Q3 2021 Qualtrics International Inc Earnings Call

Thank you for standing by and welcome to the <unk> third quarter fiscal year 2021 earnings Conference call. At this time all participants are in 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.

As a reminder, today's program may be recorded I would now like to introduce your host for today's program Stephen Who's head of S. P N E and Investor Relations. Please go ahead Sir.

Thank you and welcome to <unk> third quarter fiscal year 2021 earnings conference call.

On the call we have zig therapy.

Yeah, Chris back debt, 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.

That may be considered forward looking under federal Securities Law. These statements reflect our views only as of today and should not be relied upon as represented by our views as of any subsequent date we.

We disclaim any obligation to update any forward looking.

Statements or outlook. These statements are subject to a variety.

And uncertainty 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 that 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 September 32021 that will be filed with the SEC with that I'll turn it over to <expletive>.

Well. Thank you Steven and also thank you everyone who's joining us here today.

Q3 was an outstanding quarter and our strong momentum.

E. A rhythm continued as revenue in the quarter rose to $272 million, which is up 41% year over year subscription.

Subscription revenue rose to $220 million up 49% year over year.

We ended the year with more than $782 million in current remaining perform.

Momentum patients.

58% increase year over year, and we're in the midst of a massive shift in how companies engage with and build relationships with their customers and their employees and this shift is.

Fueling the $60 billion plus Tam for experienced management, our leadership position has never.

<unk> was stronger as we continue to innovate and define the category that we created and as companies accelerate their adoption of <unk> across industries. Let me give you just one example.

This is from this quarter peloton, they're phenomenal company.

They're transforming the fitness world by delivering an incredible MEH.

Never been experience peloton is a longtime customer and in Q3.

Standardized on <unk> as they are experienced management platform what are the core values.

SaaS over every touch point of the member experience I Love this.

They're using qual tricks to listen to their community across.

Remember each points and then their share feedback across the entire company.

This drives their strategic priorities and then allows them to be able to improve member journeys at every turn.

<unk> is about forging deep relationships between the organization and the people who matter, most which is the employees and their customers.

These two we have a single cloud native platform.

It allows companies to bring together all of their experience data and their operational data across the four core experiences any business customer employee.

<unk> and brand and.

And the services that we provide.

That's one retail travel and entertainment to re imagine student experiences in K, 12, and higher Ed and to manage critical vaccination in health services around the world in Q3.

Market leaders like crowd strike door dash.

<unk> been NASCAR.

B E.

<unk> now and many many more also chose quadrex to help them drive their experience transformation and for these customers.

Experienced management has never been more important people are sharing their feedback about companies everywhere.

Both directly and indirectly.

That's happening in support conversations chat.

Social.

Certainly post product reviews, and dozens of other places.

With our acquisition of Clare Bridge.

The leader in Omnichannel conversation analytics, we can help our customers discover what's being said about them across all of these unstructured sources.

This feedback exist as such a scale.

Medium out Clair ridge companies might never find the meaningful actionable insights that drive business outcomes. So this acquisition along with our acquisition of journey orchestration liter user mind puts us they've been in a stronger position to listen and act on experience data.

We're already integrating the strength.

Our newest platform innovation experience I D.

<unk> delivers a single unified view of all of the feedback customers and employees want our company to know about them over time.

It enables companies to zoom in on the detailed preferences of individual customers.

Personalize their experience.

And then they could zoom out to get powerful views by segments, such as teams or geographies to identify new market opportunities. While also giving companies the ability to build deep trusted relationships at scale. So for example in Q3, we expanded our relationship with dish network to build an industry leading customers.

<unk> <unk> program across the companies pay TV and consumer wireless brands dish has been rated number one in customer satisfaction by J D power and their own customers for the last four years.

And they are building on that momentum to design the same trusted experience for their wireless brands.

If sprint now, they're adding employee XM.

To better connect employees to their customer centric culture and to help just to attract and retain talent.

In an increasingly competitive market.

It's clear that our product strategy is working and as we continue to innovate across our platform to keep all of our customers a step ahead.

For example, even before the White House proposed vaccination mandates for large U S employers.

We released our employee experience vaccination and testing product to help organizations navigate this new phase of the pandemic.

This product allows customers to securely confirm vaccination status collect tests.

Paul.

Screened for COVID-19 symptoms all on our at some platform.

And customer demand has been unparalleled.

Also on the employee side.

The great resignation has made retaining talent many Ceos top priority. So in Q3, we launched yet.

<unk>, five which gives organizations a real time predictive view of the 25, most impactful engagement and retention drivers like trust safety respect and work life balance and.

And on the brand experience side, we launched brand impact simulator to help companies identify the right mix of brands.

Next tweets and strategies to improve key outcomes like customer acquisition website traffic and subscriptions.

Our ecosystem continues to grow in Q3.

Why once the dedicated competency to drive and then experienced management solutions from strategy to design and enabled.

At a time to implementation all combining <unk> professional services.

And <unk> technology.

We also partnered with <unk> to <unk>.

A first of its kind product in managed workplace services to drive employee engagement and productivity with real time insights.

And a.

Table Gartner ship with global HR consulting for Mercer.

Helping top brands better understand their employees. So they can develop impactful benefits programs.

A crucial time for employee retention and hiring.

We continue to see strong international growth as the demand for experienced management grows around the world in the quarter.

New customers, including Kyoto University, Mercado Libre, and I'll post Repsol Sky and YMCA, New South Wales, all chose <unk> to power their experience transformations.

And we're investing locally to support our growing customer base in EMEA in Q3.

Quarter, we announced plans to more than double our EMEA workforce by 2024, and opened and expanded headquarters and R&D Center in Dublin early next year.

We're also expanding in a P J and announced plans to grow our local employee based in a P. J by more than five X in 2024.

We also just opened up.

<unk>, our new regional headquarters in Sydney and in your data center in Singapore to.

Our customers across the region.

In closing.

We had another quarter of exciting employee growth in Q3, we had we added 485 new employees.

And we have hundreds of open positions around the world.

<unk>.

Our core values is operating as one team.

Everything that we do and that was on display in Q3 from our leadership team to our new Q3 hires I'm incredibly grateful.

For the talented employees that we have.

The right team building on the industry, leading XM platform.

One of them and to all of our customers.

Thank you.

We're continuing to trust us and enabling experienced breakthroughs for your own employees and customers. We have a great future ahead, as we grow together and with that I'm going to turn it over to Rob to talk about the numbers.

Thanks, <expletive> and good afternoon, everyone.

Today I'll cover our Q3 results and our outlook for Q4 Q3 was another outstanding quarter, because we had strong performance on both the top and bottom line total revenue was 271 $6 million in the third quarter up 41% year over year.

A description revenue in the third quarter was 200.

Hundred $23 million up 49% year over year, driven by both strong new business sales and expansions professional services and other revenue was $51 3 million for the third quarter, representing 15% growth year over year.

Our remaining performance obligations, representing all future.

Future revenue under contract ended the quarter at 136 billion up 67% year over year. This metric includes both new and renewal software contracts along with our professional services business.

Current remaining performance obligations, which is all future revenue under contract that is.

And to be recognized as revenue in the next 12 months was 781 $5 million up 58% year over year current and total rpms continued to benefit from a lengthening of average contract duration for both new customers and renewals.

In Q3.

<unk> strong expansion across our customer base drove our dollar based net retention rate to 125% customers spending more than $100000 in annual recurring revenue grew 38% year over year to 1668 customers.

Turning to margins our Q3.

We expect GAAP gross margin was 79% approximately 262 basis points higher than the year ago period. This increase is mainly due to the continued mix shift towards subscription revenue and higher gross margins in our professional services business.

Subscription has increased from 76.

9% of our total revenue in Q3 of 2020 to 81, 1% in Q3 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.

Or.

Our non-GAAP operating profit for the third quarter was $13 $3 million, resulting in a non-GAAP operating margin of four 9% compared to one 3% in Q3 of 2020. This expansion was driven by our strong topline performance and overall gross margins.

Operating cash flow for Q.

Three was $4 million compared to negative $90 million in the year ago period free cash flow in the quarter was negative $13 1 million compared.

Compared to negative $172 million in Q3 of 2020 due to operating margin expansion and significantly lower cash payouts.

Outs related to equity based awards too.

$2 $9 million of cash flows cash outflows in Q3 was related to the cash settlement of stock based payment liabilities compared to $96 9 million in the year ago period.

As a reminder, free cash flow may fluctuate on a quarterly basis due.

The timing of cash collections, and we believe it's best to assess our cash flow performance over a longer term.

We ended the quarter in a strong cash position with approximately $589 9 million in cash and cash equivalents.

Turning for a minute now to declare a bridge acquisition. Please note that the acquisition.

