Q3 2020 Earnings Call
Good afternoon, and welcome to medallion third quarter fiscal 2020 earnings conference call.
Joining us today for today's call, our Medallia CEO Leslie stretch and CFO Roxanne.
After the speaker presentation, there will be a question and answer session.
Ask your question during the session you will need to press star one on your telephone.
Please be advised on this conference is being recorded and if you require any further assistance. Please press star zero.
With that I would like to turn the call over to Roxanne open for introductory remarks, okay.
Thank you, Chris Waukesha medallions third quarter fiscal 2020 earnings conference call, we issued our earnings release, a short time ago and furnish the related form 8-K to the FCC to access the press release. Please see the Investor Relations section of our website with me on the call today, its Leslie stretch President and CEO Mike.
The primary purpose of today's call is to discuss our third quarter fiscal 2020 financial results before we begin. Please remember during the course of this call. We may make forward looking statements about the operations and future results Medallia that may vary in involves many assumptions risks and uncertainties if.
Any of these risks or uncertainties develop or any of these assumptions prove incorrect actual results could differ materially from those expressed or implied by our forward looking statement.
For a discussion around risk factors associated with the forward looking statements. Please refer to the checks in the company's press release issued today and to our periodic reports filed with the Securities and Exchange Commission, including our prospectus dated July 18th 2019, and Form 10-Q dated September 12, 2019, we disclaim.
Any obligation to update any forward looking statements on today's call, we will refer to both GAAP and non-GAAP financial measures. The non revenue financial figures discussed in today's call. Our non-GAAP unless stated that the measure is a gap number. Please refer to todays 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've posted on our website at medallion dotcom under the Investor Relations section additional charge that identify trended metric performance that we believe will aid in understanding and evaluating our performance.
Her time now I'll turn the call over to legislate bunch will show good afternoon, everyone. Before I begin my prepared remarks, I would like to thank each and every medallion for their hard work in Q3, our second public water.
I started last quarter's report painting the picture at Medallia, our customers and the markets, but there is so important to us since we are still you'd have a public markets and customer experience management technology is new for many people I wanted to continue that discussion.
What sets us apart from traditional market research and survey vendors is our deep technology capability about plus I'm signal story, and the medallion experience cloud and I'd be good across all our clients over 80% of our signal data is non survey data.
Give me all customers unmatched insight into their customers feedback and then time. This data that includes aiotv signals transactional information operational data from sales marketing service parts and many other systems. The medallion steels cloud has been uniquely architected to capture this expanding signal field to interpret it securely and provide.
Actionable insights that create enormous value for our customers and lifetime.
The importance of net promoter scores also central to our point of view, but all your customers truck from 2012 to 2018 for example increase the NPS net promoter scores by 8.7, an improvement 60% on average in many cases, leading to better customer traction and financial performance net promoter score.
Dog other customer effort on frictionless business measurement, Oh park, the measurement regime customer experience.
Thirdly, our customers use but all your across their organizations not just in small market research will serve to use cases modality platform is purpose built to be fast accurate unintuitive displaying little based information to ensure data relevance and actually ability the ease of use of the medallion system and in particular, our mobile ops reduces the need for it.
That's a training and as the reason behind our high levels of user adoption. It approximately 50% of mobile users smoking in daily.
This year, 54% of our customers of more than 1000 active users on average our large clients up over 25 integrations with sales marketing service called Colson their systems and other operational systems as I've mentioned.
With our easy to use technology, we have the ability to run simple feedback programs for all kinds of all organizations of all shapes and sizes, but it is our unmatched ability to handle scale integrate out of the box with core systems and our ability to securely distribute and connect feedback from relevant signal source is not just survey that means we win the majority of entered.
Hi, guys opportunities, where we hope feet on the ground I'm kind of gauge.
Each quarterly report, we will highlight one or two customer use cases, and a specific vertical this quarter, we chosen the retail grocery retail pharmacy space.
Almost exactly one year ago, we won the contract for a voice of employee implementation and one of the very largest retailers in the world boss forward. One year later and we have over one of the half million employees, not particular program and our successes position does now to move to voice of customer on E. Commerce digital implementations and our current quotes are getting as.
Strong start for Q4 fiscal 2020 and increasing our annual subscription in that case by over 400%.
At the same time of year ago, we added CBS , one of the largest retail pharmacies and the world's our platform for customer experience within four months. They had done lifer orchestrated feedback and 6000 stores today, we are up and running nearly 10000 stores.
We've not expanding to their voice of employee program.
London expand opportunities like this exist across a very large part of our customer base, we're seeing small medium and large customers looking to supercharge their customer experience and employee experience capabilities with medallia.
Well these quarterly call will also focus on one of our experienced management domains are little more deeply today, we've chosen to showcase employee experience to highlight our progress.
Employee experience platform provides real time feedback through multiple signals, including tax we John Walker voice and video through partnerships with specialists companies like living loves Unbox, Popmoney and with workplace collaboration tools, such as like Facebook workbooks.
Today, nearly 60 large customers.
Squad to our employee experience platform, including one of the largest retailers in the United States I mentioned earlier on one of the U.S. as largest ultimately all manufacturers.
Fortunately, we are not tied to one HR IRS HCR more talent platform, either which positions us to do well and all the major ecosystems.
For example in Q3 you'd be became an access to your software foreigner workday or were they rising to make showcased our forthcoming integration with their prism analytic suites, we let a breakout session to highlight to the link between employee experience customer experience and transformative business outcomes. In addition, we demonstrated our idea management offerings from.
