketing email, or a text, or make a service call without consulting the system of record for voice of customer. Medallia, with its unique breadth of signal capture, is best positioned to inform all other systems based on the high fidelity of our signal field and our sentiment analysis. All systems' interactions are much more powerful when they take into account customer context. The same can be said for employee, patient, and citizen. Turning to look at our outlook for the future, our pipeline growth supports our increased forecast for FY22. For this reason, coupled with our success in new ACB bookings in the second half of FY21, we plan to continue to invest in products and go-to-market capability. Our number one focus is to accelerate subscription growth. Based on our unrivaled product offerings and the momentum we have seen in the back half of the year, alongside the strength of our partners, we feel now is the time to invest to ensure we get our fair share of the large market opportunity. I couldn't be more excited about our prospects this calendar year in FY22 and for the long term. I'll now hand over to Roxanne to provide more color on our financial performance in Q4 and our outlook for the year.
spk01: Thank you, Leslie, and good afternoon, everyone. We reported strong financial results in Q4 and for fiscal 2021, including record total revenue and record SAS revenue. We accomplished this while transitioning from our limited physical presence to over 2,000 virtual offices. As a quick reminder, unless otherwise noted, all numbers except revenue mentioned during my remarks today are non-GAAP. You can find a reconciliation from GAAP to non-GAAP results in today's press release. Total revenue for Q4 was $128 million, an increase of $17.9 million or 16% over Q4 of fiscal 2020. In Q4, subscription revenues were $103.8 million, an increase of $17.7 million or 20% year over year. As we've noted on the past calls, we have modified subscription terms, flexible payment or invoicing terms in exchange for extensions of existing contracts for certain customers hardest hit by the pandemic. On average, the extension period was for one additional year. Consistent with what we projected on our last earnings call, the modified subscription terms have negatively impacted our subscription revenue in Q4 by $1 million and approximately $3 million on a year-to-date basis. We expect a similar impact in Q1 of fiscal 2022 as we lapse this. As a reminder, the majority of our contracts are multi-year, irrevocable, include contracted minimums, and we expect our customers to honor these agreements. Professional services revenue was $24.2 million for the quarter, which increased 1% year over year as we continue to build out our partner ecosystem. For the year, recurring managed services revenue accounts for more than 50% of our total professional services revenue, which is consistent with recent quarters. As a result, recurring revenue continues to be 90% of total revenue. Turning to some key metrics, we continue to see strong growth in new logos. We ended the quarter with nearly 1,800 customers, including over 1,070 enterprise customers, an increase of 40% year-over-year, and approximately 700 mid-market customers, an increase of 75% for mid-year. For the 12 months ended January 31st, 2020, our dollar-based net retention rate was 115%. As Leslie noted, during the last half of the year, we saw strength in bookings from net customers as our land and expand strategy saw success, both within our enterprise and mid-market segments. As a result of this and continued progress within mid-market, we expect to see fluctuations in our net dollar retention rates. We are continuing to see traction in our cross-sell performance, as 35% of our enterprise customers are using four or more of our 15 modules, compared to 25% in the year prior. Turning to RPO or remaining performance obligations. As I have shared with you before, our RPO metrics are impacted by contract duration and extension, as well as timing of renewals for large multi-year contracts. So while RPO provides for strong visibility, it may fluctuate. As you recall historically, Medelia reviewed the vast majority of contracts on an annual basis. Throughout fiscal 2020, we professionalized our operations and pivoted to renew contracts on a multi-year basis. As a result, we are seeing this impact on our total and current RPO growth rate. This year, total RPO was $800 million, an increase of 18% year over year. Current RPO, which is the amount we expect to recognize as revenue over the next 12 months, totaled $396 million, an increase of 15% year over year. We expect to recognize 49% of total revenue in the next 12 months, with the remaining 51% beyond the next 12 months. Now, I will turn to our non-GAAP gross margins and operating expenses. Subscription revenue gross margin was 81% compared to 82% in the year-ago quarter. The decline in subscription gross margin is primarily due to the impact of recent acquisitions. In Q4, professional services gross margin was 14% compared to 19% in Q4 of last year. We continue to focus on building out our partner ecosystem, so we expect professional services gross margin will be in the range of 10% to 12% in Q1. Sales and marketing expenses in Q4 were $51.4 million, or 40% of revenue. R&D expenses were $24 million for the quarter, or 19% of revenue. Our go-to-market initiatives and R&D both remain an important investment area as we expand our platform. G&A expenses were $11.6 million or 9% of revenue in the quarter. We expect additional leverage on the G&A line over the longer term. Non-GAAP operating income in the quarter was $549,000 compared to $3,000 in the year-ago quarter. Non-GAAP net loss was $1.4 million compared to a gain of $491,000 in Q4 of last year. Our GAAP operating income included an $11.2 million charge associated with the retrospective adoption of the new lease standard ASC 842, which included our decision to sublease a portion of our San Francisco and London offices. Turning to the balance sheet, we ended Q4 with $682.4 million in cash and marketable securities. Subscription deferred revenue was $254.5 million, an increase of 14% year-over-year. Let's now move on to discuss subscription