Q1 2021 Qualtrics International Inc Earnings Call
[music].
Good day, Thank you for standing by and welcome to the call checks first quarter fiscal year 'twenty 'twenty One earnings conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, even though we had a S. P N E and Investor Relations. Please go ahead.
Welcome to <unk> first quarter of fiscal year 2020 earnings conference call.
On the call we had zig turpin.
Chris back that President and Rob Bachman CFO.
Following prepared remarks, we will open the lineup to answer your questions. Our results press release 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 considered centered forward looking under federal securities laws. These.
These statements reflect our views only as of today and should not be relied upon as representative of our views as of any subsequent date we.
We disclaim any obligation to update any forward looking statements or outlook.
Statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.
For further discussion of the material risks and other important factors that could affect our financial results. Please refer to our filings with the SEC, including our annual report on form 10-K for the fiscal year ended December 31, 2020, and our quarterly report on form 10-Q for the quarter ended March <unk>.
<unk> 2021 that will be filed with the FCC.
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 or in isolation from 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 presentations on our Investor Relations website.
The webcast replay of this call will be available on our company website under the Investor Relations link.
Otherwise stated all financial comparisons discussed on the call will be to our results for the comparable period of our 2020 fiscal year and with that I would now like to turn the call over to Dick <unk> CEO.
Alright, Thank you Stephen and thank you all for joining our earnings call.
So as you saw in our numbers Q1 was an outstanding quarter for <unk> and it was a powerful start for our fiscal year.
Revenue in the quarter rose to $238 6 million, which is up 36% year over year and subscription revenue rose to $186 9 million, which is up 46% year over year, and we ended the quarter with more than $677 million in current remaining performance obligations.
Up 53% over the same period last year.
We're seeing.
Our results here is that <unk> has never been more relevant or impactful.
There is a massive market and Calgary category opportunity that's ahead of us.
Organizationally around the world are in the middle of an important shift and it's bigger than a digital transformation.
It's an experience transformation as what we're seeing in 2020.
82% of all businesses had to design, a remote work experience and to some <unk>.
These changes if you put it to put some of these changes into context at the beginning of last year only 7% of the retailers had curbside pickup and by August that number was 44%.
And in today's digital world, where it's easier than ever for in place to switch jobs or customers to change service providers ever.
Every business leader I talked to is trying to figure out how to better retain.
And engage their employees.
And to more consistently find new customers and strengthen the relationships to keep the ones that they already have.
And as you can see in our results companies are choosing cartridge to accomplish these two very important business objectives, finding and keeping customers and employees.
And no one knows the importance of finding new customers and designing new services in the travel and hospitality industry.
Take Royal Caribbean International.
Which expanded the use of <unk> in Q1.
Every few industries were hit by the pandemic.
Hardest travel and hospitality and Royal Caribbean had to rewrite their playbook.
And rather than pulling like pulling back like some of their competitors what royal Caribbean did is they chose to lean in and invest.
With quadric, they can now understand how their current and prospective customers are thinking and feeling and then they can design the right offerings to get them back on cruises.
Another good a customer example.
As UBS UBS has focused on customer first people led in innovation driven strategy.
And we're proud that they chose <unk> in Q1 call.
Quadrex will be their experienced management platform, enabling them to listen across the company take action to lead on critical customer and employee experiences globally, and so with Quadrex U P. S.
He was able to understand their customers and their employees at scale and take action to deliver what matters.
And these are just a couple of examples.
How <unk> is helping companies transform experiences for their most valuable stakeholders.
This quarter, we also formed new relationships and expanded our work with leading organizations around the world that include bank of Montreal.
Singapore Post Stanford Health care.
<unk> signed.
The U K department of health and social care and many more.
And we increasingly see that large organizations like these are looking to consolidate their experienced management programs and experienced management becomes even more critical to every organization.
And as it happens.
In fact in Q1.
The number of customers spending more than $100000 annually with us rose by 100 and by 119, that's an increase of 35% year over year.
So our results continue to validate that a platform that enables experienced management across the company.
Is what the market wants next.
Experienced management is becoming as critical business successes, any CRM or HR system.
An experienced data is becoming the most valuable data within their organization and we have a 10 year head start on this market and we see significant opportunity ahead, only quadrex gives customers a single secure cloud native experience management platform and.
And we enable them to bring together all of their experience data what their customers and employees are telling them about their company and their brand and we help them analyze it and use workflows to take action and.
And we continue to innovate across our platform of speed and scale in Q1, we introduced a new diversity equity and inclusion solution to address a critical priority of organizations across all industries and segments.
We're enabling HR leaders to measure and improve the employees' experiences to create a more diverse and inclusive workforce.
We also launched new customer XM solutions that give organizations a holistic view of the health of their b to B and BDC customer relationships.
And take automated action to design and continuously improve the experiences that they provided every touch point of the customer journey.
And just last week, we unveiled new innovations across our <unk> operating system.
To make it easier than ever for organizations to quickly understand their customers and employees needs and these innovations help our customers both design and improve experiences in real time to lead in times of disruption.
Central to these innovations are new design XM offerings, which consists of powerful new research and testing solutions for designing new customer product and brand experiences.
And so to help our customers turn insights into actions that drive the impact we've expanded the capabilities of <unk> X flow with 24 Prebuilt. These are new prebuilt workflow templates because.
Anyone in the organization and the ability to create a culture, it's workflow with click to not code.