<unk> closed on October 1st Clearbridge results are not included in our Q3 results, but are included in our Q4 guidance as part of the purchase price accounting the acquired deferred revenue will be written down significantly gross and operating margins will be negatively impacted by this write down because for a.

For a period of time, we will incur 100% of the expense, but won't recognize 100% of the revenue.

Moving now to our Q4 and fiscal year 2021 business outlook, we expect total revenue for the fourth quarter to be $296 million to $298 million representing.

Representing 39.

9% growth year over year at the midpoint within this we expect subscription revenue to be in the range of $242 million to $244 million, representing 51% growth year over year at the midpoint Clearbridge is expected to contribute $16 million in subscription.

<unk> revenue and $2 million and professional services revenue in the fourth quarter after adjusting for the purchase price accounting of deferred revenue.

We expect non-GAAP operating margin in the range of negative 1% to zero percent and non-GAAP net loss per share of <unk> to two cents assuming.

550 million weighted shares outstanding.

For the fiscal year 2021, we expect total revenue in the range of $105 6 billion to $1 five $8 billion and subscription revenue in the range of 854 million to 856 million.

At the midpoint of the ranges. This represents a subscription revenue growth of 49% year over year, and total revenue growth of 38% year over year, respectively.

Non-GAAP operating margin in the range of two five to three 5%.

We expect a non-GAAP.

Net income per share between two and four assuming 515 million weighted shares outstanding.

Longer term as we execute on our growth strategy, we believe that our best in class subscription gross margins will provide the leverage and flexibility to continue to invest into this large.

The market opportunity. We believe this investment will provide durable and sustainable long term growth.

Thank you for joining today's call with that Zig, Chris and I are happy to take your questions and we'll turn it over to the operator.

Certainly once again, if you have a question at this time. Please press Star then one our first question comes from.

The line of Raimo <unk> from Barclays. Your question. Please.

Congrats.

Leasing quarter.

Can you just talk a bit about the acquisition.

In the broader context, again, a little bit like like how broad broadly applicable we will let the end and how do you see this kind of going.

Going into market with what you're offering at the moment versus where you could expand into so because it does seem like it's opening up a big Avenue for you. Thank you.

Great question and thank you for asking so first off we have published materials, when we announced the acquisition.

It's important to get get back context.

As well, but I'll summarize which is.

Number one the acquisition of Clare Bridge and of course, we also acquired user mine, but if you look at the combination it just strengthens our position as the number one experienced management platform.

What it does it helps organizations to even.

More deeply understand what their customers and their employees are doing to be able to ultimately advance experiences for those core stakeholders.

You can look at clearbridge their the industry, leading AI powered MLP.

Natural language processing natural language understanding capability that when it comes.

Comes to experiential data.

And infused into our platform it will help people to be able to capture actionable insights from any form of customer interaction any form of feedback channel could be social could be product reviews can be chat call Center contact center.

Our conversational based interactions that are taking place.

We think about Patrick's QUADRA as a system that helps you to be able to ask the right question at the right time based upon the context of what.

Human being is doing customer and employee Clearbridge basically captures and connects with what people are sharing.

Regardless of what's been announced its what the volunteered to tell people through different channels.

What's their intention what are their emotions.

And that often comes in the form of unstructured signal unstructured data right so that combination.

Changes the game on the capability set that's available in the market and experience management.

Management user mind I'll be very brief on that.

As a journey orchestration system to powerful platform and advances and accelerate some of the work that we've been doing organically in our system the.

The combination of these two capabilities are nicely connected to the innovation we have around it.

Experience it and.

And we think that the combination of those technologies, both what we're doing on experienced further.

Further advances people's ability to be able to go build deeper relationships with customers as well as employees.

Very exciting thank you Mohan.

Thank you.

Thank you our next.

Question comes from the line of Brent <unk> from Piper Sandler Your question. Please.

Thank you I guess, the first one for zig here three straight quarters of better than 45% subscription growth certainly impressive.

What stood out to me this quarter was the net retention rate of 125% that's now.

Above pre COVID-19 levels of 122 can you just talk a little bit about what is driving that is it just really stronger attach rate of of employee experience.

Trying to understand.

What is driving these are these net retention rates to go above pre COVID-19 levels.

Sure.

Great question. Thank you first off look.

Underlying technology as we've said all along is so important we have a platform that we've designed to unlock value where speed for our customers. It's a single code base it.

It's been designed to very simply allows.

Allow new use cases, new innovations not only for us and what we delivered to the market, but also by customers who are able to do this.

This is a really important differentiator.

Not we're not stitching together a whole.

A combination of different things that have been built over a long time, it's been a very intentionally designed and even as we acquire some.

Specific places youre going to see us plug that into the platform. So the customers actually you can get.

High utility and quickly given the underlying functionality and how that works within the underlying ex MLS. So that's point number one point number two is that the.

In fact that you can turn on capabilities around employee experience.

<unk> and there's a whole portfolio of capability there.

Along with customer experience product experience, you are seeing more and more customers.

Finding value in other departments, which opens up opportunities in other budget centers, and we're able to uniquely accommodate that frankly quickly as <unk>.

Look to get more and more utility out of the platform and the fact that these products are running on that single system.

There's also a unique advantage.

Theres a market consolidation.

And we're finding more and more examples.

Cases were legacy vendors point solutions.

That have decades old architecture, or frankly limited in their ability to.

Supply some of the capability that customers want.

They are being replaced and we had several large examples of that in this quarter in many many many other examples where people are consolidating and.

And again as we've said in previous earnings calls is really well, we're well suited to meet the enterprise demands of customers as they make consolidation decisions, where they can end up enabling the use of the system.

As an enterprise standard that goes alongside CRM and HR systems.

Certainly seems to be resonating with.

Customers I guess, one quick clarification for Rob on the Clearbridge I think at the time of acquisition you talked about that as a $100 million business growing 25% youre guiding to I think $18 million contribution in Q4.

Post purchase accounting is that the right run rate should we think about this as an $80 million kind of business.

<unk> next year contribution to revenue next year.

Oh, yes, thanks, Craig.

Thank you I think youre on the right track here as mentioned in my prepared prepared remarks, we do have that significant write down to the deferred revenue and that impacts Q4, as well as several quarters beyond that so if.

We annualized the $18 million guidance, and then apply a 25% growth rate as we previously indicated you'll get approximately $90 million for the business and in a range of $90 million to $95 million would be a good initial estimate for 2022.

Helpful color. Thank you.

Thank you.

Thank you. Our next question comes from the line of Keith Weiss from Morgan Stanley. Your question. Please.

Yeah.

Excellent. Thank you guys for taking the question.

Maybe sticking on the topic of Clearbridge really interesting.

Acquisition by you guys really opening up the scope.

<unk>.

The data that's being brought into the system and then you guys can sort of run your.

AI models and machine learning models against.

It's probably fair to say more of a product question is is there any guidelines, we should think about on a go forward basis like what type of data at the right data to bring it to.

So broader kind of X M system.

What would be out of balance I guess is there kind of data types, we shouldnt be thinking about like as you guys increase that scope overtime and then for Rob a clarification question I appreciate that and then just.

85 million for calendar 'twenty, two and thinking about those deferred revenue impacts of the deferred revenue write down isn't it most.

Stark in the first quarter out of the gate and then like as those customers get build overtime. The deferred revenue impacts tend to fade over time. So should we think about the fading of that deferred revenue write down over the next couple of quarters.

As you sort of rebuild those customers if you will.

Okay. So let me take the.

First.

Before that and I'll, let Rob speak to the second so this is <unk> here so.

So first off the type of data.

But the <unk>.

<unk> platform is extremely impressive we've been working with them for the last four years.

My own background is partly as I've spent.

First part of the natural language understanding area and there is something deeply to appreciate about how the clearer which team has built the platform focusing on industries. There are about 150 industry models that can analyze text to speech using deep in specific industry use cases.

They can capture important.

Time months as in conversational context.

As well as just basically any form of unstructured.

Information, but the idea of applying that to industry specific center like say, a healthcare insurance provider.

What that provider.

The signal might be between the provider.

And a member.

Or between an online shopper and a virtual associated on a chat.

They have unmatched capabilities in the marketplace in their ability to be able to hone in and be able to not just understand and analyze the words, but having the ability to leverage the power of discover it understand critical human nuances.

New launches effort emotion intent, whereas the friction.

And so there is nothing like that in the market. That's operating at this level of scale twenty-three language 23 languages plus that system supports.

And so the form of data.

It can be any form of human expression of what you're actually yeah.

Using that technology to indicate.

Something about an experience that hopes to be able to connect more with what human beings are telling you indirectly and that can be applied to the social context. It can be applied to chat it can be applied to contact centers.

