Q4 2020 Qualtrics International Inc Earnings Call
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Yes.
Ladies and gentlemen, thank you for standing by and welcome to the quarter export quarter in fiscal year 2020 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised that today's conference.
Is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Stephen Who's head of F P&A and Investor Relations. Please go ahead.
Welcome to call tricks fourth quarter fiscal 2020 earnings conference call.
Following prepared remarks, we'll open the lineup to answer your questions. Our results press release, SEC filings and a replay of today's call can be found on the <unk> Investor Relations website.
During today's call, we will make statements that represent our expectations and beliefs concerning future events that may be conservative considered forward looking under federal Securities law.
Statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date, we disclaim any obligation to update any forward looking statements or outlook.
These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.
For a further discussion of the material risks and other important factors that could affect our financial results. Please refer to our filings with the SEC, including our annual report or form 10-K for the fiscal year ended December 31 2020.
In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of <unk> performance.
These non-GAAP measures should be considered in addition to and not as a substitute for isolation of the GAAP results you can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release and Investor presentation on our Investor Relations.
<unk> web site.
The webcast replay of this call will be available on our company website under the Investor Relations link.
Unless otherwise stated all financial comparisons discussed on this call will be to our results for the comparable period of 2019 fiscal year and with that I would now like to turn the call over to Dick <unk> CEO.
Steven and thank you all for joining us for our first quarterly earnings call and I'm here today with our President respect said.
Our CFO, Rob Bachman, So look first off I hope all of you and your families are healthy and well as you saw in our numbers in our earnings release Q4 was an outstanding quarter capping off a very strong year of growth for <unk> and highlighting the continued momentum of the XM category.
In line with our pre IPO flash numbers, our total revenue rose to $214 million in Q4, which is up 24% year over year.
And subscription revenue grew to $160 million, which is an increase of 33% year over year. We also ended the year with more than $645 million in current remaining performance obligations for the next 12 months, which is up 49% over the same period last year.
We're pleased to have achieved outstanding results, both in Q4 and in fiscal year 2020 coming into 2021, we're continuing to build on this momentum this quarter. It is becoming increasingly mission critical in every business.
The next normal has already begun with the acceleration of digital all it takes to switch jobs or service providers as a few clicks.
Organizations, who don't actively designing and continuously improve their everyday product customer and employee experience will simply not be competitive and that's why experienced management. The category that we continue to pioneer is one of the fastest growing markets in software.
$60 billion total addressable market.
Experienced management is becoming it's critical to business success.
Is any CRM or HR system.
And experienced data.
Becoming the most valuable data within an organization, we have a 10 year head start on this market.
We've also got a significant opportunity ahead, we built the operating system for experienced management.
And our <unk> operating system is a single secure cloud native platform that enables our customers to bring together all of the experience data analyze it and then easily take action with workflows to continually improve the experience that they deliver.
And our customers are designing new ways of working by listening to their employees and acting on their feedback.
And they are able to attract and retain the best talent and increasing employee engagement and improving productivity.
And they're using customer feedback to design products services and experiences that their customers want next and the result is decreased customer churn increase lifetime value and reducing cost to serve.
We now have more than 13500 customers, who are using <unk> to shape and act on the most important business experiences and customer <unk>.
<unk> product and brand.
In Q4, we formed new relationships and expanded with global organizations like Adobe.
SBC Cardinal health.
Insurance and <unk> group in Japan.
All chose <unk> to help design and improve the products and services and experiences that their customers and employees want next and these recent wins are just the tip of the iceberg.
We have many more potential new customers that are going to benefit from the <unk> platform as well as opportunities that dramatically expand the solutions that we're providing to our existing customers.
Just look at how we leverage our platform to deliver innovative solutions to help our customers navigate the pandemic more than 200 state and local governments are now using quadrex for contact tracing symptom checking and patient assessment.
And in Q4.
Thanks to our vaccine navigator to help governments like the state of Missouri with the resident experience at the center of the vaccination process I'm extremely proud of our team responding so quickly to the changing needs of our customers. Both of these COVID-19 solutions as well as in the pace of innovation across our entire portfolio, we're releasing new.
<unk> and innovation faster than any time in the history of this company for example.
In Q4, we launched employee XM for it.
Which helps companies understand how well their it systems are working.
We helped them pinpoint where employees are experienced.
They are experiencing technology gaps that reduce their productivity and then we enable them to take action on closing those gaps.
And if you look at our customer experience product line.
We've introduced a new suite of products to help our customers master their digital and remote experiences, including customer XM for digital custom.
Customer care account manager and many more.
Because all of our products are built on the foundation of our <unk> platform with a single code base.
Well to innovate faster than our competition and we're able to deliver more value to our customers.
And this gives our customers a competitive advantage and enables them to unlock value faster than ever before.
Our partnership with SAP.
Also continues to perform very well and we're accelerating our joint product innovation and our go to market motion every quarter.
Together in Q4.
We closed Quadrex first eight figure expansion with one of the world's largest technology companies.
This customer is moving away from using a variety of point solutions to running one and then system on quadrex to manage all of their customer employee brand and product experiences.
And we expect to see more large deals like this in the future look I get to hear from a lot of a lot of customers hundreds of customers every quarter.
I can tell you there our strategy and our products are resonating deeply with the world's most respected brands.
The world's largest organizations are turning to <unk> and what are the most exciting parts of the journey is how we're enabling a vast ecosystem of partners for quickly and easily building solutions on our cloud platform.
At the end of 2020, we.
We surpassed 300 partners and the X M ecosystem.