So from out of adequate creating a Zen desk ticket when our customers submit negative feedback to immediately notifying and HR representative of specific words like safety concerns are detected an employee feedback.
I mentioned to you in our last call that being independent would give us the opportunity to form exciting new partnerships and we continue to deepen our partnerships in Q1 with global leaders like vein, Deloitte and Ey and why.
And we also formalized a new partnership with Korn ferry.
To extend the power of our diversity equity and inclusion solution.
And Q2 is starting out strong with an exciting new partnership with service now we're <unk>.
Bringing together the leader in experience management with the leader in business workflows to enable our joint customers to quickly and effortlessly bring experience data from caltex together with the service now platform.
And this helps to any customer to take action in the moment and delivering credible service experiences.
So as we work together to emerge from the pandemic. The best organizations are running their experienced transformations by discovering what customers and employees want right now and in the future and then taking option.
And Theyre already built into the next chapter of great customer employee product and brand experiences and they're doing it with call tricks.
So I couldn't be more excited about the opportunity ahead of us.
And I am deeply grateful for our team's hard work in Q1.
And I'm grateful for the thousands of customers are choosing <unk> to manage their experienced transformations.
Now I'll turn it over to Rob Bachman our CFO.
To get into the numbers.
Bob.
Thanks, Dick and good afternoon, everyone. We are very excited to report our strong results for the first quarter of 2021.
Dick mentioned, we continue to execute well against our long term market opportunity differentiating ourselves through our technology and multifaceted go to market and customer success model.
We delivered subscription revenue of $186 9 million up 46% year over year professional services and other revenue was $51 7 million for the first quarter, representing 8% growth year over year total revenue was $238 $6 million in the first quarter.
Up 36% year over year.
Our remaining performance obligations, representing all future revenue under contract ended the quarter at $1 2 billion up 77% year over year.
This metric includes both new and renewal software contracts, along with our professional services business.
Remaining performance obligations, which is all future revenue under contract that is expected to be recognized as revenue in the next 12 months was $677 million up 53% year over year.
This performance was driven by strong new bookings across both net new and add on business. In addition to our subscription renewals.
Current and total RP O benefited from our continued lengthening of average contract duration for both new customers and renewals.
In Q1, our net retention was 120% consistent with our performance in Q4 as customers continue to expand their usage of our experienced management platform on a net basis. Zig said, we added 119 customers in Q1 spending more than $100000 in annual recurring.
Canoe for a total of 1457 customers customers spending in excess of $100000 annually still only represents approximately 10% of our customer base and is experiencing accelerated growth of 35% year over year, our highest growth since the first quarter of 2020.
Turning to margins our non-GAAP gross margin was 77, 2% in Q1, approximately 410 basis points higher than 73, 1% in the year ago period. This increase is mainly due to a continued increase in subscription revenue as a percentage of our total revenue subscription has.
The increase from 72, 9% of our total revenue in Q1 of 2020 to 78, 3% in Q1 of 2021 as we focus on driving software usage on our platform and continue to grow our partner ecosystem to provide expanded experienced management services to our customers.
Our non-GAAP operating profit for the first quarter was $6 $8 million, resulting in a non-GAAP operating margin of two 8% compared to negative 13, 7% in Q1 of 2020. This expansion was driven by our strong top line outperformance by continued operating efficiencies and.
By a continuation of reduced spend in travel and events.
Operating cash flow for Q1 was negative $71 million compared to negative $131 8 million in the year ago period free cash flow in the quarter was negative $81 2 million compared to negative $148 million in Q1 of 2020 due to operating margin expansion.
And lower cash payouts.
Relating to equity based awards.
$72 million of cash outflows in Q1 was related to the cash settlement of the stock based payment liabilities compared to $98 3 million in the year ago period.
As we shared before starting in Q2, we will see a significant decline in cash settlement of stock based payments as the majority of our employee base elected to exchange their cash settled equity based awards to stock settled culture Awards at the time of our IPO.
We ended the quarter in a strong cash position with approximately $586 $5 million in cash and cash equivalents.
Now moving onto our business outlook for the second quarter of fiscal year 2021, we anticipate total revenue to be in the range of $240 million to $242 million, representing 33% growth year over year at the midpoint within this we expect subscription revenue to be in the range of 109.
<unk> million dollars to $192 million, representing 38% growth year over year at the midpoint, we expect non-GAAP operating margin in the range of negative 1% to zero percent and non-GAAP net loss per share of three to one.
Assuming 515 million weighted shares outstanding.
For fiscal year 2021, we expect total revenue in the range of $980 million to $984 million and subscription revenue in the range of $768 million to $772 million at the midpoint of these ranges. This represents a subscription revenue growth of <unk>.
34% year over year, and total revenue growth of 29% year over year, respectively.
We expect non-GAAP operating margin in the range of negative 3% to negative 2%, we expect a non-GAAP net loss per share of between 13 and 11.
Assuming 512 million weighted shares outstanding.
In closing our runway for growth within our large market opportunity remains very exciting we will continue to scale our business through strategic investments extend our leadership in this market and drive towards long term profitable and durable growth.
You all for joining today's call with that Zig, Chris and I are happy to take your questions and we'll turn it back to the operator.
As a reminder to ask a question you will need to press star one on your telephone and towards a question just press the pound key.
Once again Thats star one for questions.
Our first question on Pennsylvania, Keith Weiss from Morgan Stanley You may begin.
Taking the question guys and outstanding quarter doesn't really impressive way to start 2021.
If I might add a couple of kind of detailed questions.