Our new solution Privatise city.
There are many more reasons that we lead our data visualization technology are out of the box integrations with sales cloud marketing cloud service cloud and so our previously capabilities, our personal identity information and security philosophy and capability, our massive scalable data platform and our emerging the broad and deep partner ecosystem.
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Before I turn to Q3 performance I want to also highlight one of our recent tuck in acquisitions. This quarter I want to focus on crowd to city next quarter, We will review single and its impact and hospitality and beyond.
Well, we'll more foundry, we're proud to see as a thought leader in applying technology to global issues diversity as a part of our employee experience domain because of the unique way the solution engages people and core missions, but its reach goes beyond this area. The unique solution speeds up traditional market research by digitizing the processes previously managed by.
People weak survey tools. The platform has also been used by public sector organizations to crowd source citizen ideas and turn them into action will be presenting at our Washington, D.C. City Tour next week.
Now, let's turn to our Q3 performance the third quarter represented an important milestone for Medallia with a 100 million quarterly revenue Mark behind those let's look forward to 500 million an annual revenues as soon as possible and that's a 1 billion an annual revenues would be all these are the milestones I'm focused on because at this.
We can can you continue to innovate and outperform others I continue to leave the customer experience market.
In Q3, we had record revenues and record SaaS revenue, we had solid business performance, beating all our forecasts, we were able to acquire two new technology tuck ins in the quarter, but I've tremendous values our platform into our customers. We've already executed new credits the d. and single deals with major brands.
We ran 10 that all your city tour as in Q3 in Q4, where we had packed audiences around the world with the highest quality customer engagements I've seen in my career, we had approximately 50 customer.
Customer experience Onyx employee experience case studies presented companies, including Air BMD Aeromexico, Walmart IDN Disney BNP Schneider electric some some Mcdonald's four seasons coach and others shared ROI and the value medallion brings to their organizations to packed audiences. We have nearly 2000 high quality executive attend.
These at these events on my personal customer interactions supported my view of our opportunity in the short medium and long term.
We added nearly twice as many enterprise new logos in Q3 than a year ago.
Today, we have more productive sales capacity than ever and are able to show up and more active opportunities never before.
In Q3, just some of our new business wins included Amadeus and the travel stays on track odd well count say Microsoft.
Pizza Hut and Japan, we closed our first major deals with Softbank and your securities in Latin America, we close deals with vivo Telefonica and it's all in Brazil, it's out in Chile, and Grupo Telesis in Mexico.
We also have many expansion deals, including better health Jones Lang, Lasalle massmutual, you'd be us and Wynn Las Vegas, just to name a few.
I'm pleased to know that our Midmarket team is beginning to see traction also some of the Midmarket deals closed in Q3 included the Callaway Bank Caribou coffee for employee experience control up, Missouri and vivid learning systems.
Partner Channel also performed well as you know this is a relatively new capability for the company and although it's early days I'm pleased with the traction we're seeing in Q3, we signed on another 10 partners, including global as size Advisory technology of delivery partners. This included you alliances for our emerging markets across EMEA Latin America in Asia.
Pacific as well as broadening our capabilities across speech and media.
In Q3, we also closed our first deals with newly signed strategic Ais B foreigners Adobe and service.
We launched our second integration on the service not store getting as a full suite of capabilities that maps. So therefore products, we were not a premier to your partner and our employee experience integration is currently featured offering on the service not store.
We launched version two of our Adobe analytics integration seamlessly integrating our digital offering for Adobe customers. This also deepens our lifetime capabilities as it allows customers to tailor digital experiences for customers based on instant feedback.
We just attendee Dreamforce and San Francisco, where we had a superb event with great traction from APAC trial that several hundred key customer meetings and four days. Many attended by Salesforce Dot Com Representatives came to capitalize on our joint value proposition.
Our professional services business continues to be a differentiator I'll remind you that are one off implementation services represents less than 10% of our overall business majority of our professional services is ongoing managed services, helping customers create programs and extend their adoption of our technology I view this as a strategic team that drives great.
Value for customers through the best industry know how effective integration capabilities.
Easy and survey software is often easy out on a proof platforms across several we're clearly differentiated a differentiated through our value added services on the services provided also by our partners.
We continue to our enterprise and Midmarket sales executives, nor progress as the market leader positions us as the most attractive customer experience blade for real talent today.
We're on target with our hiring plans. This year are trying to productivity show some exciting data points with several new sales executives delivering small medium and high six figure attainment and they're very first quarter in the company.
Turning to our pipeline in the future.
Our performance signal story is resonating with customers and prospects partners alike, our scale and ability to innovate the market as being clearly recognized and this positions us well for the future.
We expect to continue our tuck in M&A strategy into effectively evaluate our buy versus build options as we seek to capture every signal our customers want to examine and act upon in their pursuit of customer experience excellence.
Finally, adding to my confidence is our strong start to Q4, we wanted to seven figure global retail contracts in November and continued our land and expand deals across the globe I'm very excited indeed about every major opportunity and about our prospects for growth and Thats why 21, I'll now hand over to Roxanne to provide more color on the Q3 financial center.
Our outlook.
Thank you likely and good afternoon, everyone across the board because it's strong financial results, including total revenue growth SaaS revenue growth professional services revenue growth and operating margin improvement as a quick reminder, unless otherwise noted all numbers access revenue mentioned during my remarks today. Our non-GAAP you can find a reconciliation from GAAP to non.