Theres other use cases, we've seen inside companies, where they want to be able to pull in data that they have access to through behavioral browsing patterns and they want to be able to better understand use cases in that sense. So we're not going to limit that but at the same time. There is some really natural places, where we're able to advance.

What our customers are doing today and give them even more value in.

And that was part of what we had outlined when we announced the acquisition, where we said look if you think about <unk>.

To this point, we've helped companies to be able to engage with their stakeholders their customers and their employees by asking the right question at the right time in the <unk>.

Or is that person is doing and now what we're doing is we're enabling the ability to discover.

The hidden signals and other things that are things that people are telling you in the context of customer care in the context of the digital experience on our website or in an app.

At the same time that same capability can.

We used.

With specific models, but what's going on around your brand, what's going around employee experience scenarios as an example, as well so.

We are well positioned to act.

Accelerate some of the things that they've been able to do with the technology.

Applying it to products that we built which one.

A lot more value for customers. So that's how we think about it.

Rob I think the assessment.

Thanks for your question Yeah. There is some modest fading of that deferred revenue haircut over time.

So agree with you on that point the range that we've provided accounts for some of that and what we've indicated.

<unk> that $90 million to $95 million.

Okay. Thank you.

Yes.

Okay.

Thank you. Our next question comes from the line of Kirk mature from Evercore ISI. Your question. Please.

Yeah, Thanks, very much and congrats on a nice quarter.

I was wondering actually if you could talk a little bit about the appointment of your Chief Medical Officer, who I believe starts next month with you all I just thought it was interesting you guys have a amazing or a horizontal platform, but that appointment seems also indicate that theres certain experiences in certain verticals that it might make sense to have more domain expertise.

T surround in health care, but in this case I was just kind of curious how we should think about that appointment relative to your maybe efforts in other verticals going going going forward or if this is sort of a special case and obviously that's somewhat unique industry. Thanks.

Yeah, Great question, Thanks, Steve first off.

Industries.

It's very important to us and.

It's the fact that we built our platform to generally serves a very wide number of industries as an advantage and that shows up in the growth in weight.

The way in which the ecosystem forming around our system that said there are many industries, where we go really deep again my reference.

<unk> point earlier to the curve it just kind of topic, where the 150 industry specific models.

Creates further differentiation in the.

And these models are built overnight they've been built over many many many years and they're tuned into their tooling environment and so that becomes something that further accelerates our strengths, but it health care specifically.

Reference we hired Dr. Adrian Boise, who comes from the Cleveland Clinic, and she is a practicing neurologists.

Really well known and highly respected leader.

Health care is an area that is.

As deeply important to us as an organization.

To us its people its part of the culture of cooperates.

And.

Frankly goes back to the roots of the company in some respects around just what we want to do to be able to advance the health care experience for people, but we're also finding that many of the companies and health care providers.

Both on the practitioner side.

Organization as well as on the patient experience side.

Look at the power of our platform as an opportunity to partner deeply with that industry.

And ultimately advance things and so a doctor Adrian Boise is going to be playing an important role in that.

I think this is building on momentum that we have in that industry.

Good.

And this is simply another very important step that we're taking along that path.

Chris do you want to elaborate and what about on that respect sets here as well.

Does that I had the privilege of meeting with Doctor Boise and her long held passion for the patient experience and the importance of transforming it.

Today brushing if you watch some of our Tedtalks, it's really inspiring to see how long she's been at we're advocating for it and so the opportunity to join the top tricks to use technology to further advance that is that is there in an industry that this absolutely transforming and V C.

That market alone.

Yes.

It's just tremendous.

For us in terms of do we think about the future for what this can be for the patient experience. So just just really excited about what she brings to the table and help us to win in that space and to have an impact there are certain industries, where you're seeing digital transformation opening up a complete experience.

Loan transformation.

And there is some there is massive.

Massive inflection points that are underway I know, it's a health care is a really good example of that right now where the patient experienced the provider experience.

Is undergoing a massive transformation and that's partly what's driving our engagement and our focus.

<unk>.

Thanks very much.

Thank you.

Thank you. Our next question comes from the line of Mark Murphy from Jpmorgan. Your question. Please.

Yes, Thank you and I'll add my congrats on a great quarter.

First question for Chris and Rob I Am curious, if youre seeing any mix shift between the C.

T X and <unk>.

Bookings patterns basically mean interested if the effects of the pandemic and then reopening the great resignation you mentioned.

And companies dealing with hybridize workforces is it causing companies to re prioritize the employee.

Sentiment and employee relationships a bit more than previously.

I think.

That trend is absolutely there we're seeing.

Employee retention employee hiring becoming a CEO priority. So the conversation around that is elevated within the customer.

They were talking to which is fantastic.

And so definitely seeing momentum on the ESG side, and that's being reflected in our numbers and we're really pleased with that and that's a trend we only expect to continue going forward.

That product being really timely and really impactful for Ferrari.

Our customers and so that's definitely a trend.

Okay.

Understood. Thank you and zig as a quick follow up you mentioned what sounded like very aggressive plans to I think you said to double head count in EMEA.

To quintuple in a P J by by 2024.

And I think you typically revenue tracks pretty closely with head count for software companies.

Those are those are big numbers or are you seeing more robust signals internationally. There may be driving you to want to hire so rapidly there.

Well look I mean, we're investing for growth.

That's been part of our operating equation for quite a while and we tried to do so in a way where it enables durable growth over time.

And that's the whole purpose behind that I think there's also really good evidence of the examples of what our customers are seeing and what they're wanting to do with our platform.

The names that I had called out.

The earlier summary, I think represents that and we're continuing to see momentum and that's what we're doing we're investing for the future.

Thank you.

Thank you. Our next question comes from the line of Terry Tillman from true Securities. Your question. Please.

Yes, thanks for taking my questions in my preamble is congrats as well from me and also good luck Tonight with the jazz opener.

Two quick questions.

And I don't know if this is for zig or Chris, but I really enjoyed that October 19th press release, it was talking about like bad customer experiences and the correlation to revenue impact in law.

You'll see a reduced loyalty and there are industries that probably didn't want to be where they were on that list like the Isps government mobile phone companies and then further down like the fast food screening in supermarkets actually were in the press release it sounds like right now.

But I'm curious like is you're seeing strength in the new logos or existing customers that are really wanting to further.

The lean into this are you seeing a more recent pattern recognition on those that aren't getting it right right now on NPS or bad experiences and they're feeling like hey, we got to do something or does it tend to correlate more with the ones that are at the bottom of that list in that press release in terms of they tend to be the ones that are really spending more money on your software right now and then I had a follow up.

Yes.

Good to read the press release and some of the context that I also believe it comes down to the leadership.

In every major industry.

Who the company is in every industry there are.

The leaders who are transforming.

The ones that are disrupting and then there is the ones that are.

Kind of Iterating their way through.

What I will tell you is we're seeing.

And a heightened level of focus on getting.

People's arms around not just seeing what the experienced metric is but the actions that are being taken.

And so I think more than ever we're seeing people.

Realize that there's a very low tolerance for.

Poor experiences the switching costs are super low for consumers and their ability to be able to switch from one provider to another.

You know, obviously that the war for talent being able to keep your employees. How do you run your company now you're organized.

And in a way where experienced deeply matters and it's not just a function of what physical environment people come into but there's a lot of other factors that are in play.

And so it's completely rewiring the way that people think about running.

Their organization, regardless of the industry that they're in.

And all.

They should types of things are heightened attention and saying like what you've got to operate a little differently, you've got a sort of step back and say how do you look at things from an outside in perspective.

You need the right tool to design, the right experiences and not take eight months to do so.

<unk> matters agility matters.

Being able to scale decisions.

You were making on rewiring the way your product is being delivered into the market, making decisions that are time sensitive given what's going on with supply chain issues.

Making decisions around how do you attract a new part of the workforce that you need to get more than your fair share of the market of people that are out there looking to switch jobs as an.

An example, and more than anything is operational Isaac.

Customer experience side of the equation to basically make the systems that you've invested in your CRM Youre marketing automation system. Your workflow engines make those things actually performed and are much more focused way based upon that customer.

And Thats. These are these are all of the dimensions that.

Set up the <unk> experience management platform and how we built it.

Z solve problems in a much more relevant than ever and that's also partly why youre seeing the move around consolidation and also.

People, taking on more and more of a use cases of the platform.

Got it that's great. Thanks, I guess, Rob just one quick in terms of its kind of been a repeated thing that you've been talking about it and it's been good in terms of the contract duration lengthening both on renewals and new customers.

How are you thinking about that into the fourth quarter of next year or do you still have some.

More of that to come thank you.

Yes.

What are you still expect a bit more of this when we see a bit of runway for several quarters, given the fact that we've called it out for each quarter since.

Since our IPO, we'll certainly be clear with with this group and publicly around when we see that actually tapering off.