If I'm doing my math right and you are talking about.
<unk> 1400 and.
For 257.
Customers over 100, K, representing 10% of overall customer base.
Overall customer bases over 14500.
And that's like a thousand new customers during this quarter am I speaking about that rate and well.
What changed was trying to like open up that top of the funnel, that's an amazing new customer number.
Yeah, a couple of things there we are certainly very pleased Keith and good to chat with you with with the ongoing growth that we have in our total customer count it is.
As desirable growth and were pleased to see the growth overall in the volume of number of customers. We indicated approximately 10% there. The total number of customers and it may come up the number of million customers is a number that we plan to disclose on an annual basis, but.
You you've hit on a point that we're definitely pleased with in terms of the number of customer adds in Q1.
I'll just add to that Steve.
You're just continuing to see the volume engine Oncall tricks and we'll update the figures are going but.
Idea of people being able to go in and quickly standup and leverage.
That form for solving problems, sometimes overnight, sometimes within a few weeks, sometimes it's taking over consolidating some tool, but it's just not running in real time, it's much more of a legacy system.
Efficiency is doing that massively contributes to the rate at which new logos come in as well as what we get for departmental expansion inside companies.
Got it got it and if I could sneak in a follow up for Rob.
So I'm looking at your forecasting.
If I'm doing my math right.
It.
Even with the numbers coming up it's tough it seems to me it denotes that your first half of the year for subscription revenues, you're guiding to $378 million in revenues in the second half of the year, you're guiding to $379 million.
Why would there be no sequential growth in Q3 or Q4 on a going forward basis is there something that we should be aware of in terms of revenue that accrued in the first half that won't occur in the back half.
That seems.
Almost too conservative.
Yeah, Keith I think let's pause for a second and just recognize again that Q1 was an outstanding quarter with great results. We're very pleased with those and we're similarly very pleased with the update to our guidance as you look at this now on the subscription side with 34%.
<unk> guided growth for the full year and total revenue growth at 29%. There's always a couple of things to think about where we are still early in the year and as you think about that there's.
There's path to tread in the remainder of the year to go out and accomplish where we're at.
And overall, what I would tell you is we are comfortable with the guidance that we've provided we're pleased with it and it represents our current view on the forward looking business.
Can you be more specific is there anything onetime in nature in either Q1 or Q2 that when occur in the back half of the year.
Yes, there's nothing that I would call out of concern here for you in the future I would again highlight the.
The nature of the the update to our guidance.
And now showing that subscription revenue in the mid 30% or 34%.
<unk>.
Again indicate that it's early in the year and we have some some room to go here to go out and accomplish the both the targets in the guidance that we've provided.
Okay. Thank you guys.
Okay.
Okay.
Our next question comes from the line of Mike Murphy from Jpmorgan, you may begin.
Okay.
Yes. Thank you.
So youre approaching the $1 billion revenue threshold with just a ton of <unk>.
Velocity that you've got the accelerating subscription growth year to 46% as you think about.
Whats going to perpetuate the momentum going forward.
I'm most interested in what inning, you think we're in with the transition to becoming the system of action.
That goes beyond measuring the experiences.
In other words, how much runway do you think until all.
13, or 14000 customers are using <unk> as this closed loop kind of a system.
Yeah.
Hey, Mark good to hear you so look number.
Number one.
I think we are in the early early innings, but there's a lot of opportunity ahead and number two the thing that we're seeing is that especially as I speak with other Ceos.
Across many different industries.
They're looking at the use of <unk> as part of a experienced transformation that's happening within their industries you hear a lot about in terms of digital transformation is the terminology, but the reality of it is is that what people are really trying to figure out is what's the customer experience that helps to drive growth helps them lead in their market, what's the employee.
Experience, how do those two things come together, how does that affect the products that you need to design with the speed at which you needed to be able to do so and once you do so how do you activate.
The entire company and organization.
To operate differently. It isn't just about looking at the data.
About the workflow it's about the way that you ended up operationalize them the tools that you've already invested in as a company.
And we're seeing a lot of momentum in that both on the front of the ecosystem that plugging into the system, but also with what our customers are doing in exercising their capability.
It is one of the greatest differentiating advantages of our system amongst many.
And that.
A key part of this and frankly I've heard words from a recent conversation with the CEO, where he said your system is becoming indispensable to the way that we run our business.
Because they're taking advantage of the workflow part of our platform not generically, but in tuned with the insights and statistical analysis that our platform helps the surface up based upon different customer segments and connecting that with employees et cetera. So.
That's kind of the macro picture that we see and again I think there's a lot of opportunity ahead of not only help people take advantage of it but how people are innovating on it.
Service now partnership is another good example of that.
And what the workflow engine part of but workflow part of our platform and in it.
As you know has experienced management aspects of our system and add value to the.
The significant strength of service now has been enabling IC Assembly close customer service management helped us workflows and.
And so that's another important example of how ecosystems tapping in and how we ended up delivering something that is even that much more critical for our customer.
Okay. Thank you for sharing that perspective. It I also just had a quick follow up.
So rob from a cash flow perspective.
I am wondering if was there anything a little different or did did anything effect.
Collections receivables dsos.
A couple of those metrics just look.
Seasonally you have a little different than we expected.
Wondering what's the dynamic.
And then just at a high level does that cash flow trend.
Does it normalize in that way and also in terms of the settlement as you get into Q2.