Results in today's press release.
We ended the quarter with 698 enterprise customers of which 44 came from our two acquisitions in the corner on an organic basis. We added 41 customers nearly double from Q3 at the higher year total revenue was 103.1 million, an increase of 21.9 million or 27% overtime.
Three of fiscal 2019 total revenue exceeded our expectations due to solid contribution from SAP managed services and implementation services recurring revenue consisting of SAP and managed services continues to be at 90% of total revenue.
In Q3, SaaS revenue was 79.7 million, an increase of 16.5 million or 26% year over year, our SaaS revenue growth rate improvement benefited from the timing of new bookings in the quarter as well as revenue contribution from the two acquisitions, we completed in the quarter, which contributed approximately seven.
Hundred thousand dollars.
Professional services revenue was 23.3 million for the quarter, which increased 30% year over year during the quarter. Our services revenue benefited from strong demand for both managed services and implementation services as a reminder, services revenue ebbs and flows based on a variety of factors medallion provides a high.
ROI to our customers as evidenced by our strong renewal rates. During the 12 month ended October 31st 2019, our dollar base net retention rate was 100 and night, 18%.
I'll now turn turn to our non-GAAP gross margins and operating expenses.
Revenue gross margin was 82% we believe our SAS margins are among the best in class for South company in Q3 professional services gross margin was 116% a dramatic improvement from 6% in Q3 of last year.
Looking ahead to Q4 this level of professional services margin may decline to below 50% due to the holiday season.
We will continue to subcontract additional services with our partners as they continue to build out there medallia consulting practices.
Sales and marketing expenses were $38 million or 37% of revenue in Q3, as we continue to invest in our go to market initiatives.
We continue to expand productive sales capacity and pipeline generation and anticipate an increase in expenses in Q4, given our large presence at dreamforce and the continuation of city tour as Ledley discussed earlier.
R&D expense was 20 million for the quarter or 19% of revenue R&D remains an important investment area as we expand our platform with new features and capabilities each quarter.
DNA expenses were 12.9 million was 13% of revenue in the quarter. The increase was primarily related to incremental expenses associated with being a public company. However, we expect additional leverage on the Gn a line overtime.
non-GAAP operating loss in the third quarter was $2 million compared to a loss of 8.8 million in Q3 fiscal 2019 and improvement of $6.8 million. Similarly, non-GAAP operating margin in the quarter with negative 2% an improvement from negative 11% in the year ago quarter now.
non-GAAP net loss was $932000 compared to a net loss of 9 million in Q3 of last year.
During the quarter, we generated 2 million in interest and other income an increase of 1.8 million from the proceeds.
Increase an increase of 1.8 million from prior years quarter, primarily as a result of interest income earned on our IPO proceeds we incurred $912000 in non-GAAP income taxes in Q3, our GAAP income tax benefit of $47000 includes a 1 million onetime.
Benefit related to the acquisitions in the corner.
During the quarter, our weighted average basic share count with 127.7 million shares because we had a net loss on a GAAP basis, our diluted share count is the same on a basic count for both GAAP and non-GAAP EPS.
Turning now to the balance sheet, we ended the third quarter with 319.3 million in cash and equivalents down 98 million from the ended the second quarter driven primarily by the use of 55.7 million in cash for the two acquisitions note that the two acquisitions in Q3 were primarily technology and talent.
Okay. Therefore, SaaS deferred revenue included Diminimus amount.
SaaS deferred revenue was 141.8 million an increase of 33% over SaaS deferred revenue in Q3 of the prior year.
Now, let's move to staff calculated billings, which we define a SaaS revenue plus change in sequential SaaS deferred revenue and contract asset.
As you know there are a wide variety of factors that influence this metric therefore quarter to quarter fluctuations in calculated billings should not be taken as an indication of changes and future revenue for example, billings will fluctuate quarter to quarter due to the timing of renewals an annual contracted billing.
As we discussed in her last earnings call. We believe the 12 month trailing SaaS billings growth rate is a more meaningful measure of our performance.
For Q3 fiscal 2020, our trailing 12 month SaaS billings growth rate was 24%, which was down from the 33% in the prior quarter. The sequential decline in deferred revenue from the prior quarter was inline with what we communicated to you on our Q2 earnings call Q3 deferred revenue decline.
Sequentially based on our typical seasonality that said, we expect this significant increase in SaaS deferred revenue in Q4 based on our historical seasonality over 40% of our annual believes occur in the fourth quarter.
Our remaining performance obligations are ARPO totaled $585.7 million, we expect to recognize approximately 50% of the archeo over the next 12 months.
Note that the RPL metric may be impacted by contract duration and extensions as well as the timing of renewals of large multiyear contracts. So well RPL provides for strong visibility it may fluctuate from quarter to quarter.
We generated a loss of 18.4 million in cash flow from operations for the quarter from a cash flow perspective, our operating cash flow fluctuate based on seasonal patterns that we have expect experienced historically due the timing of bookings and cash collections.
As a reminder, we've historically experienced seasonality our cash flow from operations given that over 40% of our billings occur in the fourth quarter as a result, our cash collections in Q4 in Q1 are higher than other quarters, we anticipate the seasonality will continue.
On an annual basis, we continue to expect con trend positively and are reiterating our plan to be operating cash flow positive for the full fiscal year of 2021.
Now, let me turn to our financial outlook for Q4 in fiscal 2021 for Q4, we are projecting total revenue to be between 103.2 million and $105.2 million, representing a 20% to 22% growth rate over last year for Q4, we are pretty.