And we're seeing partners build entire business practices around experienced management.
Our platform is a system of action and when it is connected with the organization systems of record such as their CRM or their HR systems anyone concurrent insights into action with clicks not code.
So we now have more than 100 integrations with companies like SAP Salesforce.
Salesforce service now Zen desk as part of our experienced blow out automate automation action engine.
And so our customers are using this to be able to collect experienced data and then quickly act on them and the systems that they're using every day and then key strategic partners like Accenture Bain Lloyd unit.
Korn ferry along with amazing delivery partners are helping us make our experienced management vision a reality for our customers. So for example, we expanded our partnership with Deloitte in Q4, and we saw great success working together to help cio's expand the adoption of experienced management in their own organizations.
Our IPO in late January was an incredible milestone on our journey.
As a public company with greater resources and brand recognition will now be able to deliver more organic and inorganic innovation for our customers expand our ecosystem of partners and continue to build the best team intact.
In the lead up to the IPO, we expanded our leadership team.
New positions that would be welcomed the nominal leaders took poultry. These are people who have helped grow and scale. Some of the best technology companies in the world. They include Microsoft people from Microsoft Salesforce, Twilio and Adobe.
Attracting and retaining talent like this has helped us build an incredible foundation for our company.
So to close.
I think our nearly 3500 employees all around the world. We're all in on the XM vision they.
They made it possible for the outstanding results and the guidance that our CFO, Rob Boston is now going to share more detail Rob over to you.
Thanks, Vic and good afternoon, Hello to everyone.
<unk> noted Q4 was an outstanding quarter, driven by strong execution against an improved market backdrop as many companies organizations and governments continued their digital transformation initiatives.
I am going to briefly recap our fourth quarter and fiscal 2020 results provide our initial guidance for Q1 and fiscal year 2021, and then open it up for questions.
Before discussing detailed financial results I'd like to point out that in addition to our GAAP results I'll be discussing certain non-GAAP results, our GAAP financial results along with the reconciliation between GAAP and non-GAAP results can be found in our earnings release and Investor presentation on our Investor Relations website.
Subscription revenue for the fourth quarter was $164 million up 33% year over year for the full year subscription revenue was $575 4 million.
Representing growth of 34% year over year professional services revenue was $53 2 million for the fourth quarter and $188 1 million for the full year, representing 2% and 17% growth year over year, respectively.
Total revenue was $213 $6 million in the fourth quarter up 24% year over year, and $763 5 million for the full year up 29% year over year, our remaining performance obligation representing all future revenue under contract.
<unk> ended the year at $1 1 billion.
Up 78% year over year. This metric includes both new and renewal software contract along with our professional services business.
Current remaining performance obligations, which is all future revenue under contract that is expected to be recognized as revenue in the next 12 months was $645 4 million up 49% year over year. This performance was driven by strong new bookings across both net new and.
Add on business. In addition to our subscription renewal Q4 renewals were particularly strong due to a onetime catch up of renewal billings that were originally scheduled for earlier in the year total <unk> also benefited from a notable lengthening of average contract duration for both new customers and renewals.
In a pandemic challenged year, we're particularly pleased with our net retention rate, which shows the year over year revenue growth from our existing customers in Q4, our net retention was 120% showing that existing customers are actively growing their usage of our experienced management platform.
Caltex has never been more relevant or strategic in this new digital first world. We're seeing this clearly in the growing number of customers spending more than $100000 and $1 million annually with that.
On a net basis, we added 132 customers in Q4 spending more than $100000 and more than 300 customers in the full year 2020 for a total of 1338 customers customers spending in excess of $100000 annually still only represents approximately.
10% of our overall customer base.
We also ended the year with 74 customers spending more than $1 million annually 72.
2% year over year from 43 customers at the end of 2019.
Total revenue outside the United States was $211 3 million in fiscal year, 2020, or 28% of our total revenue. This compares to 23% and 26% in 2018 in 2019, respectively.
Respectively, which highlights our focus in key international markets and our ongoing partnership with S. P.
We have and will continue to make investments to broaden our reach in key international markets. For example, the Asia Pacific and Japan region continues to be a big opportunity for us and in Q4, we announced our newest data center in Singapore, which will help us continue to serve our growing customer base in the region.
Turning to margins our non-GAAP gross margin was 76 seven.
7% in Q4, approximately 360 basis points higher than 73, 1% a year ago and roughly in line with Q3. This is mainly due to an increasing subscription mix as a percentage of our total revenue subscription has increased from 70% of our total revenue in the fourth quarter of two.
19% to 75% in the fourth quarter of 2020, as we focus on driving software usage on our platform.
And expand our partner ecosystem to best service, our customers our non-GAAP operating loss for the fourth quarter was $4 $7 million, resulting in non-GAAP operating margin of negative 2% for the year non-GAAP operating loss was negative $29 6 million or negative 4% of total revenue.
An improvement of approximately 450 basis points from 2019.
This expansion was driven by a continued scale and efficiencies and other COVID-19 related moderation of expenses, including reduced spend for travel and events.
Q4 operating margin decreased by 350 basis points sequentially due to increased sales and marketing spend along with one time IPO expenses.
Operating cash flow for Q4 was negative $98 5 million compared to negative $124 9 million in the year ago period free cash flow in the quarter was negative 145.
Compared to negative $131 7 million in Q4 of 2019 due to higher capital expenditures related to the completion of Buildout in our Seattle headquarters and Sydney, Australia Office.
$134 6 million of cash outflows in Q4 was related to cash settlement of stock based payment liabilities compared to $99 6 million in the year ago period.