billings, which we define as subscription revenue plus change in sequential subscription deferred revenue and contract assets. As you know, there are a wide variety of factors that influence this metric. Therefore, quarter-to-quarter fluctuations in billing should not be taken as an indication of changes in future revenue. We believe the most meaningful measure of our performance is subscription revenue growth. For Q4 of fiscal 2021, our trailing 12-month subscription billings growth rate was 14%. Keep in mind, on a trailing 12-month basis, subscription billings were negatively impacted by approximately $10 million, primarily due to new bookings with invoicing terms that ramped over a multi-year period. Adjusting for this, our trailing 12-month subscription billings growth rate would have been 17%. Now turning to cash flow. We generated $12.8 million in cash flow operations during the quarter, representing an operating cash flow margin of 10%. As a reminder, we've historically experienced seasonality in cash flow from operations, given that over 40% of our billings occur in the fourth quarter. As a result, our cash flow has been positive in Q1 and Q4, followed by cash flow from operations being negative in Q2 and Q3, as it has been in the past few years. We anticipate this seasonality to continue. Now moving to guidance. As Leslie noted, Given the size of the market opportunity, we believe now is the time to invest in sales, marketing, and product innovation to accelerate our subscription revenue growth rate. Accordingly, as we continue to invest, we expect our sales and marketing expense to be in the low 40% as a percent of total revenue. For Q1, we expect subscription revenue to be in the range of $103 to $104 million, representing growth of 16 to 17% year-over-year. We are projecting total revenue to be between $126 to $128 million, representing growth of 12 to 14% year-over-year. This takes into account the number of days in the first quarter. We are assuming that the acquisition of Decibel will contribute approximately $1 million to Q1 subscription revenue. For Q1, we expect non-GAAP operating loss to be in the range of $11 to $12 million. Looking ahead, we expect other income and expense to be a quarterly expense between $500,000 and $800,000, primarily due to interest expense associated with the convert. We project income tax expense to be a quarterly expense in the range of $600,000 to $1.1 million. We anticipate basic weighted shares outstanding to be approximately $158 million and fully diluted weighted shares outstanding to be approximately $183 million. Finally, we anticipate our capital expenditures in Q1 to be approximately $7 million, primarily related to enhancing our data centers to meet customer demand. For fiscal 2022, we are increasing our guidance for subscription revenue from $457 to $465 to $469 million, representing a subscription growth rate of 22% to 23% over the prior year. This includes approximately $8 million full-year subscription revenue contribution from the acquisition of Decibel. This is net of the write-down of deferred revenue. We expect Decibel's impact on deferred revenue to be immaterial. We expect total revenue of $563 to $567 million, representing a growth rate of 18 to 19%. We continue to expect revenue to follow a similar pattern to this year with more than 50% of the annual revenue to be recognized in the seasonably strong second half. Professional services revenue growth is projected to be in the low single digits as we have significantly expanded and plan to continue to expand the number of SI partners we have this year. In addition, we continue to reduce implementation costs through our over 100 pre-configured industry package solutions. For fiscal 2022, we expect basic weighted shares outstanding to be approximately $164 million and fully diluted weighted shares outstanding to be approximately $187 million. Finally, we anticipate our capital expenditures in fiscal 2022 to be approximately $30 million. Leslie and I will now take your questions. Operator?
spk04: That is time. As a reminder, If you want to ask a question, simply press star 1 on your telephone keypad. If you wish to withdraw a question, press the down key. Our first question will come from Phil Winslow of Wells Fargo. Please go ahead.
spk07: Hey, team. Congrats on a great close to the year. Just really want to focus in first on employee experience. You have another quarter here of strong growth in customer count year over year. Has the customer's understanding of the tie between EX and CX changed, especially as they're thinking about a reopening and return to work scenario? And then just one follow-up to that.
spk02: Yeah, I think with the messages getting out that, yeah, The old school HR 360 review on its own is not enough. The simple survey is not enough. Having a digital connection that you can turn on and off any time, creating a safe space. In other words, giving employees the same high fidelity that you give your customers. is now being seen by the best brands as essential. And I think this is a great opportunity for expansion in the business because that market has been served by survey vendors and also traditional HR utility applications. So we see that as a major opportunity. The junction is important. between customer and employee. But the main thing is, why would you give your employee, your customers, a high-fidelity signal? In other words, why would you give them an iPhone and give your employees a Telex or a Vance machine? Give them state-of-the-art communication capability, feedback capability, safe space technology, ideas technology, video, all the ways that they can interact with you. and help them to onboard, help to replace some of the physical manifestation of culture and onboarding with this great virtual capability that's there now.
spk07: Great. And then in terms of the acquisition, congrats on closing another one. But if I think about your strategy over the past, call it 12, 18 months here, it seems to me that you're not only acquiring channels, but call it systems of interaction or systems of action. Can you surprise an update of those add-ons, whether it be contact center, voice, video, et cetera, and then how Decibel fits into that?
