Q4 2022 Qualtrics International Inc Earnings Call

January 25, 2023

Ladies and gentlemen, thank you for standing by welcome to Cardtronics fourth quarter and fiscal year 2022 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Please be advised that today's conference is being recorded I would now like to hand the call.

<unk> over to Rodney Nelson head of Investor Relations. Please go ahead.

Thank you operator, welcome to Quadrex fourth quarter and fiscal 2022 earnings conference call on the call. We have Dick's Terrapin, CEO , Chris <unk>, President and Rob Bachman CFO .

Following prepared remarks, we will open the lineup to answer your questions. Our results press release and a replay of today's call can be found on the <unk> Investor Relations website.

During today's call, we will make statements that represent our expectations and beliefs concerning future events that may be considered forward looking under federal securities laws. These statements reflect our views only as of today and should not be relied upon as representative of our views as of any subsequent date.

We disclaim any obligation to update any forward looking statements or outlook.

These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations for a further discussion of the material risks and other important factors that could affect our financial results.

Please refer to our filings with the SEC, including our annual report on Form 10-K for the quarter and fiscal year ended December 31, 2022 that will be filed with the SEC.

With that I'll hand, the call over to Doug.

Thank you Rodney and thank you all for joining.

Q4 was a solid quarter capping off a very strong year of growth and operating margin improvement.

Revenue in the quarter was $389 1 million up 23% year over year.

And subscription revenue.

Was $327 $6 million up 26% year over year.

2020 to annual revenue.

Was $146 billion, which represents 36% annual growth.

Our current remaining performance obligations grew to $1 $2 billion at the close of the quarter.

And total remaining performance obligations grew to $2 $1 7 billion.

As customers around the world.

Changing to grow their investments in quadrex and commit to multiyear deals.

I've mentioned before that we're building a generational business focused bumped off both on growth.

And profitability.

And I am pleased that we delivered Q4 non-GAAP operating margin.

Six 1%.

Up from breakeven in Q4 of last year.

Looking ahead, we're more committed than ever to helping our customers realize even greater value from our cortex platform.

While focusing on both revenue growth.

And margin expansion.

We believe that macroeconomic challenges will persist through 2023.

This is reflected in our guidance.

As well as our focus on operating with discipline in 2023.

We're initiating full year 2023 revenue guidance.

166, $5 billion at the midpoint of the range representing.

Representing 14% year over year growth in Q1, total revenue of $392 million to $394 million Rep.

Representing 17% growth at the midpoint.

And importantly, we expect more than double our full year 2023, non-GAAP operating margin to 10, 5% at the midpoint.

Which is an increase of 650 basis points from last year.

We finished the year with more than 18750 customers as organizations invest in call tricks.

For our proven leadership platform capabilities and innovation roadmap.

The number of customers spending more than $100000 with <unk> annually increased by 17%.

And the number of customers spending more than $1 million annually increased 32% year over year.

While we continued to see increased scrutiny of deals in Q4, our win rates remained strong.

And our existing customers continue to invest in Quadrex, which you can see in our 120% net retention rate.

The <unk> platform.

Is becoming central to how organizations make mission critical customer.

And employee decisions.

And drive automated actions to protect their revenue.

Increased efficiency.

And improve their operations.

We help them quickly identify and resolve points of friction across all of digital.

And human touch points.

That makes our business resilient, even in times of macroeconomic uncertainty.

In Q4.

Market leaders like Delta Airlines.

Principal financial Roche.

Rich stone.

Farmers insurance and Qantas grew their investments in quality mix, because they understand the value of truly knowing their customers and employees. So they can make the right decisions and take the right actions for them.

And I couldnt be more excited about our expansion with the BMW group.

BMW.

It's focused on customer centric innovation.

And we're proud to be their experienced management partner.

We're working with them to manage every aspect of the customer experience.

From how people build in order their vehicles online.

To test drives at the dealerships to.

To service management for owners with.

With contracts.

Can bring all of their experienced data together on a single platform to create a seamless experience across these channels.

There'll be able to identify issues faster and intervene in the moment.

And this will help the BMW group deliver more connected holistic and personal experiences.

Building deeper relationships with their customers at every turn.

Another customer.

That continues to invest across the <unk> product line as Yum brands.

In Q4.

<unk> expanded in both customer experience and employee experience for KFC.