Yeah, Yeah. So I think there's two parts in there right Mark the one again as we've indicated the settlement of those liability classified awards that come through SAP, you're going to see a significant decline in that that's obviously the largest portion of what's happening in the cash flow was $72 million of the cash outflows in Q1 due to that debt.
There was a.
A more temporary increase in the Dsos for Q1, we had a handful of large customers with some open invoices, where collection and the timing of which could have happened either in Q1 or Q2. It's now expected in Q2, we're not experiencing any risk there it's more around the timing.
So I think we will provide even more fulsome update after Q2 as we see that normalize.
Our next question will come from the line of Brian Peterson from Raymond James You May begin.
Hi, everyone. Thanks for taking the question so I.
You know looking at the strong <unk> in the billings I'm curious how does the sales cycles trend versus your expectations and was there any pull forward of demand versus what you maybe initially thought going into the year.
I think Bryan Chris here.
I think when we look at what happened in Q1, we were really happy with the balance that we had.
With what occurred in terms of overall customer growth as referenced earlier, but especially when we look at what happened in the quarter a lot of transactions in that kind of 100, K to $1 million range, which was really encouraging as we kind of think forward to that land and expand motion.
Extremely healthy as the business.
With it being a bit more of a volume quarter I'd say that there wasn't any kind of major swings from one quarter to the other it was more just kind of solid business growth demonstrating the adoption of the platform more universally and really think that bodes well for the future as we continue to grow that landed base of customers both overall, but.
Also larger customers than we have the opportunity to play out from an expansion perspective going forward. So so nothing nothing I'd point to major on kind of when chip versus the other just overall kind of strength driving the numbers.
Got it thanks, Chris Chris.
Of course, I don't know if you would take this or as it goes but just on the partnerships. Obviously, there's a few announcements this quarter I'm just curious as you think about partnerships like service now and there's more that you mentioned do you feel like that helps you more on the land side or is that more on the expand side, where you can get a lot more strategic with a lot of these enterprise customers I'm just curious how you think about that.
This is both frankly, because what happens is.
You have an existing customer.
The power of our workflow engine and that customer wants to connected in more deeply in an automated way easy to configure way with.
Tools and systems that they're already using right. So that would be an example of an expand but you also have opportunities that are ones, where you're going and being introduced them into entirely new budget centers.
Or maybe deepening our ability to get into a budget center because of the value that we open up in those examples so it's both.
I don't need to look further than our partnership with us.
Bye.
Continued work on R&D, there and go to market.
We're moving into departments and scenarios that were never been would have been harder for us to do in the timeframe that we're currently working on right now.
And service now certainly another example of that and there will be others.
Good to hear thanks, Nick.
Yep.
Our next question will come from the line of Kirk.
From Evercore ISI you may begin.
Thanks, very much and congrats on a great quarter.
Chris and Jay you mentioned that this was a great quarter across the board in terms of volume customer size. I was just kind of curious were there any verticals that stood out or any use cases in particular that sort of helped drive the outperformance maybe more employee this quarter, just because everybody's things like going back to work I realize youre always looking for.
A nice balanced I was just kind of curious if anything stood out on either a vertical or sort of a use case basis for you all this quarter.
Hey, Kirk.
Nothing on an extreme basis honestly, we really are trying to kind of balance across industries across the globe and we had a strong quarter internationally as well continue to see strength internationally.
I'd point out we continue to invest in and focus on our kind of government and regulated industries, including health care soft soft strength there as we continue to invest in and lead out in government type solutions.
And then.
Seeing things strength, both in kind of traditionally stronger areas like like high Tech, but also as you saw an announcement with Royal Caribbean. Some of the companies that have been harder hit by the pandemic starting to have to come.
Come aboard and grow their spend with us as they prepare to emerge from the pandemic, so really really good balanced by industry geographic etc.
I'll just highlight a little bit of a theme, which is I mean, there's very few organizations that we are encountering around the world right now we are.
We're not looking to become more of a software type company I mean, most companies are looking at as they look at software is going to play a key role in our industry.
And.
And that's really what happens is people call that digital transformation and then when they get into it they start to realize like well what we're really doing is we're re imagining the experience.
For our employees, our workforce, which when the pandemic hit people rapidly started saying what does this mean, we're going to operate.
Does it is going to be a requirement to rewrite the playbook.
And then on the customer side is re imagined the experience and those that have let out in front or actually leaders in there. They are reaping the rewards from that and so what happens really as there become they're focused on experience transformation and that's a theme that we're seeing constantly across almost every.
Major industry.
And it's and it's where and what's important is part of that is you got to be able to call. Your shot have the right data available that would become a part of the way that you retool your operations the way that you think about the.
How how you engage with your customers.
That changes the culture of the company. So we're seeing that all over the place and there are examples of that Bank of America Bank of Montreal I mentioned earlier is.
It was a good example of health now, they're standardizing on our enterprise platform in north.
North America's biggest banks and they added caltex employee experience to their existing CX platform and they're continuing to create customer and employee experience is a key competitive differentiator in how they're leading in their market. But then you go over to attack for example, with Doctor site, and they're expanding quadric views, both brand and customer experience.
And they're.
They're doing that to be able to better connect with their customers and ensure that they are staying ahead of in addressing their needs and then much more connected fashion.
And those are two examples financial services and tech, but I could give you just as many examples.
And about 20, other vertical markets and Thats, what were seeing consistently and again thats hard to do at scale. If you haven't built a platform that allows for.
Building, new solutions, and best practices and cutting edge programs that serve different needs.