spk02: Yeah. They really are all about the same mission. They share a number of characteristics. They're great technologies. They're all in use in customer environments where Medallia and feedback platforms are present. And we see them as either part of the signal capture spectrum or part of the intelligence and action. In Decibel's case, it's a hugely important part of signal capture today to get all of that unsolicited data, all of that screen recording, legitimate screen recording data, session recording data, noise movement data, tracking all of that, understanding why baskets get full and closed, why they don't, why transactions happen, why they don't, all of that, and creating a metric out of it, a digital experience score, if you will, which is vital at the current time. So we thought this was the best technology in the best terms. And we saw this demand surfacing through the back half of the year with customers across verticals. So this is a really important technology tuck-in for us that we're already working with. And we think that customers don't want to buy these thin slices of technology from small vendors. They want to buy the entire capture capability, the entire analysis, the predictive action capability that we are building.
spk07: Great. Thanks, James.
spk04: Your next question will come from the of William Blair. Please go ahead.
spk07: Hey, thanks for taking my questions, and Leslie and my team, congrats. Nice job, especially on the logo count. I want to touch initially on the investments you're making. So Leslie, you and I have had many conversations about sales productivity. and you've ramped that, where is Salesforce productivity in your view, vis-a-vis sort of perfect or optimal Salesforce productivity? And if there's room to drive productivity, why spend so much more on sales in the coming year versus driving productivity, which would be better leverage? Help me understand some of that thought process and how you're thinking about that between balancing that productivity improvement and then obviously investing in new go-to-market.
spk02: I think, yes, a great question. I think there's a number of dimensions to it. Part of it is international expansion. You know, we've had great results in APAC, Latin America, and EMEA. We've seen fabulous new logo take on, and we've frankly been thinly covered. So you can't quite do the productivity trade-off there. We just are not covered. Our biggest challenge is that we're not at every single at-bat. When we get to at-bat and enterprise, we win most of the deals that matter. And so we need to have more at that. So that's really important to us. I think the second thing you get at, which I think is very important to recognize, is there's a ton of bottled up energy, a ton of bottled up energy around every aspect of the economy in this pandemic. We need to be positioned to really let it rip. as things return to a new normal which will be a hybrid of where we were but more physical experience is already beginning to happen we can see those and remember last year and especially in q1 the physical experience business of some traditional retailers hospitality travel and transport was really severely impacted So we want to be positioned to really let it rip as we go forward. It's very hard to judge anything in the pandemic year, but we have seen more and more consistency, more and more concrete evidence, many touch points and many different data points about the importance of this market, especially the digital spectrum, and especially this concept that our environment, Medallia Experience Cloud is the system of record that makes all other systems Customer-aware, employee-aware, patient-aware, and citizen-aware. Those are big market opportunities, so let's be positioned to let it rip.
spk07: Yeah. And I think if you're seeing the demand for data points accelerating, I think putting a foot in the gas makes sense. I guess let's touch on one more quickly, time to value. That's become such an important part of customer conversations during the pandemic, right? Advocates for 9, 12, two-year types of projects has reigned dramatically. I'd love for you to talk through how you've adjusted to increase time to value for customers, and what have you seen with sales cycles and implementation times?
spk02: Yes, that's a great point. I mean, I'll give you a quote from one of our largest, one of the largest, largest, largest U.S. companies, largest retailers in the world, talking to their CMO recently. And she was telling me that they don't think in terms of 48 weeks anymore. They think in terms of 48 hours. And if you look at some of the things that we did in 2020 or FY21, we fired up the National Health Service on our ideas platform, key kernel of feedback, we fired them up within a week. So time for value is absolutely critical. You don't need, the beauty of our platform is you can acquire one signal capture technology, simple self-service survey. You can add digital. You can then add voice. You can then add video. You don't need to boil the ocean to get value very, very quickly. Add to that ours and our partners' improving and getting better and better professional services capability, but especially the Medallia experts themselves, our professional services team, understand that. The customers want to see results. results and impact. In some cases, it's a mandatory. We gave you an example in the prepared remarks of a pharmacy business who has to get ready for these on-premises vaccines, and they're doing them now. You can't have a, let's get ready, let's do a traditional enterprise implementation. You have to do it quickly, and you have to be able to turn on a dime and get things going within hours or days versus weeks and months. So I'm very pleased, and I Actually, I don't want to be overconfident, but I'm very pleased with our products facility there. We also have professionals in our professional services, people in our partners' abilities to move quickly and get results fast for customers.
spk07: Got it. Got it. Thanks for the call. That was very, very helpful. Thanks, guys.
spk04: Thank you. Thank you.
spk03: Thank you.
spk04: Our next question will come from Scott Berg of Needham & Company. Please go ahead.