Our fiscal year 2020, operating cash flow and free cash flow was negative $410 7 million and negative $522 million, respectively of which $388 6 million was related to the cash settlement of stock based payment liabilities start.
Starting in Q2 of 2021, we will see a decline in cash settlement of these stock based payment liabilities.
The large majority of our employee base has elected to exchange their cash settled awards.
Awards to stock settled <unk> awards for.
For a bridge of cash flow from operations patients to free cash flow, including cash outflows related to the settlement of liability classified stock based awards and advisory and legal costs related to the acquisition. Please refer to our earnings press release and Investor presentation on our Investor Relations website, we ended the quarter in <unk>.
Strong cash position with approximately $204 million in cash cash equivalents and short term investments.
Our total workforce at the end of the year consists of more than 3450 employees an increase of over 500 employees year over year, and we have begun to ramp up hiring in 2021 overall, we're very pleased with the strong companywide execution in our seasonally most import.
Fourth quarter.
Moving onto our business outlook for the first quarter of fiscal 2021, we anticipate total revenue to be in the range of $226 million to $228 million within this we expect subscription revenue to be in the range of $176 million to $178 million.
This implies a year over year growth rate of 38% for subscription revenue at the midpoint and a total revenue year over year growth rate of 29% at the midpoint, we expect non-GAAP operating margin in the range of negative 1% to negative, 2% and non-GAAP net loss per share of <unk> <unk>.
<unk>.
<unk> weighted shares outstanding of $487 million.
For the fiscal year 2021, we expect total revenue in the range of $950 million to $954 million and subscription revenue in the range of $738 million to $742 million at the midpoint of these ranges. This represents a subscription growth rate.
<unk> of 29% year over year, and a total revenue growth rate of 25% year over year, respectively.
We expect non-GAAP operating margin in the range of negative 4% to negative 5%, we expect a non-GAAP net loss per share of between 16 and 18.
Assuming 513 million weighted shares outstanding.
In closing.
Our runway for growth and large market opportunity remains very exciting we will continue to scale our business through strategic investments, we will extend our leadership in this market and drive towards long term profitable and durable growth.
Thank you for joining today's call with that Big Chris and I are happy to take your questions. Operator, we will send it back to you.
Thank you as a reminder to ask a question you all need to press star one on your telephone to withdraw.
Sorry, Your question press the pound Keith please limit yourself to one question and one follow up please standby with composite Q&A roster.
Our first question comes from Keith Weiss with Morgan Stanley You May proceed with your question.
Excellent. Thank you guys for taking the question and really nice end to the year.
Tremendous growth you guys are seeing there in that Q4.
A two part question and I had to get somewhat related maybe the first one is for more for Rob, but if we think about sort of how you guys did in the full year for calendar year 'twenty.
Your current Rps was up 49% year over year, we calculated current RPI based bookings up 35% you accelerated into the back half of the year and it sounds like Youre expecting really good subscription revenue growth of like in line with that in Q1 that at 38% growth can you help us put that like 38% growth in Q1.
5% bookings growth for the full year two the slowdown for the full year to 29% are there factors, we should be aware of.
In terms of.
Like mechanical factors that might be impacting <unk> revenue or is this just conservatism about the macro.
Environment and then the follow on question maybe for Nick is there anything in terms of go to market or how you guys are.
In your strategy for go to market that changes fundamentally post the spin out with S&P that potentially could weigh on results in the year ahead that we should keep in mind.
Yeah, Keith So the question and.
Happy to happy to point out a couple of things here overall, we're really pleased with our Q4 results as as obviously, we went through the script and as we look forward. We really have established the baseline for the long term durable growth that we're focused on and looking to achieve.
So as we look out at this year and the guidance provided we are pleased with that and know that we're set up to deliver against that and we're focused on continuing to drive across some of those key levers that I mentioned, the international expansion the growth with our existing customer base and <unk>.
Those those new customers on so one other point that I would make is as you look at the growth and the strengthening in the back half of the year, you'll see that we added over 2000 net new customers during the year as well alongside the addition of the 100, K plus and 1 million plus customers.
And this is good.
Comment on the broader bigger picture.
We've been building this company for the long run since the beginning and we have an advantaged the underlying operating system that we've built we're experienced management a single software code base, that's starting to play out you're seeing that in the growth youre seeing that in the fundamental but customers are betting on and.
You know at a macro level.
Experiences are becoming a major competitive advantage for companies and especially.
True as we've watched the.
World shape reshape in all industries are looking to be able to become more connected to their end customers understand how to better engage their employees and experienced the data is becoming a vital data element that you have to have running in every single company. How do you do that at scale you need a platform.
So that's a fundamental piece out by becoming an independent company.
It's allowing us to be.
Able to just continue to allow customers to leverage a larger part of the ecosystem you can see the ecosystem and the partner results that I've talked about in the momentum that's building out.
SAP.
Continues to be a close partner and our innovation is frankly accelerating.
A lot of the work that we're doing across each of the major business lines. We're just we just we believe we're just getting started but in the same way. We also see other companies coming to US right now with.
With customers and they're saying, Hey, how do we run our business effectively with other systems that we have they're complimentary to what youre doing with SAP and that's creating a lot of additional opportunity to at the end of the day. It really comes down to X M people are looking at them as as important as some of the investments they've made in CRM systems HR.
Our systems and so forth.
So thanks for your question.
Outstanding. Thank you that's very helpful.
Thank you. Our next question comes from Mark Murphy with Jpmorgan. Please proceed with your question.