But we do see that continuing for some.

Quarters.

Thank you. Our next question comes from the line of D. J Hynes from Canaccord. Your question. Please.

Hey, Thanks, guys and congrats on the awesome results.

Just one from me is there a way to think.

The mix of quantitative versus qualitative experience feedback that you deliver to customers and maybe how that might change with clearbridge in the.

The reason I asked right. There are a handful of companies out there kind of focused on the experienced narrative, which is a bit different than what youre doing today. So curious how you see that mark.

Market and whether it fits in with the Quadrex vision.

Yeah, we are our platform enables both Paul and corn.

And the mix of both.

So for example, as you learn more about the experience of a particular stakeholder particular customer segment for <unk>.

About.

Sure, let's say designing a new product and you want to test. It you want to do a b testing you know you Youll youll use our platform to own in zoom and Theres also.

System of partners that are building on top of our platform that extend specific.

Say, sometimes industry specific use cases.

Mrs.

And so that's also the beautiful thing about our environment is it because it creates consistency speed and you leverage the same dataset.

And then probably most important is like what do you do with that information you can do quantity Paul.

Maybe to design a product.

How do you put that into the market how do you get it right in terms of the positioning of the branding around packaging.

The beautiful thing about that is is that we enable that whole lifecycle right.

And then once you put it in the market how do you keep tuning it and.

Making sure that you're not only getting it right with one customer but getting it.

Right with a different segments of customers in the moments that matter the most.

Or different types of customers and that's where the actioning and workflow part of our system is a massive differentiator and I would say probably most important is what this platform does why don't you have quantity quality data and you've got statistically significant information about what to.

To put it into action operationalize it make a difference for our company.

So that's.

That's part of the design points of how we've been operating.

Got it okay. Thank you.

Thank you. Thank you. Our next question comes from the line of <unk> Kim from loop capital markets. Your question. Please.

Oh, Thank you hey, congrats on the quarter I have a question on the experience of I D. Can you just talk about the monetization strategy, there and how it fits with your XM directory product that you have and then also strategically is this really.

To drive broader adoption of your existing pollution.

Or are you looking to or it's a precursor to more new products.

That's going to be really takes advantage of that.

Yes, thanks for asking.

Periods ideas, a major renovation in our platform and build on the XM directory.

Frankly.

It sort of becomes the supercenters.

We have about 4 billion profiles today in our <unk> directory the experienced <unk> takes that forward at <unk>.

<unk> capabilities from Clara bridge and for users and from user mind.

It captures every form of customer feedback so from the call.

Senator transcript the social media posts product reviews survey data.

You can pull in data from.

Third party platforms into the system. It helps teams to understand and individuals' emotion efforts intent in.

And here's the thing across the entire journey within our company.

And.

Frankly, a customer based upon different segments, you've got segmentation.

Got journey orchestration, so sounds like Youre, just visualizing a journey or actually.

Putting into an operating system the ability to now scale of what happened in this win.

One customer has a great experience out of you accentuate that way or another type of customer.

And of that our customer segment might have something that is.

Negatively affecting what would be expected and how do you action on that and create workflow quickly. So ex ideas. This core this core kernel, where you start to understand.

A more authentic more intimate.

Understand.

Customer I mean, what the relationship opportunity is.

The organization and the customer of the employee right and then how do you end up operationalized that at larger scale given the fact that not every human being is the thing you got different segments. We've got different things that people expect given where they might be in their lifecycle with that.

Customer.

So how we monetize that is part of the platform. It actually enables the applications that are built on top of the platform.

And there is effectively a different level of functionality that we deliver through the packaging of apps that are built on the platform. So here's a differentiator.

Friendship and.

This is why it's been built into the <unk> operating system.

Okay great.

Should we expect to.

See more new releases of product that leverages that or do.

Do you expect your existing solutions to take advantage of that technology.

Well, we already have solutions that are taking advantage of it and certainly will be part.

So we're very very excited about what we're doing with this capability and frankly, how it just changes the game around how customers built deeper relationships with their own customers and employees.

Sounds.

Looking forward to it Rob I have a quick question on strong net expansion rate you already.

Explained a lot of it but how.

How much did early renewals contributed to that strength in that number.

Yeah, there's no material impact here to the early renewals if you look into the calculation methodology.

It's a revenue based metric that we use so what youre seeing is the revenue derived from the customers over the last one year period compared to that same cohort and the year prior or is the 125% greater.

Gotcha, So I am assuming if there are renewing they're renewing at a much larger.

Hum.

And there you can see when you.

Central to this right. The it is the same.

Same customer cohort or group of customers are now at 125% spend compared to where they were a year ago prayer.

Great. Thank you so much.

Thank you. Our next question comes from the line of RJ pertain from William Blair. Your question. Please.

Thanks.

I had a question for you I want to.

Clearbridge again.

Certainly seems like an ambitious vision to compare.

To combine routers listen I'm closer to feedback.

I would love to hear how mature are you seeing your customers are in their data strategy needs to be able to marry those closer to the feedback that we're getting from corporates with the unsolicited feedback from social contact center et cetera, our customer.

<unk> there already or do you anticipate that you'll have to maybe guide them through through how to best leverage them implement those data strategies.

Yes, so the beautiful thing about our decision to take the next step with Clearbridge is that we've been partnering with them for four years.

And I think through that.

Also.

Had about 40% of the.

Clare Bridge customer base was also using contracts and we have a lot to learn from that.

So this is simply accelerating what customers were already doing and wanting to expand into.

More use cases, and it frankly more customers.

I need to take advantage of the combination of the two systems and also you know one of them don't reiterate is <unk>.

Although respect that we built for the Clearbridge team and the <unk> technology, as we work with them and realized.

How much depth of innovation IP was in that platform.

And that frankly.

The combination of bringing that together under one roof connecting that to be <unk>.

Unlock new opportunities in the marketplace as well as in the way that customers can use the system.

Okay.

And then maybe.

A follow up.

So it was a pretty.

Nice new logo side and you mentioned some of those.

New logos on the call as well can you just talk about how the landing point has changed are you seeing customers buy the empower platform upfront are there maybe landing more with employee experience giving out.

How much elimination, that's getting into the C suite, how should we think about.

Landing ACB there at all.

Sure.

Yes, great question, a lot of the logos that we.

We mentioned on the call a lot of them were expansion, we see a lot of fixed that from customers who get onto the platform team see value and then grow their spend I think you're also seeing that reflected in the 125% net retention.

Right.

Demonstrating continued strength along those lines.

But we are also seeing new customers come come in so continue to see I wouldn't say, there's been a material shift other than just overall increasing momentum.

But just recently I think about a recent conversation with a customer who had such a great experience on.

Boy experience.

Implementation, how about how fast they got up and the value. They got that it just made it so much easier to have the conversation about expanding to a companywide did you see any type of program, where I'm, even though they aren't fully connecting the two the success they have seen with the platform it makes them more likely.

Need to choose us for additional products and expansion and increases our win rate when that occurs.

Perfect. That's very helpful. Thank you and congrats on the quarter.

Thank you.

Thank you our final question for today comes from the line of Shelby Sorry, Rafi from F. B N Securities. Your question. Please.

Yeah. So thank you very much my question is on the organic revenue.

If you assume 18 million and clearer bridge revenue for Q4. It appears that the organic revenue growth will decelerate about 10 percentage points to 31% from 41% in Q3, I don't know how much of that is conservatism versus other.

Other factors.

Yes, thanks for the question.

I think you've gathered this from our tone in the Q&A and also in our prepared remarks, we're really pleased with the outstanding results delivered in Q3 and also really pleased with the updated guidance in Q4 and for the annual.

Period, if you look at our annual guidance.

We provided last quarter, we're raising that guidance by $48 million.

For the full fiscal year and I can break that down for you quickly $18 million of that is declare a bridge that we disclosed 13 and a half million dollars of that.

Is from the performance that we had in Q3 and there's an additional raise in there of 16 and a half million indicative of the strength in the business that we're seeing and if you. If you take a look at the total then take a look at the subscription revenue with Clearbridge, we're guiding that at 51%.

If you do take that Clearbridge portion out regarding the subscription revenue up 42%. We continue to see great strength in that subscription growth I'm really pleased with the guidance that we have now for the full fiscal year.

Okay, and one more the net retention rate very impressive you were up 120%.

About a year ago do you think you can maintain the mid $1 20 for the foreseeable future.

Yeah. When you look at us historically, and I know, you're doing that you'll see that stability at above 120% and given the market opportunity that we have and the customer base that we have we do see.

See stability above that 120% Mark.

Okay. Thank you.

Yep.

Thank you everybody for joining us.

This does conclude the question and answer session as well as today's program. Thank you everyone for your participation you may now disconnect good day.