And the fact that a lot of this technology as youre doing it quicker than not code.
Helps to affect the speed and efficiency of how we ended up enabling new value and use cases that customers can use and there is no better evidence of that and when you start to have to answer that question across different industries, that's a really big deal here.
Some people will talk about the fact that they are doing this but then when you double click they've got massive concentration within specific industries.
We're not seeing that right, we're seeing momentum across the board and hard to do that unless you unless you've actually both the technology Foundation that provides for it and then an ecosystem around that platform.
That's great thanks, very much and congrats again.
Our next question comes from the line of drew Foster from Citigroup you may begin.
Hey, guys. Thanks for taking my questions Nice quarter, Jay I was hoping you could go a bit deeper on some of the strategic steps youre, taking as it relates to how you plan on addressing the customer service and contact center use cases.
There was this backdrop of legacy contact center models going away that was obviously accelerated in 2020, but you've got new paradigms of customer service models emerging. So it appears you have some contact center functionality with the voice analytics piece and.
Workforce engagement solutions and things like that today, though I get the sense that it's earlier days for you in terms of really penetrating that opportunity. So how are you thinking about focusing investments in navigating ecosystem relationships in that area.
Where do you see yourself ultimately fitting in there or how serious we are taking that vector in and what are you doing to get yourself there.
Yes, I mean, we're talking first off I'll start by saying that.
Two and a half years ago three years ago. This market as we sized it was about a $40 billion Tam.
Pam.
Looked at it there is a $60 billion Tam.
That's partly because as we work with our customers they are taking up to where their customers are.
And youre going to continue to see I think market expansion overtime with what we're doing because of how focused we are on.
Sometimes unstated need sometimes I'm, just changing the way that people think about serving their customers and being able to call. The shot more effectively when you double click and you say oh, well, that's going on in customer care, but what's interesting about.
Our world is first off we have a product and a product line called customer X M for customer care.
And the way that we look at that World is it's an omnichannel experience for people.
With that as a terminology that people have been using for a long time, but what does it really mean.
The way you ended up interacting with a business you want that business to know irrespective of what channel you're used to connect with them.
And then you want that business to be able to predict and serve you in the best possible manner.
Whether you engage with those channels are not that's another important part sometimes these call center scenarios or we like to call. It. It's like that's where the chief apology officer lives because people end up engaging with a call center environment cause something was broken.
You solve the root cause behind what was broken when you might have a product problem you might have employees that are not not engaged or maybe they are not enabled or not trained on how to best serve that customer you might have a billing cycle issue.
And a combination of different things right. So the thing that we looked at here is number one understand the customer as a whole number two drive action with the systems that are in the call center, but frankly outside of the call Center environment.
Inner loop and an outer loop and what happens with product teams that actually caused the issue in the first place that people are actually having engaged with our call center.
And then the and then the third thing around it is we're constantly watching.
There's opportunity for innovation and that's kind of what we'll be doing so we see a lot of momentum in that area.
And I would say this.
Over time, we'll just keep listening to the customer.
I'll take it but I think I want to keep coming back to us when you taken XM approach.
To a world where people are engaging with their customers across different channels.
You now have the ability to salt product problems employee experience problems.
Not just the customer service issues right and then you can end up helping to rewire and redesign the best way for that customer and engage it could behave like.
Patmore sufficiently well, let's change what's on the website.
And that's the power of our platform. So when a customer works with us They say hey, we want one experience to every one of our customers and how we ended up working with us with the market as opposed to what happens in.
The silo at the call Center.
So our product when people use our customer extensive customer care product.
Solving problems there because that's connected to our digital experience for customer product, but actually for our employee experience product line, just kind of do our brand experience product line.
Yes.
During our customers are realizing that you can't do this in a siloed fashion you have with <unk>.
<unk> single system single software core.
One data assets that actually allows you to be able to then work and operate and serve that customer with one voice so to speak but one experience for that customer.
Yes, it's an important topic here.
Yes, thanks for the contact Center I just had one quick follow up question on the ecosystem relationships specifically with.
Some of the other Isps I think the motivations ranking the service now relationship are obvious and we can pretty easily looked at some of the other systems of record in large enterprise application vendors as low hanging fruit, but how are you.
Prioritizing those integrations going forward or are you following customer demand there or are there other factors got in your efforts as you continue to build those relationships there.
Deeply customer led and that's the beauty of our platform as we got to watch the signal around what people are doing.
Around Actioning with our system and then you take a look at where the description or opportunity in.
And that's what allows the innovation and didn't work for the company and so Youre right Theres other systems of record systems of engagement that are in these different departments.
And some of these things customers already are able to connect and turn on on their own and have to wait for us because of the programmability and configure ability of our system. But then we look at that we say what can we do to be able to either.
Innovate on those scenarios as well.
For example service now.
Sure.
Okay. Thanks, I appreciate it and congrats again.
Thank you.
Yeah.
Our next question comes from the line Raimo <unk> from Barclays You may begin.
Thanks.
Congrats from me as well.
If you look at I think if you look at what's going on at the moment. It seems like there is a growing appetite in terms of pipeline building et cetera. What are you hearing in terms of doing slightly bigger projects slightly.
More complex stuff as well what are you seeing in terms of your customer conversations in terms of people who are kind of thinking about this as like a big platform opportunity versus kind of solving for point solutions around employee feedback customer feedbacks, frankly take et cetera.
Yes, Hey, Raimo, Thank you for asking.