Checking SaaS revenue to be between 83.2 million and 84.2 million representing growth of 23% to 24% over last year.
For Q4, we expect non-GAAP operating loss to be in the range of 3.5 million to $4.5 million. We expect other income and expense to be roughly $700000 and income taxes to be in the range of 500000 to $1 million we expect.
Basic weighted shares outstanding to be approximately 129 million.
Finally, we remain on track for capital expenditures to be $20 million for the second half of this year as we continue to expand our data center capabilities and the final phase of the Buildout of our new customer briefing center in downtown San Francisco.
Based on this Q4 guidance for the fiscal year 2020, we expect total revenue to be between 395.6 million and 397.6 million, representing a 26% to 27% growth over last year.
We expect SaaS revenue to be between 309.2 million to 310.2 million representing growth of 25% to 26% year over year, an acceleration from the 22% growth rate in fiscal 2019.
We are keenly focused on driving that accelerated growth on an annual basis. However, there will be quarterly fluctuations in our year over year growth.
For 2020, we expect non-GAAP operating loss to be between 5.9 million and $6.9 million, which is a dramatic improvement from the operating loss of 47 7 million in fiscal 2019.
For the full fiscal year 2020, we expect basic weighted average shares outstanding to be a little over 83 million.
I would now like to provide insight into our current thinking for fiscal 2021, we remain confident in our ability to sustain staff accelerated revenue growth given our new go to market initiatives and medallions established position in a large addressable market.
This is a first glimpse into fiscal 2021, we want to be prudent with this preliminary outlook. We will update you on a regular cadence as we move forward to fiscal 2021.
For the full fiscal year 2021, we are projecting total revenue to be between 474 and $483 million, representing a growth between 20% to 22% year over year.
We expect SaaS revenue to be between 382 million and $387 million representing growth of 24% to 25% year over year.
We expect revenue to follow a similar pattern to this year with more than 50% of annual revenue to be recognized in the seasonally strong second half.
We are committed to investing for growth, while balancing growth and profitability and see the opportunity to show bottom line leverage over time.
In conclusion, we are very pleased with our third quarter performance Leslie and I will now take questions operator.
In order to ask a question you will need to press star one on your telephone to withdraw your question press the pound or Heskey. Please standby and will be compiled the Q and a roster.
Your first question is from Kash Rangan with Bank of America Merrill Lynch. Your line is open.
Hi, congratulations some spectacular thats nice gift for the holidays from you guys.
I had a couple of questions related to the next new customer actually let me if I heard you right. You said that you were more than two X relative to a year earlier right now turning to clarify that across the midmarket or is it only for large enterprise and depending upon or whatever that answer that I'm curious how that ties into your expectations.
For sales productivity.
Thank you laid out at the time at the IPO and it's turning out to be as much better than you expected or just about inline with expectations and consequently, how does that change your view and not change your view with respect to sales hiring as you look at the next fiscal year. Thank you.
Yes, yes, great question.
Well I personally think theres more upside down there I think there's more productivity to count I think that's a good progress.
But my discussions on a daily basis I gave the example of Dreamforce and that was enterprise customer by the way.
We got a lot more mid market transactional store count going on and coming indeed.
But I'm I'm looking for more upside I think the productivity is there we brought on some superb talent.
Saskpower them from a lot of different.
Great companies.
And some from the customer experience space, you've been truck successful. So I'm very focused on driving I'll chime in Q4 mode. So I'm focused on.
Having this to be a great quarter as well that's my view of it.
Wonderful so the custom covers more than two X relative to the your earlier period third quarter of last year.
Well its enterprise customers approximately two times nearly two times more three times.
Okay got it.
Good times, but there's more to come.
Wonderful and I know that at the time of the ideal you you said down an expectation that at 60% of a SaaS revenue is coming from the installed base and 40%, but overtime you'd like to have the flip the other way to get majority of your SaaS revenue growth from new customers, how are you making progress towards that.
Lastly, and also.
Good that gold changes it going into the next fiscal year since Youve, obviously, winning new customers had a pretty fantastic base. Thank you.
Although walks on figure taking through the specific so sure sure absolutely.
We have significant land and expand opportunities and you have heard lovely highlight just some of them on the call and so we are as we've shared looking at balancing our land and expand with our new logos, we continue to see roughly about 60% of or bookings coming from expansion as we saw last year.
On overtime as we continue to add new logos, we would like to see this gets you more than 50 to a 50 50. However, what we're really focused at this point in time is we want to continue to see strong growth on SaaS revenue and the total revenue line.
Wonderful congratulations on scan on.
Across the board strong results here. Thank you.
Your next question comes from both on Sir with William Blair. Your line is open.
Hey, guys.
Cash nice job.
I want to touch on two questions first let's talk to you.
The IPO process and even last quarter. The messaging had been sort about building a growth acceleration story. This is a good border strong print across all metrics you touched on sort of near term confidence in terms of some large deals November with us to look at this sort of on a three year basis I'd love to understand how your confidence is versus going forward you have been the company since last August I guess.
Do you think you're executing just really went on the initial strategy. What you say success is trending ahead of when you expected and maybe a more constructive this out for next couple of years, how should we think about the conference levels of that acceleration process over the next couple of years.
As a great question.
I think about is on five quarters in to this mission, where we had a company that had a beautiful technical solution on reference customers be most enviable rest reference customers, but a very small professionalized salesforce very small.