spk07: Hi, Leslie and Roxanne. Congrats on the quarter and thanks for taking my questions. First Roxanne, I wanted to see if you can give us a little bit of color on Decibel. You gave the revenue contribution from a gap basis for fiscal 22 here, but any thoughts on trailing 12 months revenues, how fast they were growing, just trying to understand maybe the financial scale of the business. That'd be great.
spk01: Perfect. Well, Scott, when we bought Decibel, we were really focused on the technology of Decibel. and what the technology has brought to their customer base. And so I've shared with you that in fiscal FY in fiscal 22, we anticipate that it will be about $8 million revenue contribution. And so we looked at what the value is that we were getting for decibels versus other companies out there. And other companies that you've looked at, they have multiples of 20 to 30 times revenue in this space. So we have about 100 customers that come with this. So it's not a large number of customers, and it's not a large amount of revenue. But we felt that this was a really sweetheart deal. And they were impacted by COVID, as they did have some customers in the hospitality and transport space that had impacted their growth rate. What we're looking at is, what does their pipeline look like? And what does our pipeline look like? And what does our customer demand look like for digital, and how important this is now? and really taking this, accelerating their growth rate, and bringing this key product offering not only to our current customers and also to prospective new customers. And one of the things that really pleases us about Decibel is the fact that it has a broad representation from an industry and a vertical perspective. And it also serves enterprise and mid-market customers. So it fits perfectly into our wheelhouse from a technology and platform perspective.
spk07: Got it. Helpful. And then from a follow-up question, Leslie, you guys have highlighted partners a lot on this call. And I remember when you and I first met after you joined Medallia, partners was a big component of your go-to-market strategy with the company and has been for you historically. But how should we think about the partner contribution to the business maybe in fiscal year 21? And then what should our assumptions be about the impact of your net new sales here going forward maybe over the next couple of years?
spk02: Well, great question. I was really pleased with the traction and actually, albeit small, but the now revenue and contract traction that we had. And I called out some of that in the prepared remarks. You know, you get these awards because you're actually adding value. You're contributing revenue for these companies. It's still small. It was our first full public year, if you like. where we had signed up some of these deals. But I think it's an increasingly important part of the spectrum. Of course, we don't expect them to do it all for us. But this key concept of the system of record for customer experience that makes all other application and systems customer-aware, that's where we've landed. We've hit on this value equation that our partners agree with and see. And so I'm really excited about it. It's a long-term play, first year, good progress. We're not going to depend on our partners to do our numbers for us, which is why we're increasing our our investment in sales and marketing. I think we're very well positioned. We're also perceived very much as the open enterprise partner of choice. We don't have any other confusion about our independence, and I think that is powerful for us. But above all, it's really our technology difference that excites these partners.
spk04: Helpful.
spk02: Thanks again.
spk04: Congrats. Thank you. Thank you. Our next question will come from Drew Foster of Citigroup. Please go ahead.
spk07: Hey, guys. Thanks for taking the questions. Roxanne, on the fiscal 22 guidance there, I just wanted to touch on the net expansion rates. I mean, you made some comments in the past around the 115% sort of threshold potentially being a bottom and maybe even accelerating that in the future. What are you assuming about where net expansion rates go into fiscal 22. And also related to that, I mean, you had a really strong contribution from mid-market this year. Just wondering if you're sort of thinking about contribution from that cohort differently as you get into next year.
spk01: So, Drew, we had a very strong bookings contribution from new customers in the back half of the year with nearly 50%. And this compares to prior years that were, you know, approximately 60% or a little higher than that. And you're right. Our new logo additions have been great. We have over 1,800 customers, over 1,070 enterprise customers, up a 40% increase. And we've seen a 75% increase in just six months in our mid-market space. And so our focus, our number one focus, as we've shared on the call, is our subscription revenue growth rate. And so with these strong new customer ads and the investments that we're making from a go-to-market perspective, we anticipate we are going to continue to see strong customer ads. And we think that these customer ads are great for the long-term health of our business and our long-term ability to cross-sell and up-sell to our current customer base. but right now what we are focused on is being as successful as we can possibly be with these customers and continuing to execute on our land and expand strategy and so with the strength that we have seen in the last two quarters i think our net retention rate may moderate here um between the low to the mid teens um and if we continue to see this strength in new logos but with that said we're really focused on the subscription revenue growth rate accelerating this subscription revenue growth rate and we truly believe that the addition of these new customers and the momentum we've seen is only going to continue and help the strength of business as we go forward thanks for the color there roxanne um the other thing i wanted to just get some more color on was you had a shift in the sales organization since the last update and
spk07: We'd love to hear what Elizabeth Carducci's key priorities are, whether she intends on making any additional changes to the organization or switching up the playbook for 2021 or reprioritizing some investments. We'd love to hear some additional color there. Thanks.