But first off we see a trend of customers that are expanding with quadric by consolidating point solutions and customer employee and other use cases and the reason why they do that as they see the power and flexibility in.
Efficiency of the XM operating system, it's a single software core cloud native.
<unk> fits together piecemeal parts that have been you know people are trying to put a marketing marketing pitch against but it's a very unique system and.
So we've seen more of these types of enterprise deals.
And I think that's really what we're seeing is also a validation of the value that people get from the platform.
And being able to start to treat the platform like a mission critical system for running their company is actually possible.
So they end up unplugging point solution vendors that have been built years ago.
Multiple different code bases Siloed data systems, sometimes they are even consulting projects, where there is the agency that may have been managing some data and they they bring it together on one system.
That unlocks.
I like to call a culture of action within a company.
Department by Department, but that's the trend that we're seeing Chris might have some additional thoughts around this one.
I'd, just add that that trend favorite quadrex and it plays right into our strength of being the holdup.
<unk> six system of action across the four core pillars of experience and as we see that trend continue we believe that will continue to benefit us as we're the logical choice and leader.
As they look to a single vendor.
Help manage all of their experiences.
Okay, Perfect and then one quick follow up Rob any the RPE number, especially in the short term was up.
Might be a quarter on quarter as well, but you also pointed.
Pointed out some.
Racing benefits like for short term I wouldn't expect this too much but like could you kind of stuff will click on that and see.
Yeah, Let me, let me give you a little bit of color there just a little into the detailed raimo, but as you think about the lengthening of contract duration. It's more it's naturally understood that that benefits. The total ARPA, but it also benefits the current <unk> because as we have any customer today in a multi year contract.
That has more than 12 months on that contract. They will de facto have what I would call a fully loaded 12 months in their CRP Oh, So as you take a comparable set of customers today to a comparable set call. It a year ago and more customers today in multiyear contracts that comparable set of customers a year.
[noise] ago, they those customers on an annual contract could be anywhere between zero and 12 months left on their annual contracts as they come up for renewal. So you do get an uplift. There also in your <unk> as you have lengthening of the contract duration, which we've seen.
Throughout Covid, both in our new business and in our subscription and in our renewal business as many of our customers. We partnered with them during COVID-19 to lengthen their contracts and commit to.
Long term programs.
Okay, great. Thank you congrats again.
Yes.
Thank you our next.
Question on the line of Brian Schwartz from Oppenheimer, you may begin.
Hi, Thanks for taking my question I just had one follow up I think you mentioned in your commentary you had a really good international quarter.
And I was wondering.
If you could unpack that was that driven by maybe a rebound in the Asia Pac area, where did you see a good performance over here.
Your European markets too thanks.
Awesome. Thank you. This is Chris so it was both we saw strength in EMEA, we saw strengthening P. J. We continue to have international would be a major source of investment for US. We also were encouraged by that hiring that we did internationally in terms of bringing in some great talent.
Into contracts as we continue to.
Invest in people to be able to service the local market and be where our customers are overall and so good broad based growth. We also continue to partner really strong with us in our international markets given their broad customer base and that continues to pay dividends with a major focus and we had.
Over a third of our new business in Q1 was from international which is a signal of.
<unk>.
Expansion and growth internationally as a percentage of our revenue.
Okay.
Thank you Chris maybe just one follow up just on that on that metric a third of the new bookings came international how does that compare say a year ago.
It's up for sure you can see in our metrics what percentage of our overall revenue, which is in the high Twenty's internationally. So you can see with it being.
Your new business is going to be a leading indicator of your future growth and so with it being up over a third.
First of all of our current revenue mix it internationally signaling that our international share is growing.
Thanks, so much for that color Chris.
You got it.
Our next question comes from the line of Keith Bachman from Bank of Montreal, You may begin.
Thank you very much and good to hear the references to bank of Montreal.
I know both of our teams that are using it are very happy with the value they're getting from it.
Two questions. The first is there's been some questions on pull forward I wanted to ask a different question on catch up and what I mean by that is there a notion of catch up spending if I look at the last four March quarters on average subscription revenue grew by a little under 10% I think its $9 six or nine 7% in this quarter you are.
Subscription revenue grew sequentially.
16, 5%, so almost 700 basis points forward.
Higher rather and so is there a notion of during COVID-19 in 'twenty in the June September December quarters that there was some the pipeline was longer and therefore, you had some catch up a little bit in December and perhaps some of that showing up in March is that something you could react to them.
Sure. This is Chris I think it's partly a reflection of what we experienced last year as we went through the year, where our business strengthened as we went through the year with Q1 being a tough quarter as companies were adapting to the new environment and then every quarter last year. It sequentially got stronger in terms of our new billings performance from Q2 to Q3 to Q4.
And as you know subscription growth really reflects what's happened over kind of a last four quarters of Q1 is kind of a culmination of that with Q4. As you saw we were really really pleased with our Q4 results and then and then further benefited from a strong Q1 on top driving that sequential.
Improvement from Q4 to Q1, you'll typically see some of that seasonality. When you think about sequential results with Q1 being the strongest due to that that strong Q4, driving that subscription revenue growth.
Okay. Okay.
My follow on question then is on the cash flow.
And I think this is for Rob is there any comments you could provide on cash flow for <unk> 'twenty. One in terms of puts and takes to consider or even some comments specifically on what you would think about as a free cash flow margin excluding the settlement.
Cash charges that you had in March quarter and June quarter, I'm, just trying to think about is there any comments you can provide on what we consider to be a normalized free cash flow yield for <unk> 'twenty one.