Right.

[music].

[music].

Thank you for standing by and welcome to the <unk> third quarter fiscal year 2021 earnings Conference call. At this time, all participants are in listen only.

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 as a reminder, today's program may be recorded I would now like to introduce your host for today's program Steven Woo head of S. P N E and Investor Relations. Please go ahead Sir.

Thank.

Thank you and welcome to call <unk> third quarter fiscal year 2021 earnings conference call on the call we have zig Derek Van <unk>.

Chris back debt, 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.

Sound on the call <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 forward looking under federal Securities Law. These statements reflect our views only as of today and should not be relied upon as represented by our views as of any subsequent.

What date we.

We disclaim any obligation to update any forward looking.

Let's 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 further discussion of the material risks and other important factors that could affect our financial results. Please.

Refer to our filings with that 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 September 32021 that will be filed with the SEC with that I'll turn it over to <expletive>.

Thank you Steven.

Evan.

Also thank you everyone who's joining us here today.

Q3 was an outstanding quarter and our strong momentum continued as revenue in the quarter rose to $272 million, which is up 41% year over year subscription.

Subscription revenue rose to $220 million.

Up 49% year over year.

And we ended the year with more than $782 million in current remaining performance obligations.

58% increase year over year, and we're in the midst of a massive shift in how companies engage with and build relationships with their customers and their employees.

And this shift is fueling the $60 billion plus Tam for experienced management, our leadership position has never been stronger as we continue to innovate and define the category that we created and as companies accelerate their adoption of <unk> across industries. Let me give you just one.

Paul.

Which is from this quarter peloton, they're phenomenal company there.

We're transforming the fitness world by delivering an incredible member experience peloton is a longtime customer and in Q3 they.

They standardized on Quadrex as they are experienced management platform one of our core values.

That's over every touch point of the member experience I loved us.

They're using qual tricks to listen to their community across these touch points and then their share feedback across the entire company.

This drives their strategic priorities and then allows them to be able to improve member journeys at every turn.

<unk> is about forging deep relationships between the organization and the people who matter, most which are the employees and their customers.

We have a single cloud native platform that allows companies to bring together all of their experience data and their operational data across the four core experiences any business.

Customer employee.

<unk> and brand.

And the services that we provide.

Going to transform retail travel and entertainment to re imagine student experiences in K, 12, and higher Ed and to manage critical vaccination in health services around the world in Q3.

Market leaders like crowd strike door dash.

<unk> been NASCAR, the MBA service now and many many more also chose <unk> to help them drive their experience transformation and for these customers experienced management has never been more important people are sharing their feedback about companies.

Everywhere, both directly and indirectly that's happening in support conversations chat social media posts.

<unk> reviews, and dozens of other places.

With our acquisition of Clare Bridge.

The leader in Omnichannel conversation analytics, we can help our customers.

Discover what's being said about them across all of these unstructured sources.

This feedback exist such as scale.

Without Clair ridge companies might never find the meaningful actionable insights that drive business outcomes. So this acquisition.

Along with our acquisition of journey orchestration liter user mind.

But as they've been in a stronger position to listen and act on experience data.

We're already integrating the strength into our newest platform innovation experience I D.

Experienced E delivers a single unified view of all the feedback customers and employees want our company to know about.

About them over time.

It enables companies to zoom in on the detailed preferences of individual customers to personalize their experiences.

Then they can zoom out.

Powerful views by segments, such as teams or geographies to identify new market opportunities, while also giving companies the ability to build deep trusted.

Relationships at scale. So for example in Q3, we expanded our relationship with dish network to build an industry, leading customer experience program across the companies pay TV and consumer wireless brands dish has been rated number one in customer satisfaction by J D power.

<unk> and their own customers for the last four years.

And they are building on that momentum to design the same trusted experience for their wireless brands and now they're adding employee XM.

To better connect employees to their customer centric culture and to help just to attract and retain talent in.

In an increasingly competitive.

<unk> market.

It's clear that our product strategy is working and as we continue to innovate across our platform to keep all of our customers. A step ahead for example, even before the White House proposed vaccination mandates for large U S employers.

We released our employee experience vaccination and testing product.

Help organizations navigate this new phase of the pandemic.

This product allows customers to securely confirm vaccination status collect test results and then screened for COVID-19 symptoms all on our axon platform.

And customer demand has been unparalleled.

Also.

On the employee side.

Great resignation has made retaining talent. Many CEO is top priority. So in Q3, we launched <unk> 25, which gives organizations a real time predictive view of the 25, most impactful engagement and retention drivers like Trust safety respect.

And work life balance and.

And on the brand experience side, we launched brand impact simulator to help companies identify the right mix of brand attitudes and strategies to improve key outcomes like customer acquisition website traffic and subscriptions.

Our ecosystem continues to grow in Q3.

<unk> E Y wants the dedicated competency to drive and an experienced management solutions from strategy.

Design and enablement to implementation all combining <unk> professional services and <unk> technology. We also partnered with <unk> to <unk>.

The first of its kind.

<unk> product in managed workplace services to drive employee engagement and productivity with real time insights.

And a new partnership with global HR consulting firm Mercer.

It is helping top brands better understand their employees. So they can develop impactful benefits programs during a crucial time for.

Employee retention and hiring.

We continue to see strong international growth.

The demand for experienced management grows around the world in the quarter customers, including Kyoto University <unk>.

Kadow Libre.

And I'll post Repsol Sky and YMCA, New South Wales, all chose QUADRA.

Tricks to power their experience transformations.

And we're investing locally to support our growing customer base in EMEA in Q3.

We announced plans to more than double our EMEA workforce by 2024, and opened and expanded headquarters and R&D Center in Dublin early next year we're.

Also expanding in a P J and announced plans to grow our local employee based in a P. J by more than five X in 2024.

We also just opened up our.

Regional headquarters in Sydney and in your data center in Singapore to <unk>.

Serve our customers across the region.

In closing.

We had another quarter of.

Exciting employee growth in Q3, we had we added 485 new employees.

And we have hundreds of open positions around the world at <unk>, one of our core values is operating as one team and everything that we do.

That was on display in Q3 from our leadership team to our new Q3 hires.

I am incredibly grateful.

For the talented employees that we have.

It's the right team building on the industry, leading XM platform.

And to all of our customers.

Thank you.

We're continuing to trust us and enabling experienced breakthroughs for your own employees and customers.

Have a great future ahead, as we grow together and with that I'm going to turn it over to Rob to talk about the numbers.

Thanks, <expletive> and good afternoon, everyone today I'll cover our Q3 results and our outlook for Q4 Q3 was another outstanding quarter, because we had strong performance on both the top and bottom.

Total revenue was 271 $6 million in the third quarter up 41% year over year subscription revenue in the third quarter was $223 million up 49% year over year, driven by both strong new business sales and expansions for us.

Personal services and other revenue.

Revenue was $51 $3 million for the third quarter, representing 15% growth year over year.

Our remaining performance obligations, representing all future revenue under contract ended the quarter at 136 billion up 67% year over year. This metric includes both new.

New and renewal software contracts, along with our professional services business.

Current remaining performance obligations, which is all future revenue under contract that is expected to be recognized as revenue in the next 12 months was 781 $5 million up 58% year over year.

Current and total <unk> continued to benefit from a lengthening of average contract duration for both new customers and renewals.

In Q3 strong expansion across our customer base drove our dollar based net retention rate to 125% customers spending more than $100000.

In annual recurring revenue grew 38% year over year to 1668 customers.

Turning to margins, our Q3 non-GAAP gross margin was 79% approximately 262 basis points higher than the year ago period. This increase is mainly due to the continued.

To shift towards subscription revenue and higher gross margins in our professional services business.

Subscription has increased from 76, 9% of our total revenue in Q3 of 2020 to 81, 1% in Q3 of 2021 as we focus on driving source.

Softer 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 third quarter was $13 $3 million, resulting in a non-GAAP operating margin of four 9% compared to one 3%.

<unk> in Q3 of 2020 this expansion was driven by our strong topline performance.

And overall gross margins.

Operating cash flow for Q3 was $4 million compared to negative $90 million in the year ago period free cash flow in the quarter was negative $13 1 million.

Compared to negative $172 million in Q3 of 2020 due to operating margin expansion and significantly lower cash payouts related to equity based awards too.

$2 $9 million of cash flows cash outflows in Q3 was related to the cash settlement of stock.

Based payment liabilities compared to $96 $9 million in the year ago period.

As a reminder, free cash flow may fluctuate on a quarterly basis due to the timing of cash collections and we believe it's best to assess our cash flow performance over a longer term.

We ended the quarter in a strong cash position with approximately.

<unk> $589 $9 million in cash and cash equivalents.