spk02: Yeah, great question. So Elizabeth really was already in place in the company and leading so many of our high-value campaigns, and it was a nice succession, seamless, and we had a great quarter. I'm really delighted. So congrats to Elizabeth and the team She's already intensified investment in our key verticals and also the ecosystem that supports enterprise sales. She is a formidable sales leader and extremely potent and well-regarded. especially in the customer experience world. And so it's fabulous to have her leading that senior field. Couldn't have had a better succession and couldn't have had a better leader in place. We did not have a chief revenue officer. So this was a promotion And she has a much bigger organization than the individual that led the industry group in the past. And so we're really well positioned. This is just another one of our investments to be positioned just to let it rip as things change through fiscal 22 here.
spk07: Thanks for the call, guys.
spk04: Okay. Next question will come from Rob Oliver of Baird. Please go ahead.
spk07: Good afternoon. Thanks for taking my questions, you guys. First question for either one of you guys, just on how you're thinking about the COVID impact in recovery relative to the subscription outlook of 22 to 23%. for the fiscal year. What was contemplated in terms of recovery and then also what you guys are kind of seeing from customers right now?
spk01: So when we contemplated our guidance and the increase in our guidance in FY22, this did not assume there was going to be a significant recovery in the economy from the pandemic situation. What we're focused on looking at is what do we see in the pipeline? What is the strength we have seen in the back half of the year? And you look at the strength we've seen in the back half of the year, the strength we've seen in the pipeline, that we're really optimistic about our ability to continue to grow this business and ultimately accelerate our subscription revenue growth rate. And so those are the things that we considered when we put our guidance together.
spk07: Okay, great. Thanks, Roxanne. I appreciate that. And then one follow-up just on the ATVs, and I apologize, I missed it. I don't know if you guys gave out, but the ATVs were. But you guys have been doing a nice job, I think, as part of your plan of bringing those down. And it seems as if the dispute towards mid-market in terms of new customer ads would subside. portend that we're going to continue to see that ACV come down. Is that right? Should we continue to expect to continue to see that come down throughout the year? And will that continue even if we see a snapback in some of the, you know, larger spending engagement from customers that may be either delaying or stalling projects because of COVID or whatever? Thank you.
spk02: Yeah, I don't know that we can or should predict that. But I think the main point is, you know, the agility of the field to land and expand the value is known as large scale top of pyramid enterprise only. And I think, and also heavy lift, big enterprise solution. This is not the case, actually never been the case. That's the positioning of some of the more fearful competitors. The truth is, we have a land and expand capability. We have a lot of automation in the product now. We have a great self-service capability, as good as anybody. But self-service doesn't take you all the way when you're implementing 10,000 stores, 90,000 employees and big enterprise. So I don't know which direction that's going to go in. My main point is that we are much more agile and we're going to go after markets where other people, frankly, have been on their own shooting fish in a barrel. And we're going to go after that aggressively. There's a fantastic opportunity there. And there are new markets that don't have and have not implemented. experience management and the way that we can deliver it. So the point is agility. The point is flexibility, a land and expand modular approach, an effective, proper, fair commercial pricing approach. All of those things are in place now, which position is very well alongside the sales and marketing investments that we're making. We'll see. We'll keep reporting on it and talking about it. But it just is indicative of our ability to land and expand and go there and be aggressive commercially when we need to.
spk04: Appreciate it.
spk07: Thank you, guys.
spk04: Next question will come from Daniel Curtis of Bank of America. Please go ahead. Great.
spk07: Hey, guys. Thanks for taking the question. Maybe for both of you, Leslie and Roxanne, I just want to circle back to what you're seeing in the pipeline that gives you confidence that growth accelerates through the year and that you have such a strong second half. Is that pipeline already – there to support it or do you need your recent sales and marketing investments to ramp to support that?
spk02: Great question. You know, the pipeline is healthy, I mentioned a little bit in the prepared remarks. That certainly is one of the factors that gives us confidence. But the other thing is that in the pandemic and in this virtual selling environment, we have more time. We have decoupled productivity from air miles. And I think that's extremely important. Same for implementations. So we also have, as we mentioned in the previous response, and ability to land and expand and win more logos. And so all of those things are part of it. And we're not really heavily, we're not depending on some return to the old normal. We're not depending on that at all, but just look at the quality of the wins that we had, all of them competitive. All of those were superb wins, some replacements, but mostly head-to-head wins with a bunch of survey people. And our difference is really shining through. All of these things together. It's just there. The market's there. There's other data points that tell us that. It's just a good situation for us to invest smartly and prudently in our growth.
spk07: Great, great. That's helpful. And then, Roxanne, I would have thought that your expansion business might have been stronger in the second half of 21, you know, just because pandemic maybe makes it tougher to actually land new logos, but you guys showed the reverse. So just curious if you can speak to the pricing power that you had in second half as, you know, customers came back for renewal under these, you know, different and certain times. How did your pricing power compare to maybe pre-COVID? Thank you.