Thank you very much I'll add my congrats.
Question is probably for zig or Chris.
Leap in customers above the $1 billion threshold and above the 100 K thresholds is impressive.
And so I'm wondering what's behind that are you finding it easier to displace some of the old fashioned.
Kind of traditional analog market research budgets.
At these companies that gets spent on I guess I'd call it non digital data.
Wondering if you saw any of that in Q4. It is you might see any of that in the pipeline.
John This is Chris back, but I'll take that one.
So great question I think when we think about the the large customers that are coming on board. It's due to a few underlying trends that we're seeing that are strong. One is as you mentioned the consolidation as customers are looking and thinking about a single platform by which to standardize.
We're finding that they're determined where the clear choice and that's driving a standardization across the category on our platform or.
Another positive trend I was recently talking to one of those customers that we added in the fourth quarter and he spoke about how they are finding that they are moving away from thinking about it at a cost of doing business in terms of having the category versus the value creation.
They are receiving and putting some real data in terms of increased pipeline as a result of using the platform and really shifting away from thinking about it up how much do they need to spend to use it versus the value they're deriving from the platform, whether it's with employee retention, whether it's with reduced churn of customers or <unk> or <unk>.
<unk> sale and those trends I think were finding with our customers that they are seeing more and more value out of the platform and as a result of the value theyre getting there, they're finding opportunities and ways to expand and grow their usage of Crawford to continue that trend.
And I think that that's the underlying driver as the category continues to mature.
What's driving that increase in large customers that were seeing.
Okay, that's great and just as a quick follow up.
Rob I agree with Keith I think what is jumping off the page.
Backlog growth I think both the total and the current portion there.
Just way above our forecast and it just so far above the revenue glide path.
That feels like a very comfortable.
Situation, but can you just help us understand what drove that spread so far above what it was is there any contribution there from anything else, we should think about whether it's FX.
Or any way to quantify the duration impact on RPM.
Uh huh.
Yeah I appreciate the question and understand the question look we are set up to drive this growth.
I spoke about and to really see that performed consistently and as we move throughout the year and and continue to strengthen we see opportunities to drive increased growth here, but it is.
For us to go and deliver that and so where we sit today is a place that that again fits with the long term focus and the long term commitment we have to durable growth for the business.
Thank you.
Thank you. Our next question comes from Kirk <unk> with Evercore you May proceed with your question.
Alright, thanks, very much I'll echo the congrats and zig based on some of the momentum you all saw in the fourth quarter can you give us some color on maybe how the conversations are changing with customers maybe over the last quarter versus say six to nine months ago and any color I guess, you could add on in terms either industries or.
If theyre looking at customer experience again, now that the customers hopefully coming back after the pandemic I was just kind of curious if you guys, maybe a little bit more color on sort of the industries that are perhaps reopening if they slow down and also sort of the use cases that are maybe coming to the for now.
Hey, Curt Thanks for a great question so look.
<unk> just proved.
Pandemic that we've all been living in as prove that every business problem no matter what industry, you're in what organization you're in what size of the business you're in as an experienced problems, especially in moments of uncertainty.
And there was uncertainty all the time right and people are trying to figure out how to connect with their customers know what decision to make about where to take their product next understand how to evolve the way that you operate and facilitate or enable your customer.
And what we've seen the pandemic do is create a lot of momentum.
That's accelerating the importance of getting the experienced dialed in right, especially when time matters. Okay and you can see that is actually affecting the results of this business you can see companies that are coming in and saying look I need to get my hands on the right kind of data.
And so what Youre seeing is experienced management is proving to be an essential part of how businesses are operating and we're seeing companies.
Leasing, we reaching out there trying to understand hey, how do we use this platform as part of some specific problem that we have and once they solve that problem they expand into solving other areas and then other teams and departments and those companies start to collaborate and work on the data that's there and over time, what you're finding is blossoming inside companies because they.
Hey look the relationship between my customer.
Highly correlated what I'm doing my product areas are tightly correlated to the way my brand is perceived.
And at the core of all of that is the six.
<unk> dataset, it's one of the most important datasets that could be slowing into an organization and where time is of the essence and knowing where you Gotta go next people's emotions People's perceptions peoples feedback and input that theyre, giving you about where to take the business next since we've seen that play out substantially.
During the course of the pandemic, especially as businesses are reshaping themselves.
And that's.
A lot of demand and what we're seeing in the business and its fundamentally aligned well to the way that we built this platform, which as you know well. This is not an overnight exercise we've been at this for many years and.
And we believe we've got a 10 year advantage given the way we built this built the underlying software core behind the platform.
For the question.
Great and then maybe just a quick one for Rob Rob I know youre not going to give any guidance on net retention ratios, but is the 120 kind of the right ballpark to be thinking about going forward for you all and any I guess color or context, we should think about over the next year in terms of things that might impact that for whatever reason.
Yeah.
Yeah I appreciate the question.
Our overall land and expand motion along with expansion within our customer base continues to be a key go to market motion for us and we continue to see that and as I mentioned in my in my notes are pretty pleased with the results that we had in Q4, we do consistent with.
The guidance that we've provided on subscription revenue C the ability and opportunity to stabilize.
And then to be in and around this rate and so very pleased with.
Motion, we have here and the ongoing customer expansion.
Okay. Thank you all.
Thank you. Our next question comes from Terry Tillman with tourists you May proceed with your question.
Yes, thanks for taking my questions and congratulations on the IPO, but also congratulations on some of the top talent you brought in.
I guess the first question unless I got this wrong I think you said an eight figure renewal.