No we're out our hiring goals this year.
What we're way over where we were this time last year, we've got a great contingent of quota bearing sales people, but if we were around 100 6100 I'm going to give you. The precise number 160 270 quota bearing sales people over still new that's still a timing salesforce still small coverage our partner channel is in its infancy.
Dreamforce was I've been to 10 Dreamforce is it was spectacular 170000 people book quality on quality engagement with sales force basketball coming home to roost, Jeff the new productive hardware, making this quarter aren't coming home to roost 11 modules to so I think in our cross sell mission. We're doing okay. I think we can do a lot better there.
As a ton of opportunity, but the biggest thing for me as I've really learned this business. This marketplace as had a couple of really mediocre companies shooting fish in a barrel right and giving people a lot about poor value service, that's a big opportunity for us we're consuming other People's survey into our platform where consumer.
So many signals into the platform gave us style in my prepared remarks. The upside is ahead of US absolutely ahead of us I've no doubt about.
That's that's really helpful. I guess, one other question now sort of on the product road map side. So obviously you brought a couple of oil tuck ins here, you've done a really nice drama sort of building journeys for folks being able to route text messages and calls and signals around by investing and buying I guess as you think about the.
Road map I'd love to get an update on sort of near term focus areas, where you guys thing of driving apart in the near term. Thank you.
Yeah, Great question, so I want to give too much way.
But you know we we did some great stocks that are on our city tours with some video technology, so sensing sentiment from images and from facial expressions, along Longsight voice turned into tax voice, it's all about frictionless easy feedback speed at massive scale and Thats why our technology architecture.
Philosophy around technology is so powerful and sets us apart. So those are some of the things we're thinking about even better data visualization people want to look at the airline we want to look at the cabinet airplane. They want to look at the store they want to look at the hotel and visualize net promoter score and experience across that steel to vision not just.
Two dimensional chalk citizen all kinds of things there without giving too much way I will build as easily as much as we bought it easily as much as we buy but our career builders and stuff that isn't super exciting. It's in privacy scale performance robust dreibelbis reliability that just can't be matched by these people are trying to go.
Roger a survey business very hard for them to do.
Very helpful. Thank you guys. Appreciate you thanks, taking my question.
Your next question is from Walter Pritchard with Citigroup. Your line is open.
Hi, This is actually drew foster on for Walter Thanks for taking our questions.
Well I just want to double click on the competitive side of things for a second can you just spend a little bit tie in addressing the comments made by quad tricks and where exactly are seeing them more.
That you're having more at bats against them down market as you build out your velocity sales business are they pushing more into the enterprise.
So I don't have made any commentary about that company.
Really close to them I don't really understand fully what they do what they are about their part of another very large company now I'm focused on our opportunity. This is a massive market there are thousands little bit players in this market. There are many companies in this market income from this old market Research Survey Tonight, you don't understand technology that can be.
Really exploited by us and our partners and that's what we're studying about we still have a relatively small sales force compared to some of those companies our sales force was.
First and now a third of the size of their sales force, but we're actually winning the lions share of enterprise deals were more competitive we have a better offer.
I hear people talking about scrapping us.
Stupid things like that we've got the scrappy us most entrepreneurial salespeople and customer experience Barr Nunn.
Outside is ahead of us so I'm not really focused on the competition. However, I'm focused on our customers I'm focused on this market. It's a big market. If they don't do well that's their issue that's not because it was there's plenty of opportunity for them and others.
Thanks, then last quarter, you talked about having success and and verticals like insurance and.
Healthcare, where you didn't have a large presence before it was that the case again this quarter or are those verticals represent sort of a longer term opportunity for you.
That's great I think that we had a good spread a vertical performance I read out just some of the wins in the prepared remarks, I think deliberately we we picked across different verticals. So we didnt have some great experience I mentioned banner things were insurance progress and so on.
But we also had.
Great read so great hospitality right across the that's what's exciting it was right across every industry, we're beginning to see some momentum in federal and government goals.
We see city tour next week in Washington that Skus oversubscribed already so federal I think is going to be a strong future for us I think thats a different missions citizen experience I think patient experience in health care I'm really pleased we started about vertical this year and we've had great progress already and verticals are the key go under.
Standing bid customers business be able to talk to them and say assets about industry to them is very important so you'll see more vertical emphasis not just in go to market, but in the way, we build products and the way, we think about service and deployment as well.
Really helpful. Thanks, a lot.
Your next question comes from Terry Tillman with Suntrust Robinson Humphrey Your line is open.
Yes, thanks for taking my questions and I'll Echo the congratulations high Leslie and Roxanne.
First question, maybe Leslie for you, but that is great data point in terms of two X. The number of the enterprise wins, what I'm curious about and part of this might relate to just the maturation of the market and people getting it in terms of experience management and the importance of it.
These landings this increased number of landing so that you had or wins, what does the deal size like and they're kind of how much are they buying initially versus maybe a year ago or six months ago are you seeing any discernible change and how much they're buying when they come on board. That's the first question.
Yes, we're definitely seeing more land and expand deals you know six small six figure even under six figure that teekay deals, we're definitely seeing more of that but we are still seeing the large enterprise commitments because of the capability that so I'm trying to get people familiar with by my long winded description of the platform in the technology on this call we're.
Definitely seeing that and I think the other thing is it's the dine mention the roles and the level of the dialogue that's going on.
Just this week.