spk01: So our expansion business was strong in the second half. However, our new logo business was even stronger. And so as we have been focused on expanding our presence, expanding our presence in mid-market, expanding our presence geographically and in specific verticals, such as healthcare and PubSec, where we have been very successful. We've been very successful in EMEA. We've been very successful in APAC. that has really allowed us to drive the new logo. And you know, we feel that our pricing is fair and our pricey, our ability to price and how we price in our pricing preference is consistent with what it has been before. And you know, we provide a high value to our customers. We provide something that no one else provides out there. Our ability to capture these signals and analyze these signals and allow organizations to act on them and bring all the other systems that they have into our system to analyze and make these systems employee and customer aware is like something that is not out there with anyone else. So that really helps us. And we drive a high level of ROI and a high level of return, either through a cost reduction or improving customer retention and revenue with a customer base for our customers.
spk03: Great. Thanks, guys.
spk01: Thank you.
spk04: Our next question comes from Devan Shah of Credit Suisse. Please go ahead.
spk03: Great. Thanks for taking my question. Leslie, if you think in terms of experience management being, excuse me, embedded from the beginning of a new product, service, or experience versus added at the end, based on your conversations, where are customers on this adoption curve, and how has COVID maybe changed that?
spk02: Great question. People are still not initiating building products from scratch with feedback embedded wholesale. And that's why we're here. We're here to take that message to market. But there's more and more of that. We did see some people, if you take the restaurant business, for example, last year, um all of a sudden there were no customers right if you take some of the hotel businesses all of a sudden there were no customers so the desire to have this deep connection with customers was suddenly very urgent and you can't depend on just old school loyalty systems to do that so we did see some benefits and benefit from that and you saw that in the prepared remarks and i talked about the restaurant wins in particular that we had and also the renewals that took place In the hospitality business, you have 94% renewing for a year or more in one of the most, if not the most, challenged sector in our economy, our global economy. And so, you know, people do understand that they have to make these deep connections, that there's an opportunity to create customer context, which informs them in a much more intelligent way. And so becoming this platform of customer awareness is the goal. That's absolutely the goal. That has value to everybody and great value to our partners because we add value to their CRM environment, their HR environment, their marketing environment. And so on. So all of these themes are beginning to build nicely to a nice crescendo so that when we see some, if we do get the benefit of a return to normal, which we're not depending on, we're in an even better position.
spk03: That's very helpful. And then just one quick follow-up. Just on the demand environment, where are we relative to pre-pandemic levels? And if you think about customers that maybe delay decisions in the middle of the pandemic, did they come back in the fourth quarter, or are they maybe more of a fiscal 22 story?
spk02: Yeah. So the demand environment we feel good about, hence our investment position, our disposition. But it's a demand environment that isn't just going to be satisfied with old school, simple survey and market research masquerading as high technology. It's going to look to leverage high technology, that customer awareness capability, that ability to create fast, touch points with other systems and other environments. That's what our customers are sophisticated, small, medium, and large. And so that's why we've built out the platform the way we have. Again, the roadmap is really conditioned by our customers. So I think we're very well positioned this year, especially, and I'm very excited to get on with the selling mission. Great. Thanks again for taking my question.
spk04: Pleasure. Yeah. Your next question will come from Chad Bennett of Craig Hill. Please go ahead.
spk07: Great. Thanks for taking my questions. So just, you know, and maybe we've kind of harped on this a little bit, just, you know, the commentary, you know, around kind of the strong second half and strong fourth quarter in the business, both from, I think Roxanne said, from an expansion and net new logo business standpoint, I guess I'm trying to compare and contrast the commentary to the kind of secondary metrics. And I understand we have to do the normalization for the deal mods. But, I mean, relative to your long-term targets, is there something other than SAS billings, net retention, RPO, under the hood that we're not seeing that's much stronger than those numbers dictate?
spk01: First and foremost, Like I said, Chad, I think that what we should be looking at is our subscription growth rate. And we've given you guidance for this year, and it's just the first quarter, right? We just started the first quarter. So we're very optimistic about what we've seen, what we've seen in the growth of the pipeline, what we've seen when we're having conversations with the customers. And you're right, our billing's growth rate, you need to adjust it for the $10 million that's associated with ramped billing. And, you know, it has a 17% growth rate. The other thing is we've been very open about in the first half of the year that we had impacts. We had customer impacts in concessions we've made. We've made to the tune of $3 million this year that had a 1% impact on our growth rate for customers who had been impacted in high-end retail and the travel and hospitality space. So all we can give you is the confidence in our guide, knowing that we're starting early in the year, and the confidence in what we see from a pipeline perspective as we move forward here.
spk07: And then I don't know, Roxanne, if you spoke to this, but just from a deal mod standpoint, was it material in the fourth quarter, and should we expect that to continue into the new year here?
spk01: So as of Q3, the modifications that we made from a ramped billing perspective was $5 million, and now we're at $10 million. So it was $5 million for the quarter. And, you know, this is a very effective means for us to sell to our customer base. What we're focused on with these customers, whether it's new customers or whether it's expansion with the customers, is landing and continuing to grow. And if we need to do ramp invoicing from a multi-year contract perspective and the revenue with that customer, obviously we straight line, but the invoicing is ramp over time, then that's what we'll do because we are ultimately focused on the fact that we're going to focus on our subscription growth rate.
