Q4 2021 UserTesting Inc Earnings Call
Greetings and welcome to the user testing fourth quarter and year end 2021 earnings conference call. At this time, all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the call over to Erica Mannion at Sapphire Investor Relations. Thank you you may begin.
Thank you and good afternoon with me today from user testing are Andy Mcmillan, Chief Executive Officer, and John <unk>, Chief Financial Officer, Andy will begin with a brief review of the business results for the fourth quarter ended December 31, 2021, John will then review the financial results for the fourth quarter and full year, followed by the company's outlook for the <unk>.
First quarter and full year 2022, we will then open the call for questions.
Please note that this call will include forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations.
For a discussion of the material risks and other important factors that could affect our actual results. Please refer to our SEC filings available on the SEC's website and on our web Investor Relations website as well as the risks and other important factors discussed in today's press release.
Additional information will also be set forth in our annual port on Form 10-K for the year ended December 31, 2021 when filed.
All material contained in the webcast is the sole property and copyright of user testing with all rights reserved.
Please note. This presentation describes certain non-GAAP measures, including non-GAAP net loss and non-GAAP net loss per share, which are not measures prepared in accordance with U S. GAAP.
non-GAAP measures are presented in this presentation as we believe they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating performance.
These non-GAAP measures should not be considered in isolation from as substitutes for or superior to financial measures prepared in accordance with U S. GAAP.
Information regarding reconciliation of non-GAAP to GAAP measures can be found in the press release that was issued this afternoon on our Investor Relations website.
Now I'd like to turn the call over to Andy.
Thank you Erika and thanks to everyone for joining us on the call. This afternoon. We're excited to report our first quarter as a public company wanted to extend a special thank you to the user testing team for their hard work and focus on our customers throughout the process of going public.
I'll start this afternoon with a few highlights from the quarter then because it is our first earnings call as a public company I wanted to take some time to discuss our business and market opportunity as many of you may be new to user testing.
We reported a record fourth quarter with revenue of $42 million up 45% year over year, resulting in full year revenue of $147 million up 44% over 2020.
Subscription revenue accounted for over 90% of total revenue for the quarter and reached $40 million, an increase of 49% from prior year.
Adjustments in our product sales and marketing teams continued to drive upsides to our results throughout 2021.
We had great momentum in our business in the quarter with our large customers, which we categorize as those spending more than 100000, <unk> growing to 305 customers, representing a 61% increase year over year.
Our Q4 net dollar retention rate increased to 118% from 114% one year ago in.
In total we now have 2350 customers on the platform up 37% from one year ago.
Looking forward, we believe the long term market opportunity ahead remains significant and we intend to continue investing in market awareness technology innovation and growth while prudently managing our expense structure. We continue to see good unit economics, and a consistent payback period, while deploying investments into our sales and marketing organization to capture the near and long term.
What opportunities we see in the industry.
We also believe the investments we made in our product over the past several years and in the international expansion of our team will continue to drive value.
The market continues to show strong enduring demand for our solution user testing enables organizations to understand what is actually like to be their customer we do that with an opt in video first experience testing platform, which we call the human insight platform.
Our platform makes it easy for anyone in an organization to get a vivid first person understand even experience through the platform you watch real people engage and share their perspectives on products apps services and other digital and real world experience is providing what we call a customer experienced narrative where CSN. These nerve.
<unk> are critical to enabling companies to better understand and empathize with the experiences they offer and improve them.
User testing has customers in over 50 countries. Our customers include more than half of the world's top 100, most valuable brands. According to Forbes, we've steadily built up our global network of contributors over the past 14 years and a qualified hundreds of thousands of people who've opted in to share their perspectives. We are selective in who gets on this.
At work and prioritizing quality over quantity.
Customers can rates each contributors feedback and we continually monitor responses with our software to ensure both quality and speed.
Our customers can utilize this network or test with their own customers prospects employees or anyone else.
Our focus is on an easy to use human insight platform that allows a wide range of audiences to frequently test products apps services and other digital and real world experiences with a range of audiences like customers employees prospects, the public underrepresent groups and even people using competitor products.
The main buying centers today, our digital product research and design marketing and customer experience. We also continue to see emerging buying centers like HR optimized candidate, new hire and employee experiences customer support training and it and operations to optimize internal service and communication experiences.
The power of our platform comes in three main components first the technology to help find specific audiences and get underperform tasks and answer questions.
Second technology to capture and generate customer experience narratives or <unk>. These video based narratives enable organizations to see and hear real people as they engage with digital or real world products designed apps processes concepts and brands.
Third machine learning based technology would help surface key moments of insight within <unk> to help get in the moments that matter faster.
Our human insight platform delivers the speed quality and scale necessary for today's agile business environment.
We see several major tailwind favoring our business over the coming quarters and years.
In addition to the macro digital transformation and customer experience industry trends. There are two more recent and growing trends that we see having an impact on our business.