In talking to several Ceos just this week of your household name companies across across the U.S., they're really engage this is a strategic initiative and they've just been under served so great great opportunity, but more land and expand I'm looking for more looking for more than its Don I'm looking for more cross sell and I'm looking for deployment of these.
Unifill new modules that we bought it in these new signal Pos that we've acquired.
Okay and rocks and my follow up question. Thanks for the color on the acquisitions and the impact in Threeq I think you said 700 Kay.
So that's not that material, but just any commentary about like how to think about that in fourq, you and or.
Like a deferred revenue write down going the other way next year is it more material in terms of contributing to sub revenue just a little bit more M&A color. Thank you.
So Terry that's a great questions I shared in my prepared remarks, we had about $700000 and revenue with it you acquisition, we're very focused on technology and talent tuck ins, but if you do the math based on the acquisition date, we estimate that the revenue in Q in Q4 associated with these acquisitions will be.
About $2 million now in regards to the deferred revenue as I shared the deferred revenue contribution with extremely small because most of these believe their monthly so I don't expect any uptick next year from the removal of the deferred haircut.
Thanks.
Okay, and there's one other thing that I would like to add during my prepared remarks, I said that I talked about professional services gross margin I want to ensure that we heard that it was 16% for the professional services gross margin.
Your next question comes from Tom Roderick with Stifel. Your line is open.
Hi, good afternoon. Thanks for taking my questions. So lives we let me for the first one here you I know you've spent a fair check a time visiting customers all over the world and particularly spend some time overseas would love to hear what you're hearing from customers as you look at the international opportunity in Europe in particular.
We see investors have been worried about Europe with with Brexit than some of the other issues, but this market. So young that it would be interesting to hear your thoughts on.
Any impact if there is any that you're seeing to that to the didnt demand dynamic there and then you know bigger picture how ready is that market on on the on the CX side in the ex side with respect to really thinking strategically about this market. Thanks.
Yes, good question so.
Let's take your first of all the we called out.
Some regional wins in Latin America, and a product road trip very excited about.
We just we're just putting our legal entity in Korea for the business because we have some great customer traction there and obviously, we got Japan up and running which is super but turning to EMEA.
That opportunity is phenomenal for US you know our leaders out there a style and Eduardo and Greg as our new leader in EMEA. These people are the warriors, Chanel and better taking down enterprise level deal.
So I think the markets there I visited I'll give you just one example, I mean I visited.
Three large telco in southern Europe , it ought to be too specific.
They were it was sea level meeting Seo Seo CMO and they were almost four committed immediately to doing business with those that are just thrilled by the opportunities its communicate and have a dialogue and lifetime with their customers that are powder City tour I was visited by two of the biggest industrial concerns in France.
Good gone with one of these kind of old School survey vendors and we're paying a pretty penny for <unk> as well and they came to our conference. They spend today and I spent 19 as we see with each of them and my question is why you're here you know if you go is great solution from the simple great company on the truth is theres a ton of opportunity it's not replacement when we see people would.
Survey or some kind of free stupid survey system, that's a great opportunity for us to ingest that data stream put it into our platform and make real sense of it and they see that so I love My time I spent four weeks in Europe on heading out to a pack and I did less Latin America twice.
In the last quarter.
The opportunity as just everywhere, hence my earlier comments, which as I expect more we still have a small salesforce remember.
So we've got to keep investing steadily in the Salesforce the opportunity is phenomenal and its strategic and it's no not just giant deals over the past its London expand showed about you invest in gray and that's why I gave the example in the prepared remarks of the company that went up 400% offer. They went in place to survey replay service solution for employee.
Once a customer once the ecommerce 40% expansion that sort of thing is out there across the customer base.
Fantastic. Thank you for that Thats great follow on question here, just curious for some more thoughts on credit city really interesting acquisition.
Outsourced data gathering in a very nice opportunity to not only gather information for the CX side, but also the employee experience side and I think you mentioned a at least one if not a couple of ABS sizable wins, there that you've had some big reference accounts and extend play experience can you just spend a second talking a bit more about the market reception for employee expense.
And then how crowded city helps you expand in accelerate that product offering. Thank you.
Yes, it's a great question. So as I mentioned the prepared remarks, we had a very large company that was using I kind of old School survey to it Didnt scale. They were looking for a digital wallet daily pulse for their people.
Customers on cynical you know, they're looking for really to engage their employees you can't do that on a monthly quarterly or sadly as many people still do an annual survey. The annual survey is that it's no way to communicate with your employees, while you're trying to do the annual survey. They are slacking their Facebook work work, placing and they're doing all kinds of other thing.
Things you need to engage the meaningfully in rendering a better company. That's why our employee experience solution is all about its a deep technical solution grow visits. These role is really even deeper than that because this is he capability is to create initiatives and ideas on challenges across companies across organizations, we're taking into the employee space first of all.
The real Wilmore. It was a thought leader is thinking about solution worldwide units and national and Super National organizations, and you can hear and hopefully we will record his speech out our DC conference next week, but it really goes beyond employee it goes to employees customers and partners challenging one another creating ideas running both rendering.
Better products and services, but the real issue in the employee experience space is that's the way you get engagement as by really encouraging your people to participate in ideas product ideas service ideas M&A using the high mine The corporation all the organization. That's what crowd is currency is all about love you to see a demo and listen to roll.
Let's talk next week or just given the goal is a great entrepreneur.
Outstanding. Thank you that's great nice job. Thank you.
Your next question comes from Brad Zelnick with Credit Suisse. Your line is open.