Yeah, I think we've.
And I'll reference my earlier comment as well.
Around I would recommend that we look at the first half of the year and so post Q2 and look at how that is set up after we eliminate that cash settlement of the liability based awards more long term, we do believe that we will return and trend towards historically.
How we performed before the acquisition in terms of the non-GAAP operations relative to the cash flow. So we will see a trending over time back to that type of relationship.
Okay, great. Many thanks, congratulations on the results.
Okay. Thank you.
Our next question will come from the line.
Terry Tillman from choice.
Again.
Yes, Congrats from me as well, maybe big or maybe this is for Chris, but I think somebody touched on this on one of the prior questions on.
Retention and new hires key new hires.
That was part of the whole ideas being able to improve retention or keep retention strong and hire new people you've brought on some pretty.
Seasoned executives, Brad Anderson and a bunch of other folks at the end of the year early this year look they're not coming onboard to change things because things are going really well clearly, but like anything you can share about what Brad Anderson and some of these other senior execs were up to whether it's evolving go to market just operations, our new product cadence and then I had a quick call it for Rob.
Hey, Terry.
First of all we have a world class leadership team before these additional new teammates came into the company.
And so I want to really highlight that that's really important and it's quite exceptional to see our leadership team.
Together after.
Being acquired.
And then saying look we're in here for the long run and we want to be a part of making history, there and the way that we continued to build and lead this category.
But in addition to that the new people that have joined US people like Ciena Shively as an example, Brad Anderson Giuliana.
Julia Ana.
And I'll be English.
And a number of other people like us like Eddie control real I mean, everybody is coming in to go and effectively build the next 10 chapters of where this company is going.
And if you double click and you look at the skill set. These are people who are enterprise leaders. There are people, who understand how to build systems that span the entire company.
Are people, who understand how to go build new markets. These are people, who understand how to scale organizations and build an experience that's unique to the culture of Quadrex.
So that hopefully gives you a sense of that and we've been busy we've been very busy a lot, but that's been happening I mean, not only did you see the results in Q1, but where we're focused on.
We want to be a year from now and two years from now as well that's where the attention is.
Got it thank you for that and I guess, Rob just did you actually say what the average contract duration is and should that drift higher just because this is becoming a more strategic category they want to commit longer. Thank you.
Yes, we expect the trend to continue.
We it's not a number that we're disclosing but we haven't seen that consistent trend now over the last year and I do think we can see some trending forward, but it's probably again in the short to mid term and then we expect that it will regulate around an average life.
Our next question will come from the line David Hynes from Canaccord you may begin.
Hey, Thanks, guys. Congrats on the results one on the numbers for Robin and then our go to market follow up so.
Rob the 119 net new over 100000, just in ballpark terms, how many of those are existing customers kind of graduating are growing over that threshold versus new lands right I'm, just trying to assess kind of whether the profile of the typical land is changing much.
Yes, so to answer in the backend of that the profile is not changing much I think you can also infer this as you look at the net retention rate on 120%, which stabilized in Q1 compared to Q4 and the growth that thats driving as well as the growth that's coming from our new business the 100.
K is similar we're seeing immediate lands with customers North of 100000, we're also seeing existing customers, who are expanding over time and it's in a consistent fashion and or balanced fashion alongside how you can get to.
Again, as I say and for the growth that's happening between the net retention rate and the total growth on our subscription business.
Okay.
And then maybe for Chris.
As we think about the.
Quadrex driving expansion like what are the best practices or strategies that you have or taking a customer from <unk>.
Customer or employee experience, which I think are the more common lands.
Our brand and product right is that can you guys influence that motion materially or is it more about <unk>.
<unk> and customer needs and by into kind of a holistic vision of what you guys are selling.
Yeah, I think the <unk>.
<unk> answer of how you get customers or expanded to deliver value to them on what they bought and they see the return on the investment for what they purchased their happy delivering value from that and then the natural question comes up how can they can get additional value through expanding and growing their platform. One of our one of our keys to success is that we do take a.
A long term approach with our customers, we meet them, where they are and and and really understand deeply their needs what problems, they're trying to solve.
Well as where they are in their experience transformation journey, and then think long term with them about how we can be great partners with them to help them to solve those near term problem, but then have the experts in house, we have a really great team of experts who come from various industries and can speak the language of our customers to understand.
And it helped to signal some of the future problems and issues. They may face as they continue to mature and grow and looks to continue to differentiate themselves in the marketplace and so we will.
We'll provide that opportunity those opportunities and ideas for them and then grow from there.
And we also obviously are very large ecosystem of experts that are building on the platform and so that creates new use cases and bring in other departments that are using the system or existing departments, taking advantage of new capabilities, but I want to reconnect to one of the earlier questions too because when people start to use our platform.
As an example of a customer a pair of a call center.
They might detect that they've got other root cause issue, maybe an employee engagement issue and maybe a product experience this year.
And the old way of doing things as you go and say okay. That's good to know, we'll write that down and we'll have a follow up meeting, but you don't have the system to go solve that problem.
We do we can help to redesign.
An entire product offerings, we can help to redesign packaging, we can help the.
Redesigned the.
Customer journey in its entirety.
Specific type of customer segment.
And when you do that you're expanding into other product and product modules on our platform.
There's never been anything like that before because the old way of doing it as yet either hit a dead end or you Gotta go try to find some other vendor.
Something together that doesn't really work in practical reality right and so that's really key to the landing and expanding because you have to have the right technology platform can do that.