Turning for a minute now to declare a bridge acquisition. Please note that the acquisition closed on October one.

Clearbridge results are not included in our Q3 results, but are included in our Q4 guidance as part of the.

The purchase price accounting the acquired deferred revenue will be written down significantly gross and operating margins will be negatively impacted by this write down because for a period of time, we will incur 100% of the expense, but won't recognize 100% of the revenue.

Moving now to our Q4 and fiscal year 'twenty.

2021 business outlook, we expect total revenue for the fourth quarter to be $296 million to $298 million, representing 39% growth year over year at the midpoint within this we expect subscription revenue to be in the range of $242 million to 244.

$4 million, representing 51% growth year over year at the midpoint Clearbridge is expected to contribute $16 million in subscription revenue and $2 million and professional services revenue in the fourth quarter after adjusting for the purchase price accounting of deferred revenue.

We expect non-GAAP operating margin in the range of negative 1% to zero percent and non-GAAP net loss per share of <unk> to two settings, assuming 550 million weighted shares outstanding.

For the fiscal year 2021, we expect total revenue in the range of 1.15.

<unk> 6 billion to $1 $8 billion and subscription revenue in the range of 854 million to $856 million at the midpoint of the ranges. This represents a subscription revenue growth of 49% year over year and a total revenue growth of 38%.

Percent year over year, respectively.

We expect non-GAAP operating margin in the range of two five to three 5% we expect a non-GAAP.

Net income per share between <unk>, and <unk>, assuming 515 million weighted shares outstanding longer term as.

As we execute on our growth strategy, we believe that our best in class subscription gross margins will provide the leverage and flexibility to continue to invest into this large market opportunity. We believe this investment will provide durable and sustainable long term growth.

Thank you for joining today's call with that Zig.

Chris and I are happy to take your questions and we'll turn it over to the operator.

Certainly once again, if you have a question at this time. Please press Star then one our first question comes from the line of Raimo <unk> from Barclays. Your question. Please yeah, Congrats it's amazing quarter.

Can you just talk a bit about the.

The acquisition.

In the broader context, again, a little bit like how broad broadly applicable will that be.

How do you see this kind of going into market with what you're offering at the moment versus where you could expand into so.

It does seem like it's opening up a big Avenue for you. Thank you.

Great question and thank you for asking so first off we have published materials, when we announced the acquisition.

It's important to get that context, as well, but I'll summarize which is.

Number one the acquisition of Clare Bridge.

And of course, we also acquired user mind.

If you look at the combination it just strengthens our position as the number one experienced management platform.

What it does it helps organizations to even more deeply understand what their customers and their employees are doing to be able to ultimately advance experiences for those core.

Stakeholders.

So looking at Clearbridge their the industry, leading AI powered MLP.

Your language processing natural language understanding capability that when it comes to experiential data.

And infused into our platform it will help people to be able to capture actionable insights.

But any form of customer interaction any form of feedback channel could be social could be product reviews. It could be chat call Center contact center conversational based interactions that are taking place.

If you think about Patrick's Quadras system that helps you to be able to ask the right question at the right time.

Based upon the context of what.

Human being is doing customer and employee Clare bridge basically captures and connects with what people are sharing regardless of what's been asked it's what they volunteered to tell people through different channels.

What's their intention what are their emotions.

And that often comes in.

<unk> of unstructured signal unstructured data right so that combination.

Just changes the games on the capability set that is available in the market and experienced management.

Your mind I'll be very brief on that.

<unk> is a journey orchestration system to powerful platform advances and accelerate.

In the form of work that we've been doing organically in our system the.

The combination of these two capabilities are nicely connected to the innovation we have around the experience.

And we think that the combination of those technologies, both what we're doing that experienced I E. Further advances people's ability to be able to.

Some of the deeper relationships with customers as well as employees.

Very exciting thank you well done.

Thank you.

Thank you. Our next question comes from the line of Brent <unk> from Piper Sandler Your question. Please.

Thank you.

The first one for zig here with three straight.

<unk> buildup of better than 45% subscription growth certainly impressive I guess what stood out to me. This quarter was the net retention rate of 125%. That's now above pre COVID-19 levels of 122 can you just talk a little bit about what is driving that is it just really stronger attach rate of.

Quarters experience.

Trying to understand what is driving this.

These net retention rates to go above pre COVID-19 levels.

Sure Great question. Thank you first off.

The underlying technology as we've said all along is so important.

Platform.

Employee designed to unlock value where speed for our customers. It's a single code base it.

It's been designed to very simply allow new use cases, new innovations not only for us and what we deliver to the market, but also about customers are able to do it.

This is a really important differentiator.

Form there.

We're not stitching together.

A combination of different things that have been built over a long time, it's been a very intentionally designed and even as we acquire.

Some specific places youre going to see us plug that into the platform.

Customers actually you can get high utility and quickly given the underlying functionality.

<unk> and how that works within the underlying ex MLS. So that's point number one point number two is that the fact that you can turn on capabilities around employee experience and there's a whole portfolio of capability there.

Along with customer experience product experience, you are seeing more and more customers.

Reality, finding value in other departments, which opens up opportunities in other budget centers and we're able to uniquely accommodate that frankly quickly as people look to get more and more utility out of the platform and the fact that these products are running on that single system.

It is also unique advantage third thing Theres a market.

Solid Asia.

And we're finding more and more examples of cases, where legacy vendors point solutions.

Have decades old architecture.

Or frankly limited in their ability to.

Supply some of the capability that customers want.

They're being replaced we had several large examples of that in this quarter in many many many other examples where people are consolidating and and again as we've said in previous earnings calls is really well suited to meet the enterprise demands of customers as they make consolidation decisions where they could.

Want enabling the use of the system as an enterprise standard that goes alongside CRM and HR systems.

Certainly seems to be resonating with customers and just one quick clarification.

Rob on the Clearbridge I think at the time of acquisition, you talked about that as a $100 million business growing 25%.

And up and you're guiding to I think $18 million contribution in Q4.

Purchase accounting is that the right run rate should we think about this as an $80 million kind of business next year contribution to revenue next year.

Yes, Thanks, Greg.

Thank you I think youre on the right track here as mentioned in my prepared prepared.

For sandbox, we do have that significant write down to the deferred revenue and that impact Q4, as well as several quarters beyond that so if you were to annualize the $18 million guidance and then apply a 25% growth rate as we previously indicated youll get approximately 90 million.

Byrd referred the business and in a range of $90 million to $95 million would be a good initial estimate for 2022.

Helpful color. Thank you all.

Thank you.

You. Our next question comes from the line of Keith Weiss from Morgan Stanley. Your question. Please.

Thank you. Thank you guys for taking the question.

Maybe sticking on the topic of Clair Ridge really interesting.

Acquisitions by you guys really opening up the scope of.

The data that's being brought into the system and then you guys can sort of run your.

AI models and machine learning models against.

Hum.

Probably for is it more of a product question is is there any guidelines, we should think about on a go forward basis like what type of data at the right data to bring into the.

The broader kind of X M system.

What would be out of bounds like is there a kind of data types, we shouldnt be thinking about like as you guys increase that scope over time.

And then for Rob I guess clarification question I appreciate that the $90 million to $95 million for calendar 'twenty two.

Thinking about those deferred revenue impacts so there's a deferred revenue write down isn't it most stark in the first quarter out of the gate and then Mike as those customers get build over time, the deferred revenue impacts 10-Q fade over time, so should we.

Time of fading of that deferred revenue write down over the next couple of quarters.

As you sort of rebuild those customers if you will.

Okay. So let me take the first part of that and I'll, let Rob speak to the second so this is <unk> here.

So first off the type of data.

But.

Thinking about <unk> platform is extremely impressive we've been working with them for the last four years.

My own background as you know.

Partly as I've spent time in the natural language understanding area and there is something deeply to appreciate about how the <unk> team has built the platform focusing on.

The trees. There was about 150 industry models that can analyze text and speech using deep in specific industry use cases.

They can capture important nuances in conversational context.

As well as just basically any form of unstructured.

Information.

In addition to the idea of applying that to industry specific center like say, a healthcare insurance provider.

What that provider.

The signal might be between the provider and a member.

Or between an online shopper and a virtual associated on a chat.

They have unmatched capabilities in the marketplace in.

But to be able to hone in and be able to not just to understand and analyze the words, but having the ability to leverage the power of discover it understand critical human nuances such as effort and motion intent Where's the friction.

And so there is nothing like that in the market that's operating.

This level of scale 23 language 23 languages plus that system supports.

And so the form of data can be any form of human expression of what's you're actually yeah.

Using that technology to indicate.

Something about an experience.

<unk> hopes to be able to connect more with what human beings are telling you indirectly and that can be applied to social context. It can be applied to chat it can be applied to contact centers.