First there are new types of immersive hybrid and third party digital experiences customers are using our platform today to test multiple digital experiences, including some of the newer ones emerging for example in the meta versus shell games published opposed on the Oculus developer blog in July of last year talking about the benefits of testing VR.
<unk>.
Customers are also able to test third party experiences, meaning they can test a competitor's website or an important third party digital experience in their value chain. For example, large financial institutions can capture <unk>, an emerging fintech and open banking initiatives.
Airlines can test third party travel booking sites and quick service restaurants can test to understand how their menu and brand shows up on popular food delivery platforms.
Second we see a growing trend around consumer privacy we.
We believe this will move companies to a more honest and trusted opt in conversation and feedback channel with their customers as opposed to the surveillance and tracking model in place by so many digital and marketing optimization teams today.
Importantly, I want to highlight that all of the feedback on the user testing platform every single customer experienced narrative is gathered through an opt in process.
Within this process the participants sharing their thoughts and screening knows that they are being recorded and knows that they are sharing their perspectives with an organization are contributors value that they are being asked for their input. This is how trusted relationships are built and how great companies show their value of their customers as consumers, we are sick of being and Youll see.
<unk> online we do appreciate being asked I believe we are at the beginning of this shift away from always on digital tracking and surveillance that doesn't mean customers don't want to be heard user testing is providing a way for companies to build trusted relationships with their customers and honest opt in relationship where companies ask for feedback and.
Truly understand our customers perspective, and importantly have the tools to listen and act on the learnings and that feedback.
With these <unk>, we believe in understanding customer experiences using rich human insight provides a broad and underpenetrated market opportunity.
To capture this we are pursuing multiple growth drivers in parallel first we're continuing to invest in sales and marketing to continue to acquire new customers leveraging our scalable go to market model to support new customer growth of all sizes. As an example in the fourth quarter, we landed or expanded with some great customers, including AMC Entertainment Anheuser Busch.
Hawaiian Airlines hose shop lows, Metlife Philips Phoenix group read it and best year collective SA, we continue to make investments in our growing international presence, including the establishment of a sales office in Edinburgh, Scotland in 2019 and in Singapore in 2020.
In the fourth quarter International revenue increased 76% compared with the prior year period and represented 20% of total revenue.
Second we continue to innovate and expand our platform and technology, our ability to use technology to analyze video feedback and highlight key moments of insight is improving at a rate where customers can run larger sample sizes within our research study and get quantitative level analytics to understand broader based sentiment click path activity in other key points of insight.
And then quickly drilling to rich qualitative video segments to better understand the human experience and third we are in the early phases of building out our user testing partner and reseller program. Our focus areas include working with agencies system integrators and resellers, we just announced a new partnership with quantum metric. This partnership will help <unk>.
<unk> better understand customer needs and quantify the business impact of digital experiences all of these channels will enable us to achieve go to market Leverages. We scale supporting our continued growth. This is an exciting time to be at user testing looking ahead, we recognize that our IPO is just one step on the journey of our company and while we are excited to have achieved this milestone we have much.
More to do we look forward to continuing our momentum in 2022 and updating all of you in the quarters to come with that I'll turn it over to John to discuss our financial highlights in more detail.
Thanks, Andy and good afternoon, everyone.
I'm excited to announce the financial results for 2021 today.
It was a record year for the company, we saw improvements in many of our metrics, including revenue growth margin improvement customer additions and net retention rates.
So let's begin with the key financial highlights.
Revenue for the fourth quarter of $42 million increased 45% compared to the prior year.
Subscription revenue of $40 million increased 49%.
Revenue for the full year of $147 million increased 44% year over year behind strong execution of the user testing team.
Subscription revenue of $137 million increased 46%.
Accordingly, our performance was broad based including growth in customers across all segments improved net dollar retention rates and continued progress in our international geographies.
Specifically, our net dollar based retention rate was 118% in the fourth quarter up from 114% in the fourth quarter of 2020.
We ended the quarter with 2000, and 350 customers up 37% year over year. We also ended the quarter with 305 large customers or those over 100000 of IRR.
Which was a 61% year over year increase.
Most customers land below that amount and expand into a large customer category over time.
Calculated billings, which is quarterly revenue plus the quarterly change in contract liabilities was $54 million, an increase of 41% year over year.
International revenue was $8 4 million in the fourth quarter, an increase of 76% year over year, representing 20% of total revenues.
As I talked about operating loss free cash flow gross margins expenses I'll be referring to non-GAAP measures.
Otherwise specified a reconciliation of GAAP to non-GAAP measures is included in today's earnings press release.
Operating loss in the fourth quarter was $9 9 million, which compares to $7 5 million in the prior year period or.
Our operating margin was minus 23%, which improved approximately 300 basis points from a year earlier.
This brings the full year operating margin to minus 27% an improvement of approximately 300 basis points from 2020.