spk07: Okay. Thank you much.
spk01: Thank you, Chester.
spk04: And our next question will come from Terry Tillman of Joyce Securities. Go ahead.
spk07: Yeah, hi, Leslie and Roxanne. Thanks for taking my questions as well. I guess maybe the first question, Leslie, relates to, as you've been adding more IP, more products, either through acquisitions or just building out your already strong platform, how has your sales force, whether they're hunters or farmers, how adept that they are selling these additional tools? Now, it's too early on decibel, but like video lens, crowdicity, some of the other tools bought in the past. How often are you starting to see these attached to the new logo business? Because it seems like across enterprise and mid-market, it feels like your ASPs would go higher over time because you just have more to offer the customer day one. And then I had a follow-up for Roxanne.
spk02: Well, I think in mid-market, we have a small number of customers. The name of the game is to start to put together thousands of customers in that space. And so whether we land at one module or another is something we're not religious about. We do like them to have. uh medallia experience cloud in terms of the sales forces ability you know we use a great sales enablement technology and we have a superb sales enablement team and we're constantly focused on bringing that team on board they're intelligent smart people uh you know video is a very simple concept to grasp we do a lot of video cross-sell The Proudicity Ideas platform is really surprised at the cross-sell, up-sell, new-sell that we've seen from that technology. And voice has gone very well. We enumerated some of the deals in our prior report. in our first quarter of actually holding the asset, some great brands have jumped into the transcription business with us in a big way. So again, fairly straightforward, common sense propositions. You don't need a PhD to sell this stuff, although some of them do have PhDs, thankfully, but you don't need that. It's very straightforward. Why don't I add the color of video to my feedback spectrum? Why don't I add voice? Why am I not looking at chatbot interactions? Why am I not looking at the billions of voice minutes that exist in call center systems locked away, value locked away? These are simple concepts, and our field gets them very well.
spk07: Got it. And then just – and thanks for that, Wesley. Roxanne, in terms of, you know, the prior question or questions around, you know, ramp deal structures, and I think you just gave color on $5 million impact in 4Q. Like, as you're looking at kind of middle of the funnel or kind of late-stage – funnel activity. You know, any thoughts at all about how to think about potential, you know, that impacting billings through the year? Because, you know, we're going to update our models and there's no reason for us to be aggressive and thinking about subscription billings, knowing we could still have this divergence from billings and revenue. I'm just curious what you could say to that. Thank you.
spk01: You know, Terry, it's hard for me to predict what I think will happen from a ramped billing perspective. We've had $10 million this year, as I shared, $5 million in this quarter. This is our, you know, historically has been our largest quarter of the year from a booking perspective. And so, you know, I guess what I want to share with you is that we're really focused on our subscription revenue growth rate. over a multi-year term with the customer, we feel that that's the right thing to do from an overall business perspective. That's what we're really focused on. We're focused on growth rates. We're focused on working with our customers because customers are at different stages of their CX journeys, different stages of their EX journeys, and different stages of how they've been impacted by the pandemic. And so we, you know, we feel our customers are really improving. You can see it, that 95% of our customer count in hospitality, they renewed. When some of these individuals have had, or most of these individuals have had their business, hospitality and transport have had their business significantly impacted. So we're working with people in those industries and we're working with people as continue to progress their CX and EX journey because they don't think there's any doubt that this market is a large market and that customer experience and employee experience is really essential to the future of companies and their ability to grow their business and retain their customers.
spk04: Thank you.
spk01: Thank you.
spk04: Your next question will come from Brian Schwartz of Oppenheimer. Please go ahead.
spk07: Yeah, hi. Thanks for taking my questions this afternoon. One for Leslie, one for Roxanne. Leslie, I wonder if you can comment or just shed some light with us on what you're seeing under the covers here in terms of the sales cycles and the pace of conversions, those trends. Is it possible to compare it to the year-ago period? I know that's pre-pandemic. You had Dreamforce in the year-ago period, and the business did really well in Q4. But You know, anything that you can share with us what you're seeing in terms of those trends and maybe how they compare to pre-pandemic levels. And I'll follow up for Roxanne.
spk02: Sure. I mean, basically, it's smaller deals, faster cycles, land and expand deals. uh and more often so quite a lot more of them as you can see from our new logo progress so those are the things that characterize the market at the moment and it's it's a good business environment it's higher energy more volume you know we like it i think we will see uh some return to some of the larger enterprise uh deals but uh we're not complaining you know we've got plenty to go up
spk07: Thank you. And then, Roxanne, one question for you. Is there anything that you can just share with us, either qualitatively or quantitatively, on how much you're planning to grow the sales force in fiscal 2022? I think you highlighted your introductory comment that sales and marketing expense is something that you're planning to lean into this year. Thanks.