No.
Definitely it's a striking kind of deal size I am curious if you could kind of double click in terms of with a large expansion into other areas and then I had a follow up.
Yeah. This is Chris it was that it was an eight figure expansion of an existing customer coming back to the earlier question about what we're seeing in terms of customer says. This is an example of a customer who is standardizing on the <unk> platform.
Company that is seeing that type of value and indication.
Yeah.
Categories evolving into overtime on the opportunities to grow.
And expand with customers kind of on the high end of what that could be down the road in the future as we're as we're seeing that increase in customers over 1 million, it's fun to see our customer get over that $10 million hump.
And a precursor of what the future could hold down the road and as we continue to innovate and have this category mature.
Maybe at some point, we will have to figure a milestone but until then.
Question <unk>.
Reined in is what about vendor consolidation you know as we moved into the back half of the year.
You can maybe this is for zig.
You've got a broad product portfolio you continued in a lot of R&D, but what about also just like the idea of just standardizing them actually saving money for that.
Okay.
Or consolidation thank you.
Yeah, Hey, Terry Great question and thanks for the thanks for the comments earlier as well.
Part of what happened inside large enterprise customers midsized customers as they're looking at their budgets that they spent on point solution legacy vendors that are very tactically, maybe helping to measure a specific problem, but they kind of hit a point of diminishing return on what they can actually end up doing.
They are saying customers are saying like look how do we just consolidate save money become more efficient and.
And at the same time be able to get a much higher ROI, what we've been doing.
So that certainly is one input of many inputs to the way that this business is growing I mean, clearly the market is expanding as well and we're taking our fair share of how that market is expanding and continuing to lead the market, but consolidation is certainly in the mix and especially when people are saying look I've kind of run out of time on xyz vendor, they're overcharging me.
This or or theyre, not actually as efficient as what they promised they would do and then they come to a modern cloud native based platform.
It's designed to be able to truly helped.
Okay.
Operator.
Thank you. Our next question comes from Raimo <unk> with Barclays. You May proceed with your question.
Thanks, and congrats from me as well.
Two quick questions first since we're kind of in the middle of kickoff for.
For the new year, it took like what's the situation with the SVP.
Sales falls and incentives et cetera, like how is that going to play out for you.
Ted you were kind of like independent obviously, not independent but independent like what do you expect this year in terms of like the momentum there and then I had one follow up.
Yeah. This is Chris I'll take that Raimo.
So we're excited about the continued partnership that we have with that.
They've been an excellent partner with us for the last couple of years post the acquisition and we're excited that the the same model that we've had with them in the past, we will continue going forward, including having their sellers rewarded and motivated to bring us in to opportunities and rewarded as we sell successfully into sap's.
Existing customer base.
This quarter, we got started with <unk>.
<unk> com and we are.
Part of that the whole kickoff for their year and excited we are.
Off to a great start with account planning alongside our colleagues to talk about how we together can tell that.
<unk> management story and bring value to the existing customers and we're off to a.
Great start to start the year to really continue that partnership with S. P.
We are equally excited about the opportunities that this unlocks for us to expand and really broaden our perspective, well beyond the <unk> customer base as well and so so everything that we haven't had in place before even though we are now a publicly traded company. We are able to continue that same model that worked so well over the last couple of years.
And we're excited about the early signs of that continuing and continuing to strengthen as we continue to refine the joint selling proposition that we have alongside them.
Yeah, Okay, perfect makes sense and then a follow up.
Maybe more of a longer term strategic like so obviously like the.
The customer feedback at the employee feedback has been feedback product. How do you think about that potential for expanding this further going forward and I don't want to have a product from funding a product like is that we have.
One with kind of those segments can you just expand deeper into them or do you see opportunities to kind of broaden.
Broadened us even further.
Good question I mean first off if you think about our platform. This is really important and it's what effects growth and efficiency and being able to scale a business.
Have a single software core.
Experienced management across all four core experiences on the platform.
So its employee product brand.
And your and your customer experience and the combination of those things if you think about any organization.
Four things are the way that people run their businesses right and decision you make on product and when you've got your product right.
Often affected by how well engage their employees are and how they are all helping to deliver that or health brand is perceived as these things are all deeply interrelated.
The way that this business is growing is absolutely validating. The fact that you cannot stitcher way together into this marketplace you cannot go out and like you know piecemeal stuff together.
As an important efficiency impact for customers and their rate, which they end up and locking value.
And there is also really important efficiency NGO around how we scale this business and Thats, what youre seeing over the last the last set of results that we just published.
The second thing that you pointed is like well are we all done no. We're just getting started and I can tell you every one of US here that are in this meeting and our management team and leaders across the company. We're looking at this is building a substantial vibrant long term durable growth company.
And if you were to ask how big this category was 10 years ago right people would've massively underestimated the opportunity and only two years ago, two and a half years ago. We were looking at the addressable market is about a $40 billion restaurant market. We're looking at $60 billion a day and that's just because we're seeing companies rewire or the way that they're making decisions around.
This important data source and the way that they are operating their businesses. So is their innovation and new product opportunity over and beyond what we have absolutely do we have things on the on the roadmap absolutely ones that we haven't announced yet.
And the fact that we're a public independent company also gives us a lot of optionality around being thoughtful and strategic play in the long run on both organic and inorganic investments that we ended up making so raimo. It's a great question and it's probably a lot more than you wanted to know, but I wanted to make sure that context was something that everyone's keeping in mind no.
I liked the comprehensive answer thank you congrats again.
Thank you Raimo.