At a time when frontline employees are in short supply.

<unk> will use quadrex discover engage and social connect to rapidly collect and analyze millions of data points across 27000 restaurants.

And there'll be able to enhance the ordering and delivery experience across the network.

And give operators a real time view of employee and guest feedback so franchisees can take immediate action to improve experiences on the ground.

Onto product.

We're leading the next wave of innovation and experience management with purpose built solutions.

That help our customers do more with less.

For their customers and employees.

As the leader in <unk>.

We have a vast universe of experienced data advanced AI and analytics and the system of action.

That gives us and our customers a competitive advantage in fact in Q4.

We passed a major milestone doubling in one year.

<unk> 10 billion experienced Ids on the XM platform experienced I'd capture structured feedback across every touch point of the customer journey.

As well as unstructured feedback like effort in motion and intent.

We build this into a rich profile that allows customers to know their customers like never before.

And then take the right action at the right time together. These experience he's formed the largest database of human sentiment in the world.

We're the only ones with this technology.

And it makes the <unk> platform incredibly sticky for our customers.

Now I'd like to highlight a few new innovations from the quarter.

We launched cross XM.

Our new innovation.

That enables leaders.

To see how their employee customer and brand experiences impact one another with just a few clicks.

For example.

Cross XM reveals how key employee metrics, such as manager support career development and recognition.

Directly impact customer outcomes.

So leaders can focus on initiatives that will drive their highest value.

<unk> is the only company.

That manages these experiences together.

On a single platform.

For customer service.

Is the number one reason customer.

Customers switch brands.

And in Q4.

We delivered new.

Contact center renovations, including real time agent assist.

And automated call summaries.

To increase agent productivity.

Drive operational efficiency.

And improve customer service.

Drink of water.

Okay.

Sure.

Real time agent is that uses advanced AI.

To analyze the support conversation, while it's happening.

And to deliver real time.

Informed recommendations.

And automated call summaries deliver instant call recap like.

Capturing all of the relevant details.

Other customer support call.

Including sentiment like confusion or frustration.

All right Quadrex can discover.

And then trigger what needs to happen next and employee experience.

Launched manager of Sip Rich give every manager of the data.

And the tools that they need to increase productivity to reduce unwanted attrition.

Manager assist brings sophisticated analytics employee feedback, including engagement survey data.

As well as insights into feedback.

That they're sharing on slack and helped us conversation that even social sites like Glassdoor.

A great example of the value of employee experience in this environment is the new relationship that we formed with Qualcomm.

Qualcomm.

He is intensely focused on making the right investments in 2023.

And they standardized on politics employee accent, replacing their stand alone engagement systems.

Now Qualcomm will be able to look at feedback holistically.

Across the organization.

To identify high impact options that build confidence in the future of the company and improve both engagement and retention.

In March.

Youre going to have the chance to CBS .

And other latest innovations and be with thousands of our customers live in person at X four in Salt Lake City.

And we're hope youre going to be able to join us.

Our ecosystem continues to be a key contributor to our growth we have more than 400 partners in our network, creating unique IP.

By leveraging the corporates developer platform.

And we continue to strengthen our strategic partnerships and work together to solve our customers' most pressing challenges.

In the quarter.

<unk> and service now jointly closed a multi million dollar deal.

With a fortune 500 energy company.

This company is going to bring together service now customer service management.

Quadrex customer XM discover.

To give service agents the tools that they need to automatically trigger actions based on feedback.

I mean credit drivers for customer satisfaction.

And to improve their cost to serve the <unk> platform.

As the system of action and its growing around workflow integrations like this across critical systems such as SAP.

Microsoft AWS and service now and.

And these workflows continued to deliver increasing value for our customers.

The number of customers using five or more patrick's workflow integrations more than doubled in Q4 compared to the year before.

In closing.

We continue to manage for long term durable growth and youre going to see that in our strong net retention rate or.

Our growing customer base and the number of customers that are spending $100000 or more.

We've been actively realigning our resources to the highest priorities of our business with an eye on both growth and efficiency.

And as part of that.

Earlier this month.

We made the difficult decision to eliminate approximately 270 roles globally across the company.

Which is less than 5% of our workforce.

The decision was made after careful consideration.

Especially for those that are leaving.

And our priority is to support them and whats next and.

And whether that's a new role all tricks were outside of the company.