Free cash flow of minus $16 million in the quarter was impacted by the timing of collections in December we had turnover in our collections team that we are working to right size.
Free cash flow margin for the year was minus 30%.
We ended the year with $178 million in cash.
Let's dig a little deeper into the numbers before we go into guidance.
Gross margin in the fourth quarter was 79% an increase compared to 73% in the year ago period.
For the full year 2021, gross margin was 76% an increase compared to 71% in 2020.
Subscription gross margin in the fourth quarter was 83% compared to 79% in the year ago period.
For the full year subscription gross margin was 80%, which was an increase of approximately 300 basis points from 77% in 2020.
If you look at our subscription gross margins on a quarterly basis for the past three years, you will see it is highest in the fourth quarter and then declines and the subsequent first and second quarters. The fluctuations are driven in part by the seasonality, we see with usage and the corresponding payments to a contributor network.
Turning to operating expenses, we continue to invest in our sales and marketing organization to drive global growth and our leadership position in the market.
We increased our spending in that segment by 55% in the fourth quarter of 2021 compared to the prior year period to approximately 61% of revenue.
When we look at the payback period calculations I'm impressed at how we've been able to deploy that additional investment while maintaining that payback period in our range. We believe is reasonable.
It also says something about the state of the market and its willingness to adopt our solution as sales and marketing activity increases.
We saw some leverage in R&D expense in the fourth quarter, which was 22% of revenue compared to 26% of revenue in the prior year period.
G&A expense increased as a percentage of revenue to 18% in the fourth quarter of 2021 compared to 16% in the prior year period. The increase was primarily due to investments in people systems and outside professional services and preparing to become a public company.
As I mentioned before even with these investments and operating expenses, we were able to improve our operating margin by approximately 300 basis points in both the fourth quarter and the full year of 2021 compared to the prior year periods.
Now onto guidance.
We are entering 2022 with good business momentum.
For the full year, we are guiding revenue to $194 5 million to $198 5 million, representing a growth rate of 32% to 35%.
For the first quarter, we expect revenue of 43 million to $44 million or a growth rate of 38% to 41%.
The growth rate in the first quarter is higher than the full year guidance due mostly to an expected onetime accounting benefit that will increase subscription revenue by $1 4 million in the first quarter.
This is related to the reversal of a reserve for a potential sales tax liability that was initially recorded as a reduction to subscription revenue in a prior period.
Favorable outcome of that reserve contingency will put most of our sales tax remediation efforts behind us.
For the full year, we expect non-GAAP operating margin in the range of minus 31% to minus 29%, which at the midpoint of that range implies a decrease in operating margin of approximately 300 basis points compared to 2021.
For the first quarter, we expect non-GAAP operating margins in the range of minus 27% to minus 25%, which at the midpoint of the range implies an approximately 900 basis point improvement in operating margin compared to the first quarter of 2021.
The operating margin in the first quarter is better than the full year guidance due to the onetime accounting benefit I just mentioned that will increase subscription revenue by $1 4 million in the first quarter.
We also expect some other temporary favorability in operating expenses as we continue to limit travel and meetings due to the Covid pandemic. We hope we are coming to an end of those restrictions soon.
For example in January we postponed our planned sales kickoff event, where we bring the global sales team together for planning and training sessions. We now expect to hold that event in the third quarter, which will shift planned expense from the first quarter to the third quarter as a result.
So with some of that expected volatility in our quarterly operating loss I would encourage more focus on the full year operating loss number is a better measure of financial trends.
For the full year, we expect non-GAAP net loss per share between minus 39.
And minus 41.
Assuming 145 million weighted average shares outstanding for the first quarter, we expect non-GAAP net loss per share of between minus seven and minus eight.
Assuming $142 5 million weighted average shares outstanding.
For modeling purposes and in line with our historical performance, we expect calculated billings to decline in the first quarter compared to the fourth quarter of 2021. This is consistent with our normal seasonality that occurs in the business, where the fourth quarter is usually our strongest quarter for billings in the first quarter is usually our softest.
We also expect subscription gross margin to decline as well compared to the fourth quarter consistent with the seasonality we have seen in the past payments to a contributor network are usually lower in the fourth quarter due to lower activity during the holiday season.
Overall, we are very pleased with the quarter, we achieved record revenues strong customer growth, particularly with our large customers improved gross margin improved operating margins and we are excited about the market opportunity ahead of us. It is critical for organizations to have great experiences for customers and prospects.
<unk> and others user testing is pioneering a better way to help them do that with real human insight.
With that we'll open up the call for questions. Operator, we please prompt for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, we ask that you. Please limit yourself to one question and one follow up question. One moment. Please while we poll for your questions.
Yeah.
Our first questions come from the line of Stan <unk> with Morgan Stanley . Please proceed with your questions.
Perfect. Thank you so much and congratulations guys on your AR.
First call as a public company is very very exciting.
Maybe just.
Kick things off.
And at a very high level right.