Great. Thanks, so much and I Echo my congratulations on a great quarter.
Lastly, I just got back from the Credit Suisse Tech Conference, where we heard from so many of your industry peers talking about digital transformation and how customer strategies need to be designed from the outside in rather than inside out.
To me it really speaks to the need for customer experience solutions, especially those like modality that kind of just limitless signals at massive scale, but how should we think about your ability to complement the leading customer data platforms out there and to what extent that your partnerships in the field tightly aligned to help drive broader digital transformation initiatives, which you seem to.
So well funded today.
Yes, I think it's a super question and I think the customers at the center at the beginning in the Endo digital transformation and customer experience first because if you can do customer experience at scale you can do on a thing and that's why we're so focused on customer experience, but I'll. Just give you. One example, we've signed up our new map exchange deal with.
Sales force and we were at Dreamforce, we look at their seats their customer Threesixty story as the core data backbone that customer feedback what we're about is this visceral real time lifetime customer engagement at massive scale understanding not be back understanding how to distributed securely to the right.
People, that's what our operational platform is all about our machine learning models are learning all the time I understand it sounds about feedback re presented for action and we look to Salesforce out the platform for the source of hierarchy data and other key data. We also look to salesforce to add value into some sales cloud service cloud.
And marketing cloud and others of course, but that's just one example, I think thats why we were getting so much traction the conference because we had that shared vision of we're doing very different things in a complementary way.
It seems there's a lot of leverage to be hadn't. These partnerships, maybe if I could follow up can you speak more about the single that acquisition and specifically how should we think about these acquisitions improving or evolving the feedback loop like do they drive incremental ROI for your customers and by extension eventually perhaps drive incremental monetization from medallion.
Great question I know the hospitality industry really is represented by many thought leaders in customer experience I would say, they're really ahead of the game because they're living with our customers on a daily basis, and if you think about it you get opposed experienced survey or you'll get a text in lifetime, while you're staying at a property.
But you also got the opportunities order room service the opportunity to look at dinner because show do longer whatever.
Through the single application and how transactional experience is taking place. So we can look at that transactional data alongside feedback data and create a much more.
Comprehensive view of the customer we can hear feedback, saying one thing we can see transactions, saying another and that's very exciting and there's another great partnership there of course with other day is through a great partner of single and I said on my prepared remarks, I would showcase single at the next earnings call in more detail, but very excited about.
Technology, great momentum in both of these little tuck ins right out of the gate.
Very cool, thanks, so much and happy holidays, everyone.
Thank you.
Our next question is from Brian Schwartz with Oppenheimer and company. Your line is open.
Hi, Thanks for taking my questions. This afternoon.
Lastly, I was just wondering if I could follow up on your comments about the pipeline that you made in the introduction as well as they culinary and just sort of whats built and I'm rocks Roxana expectation for topline next year, it certainly better than what I would previously models, but I'm just wondering macro late for the industry are you expect.
In the experience management demand industrywide, what kind of stay the same the way it. It's been this here or maybe last last year or do you see opportunities next year for the industry demand to sort of pick up and then I've a follow up thanks.
Yes, I think.
On my modeling, our our modeling oil sands modeling.
It's really focused on our opportunity set right, which is comprised of our book of business, our new quota bearing sales capacity, our new channel capacity and so on and so we've got a lot of confidence around but I think you're on something that's more exciting which is.
People are really really buying into this idea that customer is where you start when you think about digital transformation.
The older people, we say I think I need to do some digital transformation, but where do I began a new begin with customer and I think sales forces view of the customer this under digital transformation spots on.
I think it though we have a fantastic view about as well so to service.
You know some great players out there that are as to your point.
Our creating this motion in the market, but I think the ball, but all that there's no so much.
Formation about the return on investment from these implementations, but it's a no brainer.
If you intuitively, if you're just not talking to your customer in lifetime, and having dialogues that massive scale, you're missing out goods like driving off them on road with your headlights falloff in the dark you're really missing out you need to be having that digital interaction and lifetime and thats, where all of our signal captures about thats, what our new acquisitions were about so.
Spec I, absolutely expect that to be the case that the atmosphere is going to expand the atmosphere of opportunity is going to expand but we're basing our projections on a nice conservative view, our opportunity set but I think all of these players in the space.
We'll do well if they just focus on customer experience.
Thank you and then a follow up question that I had its kind of building on the last question, but on you know just talking about the potential here for the number of opportunities to increase in the future I'm just wonder competitively lastly, you know assay Theyve had called tricks in the operations for for an entire year now and I'm just.
Wondering if you're seeing that more and RF piece could assay t. actually be helping driving more RFP is here on the market than maybe what you. What you saw last year or in the previous here and and maybe any comments I'd like to share in terms of the win rates against them, how that's trending thanks.
Yes, I think they absolutely Thats Sep is a great company they absolutely.
Our driving opportunity for everybody, there's no doubt about certain they have great strength internationally.
However, we're doing something very very different and that's all we do we're not doing all of these other things. We also have an opportunity to play with all of the open HR CRM marketing cloud service cloud sales clouds of all these other great companies not just one but there's definitely a good thing for the market no doubt about.
Thank you.
Your next question is from Scott Berg with Needham Your line is open.
[noise], Hey, there that hey, there this is Josh on for Scott.
Congrats on the strong quarter.
Can we get an update on the impact from go to market changes you've implemented over the last year, including realigning two vertical sales strategy domestically.
From a geographic focus and then you talked about the new international sales leaders.