Thank you. Our next question comes from Brent principally with Piper Sandler You May proceed with your question.
Thank you Juan <unk> and one for Chris if I could.
I wanted to get your thoughts on Microsoft obviously on on one hand, entering the employee experience and engagement market last month validates how big the sizes I think theyre talking much bigger figures and you guys are as far as how big that market is on the other hand. It does suggest that you do have a new competitor so love to get your views.
On Microsoft in the market what does this mean for <unk> and then how do you differentiate versus a couple of like Microsoft.
Yeah, I mean look.
Several of US continued I mean several of US count came from Microsoft I've got a lot of respect for Microsoft.
And I think amongst many companies.
Like them Youre going to see people continuing to innovate and try to contribute to.
Some of the fundamentals of how businesses operate and so Microsoft move with a product called Veeva.
They've been out this focus on corporate intranet collaboration experiences right and yes, absolutely it helps to be able to operationalize employee experience better in other words, the way that people connect the way they get their information.
They collaborate.
But that's not what we do right. What we do is we're focused on the human factor part of the equation, which is people's emotions people.
Perceptions needs understanding we've designed a purpose built platform that's focused on that particular part of the equation in order to be more predictive in the way that you ended up accommodating your employees in order to be able to be more predictive in the way that you end up managing enabling your customers right and so if you think about that that's not something.
That you can go into overnight, we have we've been at this for about 20 years as a company and we probably got about a 10 year head start on the technology that's behind this.
The ease of use the flexibility the ability to handle complex use cases at scale for global companies. The scalability and the platform is highly complementary to what you see happening in.
In the broader ecosystem of companies that are doing everything from HR systems, the corporate intranet collaboration systems.
Intent management platforms workflow engines, and so being independent allows us to play a much larger ecosystem.
And as a result that unlock more opportunities for how customers ended up getting on the use of the baltics platform as a platform that is as important as some of the other operational investments that they're making.
Does that make up that helpful. Absolutely help very helpful color there and then I guess, Chris for you just as you think about the guide in Q1 here in particular, a lot of momentum in the business could you just maybe compare contrast, pre COVID-19 post COVID-19 tailwind are those durable sustainable just help us think about the moment.
<unk> of the business going in.
And how sustainable some of these post COVID-19 tailwind for the business. Thanks.
Sure happy to happy to take that.
As we went through 2020. It was it was interesting to see the kind of initial reaction of our customers have kind of pausing and then.
Really encouraging to see as time went on and then they got ready for the next normal that we've talked about they realized that experienced management was going to be absolutely mission critical to how they were going to be able to operate both during the time of the pandemic, but honestly even beyond.
They recognize the importance with employees working from home about the importance of staying close to understand the sentiment of your employees in those those are those are trends that are not going to go away as a result of.
Covid ending we view it as an acceleration of some of those trends that were already underway of the movement towards digital of needing to stay close to your employees and really understand what's going on and be able to intervene and act as well as another thing that was interesting is with a rapidly changing environment that that whole aspect.
Of designing experiences as mission critical because when you think about where we are in a new world, where the way that customers value. The way that employees work is going to be different than if you do.
If you don't have that data to be able to design. The experiences that are going to work through your employees for your customers for your product and youre going to be at a competitive disadvantage.
Others in the market place and so we're encouraged by the trends we saw over the course of last year and continued to be encouraged that we can see continued momentum as we go into 2021. Another trend just to build on that earlier question too and connecting to what Chris was saying is ecosystem company.
Companies are looking at their platforms. Microsoft is a great partner of ours, you got companies like Adobe and you've got companies that are workflow provider Brookfield leaders I mean, they're looking at quadrant and saying how do I now use this in order to be able to action the way that I'm operating my business. So systems of record CRM systems HR.
Systems other any employee infrastructure people have they're looking to tie that in with our platform and that's another trend. Maybe if you think there is going to continue to play out.
It plays to our advantage given how we've designed the architecture of our platform.
Thank you.
Yeah.
Thank you. Our next question comes from DJ Hynes with Canaccord proceed with your question.
Hey, Thanks, guys. Congrats on the results maybe one for Chris and then a quick follow up predict so Chris we obviously held in the enterprise strength, which is great to see the velocity of that there has been really strong too right almost 500 net new customers in the back half of the year.
I guess it begs the question about the corporate inside sales group, which I think was was hit probably the hardest during the pandemic and any comments on what youre seeing from from that team.
Yeah, Great question honestly I Love I Love that you highlighted the combination of strength that we saw in in the back half of the year, both the growth of.
Large customers and expansion into the enterprise, but we we're equally thrilled with with what you just highlighted which is the growth of overall customer base and that was a combination of the international opportunity that we saw of adding new customers, but also a significant strengthening of that corporate sales motion and continuing to make sure.
That we are that we have that land motion alive.
Alive, and well overall as a company and so that was an equally encouraging trend that we saw because as time goes on we need to make sure. We have the right balance between continuing to expand that customer base.
We can then grow as they receive value on the platform and so that that that sales team is that we believe is the best our inside sales team that we have.
It's on the planet and we are excited about their motivation and their going into 2021 remain motivated to continue their vital role they play in the company's future.
Yes, good to hear.
And then one for you I think you just hit on kind of the importance of ecosystem.
<unk> question I wanted to ask that do you think the spin out materially changes the pace at which that ecosystem Buildout may happen in other words are more partners now interested in working with <unk> as an independent entity I mean any thoughts would be helpful.
Yes, I'm very simple answer is yes big capital yes.