Are you seeing as far as.
The way that companies are approaching.
The need for for user testings product.
As you went through 'twenty 2021.
What really.
What really stood out to you is a big change that's taking place in the marketplace and how do you expect that to carry over as we go into 2022, and then I have a quick follow up.
Alright, Thanks, Dan I appreciate the question.
For us what we're finding as we went through last year and coming into this year is.
Continued core demand for people wanting to get the kind of feedback that we provide in our platform, but where we see emerging opportunity is more organizations wanting to share and leverage the results. They are seeing on our platform more broadly and so we started to focus on how we expand out from some of our core use cases in design and sort of research team.
<unk> and our <unk>.
<unk> product and marketing teams more broadly not just self service for their own question, but actually work more and more together around feedback you're seeing on the platform. So I think theres an opportunity there that we're leaning into and really gearing up our team to speak to.
Perfect and then just a quick follow up wanted to dig into net revenue retention very impressive 118.
<unk> result.
How should we be thinking about that moving forward and what are the puts and takes behind that number as we move into 2022.
Yes wondering if I'd keep in mind when looking at that as just a blended number across a wide variety of segments, we sell into small even pre product market fit companies to some of the largest enterprises in the world and as the case, let me SaaS business.
Or kind of different models for expected retention rates, but I think what we found was we have made some improvements in our go to market motion our pricing model that helped us get to that sort of 117 118 Mark.
We think going forward that is a good projected rate for us like any SaaS company, we get up every day and trying to figure out how to continue to make customers successful and we're going to continue to try to drive those rates, where we can but I think right now we feel like is a blended rate across enterprise all the way down to SMB, we were pretty happy with where that number is at.
Alright, thanks, guys. Thanks.
Thanks, Dan Thank you.
Thank you our next questions come from the line of Mark Murphy with Jpmorgan. Please proceed with your questions.
Okay great.
On behalf of Mark.
My congratulations to you guys as well.
And maybe I can start with you.
Help us understand what is driving the expansion of the large customers that you are seeing it's pretty impressive.
Is it largely usage in the core use cases, you've seen some of the emerging use cases will drive that expansion expansion kind of further into the organization or is it just the larger throughput.
That is driving that because of the AML capability that allows them to do so today.
Yes, it's really broad based I appreciate the question.
It is in part that we are still largely awareness constrained and large organizations. There is an opportunity for us to drive awareness through the product itself that when teams run tests on the platform. They get this powerful feedback in video format, we're doing more and more things to help empower them to share that feedback across the organization and when people see the output from our.
Our platform they apply that to their own solution. I mean, it's one of these things that we talked about being sort of obvious in retrospect. When you see user testing. Most people go Oh that makes sense I should see people use the thing that I built that I'm designing that are marketing whenever that might be and so that drives all of the things you mentioned that drives more people on the platform more.
It drives more use cases, and that's been one of our focus with templates and other things to sort of highlight all the ways. We can use the platform. It also drives more usage of the platform if I'm someone using the platform and when I run a test and it gives us great feedback and people in the organization rally around it I do more of it. So I think it all sort of comes back to that core focus area. We've had I've just draw.
<unk> awareness and I think being in companies in our customers and helping drive that awareness and expand motion is where we're seeing some of that opportunity.
Got it one quick follow up could you maybe update us on the flex pricing what are you seeing with respect to customer adoption on that.
Should we think about the revenue bookings mix.
Of that flex based pricing over the over this year.
We continue to still see strong adoption of the new pricing model again as we've spoken about publicly before it was not really designed to be a price increase or a change in revenue per customer. It's really just designed to be in alignment with how customers want to buy the product we listened to the feedback from our customers and what they told US was <unk>.
So I just want to roll it out to more people and I need more seats, sometimes the people that have seats just want to run more test volume and so by enabling our customers to buy and whatever combination made the most sense for them. It really does become the best option for a vast majority of companies. When they are selecting the platform. We did in the second half of last year roll.
Thank you. Our next question is coming from the line of Terry Tillman with Truest. Please proceed with your questions.
Yeah, Good afternoon, Andy John and Erika I'll Echo the congratulations on the IPO and also maybe Andy on being a writer now congratulations on your book.
Thank you Terry.
Yeah. So my first question just relates to you know you did mentioned some new customers and they they looked like some large enterprise brands. What I'm curious about is just the human insight space evolves and you guys are kind of a market leader are you starting to see opportunities to sell higher and get to C level attention for example to me the competitor.
Testing it sounds like it would be something that C level executives would actually want to see a lot of so I'm kind of curious are you starting to see the evolution of this market, where you can sell higher and get more mind share with the C level executives earlier on and then I had a follow up for John .
Yeah, Terry I think that's a great point and it actually connect well to your point about the book, which for those that aren't aware.
Jim <unk>, our Chief Science Officer, and I wrote a book that came out published by Wiley This month and it really doesn't illuminate some of these use cases these ideas that.