Theres other use cases, we've seen inside companies, where they want to be able to pull in data that they have access to through behavior.

Behavioral browsing.

Veterans and they want to be able to better understand use cases in that sense. So we're not going to limit that but at the same time. There is some really natural places, where we're able to advance what our customers are doing today and give them even more value.

And that was part of what we had outlined when we announced the acquisition, where we said look.

Patrick <unk>.

To this point, we've helped companies to be able to engage with their stakeholders their customers and their employees by asking the right question at the right time in the context of what that person is doing and now what we're doing is we're enabling the ability to discover.

The hidden signals and other things that are.

If you think people are telling you in the context of customer care in the context of the digital experience on our website or in an app.

At the same time that same capability can be used.

With specific models for what's going on around your brand, what's going around employee experience scenarios as an example, as well so.

Things that we are well positioned to <unk>.

Accelerate some of the things that they've been able to do with the technology by applying it to products that we built which will unlock more value for customers. So that's how we think about it.

Rob I'll take the assessment.

Thank you. Thanks for your question Yeah there.

There is some modest fading of that deferred revenue haircut overtime and so agree with you on that point the range that we've provided accounts for some of that and what we've indicated that $90 million to $95 million.

Okay. Thank you.

Thank you. Our next question comes from the line of Cook maturity from Evercore ISI. Your question. Please.

Hi, yes, thanks, very much and congrats on a nice quarter Zig I was wondering actually if you could talk a little bit about the appointment of your Chief Medical Officer, who I believe starts next month with you all I just thought it was interesting you guys.

Amazing our horizontal platform, but that appointment seems to also indicate that theres certain experiences in certain verticals that it might make sense to have more domain expertise around in health care, but in this case I was just kind of curious how we should think about that appointment relative to your maybe efforts in other verticals going going.

Going going forward or if this is sort of a special case and obviously that's somewhat unique industry. Thanks.

Yeah, Great question, Thanks, Steve first off.

Industries are very important to us and.

It's the fact that we built our platform to generally serve a very wide number.

<unk> industries is an advantage and that shows up in the growth in wavelengths ecosystems, forming around our system that said there are many industries, where we go really deep again, my reference point earlier to the clearer, but just kind of topic, where the 150 industry specific models creates.

Creates further differentiation in these models are built overnight.

They've been built over many many many years and they are tuned in as a tooling environment and so that becomes something that further accelerates our strengths.

Health care specifically.

We hired Dr. Adrian Boise.

Who comes from the Cleveland Clinic, and she is a practicing neuro.

It just.

Really well known and highly respected leader.

And healthcare is an area that.

He is deeply important to us as an organization to us its people its part of the culture of <unk>.

And.

Frankly, it goes back to the roots of the company in some respects around.

And what we want to do to be able to advance the health care experience for people, but we're also finding that many of the companies and health care providers.

Both on the practitioner side.

As well as on the patient experience side.

Look at the power of our platform as an opportunity to partner deeply.

Just with that industry, and ultimately advance things and so a doctor Adrian Boise is going to be playing an important role in that.

I think this is building on momentum that we have in that industry today.

And this is simply another very important step that we're taking along that path. So Chris do you want to elaborate a little.

With respect sets here as well.

I just had I had the privilege of meeting with Dr. Boise and her long held passion for the patient experience and the importance of transform this it's just refreshing if you watch some of our Tedtalks.

Really inspiring to see how long she's been at work advocating for it and so the opportunity to.

I'm joined with <unk> to use technology to further advance that is that is there in an industry, that's absolutely transforming and we see that market alone.

Just tremendous.

For us in terms of if we think about the future for what this can be for the patient experience. So just just really excited about what she brings to the.

It <unk>.

And help us to win in that space and to have an impact there are certain industries, where you're seeing digital transformation opening up a complete experience transformation.

And there are some there is.

Massive inflection points that are underway I know, it's a health care is a really good example of that.

Table, where the patient experienced the provider experience.

Is undergoing a massive transformation and that's partly what's driving our engagement and our focus.

Thanks very much.

Thank you.

Thank you. Our next question comes from the line of.

Right now <unk> from Jpmorgan Your question. Please.

Yes. Thank you.

Add my congrats on a great quarter.

First question for Chris and Rob I Am curious, if youre seeing any mix shift between the CX and <unk>.

Bookings patterns, basically mean interested if the effects of the pandemic.

Mark and then reopening.

Great resignation you mentioned.

And companies dealing with hybridize workforces.

Is it causing companies to re prioritize the employee.

Sentiment and employee relationships a bit more than previously.

I think.

That trend is absolutely there we're seeing.

Employee retention employee hiring becoming a CEO priority. So the conversation around that is elevated within the customers that we're talking to which is fantastic.

So definitely seeing momentum on the <unk> side.

And that's being reflected in our numbers and we're really pleased with that and Thats a trend we only expect to continue going forward.

With that product being really timely and really impactful for for our customers and so that's definitely a trend.

Okay.

Understood. Thank you and zig.

Syed and follow up is you mentioned what sounded like very aggressive plans to I think you said the double head count in EMEA.

And to quintuple in E. P. J by by 2024, and I think you typically revenue tracks pretty closely with head count for software companies. So.

Those are big numbers are you seeing more robust signals internationally, there may be driving you to want to hire so rapidly there.

Well look I mean, we're investing for growth that's been.

Our operating equation for quite a while and we tried to do so.

Those away, where it enables durable growth over time.

And that's the whole purpose behind that I think there is also really good evidence of examples of what our customers are seeing and what they're wanting to do with our platform.

The names that I had called out in the earlier summary, I think represents that and we're continuing to see.

And that's what we're doing we're investing for the future.

Thank you.

Thank you. Our next question comes from the line of Terry Tillman from true Securities. Your question. Please.

Yes, thanks for taking my questions in my preamble is congrats as well from me and also good luck Tonight.

Momentum has opener.

Two quick questions.

I don't know if this is for zig or Chris, but I really enjoyed that October 19th press release, it was talking about like bad customer experiences and the correlation to revenue impact in lost loyalty or reduced loyalty and there were there are industries that probably didn't want to be where they were on that list like the ISP.

With the government mobile phone companies and then further down like the fast food screening in supermarkets actually were in the press release it sounds like right now.

I'm curious like is you're seeing strength in the new logos or existing customers that are really wanting to further lean into this are you seeing a more recent pattern recognition on those that aren't getting it right right now on NPS.

The bad experiences and they're feeling like Hey, we got to do something or does it tend to correlate more with the ones that are at the bottom of that list in that press release in terms of they tend to be the ones that are really spending more money on your software right now and then I had a follow up.

Yeah.

It's good to read the press release and some of the context that I also believe it comes down.

So leadership.

In every major industry and who the who the company is in every industry. There are leaders who are transforming there's ones that are disrupting and then there is the ones that are kind of iterating their way through.

What I will tell you is we're seeing.

And a heightened level of focus on getting.

People's arms around not just seeing what the experienced metric is but the actions that are being taken and so I think more than ever we're seeing people realize that there's a very low tolerance for.

Poor experience.

Switching costs are super low for consumers and their ability to be able to switch from one provider to another.

Obviously that the war for talent being able to keep your employees. How do you run your company now in your organization in a way where.

<unk> are deeply matters and it's not just a function of what physical environment.

Is that still come into but you know there's a lot of other factors that are in play.

And so it's completely rewiring the way that people think about running.

Their organization, regardless of the industry that they're in.

And all of these types of things are heightened attention and saying like what you've got to operate a little differently, you've got a sort of a step back and say.

But if you look at things from an outside in perspective.

You need the right tool to design, the right experiences and not take eight months to do so.

<unk> matters agility matters.

Being able to scale decisions that you're making on rewiring. The way your product is being delivered into the market, making decisions that are.

Time sensitive given what's going on with supply chain issues.

Making decisions around how do you attract a new part of the workforce that you need to get more than your fair share of the market of people that are out there looking to switch jobs as an example, and more than anything is operationalized in the customer experience side.

Our equation to basically make the systems that you've invested in your CRM Youre marketing automation system. Your workflow engines make those things actually performed in a much more focused way based upon that customer.

And that's these are these are all of the dimensions that.

Set up the Opex experienced management.

How we built it to actually solve problems in a much more relevant way than ever and that's also partly why youre seeing the move around consolidation and also.

People, taking on more and more of a use cases of the platform.

Got it that's great. Thanks, and I guess, what I was just real quick in terms of its kind of been a rope.

Management thing that <unk> been talking about and it's been good in terms of the contract duration lengthening both on renewals and new customers.

How are you thinking about that you ended the fourth quarter of next year or do you still have some.

Some more of that to come thank you.

Yes, we still expect a bit more of this we see a bit of runway for several quarters.