And it just makes it a lot easier for people to take advantage of the way that the system was built but its also unambiguous fully clear that he is making while helping to make <unk> an ecosystem asset and that's what the customers have been asking for as well given the design of the system, but also the desire for them to be.
Able to innovate on the platform in conjunction with other infrastructure investments that they've made themselves. It's a great question. Thank you very.
Very helpful. Thanks, guys.
Interesting.
Thank you. Our next question comes from Keith Bachman with Bank of Montreal I May proceed with your question.
Hi, Thank you I have two questions and so you're going to start with you on the partner side related to the previous comment.
Now that you are independent how do you prioritize those partners and who would you say are your most strategic partners or a handful of strategic partners. As you look out over the next 12 to 18 months and really wondering how much. The data integration helps you priority of those partners I mean part of the reason why our SAP.
<unk>.
<unk> made the acquisition was as you said to integrate kind of the XM side with the systems of record. So I'm just wondering as you prioritize your partner how important are.
The data later, so to speak in terms of prioritization and I have a follow up cash flow question. Please yes.
First of all if you look at the larger landscape.
Many of the large tech vendors are increasingly viewing experience management.
As.
Key to the way that they can enhance.
Enhanced and add value to the underlying systems of record or system of engagement that they might have if you look at our ticketing vendor. If you look at a workflow vendor. If you look at our CRM vendor if you look at it and HR systems vendor.
The list is long and so the <unk>.
Idea that we can now partner with other systems of record again, it doesn't require a lot of incremental work on our platform because of the way. We've designed the ability to couple of data pull data into our platform.
We easily automate actioning and solutions that can be built on top of our system. I mean, we've got cutting edge programs that are being built on the platform that then connect with.
Platforms or systems that customers that have made investments and so we're going to continue to build on that and then in addition to that you know I've mentioned earlier.
We have partnerships with Accenture Deloitte you why.
Korn Ferry. These are examples and all of them obviously have.
Different.
Advantages they've got innovation that they want to be able to bring in conjunction with installed base that they have currently and the systems of record systems of engagement and they want to bring that together and be able to unlock new avenues for growth for themselves as well as unlock new value for the customers that they end up delivering services and.
So that's how we think about that big picture and again, the key point that I reemphasize here is the <unk>.
<unk> is an ecosystem asset and youre going to see us invest in that way.
For that way with our customers as well as some of the strategic partnerships that we're going to continue to build.
Okay, Great and then Rob maybe the cash flow question, you've guided operating margins.
Negative four to negative five a any puts and takes that we should be thinking about as it relates to the cash flow for 'twenty, one and B is there any.
Numbers, you want to give us the cash settlement impact in either Q1 or more more importantly, the first half of the.
Calendar year. Thank you.
Yeah. So I think you've hit on the one item there for sure Keith which is <unk>.
As noted those that cash settlement of those awards has been a big factor on our cash flow, while we were wholly owned subsidiary of <unk>.
And that will trail off but it will still be a meaningful factor in 2021, particularly in Q1, and then it trails off to less meaningful beyond that.
Look this company has a long history of driving free cash flow and very proud of that history. As you look forward at the strength of our subscription margin and then overall margins, we're well positioned in the mid to long term to drive positive free cash flow.
Okay, all right well congratulations on the quarter gentlemen, thank you very much.
We do.
Thank you. Our next question comes from Chris Merwin with Goldman Sachs. You May proceed with your question.
Hi, Thanks, very much for taking my question. So I wanted to ask about the expansion that you're seeing obviously you had called out the really strong renewal, but more broadly than that can you maybe dissect for us a bit the components of that expansion how much of that is cross sell to some of your other module versus upsell and maybe any particular areas.
Strength outside of customer experience, we're seeing much stronger attach.
Thanks, Chris I'll take that this is Chris back then.
As we look through the results in Q4 and as we go into 'twenty 'twenty, one really pleased with the balance that we had in terms of where the growth came from bulk balanced in terms of both continued in the U S and internationally, but also a good balance between.
Net new customers, we spoke earlier about the additional customers that we added last year. Both in terms of overall customer base, but also $100000 and $1 billion plus.
Adding customers.
Byproduct.
Really just.
The overall summary is that.
There's multi multifaceted Atlanta and expanding this resulted in a sustained that's 120% net retention rate and we see a good healthy mix of customers that are.
Growing within a use case or cross selling two additional used cases and and really no one specific.
Path of growth, it's spiking well above the others. Its just really good balance and we're pleased with with Atkins with perhaps indicate that good sustainability to that growth.
Okay, great. Thank you maybe just a quick follow up as it relates to the billings acceleration and I know you mentioned that there was a put like a catch up in renewals. If we were to back that out is there a.
Way, we can think about a normalized billings growth number just as we think about the potential for top line next year.
Yeah.
It represents about 3% to 4% of that overall billings growth in.
In Q4, and so that would help you get to a more normalized rate.
Perfect. Thanks, so much.
Thank you. Our next question comes from drew Foster with Citigroup. You May proceed with your question.
Hey, guys. Thanks for taking the questions first one is for Zig Zag I'm curious your view of how this market will evolve over the next three to five years as you continue to see.
Customers, who adopted called tricks for specific use cases, and then evolved the usage of the platform to more of a system of action, where the technology is actually operationalized.
I guess my question is how much of the addressable market do you think ends up using the technology in that fashion over time.
And what are what do you think are the key barriers to adoption and you're facing as you're thinking about going back into your installed base to encourage that type of usage.
Okay, great. Thanks for the good question.
I've been out building new categories for a long time, when I was at Microsoft myself, along with the team and we rebuilt rebuilt the protocol length that became.