Not only can you trust with competitors I think tough competitor experiences, which I think is great for executive teams to understand market dynamics. It's also really about how do you as an organization align your company culture around what it's like to be a customer and so we're starting to see savvy executives think about how do I get my team sharing the narratives the empathy the understanding of the.
Transformation, maybe our business is going through what is likely being a customer and in different segments or with different backgrounds, and so I think that is a big opportunity for us I'll just echo to my previous comment a lot of what we're doing today is just about driving that awareness. That's at every level and in every segment and Thats, where a lot of our investments broadly in sales and marketing has been around empowering our.
Marketing and sales teams to get into more conversations and I think to your point that's at every level in the organization.
Got it thanks for that Andy and I guess, John just a follow up question on cash collection I'm curious should we see a quick snapback and kind of reversal to where we see a perking up.
Working capital benefits or how do we think about the first half versus second half post the fourth quarter and what you called out. Thank you.
Yes Terry.
Popped up on us in Q4, and you'll see that in the DSO number of days going going up meaningfully and we had turnover in our collections team.
And we're still working to right size is hard to hire people during the holidays. So I expect us to get back on track over the next two quarters, it's not going to be.
Back in 30 days.
It's going to take a little bit of time.
Understood. Thank you.
Thank you. Our next question comes from the line of DJ Hynes with Canaccord. Please proceed with your questions.
Hey, guys great start here.
Andy I want to go back to the awareness factor you've cited a couple of times if I ask you to put it on a scale of one to 10, where would you say enterprise awareness is today and what's the most significant thing you can do to increase awareness.
I would say.
Not to try to split hairs on the question, which I appreciate by the way I think it varies a little bit by role I think if you were to go ask someone in.
Our U S research background or maybe a design background I think that awareness is reasonably high is it might be six or seven and I think you'd find very high positive product affinity with what we do in that audience for those that know us what a lot of those folks are telling us is hey, I learned all these things on user testing, but I'm trying to get my my product.
My marketing team also wanted to change what they're doing because of what I'm learning and so what we're doing is really partnering with those folks to help them tell their stories internally of what they are learning and together we are helping drive awareness through those other groups. So I think if you were to go to <unk>.
Product management teams marketing teams I think that awareness is still quite a bit lower and thats why were investing in this broader set of sort of collaborative solution plays to really help our folks that already know us champion us internally, which I think is the opportunity.
Yep got it makes sense.
And then I want to ask you a question about the contributor pool.
If you look competitively at others in this space how do you think the pool that you've built like stacks up in terms of size diversity to others in this space and how easy would that be to replicate.
I think it's maybe a two part answer there too as well one is we've been doing this for a while and so I think we have built up a bit of a marketplace dynamic where this is the place to go give this kind of feedback and so I think that is a really big advantage. When you think about both how we attract new contributors and also how we attract brands and companies onto our platform, but I think the second piece is <unk>.
Much more important which is we've used this running start that we've had over the last 14 years of building up this network of qualified individuals and the volume of customer experienced narratives on our platform. We noted in our S. One that we had run one 4 million <unk> in the previous year, we use those as training data for machine learning.
<unk> and the technology in our platform and that helps us right and score and pull insights out of these narratives and so I think the combination of the scale of the network. The focus on quality of the network, but also what the output of that network has enabled us to build has really helped us build a technology competitive advantage on top of the network effects.
The Contributive network itself.
Yes Super helpful. Thank you guys.
Thank you.
Thank you. Our next question is coming from the line of Bob <unk> with William Blair. Please proceed with your questions.
Thank you team and thanks for taking my questions and let me Echo Mike's.
Congrats it was a really solid quarter there.
Let me just jump into sort of this concept of use case that you've touched on a little bit coupled with the new model.
One of the concepts and the new model is sort of to drive broader usage.
I'd love to ask two questions sort of <unk>.
Question, one which is how have expansion rates play out with the guys that are using the flex model will then adopt that early and then two have you seen different use cases from those folks where because we're not constrained by budget or per seat or something that that product manager has been able to expand it faster across all the use cases. So help me think through both the expansion and the types of use cases you might be.
There.
Yes, Thanks, Bob Let me take the second part first which is one of the things that we're finding is because we have enabled customers to buy and share capacity across seats into more easily by more seats, where needed. It's really enabling this motion I was talking about earlier of as people discover the product is.
Easy for them to come on board its easier for an organization of say Oh someone in marketing saw some of the <unk> that came out of the product team and they'd like to.
You get access to a seat and kind of come on board with the platform and again I don't think Thats any magic in the pricing model I think thats, just removing friction of where we had modeled previously a combine those concepts made it harder for companies to sort of mix and match the growth that made sense for them. Conversely, if the centralized team was tasked with doing a lot more because.
Other folks one of them to run the platforms that might need to buy capacity, but not by seats and so I think what has really enabled us to do is have more customer centric conversations and the expansion motion that says, yes, we can match to the way that you want to buy the product.