Where are you are in that taking full effect for productivity.
Yes, I think it's still early days ripple effect you know it takes route that we have time when we bring on new people. We have a program called okay to so we want to make people okay to so as fast as reasonably possible, but they have to be able to learn to space.
I did give some examples anecdotal examples of a few people a few women and men who came into this company. This year. We're we're hitting the park in their first 90 days or six months.
But we still expect people to take a couple of quarters to get up to speed. So this time and bolt.
As learning the new modules and how they sit in those learning the industry I student thing we've gone as far as we come from a vertical perspective, I think understanding a customer's industry and how they operate is absolutely essential and the very best cloud companies out there like Salesforce and others Outgo strong vertical focus for that reason, we shouldn't be any different we are in maybe the.
Beginning of the second innings of the process some five quarters in here.
You know it's.
It's going great I'm very pleased with it but I think there's way more upside.
Okay, Great and then just one more with a number of new modules being released or acquired including now single crowded.
And a new one that was highlighted at Dreamforce action intelligence.
How should we think about the decision to.
To include these new features in the core platform versus cross selling or Upselling for these features.
Well I think theyre added value and I think.
Forms we do multiple releases in the cloud it every year in platforms of over time that the core platform guess richer by definition, but these are very clearly defined new pieces of valued functionality for customers. So we expect forget how you back for that right. So we're looking for cross sell motions there it's not always the same.
No it's not always as much as the core performance, maybe a fraction of the core platform in some cases, but we haven't or bill anything yet, but isn't added value and I don't think we borgo anything yet that has failed to sell either so we've got confidence around the approach.
Great. Thank you.
Your next question comes from James Weatherford with Stephens, Inc. Your line is open.
Hi, Thanks for taking the question couple from me here I guess the first one is.
We're hearing that medallions getting much more aggressive on price in the market I'm. Just wondering if that is a strategic decision across your business and you get a reflection of you being willing to sign a smaller deal and expand over time or is it more a willingness to be flexible around price to win that initial deal not a follow up please.
Yes, good yes, I think the some.
We want to be competitive, but we also want to maintain our margins and the way we look at deals and evaluate deals just to give you. Some insight is as long as we're maintaining our margins, let's get the customer value I think was more critical is we're prepared.
To land and expand.
But we just did one deal which was in this other companies ecosystem.
Some of the of the prepared remarks here.
Where actually the competitor was about a 10th of our price. Initially they then came up to our price and we still one the deal was a kind of all dynamic but some.
We are focused on maintaining SAS margins were focused on land and expand and taking territory and why shouldn't we give a three dimensional lifetime radar scope of customer experience to small medium and large companies. We have a partner that can implement an individual business a gym membership business the restaurant business or a single hotel in a day.
Right. So why shouldn't we give the three dimensional radar scope of customer experience or experience management small companies as long as we maintained our margins that's really the only governor for us.
Okay. That's very helpful. And then I would like to dig in a little bit on expanded motion as well I know that there's a focus to add additional.
Bookings from new customers, but a significant portion here still from existing so I'm. Just curious is there is there anything going on within your business that might cause an inflection in customer sign that second third fourth module onto the core and really what you're doing to drive that as a focus for your business.
Great question I had a conversation with the US CEO . This week, where he said I want a commercial regime with my customer experience partner. The Incentivizes me to capture more signals I want to know everything about my customer everything I, possibly count about my customer I want to integrate with Salesforce data hierarchy.
I want to look at the Medallia feedback data on I want to build to do that without having a pricing regime that inhibits me and we've been able to do that very well walls, we maintain our margins. So.
We're really focused on giving our customers every possible signal that we count and not getting them any reason to de prioritize of digital signal what tech signal walks that we job voice video or whatever so we're going to continue with our program as I say as long as we maintain.
Our SAS margins and that represents I think upside for us.
Excellent. Thank you.
Your next question comes from Richard Baldry with Roth Capital. Your line is open.
Thanks.
A quick your initial guide on 21.
Wait a bit stronger than we would've expected screen as well.
Would you attribute that to help faster sales hiring faster ramping and productivity.
Changes in your win rate.
Across the board, where do you feel like that strength, it's coming from and how sustainable do you think it looks like.
I think its foster more effective sales hiring I think it's great sales leadership and sales management around the company with.
Some long time served medallia leaders that are phenomenal some new leaders have come in and made an impact I think it's better sales enablement professional sales enablement I think is waking up to the expanding opportunity I think it's our partner channel to the is now as Mason right, but it's beginning.
To contribute and also the platform signal story in our ability to capture and understand these other signals. So in some of them armed with some of them.
It's really unique the way our team and our customers articulate.
This platform single story comes from because the way our customers articulate this business problems and opportunity is really what's driving so all of those things.
And you've talked before about growing quota bearing capacity I think on like a 40% clip.
I think that that's sustainable for several years or do you think that's our law of large numbers has that number would come in a little bit.
How do we think about that investment.
Fiscal 21 now.
Yeah, Wolfort certainly for fiscal 21, I think we need to maintain that run rate meets maintain the expansion clip right.
Great. Thanks.
And we do have time for one more question last question comes from Chad Bennett with Craig Hallum. Your line is open.
[noise], Chad Bennett with Craig Hallum. Your line is open.
Okay, and then there are no more questions in queue ill now turn the call back over to listen the scripts CEO for concluding remarks.
Thanks for taking the time as everyone and look forward to seeing you on the road in Q4 happy holidays.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and you may now that site.