<unk> then the fact that we've called it out for each quarter since our IPO, we will certainly be clear with with this group and publicly around when we see that actually tapering off but we do see that continuing for several quarters.

Thank you. Our next question comes from the line of D. J Hynes from Canaccord. Your question. Please.

Hey, Thanks, guys and congrats on the awesome results.

Just one from me is there a way to think about the mix of quantitative versus qualitative experience feedback that you deliver to customers and maybe.

How that might change with Clearbridge and.

The reason I asked right. There are a handful of companies out there kind of focused on the experienced narrative, which is a bit different than what youre doing today. So curious how you see that market and whether it fits in with the contract Division.

Yes, we are our platform enable both Paul.

Okay.

And the mix of both.

So for example.

You learn more about the experience of a particular stakeholder particular customer segment for explorer instance.

And your let's say designing a new product.

Do you want to test it you wanted to do AB testing you'll appeal.

Paul and use our platform to own in zoom and there is also an.

The ecosystem of partners that are building on top of our platform that extend specific.

I would say sometimes industry specific use cases.

And so that's also the beautiful thing about our environment does is it creates consistency speed you leverage.

In the dataset.

And then probably most important is like what do you do with that information you can do quantity Paul.

Maybe to design a product how do you put that into the market. How do you get it right in terms of the positioning of the branding around packaging.

The beautiful thing about that.

The same we enable that whole lifecycle right.

And then once you put it in the market how do you keep tuning it and.

Making sure that you're not only getting it right with one customer, but getting it right with the.

A different segments of customers in the moments that matter the most.

Or different types of customers and that's where the.

As a setting and workflow part of our system.

Massive differentiator and I would say probably most important is what this platform does.

Quantum quality data and you've got statistically significant information about what to go do put it into action operationalized that make a difference for our company.

So that's.

That's part of the design points of how we've been operating.

Action.

Got it okay. Thank you.

Thank you queue. Our next question comes from the line of <unk> Kim from loop capital markets. Your question. Please.

Okay.

Oh, Hey, congrats on the quarter I'm I have a question on the experience can you just talk about them.

Operator consolidation strategy, there and how you think with your.

Some directory product that you have and then also strategically is this really.

To drive broader adoption of your existing pollution or you're looking to.

Precursor to more new products.

We leased six.

Our marketing team.

Yes, thanks for asking.

Baidu is a major new innovation in our platform and it builds on the XM directory.

Frankly.

It becomes the Supercenter, we have about 4 billion profiles today in our Exim directory the.

<unk> takes that forward it brings <unk> capabilities from Clare bridge and for users and from user mind.

It captures every form of customer feedback so from the call Center transcript the social media posts product reviews survey data.

Can pull in data from.

Expired party platforms into the system.

It helps teams to understand and individuals' emotion efforts intent.

Here's a thing across the entire journey within our company right.

Of that customer based upon different segments, you've got segmentation.

Got journey orchestration, so it sounds like Youre, just visualizing a journey.

The <unk>.

Putting into an operating system the ability to now scale what happens when.

One customer has a great experience out of you accentuate that way or another type of customer or customer segment might have something that is.

Negatively affecting what would be expected.

And how do your action on that and create workflow quickly. So ex ideas. This core this.

Core kernel, where you start to understand.

A more authentic more intimate.

Understanding of what the relationship opportunity is.

Queen and organization and the customer of the employee right and then.

And.

Operationalized that at larger scale, given the fact that not every human being is the same you got different segments. We've got different things that people expect given where they might be in their lifecycle with that customer.

So how we monetize that.

The platform it actually enables.

The applications that are built on top of the platform.

And there is effectively different level of functionality that we deliver through the packaging of apps that are built on the platform, it's a huge differentiator and.

This is why it's been built into the <unk> operating system.

Okay.

So.

Should we expect to.

See more new releases of product that leverages that or do.

Do you expect your existing solutions to take advantage of that technology.

Well, we already have solutions that are taking advantage of it and certainly will be part.

So.

Great very very excited about what we're doing with this capability and frankly, how it just changes the game around how customers built deeper relationships with their own customers and employees.

I'm still looking forward to it Rob I have a quick question on strong net expansion rate.

Thanks, Tom explained a lot of it.

But.

Much did early renewals contributed to that strength in that number.

Yes, there is no material impact here to the early renewals. If you look into the calculation methodology. It's a revenue based metric that we use so what youre seeing is the revenue derived from the customers.

One year period compared to that same cohort and the year prior.

Or is the 125% greater.

Gotcha, So I am assuming if there are renewing they're renewing at a much larger.

<unk>.

And there you can see when you.

Central to this right.

It is the same.

Over the same customer cohort or group of customers are now at 125% spend compared to where they were a year ago prayer.

Okay, great. Thank you so much.

Thank you. Our next question comes from the line of RJ pertain from William Blair. Your question. Please.

Yeah.

Yes.

Thanks.

I had a question for you I wanted to.

Clearbridge again.

Certainly seems like an ambitious vision to compare to combine rather solicited and unsolicited feedback.

Love to hear how mature you.

The customers are in their data strategy needs to be able to marry anywhere close to the feedback that we're getting from corporates with the unsolicited feedback from social contact center et cetera are customers there already or do you anticipate that you'll have to maybe guide them through through how to best leverage them implement those data.

Data strategies.

The beautiful thing about our decision to take the next step with Clearbridge.

Partnering with them for four years.

And I think through that.

Also had about 40% of the.

<unk> customer base was also using contracts and we have lots.

Lot to learn from that.

So this is simply accelerating what customers were already doing and wanting to expand into.

More use cases, and it frankly more customers wanting to take advantage of the combination of the two systems and also one of them got reiterate all the respect that we.

Bill for the <unk> team and the <unk> technology, as we work with them and realized.

How much depth of innovation IP within that platform.

And that frankly, the combination of bringing that together under one roof connecting that to the X MLS would unlock new opportunities.

In the marketplace as well as in the way that customers can use the system.

Okay.

Perfect.

Then maybe.

Any follow up.

I noticed there was a pretty nice new logo side and you mentioned some of those.

New logos on the call as well can you just talk about how the landing point is.

I mean are you seeing customers buy the empower platform upfront, although maybe landing more with employee experience giving model.

How much elimination that's getting.

The C suite, how should we think about landing ACD there at all.

Yeah, Great question, a lot of the logos that we mentioned.

Has changed on the call a lot of them were expansion, we see a lot of fixed that from customers who get onto the platform theme see value and then grow their spend I think you're also seeing that reflected in the 125% net retention rate derma.

Demonstrating continued strength along those lines.

We are also seeing new customers.

Some come in so continue to see I wouldn't say, there's been a material shift other than just overall increasing momentum.

But just recently I think about a recent conversation with them with a customer who had such a great experience on their employee experience.

Implementation of how about how fast it got up and the value. They got that it just made it so much.

Easier to have the conversation about expanding to a companywide CX type of program where.

Even though they aren't fully connecting the two the success they have seen with the platform. It makes them more likely to choose us for additional products and expansion and increases our win rate when that occurs.

Perfect that's.

Thank you and congrats on the quarter.

Thank you.

Thank you our final question for today comes from the line of Shelby Sorry, Rafi from F. B N Securities. Your question. Please.

Yes. Thank you very much my question is on the organic revenue.

You assume $18 million.

Clara Bridge revenue for Q4, it appears that your organic revenue growth will decelerate about 10 percentage points to 31% from 41% in Q3, I don't know how much of that is conservatism versus other factors.

Yes, thanks for the question.

I think you've gathered this from our tone.

Sort of help in the Q&A and also in our prepared remarks, we're really pleased with the outstanding results delivered in Q3 and also really pleased with the updated guidance in Q4 and for the annual period. If you look at our annual guidance.

We provided last quarter, we're raising.

<unk> got like $48 million.

For the full fiscal year and I can break that down for you quickly $18 million of that is declare a bridge that we disclosed $13 $5 million of that is from the performance that we had in Q3 and there's an additional raise in there of 16 and a half.

Is that indicative of the strength in the business that we're seeing and if you. If you take a look at the total then take a look at the subscription revenue with Clearbridge, we're guiding that at 51%. If you do take that Clearbridge portion out regarding the subscription revenue up 42% we continue to see.

Have great strength in that subscription growth I'm really pleased with the guidance that we have now for the full fiscal year.

Okay, and one more the net retention rate very impressive you were up 120% about a year ago. Do you think you can maintain the mid $1 20 for the foreseeable future.

Yeah. When you look at us historically, and I know, you're doing that you'll see that stability at above 120% and given the market opportunity that we have and the customer base that we have we do see stability above that 120% Mark.

Okay. Thank you.

Thank you everybody for joining.

This does conclude the question and answer session as well as today's program. Thank you everyone for your participation you may now disconnect good day.