I think that has enabled us to the first part of your question too you saw great expansion rate improvement over the course of the previous four quarters, we continue to see customers moving to the new pricing model.
And I think those are related but I wouldn't say, it's purely the cost I think the causes were driving awareness. We've got a good motion in our accounts I think what we've done is removed an inhibitor of a pricing model that might have made that harder or more complicated we might have gotten there and the old pricing model was just would've taken more time. So I definitely think the new pricing model is helping us do that.
I don't think its the.
The only unlock I think the fact that we've got a product and a set of motions in our customer base around this upsell cross sell has really been the secret.
Got you got you and you guys are executing well.
I mean, the questions, we're asking I think around friction or growth and not something that you are not growing.
35, plus percent Im just trying understand whats holding it back and so maybe I'll touch on that a little bit more at a strategic level in the old days.
I always hate it software as a service because they have the systems and the spend in its capital budget.
And people trained in a certain way and then took a while to get over that SaaS cloud is the right way to do it.
There are certain set of folks and organizations or groups or legacy mentality, we should use market research firms or our agencies is there a set of those things that we need to overcome that will happen over time that the pricing all those things are helping but is there is there. Some some friction there is an obstacle that we haven't thought of that youre seeing that may take time or how should we think about sort of the.
The champions and also the guys are pushing back and organizations.
Tough question a different February organization, we certainly saw that in SaaS and it took a while to plan, but it's playing out amazingly well and I Wonder is that do you get from a 35% growth rate to 7% growth rate again in two or three years as you overcome that or is it becomes a norm because once you see the video so, albeit I'm trying to get my arms around that part.
I think it's a great question and I would say, it's sort of in two parts. One is youre right. It is just raw awareness right. When you see one of the CX and come back people go Oh, Eureka I get it that makes sense I should see people use it I think the other thing that we are educating the market on is that you can use technology to solve this problem to do it at scale.
And do it quickly I think.
First pass if all you showed somebody's a video I think all of that that sounds like it would be hard to go find the right people get them to record themselves have all the technology have the ability to watch all of that content and so the fact that we have built a technology platform that makes it easier to go find the right people to have them record themselves and to help you interpret and go through that volume of qualitative.
Rich data to point you to the right moments I think that's the other piece and so it's sort of a one to write one aware that it is possible and then to aware that it is possible at scale using technology to do it quickly and efficiently.
Thank you. Our next question comes from the line of Brent <unk> with Piper Sandler. Please proceed with your questions.
Thank you maybe one for Andy here, just as you think about.
Product and market research going kind of back in person are you seeing any sort of enterprises make that move or or is there evidence do you think this might be more of a structural kind of permanent change in how these brands are conducting kind of product and market research So love to get any sort of <unk>.
To your point on that just given the return to office attempting place right now.
Yes, we haven't seen any kind of structural shift back I think most folks arent looking to bring back to the expense and complication of trying to do this in person.
Okay.
Perfect and then John if I look at the subscription gross margin nice uptick here this quarter.
Obviously to some extent you are facing labor shortages as well so maybe just walk through how we should think about the contributor costs.
Subscription gross margins, how sustainable are those subscription gross margins going forward in light of of labor shortages and are you contemplating increasing costs. There on the contributor side just given the shortages, we see out there. Thanks.
Yes, so no expectation that contributor costs go up the margin is season also made those comments and you should appreciate on a quarterly basis that Q4 is always a little bit better because there's just less studies that are being done around the holidays.
Seasonally we see that reverse and so I do expect subscription gross margin to come down as it has the last I think three years in a row in Q1 and Q2, but were range bound.
And historically, it's been 70 879 were ahead of that right now and we've said.
In the past that going forward the long term model targets about 78% I think we'll be in that range I think into the next.
Four quarters, we'll probably be a little bit above that range, but.
We've had a pretty pretty good stability.
Ability.
Over an annual basis with our subscription gross margins and there was some scale and some efficiencies I think that can float up a little bit.
Helpful color. Thank you.
Thanks, Brett.
Thank you. Our next question is coming from the line of Scott Berg with Needham. Please proceed with your questions.
Hi, Andy and John Congrats on the Fantastic first quarter and thank you for taking my questions.
I guess I've got two and.
Andy when you think about the contributor network, how should we think about the growth of the individuals that are in that network for you and given the size and.
The number and where they are geographically today do you feel like you have to grow that meaningfully meaningfully going forward too.
I guess to give your customers even more options there. Thank you.
I don't know about growing it meaningfully I think it continues to grow at the pace of the market demand and that sort of the way that the model is built we continue to see really strong performance out of the network as we.
Grown we continue to see fast response times, great ratings from our customers and so we know that the network is able to continue to expand and grow and meet that need.
Needs and demands of our customers on a global basis. So I think we're pretty happy with how the network continues to meet the market need.
Got it and then my follow up question is on.