spk01: So that's a great question, Brian, and I would love to give you specifics, but for competitive purposes, I just don't think giving specifics is the right answer. What I can give you some color is that we're looking at it from a spread bet perspective. We're looking at it to make investments. both in mid-market and in our enterprise space, because we have seen success in both areas and we continue and we believe we can continue to see success. And, you know, I can only reiterate what Leslie had said previously and what we've said in the prepared remarks is that this is a large market. IDC, for example, shared last year that they had gone out and interviewed the C-suite and And the C-suites that they interviewed said that CX is going to be the number two priority that they invest in the post-COVID world versus the pre-COVID world. So we see what we bring from the broad spectrum and our ability to really impact the return and the ROI that we bring to our customers. And where this market is, is now is the time to invest and invest again. and get to the deals that we're not even getting to and increasing our footprint from a geographic perspective and also from some of the key verticals.
spk04: Thank you.
spk01: Thank you.
spk04: Our next question will come from Richard Baldry of Roth Capital. Please go ahead.
spk05: Thanks. I know you don't break it down sort of publicly, but Is it fair to look at accelerating growth and argue that your mid-market team is probably growing much faster off a smaller base and still maturing, headcount growing much quicker, sort of your go-to-market messaging tuning up much faster, you know, versus the traditional enterprise, which has been in sort of steady-state growth for a while, that really algebraically that explains a lot of your acceleration in fiscal 2021?
spk01: So yeah, we have seen significant growth in our mid-market sales force. Go back 18 months to two years ago, we essentially didn't have a mid-market sales force. We had a very small footprint. So you're right, Rich. It's a very small footprint or bookings perspective, but we've grown. The acceleration growth has been high from that. But we're also seeing strength in enterprise in specific verticals and specific geographies. EMEA, for example, has been great. APAC has been great. Healthcare has been great. We've seen great growth in PubSec and some other industries, while some industries have been impacted, as we've talked about with hospitality and travel. So you're right. We have seen, from a percentage perspective, significant increases in mid-market, although be it a lower base. But we've also seen some key accelerants in our enterprise space, that we're very excited about and some of these accelerants we see in the pipeline that we look into today.
spk05: Great. Thanks.
spk04: We'll take the rest offline.
spk01: Thank you, Rich.
spk04: We have time for one last question from Matt Van Vliet of BTIG. Please go ahead.
spk06: Yeah, hi, thanks for taking the question, Ms. Chauvin-DeCourter. I guess from a higher level perspective, Leslie, when you're talking to customers, now that you have, I would say, maybe some of the most obvious types of brands and big companies out there on the platform, when you're going into that next tranche of customers, that's maybe kind of the the later adopters is is there still any sort of educational element of the sales process that you have to bring you know the transition to the survey digital survey model is maybe more straightforward from someone that went to business school 20 years ago and studied marketing to what it is today so just curious how much more of an education of how all the different channels can impact and be measured and analyzed that you can do different than your competition
spk02: That's a great question, Matt. I think it's pretty quick. The proposition is powerful and it penetrates in executive discussions very quickly, especially when you're dealing with people who've never implemented a feedback platform, who perhaps only have familiarity with survey technology. It happens pretty quickly. They get it. They get the idea that they should be listening to social feedback, that they should be reading that unsolicited spectrum. They should be listening and watching video. You know, Airbnb's been using video for a long time for feedback. They should be tapping into everybody that makes things and sells things has some kind of contact center process and operation. Why aren't we mining that data legitimately for feedback nuggets that will tell us where to go next for insight? So it's pretty straightforward. Our best salespeople are a lot better at me at positioning the proposition, and they do it very quickly. And so I think the education is pretty simple. We have superb content. We have a lot of video content that we use and the selling engagement and receptions everywhere i'm doing many calls many more many more zooms and interactions with customers than i did pre-pandemic and the reception everywhere is open it's pretty it's pretty inviting uh for us to educate them where it takes that but you know campaigns are pretty quick and and we expect people to get the proposition across in minutes uh not taking multiple meetings to explain what we do you don't have to it's pretty straightforward And the value offer that gets transmitted is very clear for people to understand. Got it.
spk06: And then on the partner side, as you continue to build that out, are there any particular areas of strength, whether it's on the CX or the EX side or in particular regions where you've had maybe more success? And then, you know, conversely, which areas would you say are sort of needing the most investment over the next 12 to 24 months?
spk02: Yeah, great question. I called out in the prepared remarks some of the progress that we've made from a very focused investment with Deloitte. Also called out the independent software vendor progress where we've had superb recognition from three of the biggest brands on the planet. But I think to your investment question, internationally is where I think we need to ramp up Our APAC team are doing a great job, especially in the markets in Korea and Japan, where they are working with several new, potentially new great partners. Japan is, after all, the second or third largest software market in the world. And so investing there and investing in EMEA to build up specialist local partnerships is probably the next phase for us.
spk06: Great. Thanks for taking my question.
spk02: Thank you.
spk04: No. Now turn the call back over to Mr. Stretch for closing remarks.
spk02: Okay. Thank you for taking the time. Look forward to seeing you all on the road.
spk04: This concludes today's conference call. Thank you very much for joining. You may now disconnect.
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