The capabilities that over time now part of Microsoft teams and there is no no book, you're reading from when you're building new category.
What you are paying attention to as customers are paying attention to things that people are not telling you and then you focus on a set of core principles building a great platform fundamental important, especially if you're playing the long game, we're not we're not shooting here for the quarter to quarter, even though youre going to see us provide long term durable growth in what we do.
Thinking about four or five years from now.
And a lot of what customers are looking for is very similar and that helps us.
Yes.
One market, which is our research spend marketplace that we participate in there is also a very large market and software.
Of which people are saying, okay, how do I deploy capital how do I spend my money in order to be able to improve by product in the market. How do I increase my share of wallet, but how do I decreased churn with my customer.
To increase the loyalty with my customers, how do I do a better job in the way My brand is represented in the market.
One of the interesting things is there's never been a better technology system Thats been built.
So the relationship between those things really really well in a predictive way.
And that's what we're working on and in order to do that you have to be focused on the right data for us.
And it isn't any old data that you'd point, you got to be able to.
Ultimately first capture the data in the right way makes it statistically significant makes it something that you can end up getting your business on and then how that would be something that ends up operationalize into what your business runs.
And so.
Back to what perspective was saying earlier, we're seeing an interesting balance of how people are taking advantage of the combination of the portfolio across customer product at some customer XM and <unk> brand at them, but what's really differentiating things is the underlying operating system.
Combination of actually being able to listen and observe people over time.
And to be able to understand who they are helped the customer you're able to do a better job with LD and are serving their customers.
I hope to be able to create the right focus and then actually the entire workflow aspect of our system and the automation that ends up being unable to something that travels across departments inside companies.
Our systems of record if you think about it or.
Depart minerally focused okay.
<unk> finally, departmental right, whereas HR system gets you, yes managers.
Diabetes.
And connect with it once in a while but it's an HR system. This is a unique platform because it actually has the ability to go touch many different dimensions of the company and we think that we're just getting started with the type of value unlock that we end up creating for people. We're solving the kinds of solving for some of the kinds of problems that it started at the beginning so.
I think that this market is going to continue to expand you know you've seen the Tam expand over the last couple of years, we think it's going to continue to grow because people are going to put more of the ways in which we're solving their problems to be focused on human beings focused on that.
Lynn faster data the human factor oriented actions, which is what <unk> is all about.
That's how I think about this as a category you can't do any of that if you're optimizing for the short run.
Everything we're doing is long run I'm thinking here.
And that's something that we hope to be able to live up to on a quarter by quarter basis, but every couple of years out familiar you'll see the decisions that we made today. They continue to play out with the advantage of what we're doing with our customers our partners and our shareholders.
Thanks for the ended up response, there Doug I had just one follow up on also on drivers of strength in the large deal metrics in the quarter can you just highlight anything had changed from.
Our go to market perspective, as far as you know an expansion playbook over the last 12 months as you've invested into that organization.
Some top talent et cetera, and how much more advantage of rising do you think you need to do in this market too.
Consistently deliver those million dollar deals over time is to go back into your install base.
Yeah.
Wouldn't highlight anything.
And so other than continued progress with how we're partnering with S&P.
Especially internationally and as we are running the consolidation playbook that we've continued to evolve and get better at the other piece that I would add we'll just see.
Evolution in making sure we're doing really good job of executive selling and and really pulling in our executive leadership team.
<unk>.
And so so I would say just continued as the category evolves and grows for us to to drive.
Continued selling value of the platform overall.
Thanks, a lot.
Yeah.
Thank you and our last question comes from Brian Peterson with Raymond James You May proceed with your question.
Okay.
Well congrats on a very strong quarter guys. It seems like you are keeping pace with the jazz there. So just just one question for me, Chris You mentioned the consolidation playbook, that's clearly working.
I'm curious as you think about the Tam or the pipeline or however, you want to look at it.
How much of that is actually an approach to this today, whether that's software research versus truly being a greenfield opportunity or is there any way to kind of segment that thanks.
Yeah, Great question, I think coming back to the earlier answer we see a good healthy balance between the two where there are situations, where we see customers that hat.
To achieve value from the platform with individual use cases, and one thing we love about our platform is the flexibility and quick time to value that it provides for our customers and so as they get on them, we signed them up and they get value in the platform that becomes a natural evolution for them to figure out how they can use more of it to continue to get more.
And even better returns and that translates into a <unk>.
So that consolidation playbook, but also as the category continues to mature and evolve and as it becomes.
More and more apparent in the marketplace that experienced management is mission critical to how companies operate we're seeing companies that are maybe a little bit late to the game recognizing that they need they.
They need to have any cars made in the platform and some will come in pretty strong right up to get go establishing a more significant part for program, whether it's on the customer side or whether it's on employee side.
Or on the product and brand side and so a good healthy mix every every companies at one stage in their evolution of how they're maturing their program and so we love that we can meet customers where they are at today, whether it's early stage or whether they're ready to consolidate and grow and really cut them.
Our solution to meet them, where they're at and help them evolve and grow and differentiate in the marketplace.
Good to hear thanks, guys.
Thank you.
Thank you I would now like to turn the call back over to <unk> Erickson for any closing remarks.
Yeah, and Brian Thanks for that last question and thanks, everyone for great set of questions and insights as well so very much appreciate it. So what Q4 was an outstanding quarter and we look forward to talking about Q1 results here very soon so we will look forward to reconnecting with all of you have a great evening.
Yeah.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you participating you may now disconnect.
Okay.
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