The improvements in net revenue retention that you've seen really kind of throughout this year in the last five quarters in particular.
How should we think about those improvements in terms of is it maybe that theme individual within an organization or maybe a team using more of your solution versus moving outside other different departments. Other different teams don't know if you think of it that way, but any color there and trying to understand if you're just going deeper with a certain set of.
Teams are employees.
Maybe youre, making more impact across the organization.
Yes, it's a great question, Scott I would say its whether its with the same user or with a broader team. It's often been use case expansion. This is something we talked a little bit about during the road show, which was one of the things that the start of the Covid period that we did as we released a bunch of templates on our platform and what was interesting about that was the templates didn't solve a usability problem. It is.
Not hard to create a test on our platform. It takes a couple of minutes, but what it did was illuminate use cases, when we put together a template to say Oh, you can test your food delivery service App experiences a restaurant every one of our restaurant customers, but that's a good idea I should do that and so now we have well over 100 templates deployed our sales teams. Our success teams are using those to highlight use case.
So so whether that's somebody who's already using the product, who says Oh I'm going to pull another use case off the shelf and do some more testing or whether it's the person sitting next to them. It says hey, that's a great idea I'm going to do that with the platform in either case, it's largely just been around again awareness of use cases and things that folks can do on the platform.
Excellent congrats again on the strong quarter. Thank you.
Thanks, Scott Thanks, Scott.
Thank you. Our next question is come from the line of Brian Schwartz with Oppenheimer. Please proceed with your questions.
Hi, This is Ari Friedman subbing in for Brian Schwartz. Thanks for taking my question and congrats on the quarter.
I was wondering.
When you go for like an RFP are you mainly displacing like other software is like a user's Jim or are you also displacing maybe like a focus group company or like a kantar type of agency.
Just trying to understand like where what.
What you guys are are displacing thanks.
Yes, great question Alright, Thank you.
Interesting I think being a market maker, we answer very few Rfps I mean, I think I can count on probably one hand, certainly on to last year. It's just not an established market yet in that way what we do see a lot of companies do is displace other less effective spend. So your example of using like an outsourced market research agency rather than paying for one.
<unk> outsourced study people might take those dollars and deploy it and status as a technology solution to embed. This in an agile process. So that's that's more typically what we see.
Thanks that makes sense and then I guess another question I have or what investments are you most excited about going into 2000.
I think the investments we are excited about it and we continue to see great.
Durable performance out of investment in sales and marketing, which is always good to see in a growing business, but I think in terms of excitement I'm really excited about the investments we're making on the technology. The work we're doing around some of our.
Machine learning to help people get to the moment of insight the collaborative capabilities up more people on the platform getting access to the <unk>.
Some of the use cases, we're seeing on the platform, where we see organizations doing things like deliberately reaching out to more diverse audiences that maybe werent. They were getting those perspective before I think that's having a real impact on the world and how people use our technology and then I'd also say just telling our story I mean everything from the book that we put out to the marketing that we're doing.
It's really important to the company that were just out telling our story, whether that's through our expanding field sales team or through the marketing dollars that we put to work.
Thank you.
Thank you.
Thank you our next questions come from the line of Brian Peterson with Raymond James. Please proceed with your questions.
Good afternoon, gentlemen, thanks for taking my question and congrats on the strong quarter, So Andy maybe a higher level one just on the partnership opportunity.
I'm curious how big of an impact partners are having and kind of new business today and as we think about the growth opportunities in driving awareness, how big of a factor is that in terms of driving growth and awareness going forward.
Great question, Brian It's early days for us on partnering to be honest, it's one of the big growth vectors that we see in front of US we really had to limiting factors previously one is our old pricing model didn't really lend itself to partnering for those that will recall, we actually used to sell an unlimited use seat, which actually worked reasonably well for direct.
Customers, but obviously you wouldnt want to given unlimited use products to a partner that's going to go then sell a bunch of times to a bunch of customers. So our new flex based pricing model actually works much better for things like agency partnerships and Si partnerships and want to use the platform. So one is we've removed that barrier and are starting to build out those partnerships and then the second is on the product side we.
To see demand from the market of other technology product companies, who want to come in and partner with us they see the value that we're providing one of the things. We did during the last year was start to publish a set of public Apis, which is going to really enable us to take advantage of that interest in product level partnerships, which I think will be really valuable to our.
<unk> and so it's an area of the business I'm really excited about but I would say, it's still an opportunity in front of us versus something I think we're really leveraging historically.
Understood and maybe a follow up for John just wanted to understand maybe how the sales cycles. How have those progressed over the course of 2021 and anything that you can kind of share on the land size of deals with new customers. Thanks, guys.
So overall the land size has been pretty consistent so we've increased our team and we've increased our volume and our size you'll see that.
The net new growth in customers.
The largest we've done on record.
Last quarter, so we're bringing in a lot of customers of all sizes.