Yes that makes perfect sense. Thank you very very helpful guys and congrats on the results.
Thank you.
Thank you our next.
I would kind of ruin my last my iPhone Piper Sandler you may begin.
Thank you and good afternoon.
To stay on the threat of of what looks like a really phenomenal start to the year and maybe asking it a slightly different approach it sounds like the number of hundred key customers that accelerated here this quarter.
Was broad based it sounds like it was balanced across lands expands.
I'm a product perspective, what are you seeing there or are the trends similar most of the customer XM or are you really starting to see broader bundling of employee <unk>.
And part of that so I'm, just just from a product perspective as you look at the momentum in Q1, what are you seeing there and then one quick follow up for Zika.
Okay. Thanks Brent.
I hate to sound like a broken record, but definitely.
Well from a product perspective that you've you've heard that a lot today, which is the balance but really it is something we're really pleased with as we kind of digest the numbers and see what's happening in <unk>.
<unk> strengthened employee customer really emerging in the brand area as well.
On design XM, and so so really strong balanced.
Product perspective, and it's really I think partly driven by what we've talked about it that trend towards consolidation consolidation and customers standardizing on our platform that bodes for customers wanting to.
Continue to evolve their programs to cover the four core experience of business and that means that a customer who is only buying customer X M. It's only a matter of time before they look to us for employee ask them or to go to brand and that trend is going to drive the balance that we should see across the portfolio and the way you want to double click on here that I want to make sure it's not.
This is really important we have before core application product lines.
On top of the platform, but.
So those are product lines. Okay. So that means when you get into say for example.
Customer at Sam We've got a lot of innovation, that's happening within the sub products in that portfolio.
And the speed of what Youre seeing in your capabilities, that's been they're being delivered by our R&D team.
It was like nothing else right in the marketplace because of how quickly you can end up building new value use cases on the system.
You know I'll call attention to a couple of announcements that we made.
One was on April 13th which is new innovations around.
Designing them experienced design.
Market research functionality product experience capability.
Customer experience for loyalty program design scenarios and then the other one was another announcement that we made which is.
Specific to the customer at them product line around relationship help that's a new product capability that's been added.
Count based relationship diagnosis diagnostics and.
Digital support optimization.
And I want to really highlight that because the growth doesn't just come from going from customer Assembly employer.
To Chris's point, it's there, but it's also coming from.
The new modules and new value that we're actually marketing for people to take advantage of within those existing product lines and the double clicking and that continues to expand so I just thought I would highlight.
Look at some of those announcements that we had and what we are unlocking there in terms of new value for the customers within those product lines.
Helpful color there is it and we certainly will do that and clearly great to see the the balance, particularly with the highest subscription growth rate we've seen in over a year and probably the highest CRP O grocery seen in two years I think for you.
It's been less a little less than 90 days since the IPO.
Love to get a progress report on the less tangible items clearly the revenue growth is impressive but as you think back since the IPO are you seeing are you pleased with the partner engagement and activity are you pleased with the quality of resumes coming in.
Any sort of.
Tangible.
Less tangible progress report you can give since the IPO I think would be helpful as well.
Sure.
You know theres a lot of benefit with the fact that we can say with corporates as an independent company and we are building for a very long future and.
How we will continue to lead and develop this category and innovate on it.
That's not to say that there are benefits for that because there's a ton of benefit and that's a deep partnership.
Debt.
That will continue to remain for the long run and they're quite bullish about what we're doing both on product as well as go to market, but two points or examples you gave some of the intangibles.
Talent that we're able to attract I mean, where you're competing with some of the best of the best South companies and attracting talent to this company given the high growth nature of the company and the opportunity to be innovating on something that doesn't exist in the marketplace.
The way that we continue to lead and define this category as an example.
What we're also finding is.
The kinds of partnerships, we had we had meetings here.
Utah recently, just this week with a major ecosystem company that came in.
The whole day with them and the way they're looking at ultra is not as part of a portfolio of our company, but rather a technology system. The system. The most important technology platforms in the industry.
For example, amongst the top level CRM systems, the top level HRS system, the top level workflows systems, the top level marketing automation systems.
They have practices that are built.
Around.
These other companies technologies and they look at Opex, and they say, hey, quadric from the CIO level and the <unk>.
Mo level is the asset.
Now clearly are going to continue to be able to hold our selling amongst some of these other capabilities and then a value unlocking that take place. So there is a positioning of how people look at investing in this platform and I'll add a little bit of what I said earlier, which is.
As as people.
A trend that we're seeing is people consolidating.
They are point solutions onto the <unk> platform and the way we've designed this technology.
All of the ecosystem plugged in a claim to our advantage is just validation of that and the ecosystems coming out and saying, Okay. We got it.
That's been sort of a tangible but its intangible too because people look at <unk> as its own entity and the investments, we're making are ones that will span.
An entire ecosystem of other technology providers as opposed to just being a subset of saying well you just part of the portfolio right. It's a different ballgame mill.
And that's something that we're just constantly he reiterated as we talk with customers and as I talk to Ceos.
Helpful color. Thanks again guys.
Okay.
Thank you that's all the time, we have for Q&A today, I would like to turn the call over to <unk> for any closing remarks.
Well, thank you very much everyone and as always appreciate the depth of the questions.
And just any any any perspective additional context that you are providing it's very helpful. And we appreciate that so I. Appreciate it we look forward to talking to you in the.
For Q2 results.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
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