And we're also landing more six figure deals than we've done in the past, but overall when you blended all together still a pretty consistent land, it's definitely a land and expand motion, where we're landing people letting them.
Try out the software and then really a large expansion opportunity.
Thanks, Sean.
Thanks, Brian .
Sure.
Thank you. Our next question is coming from the line of Rob Oliver with Baird. Please proceed with your questions.
Great. Thank you guys for taking my questions.
My question was also on the land and expand opportunity, but in particular in.
Internationally you guys.
Have seen really nice growth in international over the last.
A couple of years, it's becoming a more meaningful part of the business and I'd be curious when you look at historic.
Customers you guys planned at around that 50 can help customers doing multiple hundreds of thousands of dollars.
What are you guys seeing here early on from those international customers.
In terms of land.
And the types of organizations that they are giving you a sense that maybe there could be meaningfully bigger and then I just had a quick follow up for John .
Yes, I think we generally see it being analogous to what we see in our North America business again. It is still driving awareness I think that's one of the things that makes our business as we expand internationally.
More similar to our core business than maybe others are used to him where an evangelical sale and we go into new markets. We're evangelizing its in many ways. The same motion. We do also sell into every segment. So you would imagine large global customers based overseas have a lot of the same needs and demands as our global customers in the U S.
So we definitely see that is in many ways a similar motion.
Great. Thanks, Andy and then John I know Brent asked earlier about the contributor network costs. So I guess I'll, maybe I'll just ask in particular about as you guys expand in international.
I would assume.
So many of the multinational companies that you're using or just go to cap the existing network tried to.
To U S consumers, and therefore leverage that network, but as you sell more internationally, clearly youre going to be needing to add more.
<unk> abroad, and just wanted to get a sense for how we should think about that relative to costs as well. Thank you.
Yes, I still don't see any kind of major changes to the overall cost.
On a per test basis there.
We're rolling out different types of tests. So we have a short test and that pays less we've got standard test which is.
Roughly $10 and then we've got live sessions moderated sessions, where we can be paying over $100 for some of that stuff. So we have a variety of ways that customers can use the panel.
And then we pay the panel in different ways as well, but so far again as Andy said the panel the demand kind of drives the size of the panel in right now.
For more demand the panels the panel would love more tests.
Got it okay. Thanks again guys.
Thank you.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of <unk> Kim with loop capital. Please proceed with your questions.
Thank you another congrats on a strong quarter and the and John and also Erica.
And just.
Just another follow up question on the contributor network.
Can you expand use case to include more specialized and higher value.
<unk>.
Can you start charging different rates based on our target audience, who may come in higher rates to participate in your network.
It's something we have the ability to do technically if we so desired on what we find now is frankly, the simplicity of our sort of standard pricing works well in the market. We continue to hear from many contributors interestingly, especially as we get into higher income brackets, where being heard is actually a lot more important than being compensated.
So when you think about whether it's a premium flyer or.
Someone who's a professional.
What they really value is that their feedback is going to these brands and these companies and so.
Really see right now a need frankly for us to be paying a different compensation level for different levels of expertise per se.
Also add one of the things that we've done over the past few quarters is provide the ability for folks to bring their own participants be that employees or their own customers and we often see that also in these more maybe b to b kind of scenarios, where a company says I have a pool of folks that have this expertise.
Technology set to access that and I almost use it as a customer loyalty perk of enabling them to be heard. So again, we have the ability to do that should we choose to do so but right now I think the simplicity of the entire model is sort of what makes the magic happen.
Okay, Great and then John any change to contract length.
Billings quickly billing frequency as you sign larger deals and also.
Are you seeing a higher number of customers coming back for early renewals or they use up there a lot of numbers of CX <unk> under the new pricing model.
So no major changes, we're doing probably some more multiyear deals.
That will show up in the <unk> number that comes out in the 10-K, but basically the vast majority are still annual deals.
And then sometimes if people want to have a larger bucket of consumption units than by doing a multiyear deal and they can they can spread that over the multi year. So that's kind of been a driver of longer contract terms, but it is still the vast majority of your one of your deals we keep it simple and we want to earn their business every.
At the time.
What about the early renewals for those customers under the new pricing model, yes, and again half the contract value.
On the platform. So so that's not going to be up for early renewal that they need to to top offer up reload on some some usage credits than they can do that not significant in terms of.
Billings are the macro environment.
Okay, great. Thank you so much.
Yep.
Thank you there are no further questions at this time I would like to turn the call back over to Andy Mcmillin for any closing comments.
Thank you to our operator, Daryl I appreciate the help with the call. Thanks, everyone for joining the call and for your interest in user testing, we really look forward to future calls and continue to tell you more about the business I just wanted to say thank you again to our employees our customers and our partners. It's an honor for John and I to share. These results and we're proud to tell.
Story, so with that we hope everyone has a great week and thanks again for your time and your questions.
This does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time.
Enjoy the rest of your day.