Demand and loyalty from customers remained strong which is going to give us.

An opportunity to accelerate our growth into an economic recovery.

I'm proud of our team who continue to demonstrate their ability.

To adapt to dynamic markets and the changing customer needs in the marketplace.

Of course I'm grateful.

For our customers and our partners for putting their trust in call tricks.

Now over to you Rob.

Thanks, Vic and good afternoon, everyone as <expletive> said, we generated solid growth and profitability in the fourth quarter total revenue was $389 1 million in the fourth quarter up 23% year over year subscription revenue was $327 8 million up 26.

<unk> year over year.

Personal services and other revenue was $61 $5 million, representing 8% growth year over year, our remaining performance obligations, representing all future revenue under contract ended the quarter at 217 4 billion.

Up 25% year over year. This metric includes both new and renewal software contracts, along with our professional services business for.

For reference Q4, 2021, RPI included an opening balance of $130 million related to the Clare Bridge acquisition.

Current remaining performance obligation, which is all future revenue under contract that is expected to be recognized as revenue in the next 12 months was $1 billion to $2 billion.

Up 19% year over year for reference Q4, 2021 current remaining performance obligations included an opening balance of approximately $78 million, resulting from the Clearbridge acquisition.

Fourth quarter calculated billings were 571 $6 million up 11% year over year.

As a reminder, Q4 2021 deferred revenue included an opening balance of $36 million related to the Clair Ridge acquisition.

FX movements resulted in a headwind of just over $13 million or approximately two five percentage points of growth to calculated billings in the fourth quarter fourth quarter subscription billings grew 14% on a reported basis and 17% on a constant currency basis.

Yes.

Our XM platform is mission critical for customers in these uncertain times as demonstrated by our net retention rate of 120%, while gross retention remained consistent with historic levels.

Q4 marked the first quarter Caribbean began to contribute to our net retention rate and its impact was consistent with our net retention rate for the quarter.

Given we calculate net retention rate on a trailing 12 month basis Clearbridge subscription revenue will continue to layer into our net retention rate calculation over the next three quarters.

We ended 2022 with more than 18750 customers an increase of approximately 2000 compared to year end 2021 customer.

Customer spending more than $100000 in annual recurring revenue grew 17% year over year to 2262 customers and we finished the year with 189 customers spending more than $1 million annually up from 143 at the end of 2021.

Turning to margins, our Q4 non-GAAP gross margin was 75, 9% down slightly versus the prior quarter, while non-GAAP subscription gross margin of 87, 5% was consistent with the prior quarter.

Our non-GAAP operating profit for the third quarter was $23 $9 million, resulting in a non-GAAP operating margin of six 1% compared to 0.1% in Q4 of 2021.

The increase in our fourth quarter operating margin reflects our slower pace of hiring and ongoing investment discipline as we focus on durable and efficient growth.

Operating cash flow for the fourth quarter was $23 9 million.

Compared to $13 7 million in the year ago period free cash flow in the quarter was $8 9 million <unk>.

Compared to negative $64 million.

In Q4 of 2021.

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 an annual cycle given the billing seasonality in our business. We ended the quarter in a strong cash position with approximately $720 million in cash and cash equivalents.

And no debt.

Moving now to our Q1 and fiscal year 2023 business outlook.

Our focus on delivering durable efficient revenue growth. Despite what we believe will be a challenging macro economic environment throughout 2023.

We are streamlining our go to market, including leveraging our partner ecosystem for both business development and services fulfillment, we see strong retention growing pipeline and strong win rates across our business.

This combination at our size and scale enables us to take share during market macroeconomic uncertainty, while driving significant operating leverage.

These factors are reflected in our Q1 and 2023 guidance.

We expect total revenue for the first quarter to be 392 million to $394 million representing.

Representing 17% year over year growth at the midpoint within this we expect subscription revenue to be in the range of 333 million to $335 million.

Representing 19% growth year over year at the midpoint.

We expect Q1 non-GAAP operating margin in the range of 4% to 5% as a reminder, we are excited to be holding our X for summit in March and our guidance reflects an anticipated margin impact of approximately 350 basis points related to export in the quarter.

We expect non-GAAP net income per share of one penny to two pennies, assuming 605 million weighted shares outstanding.

We expect to incur approximately $5 8 million in one time expenses associated with our reduction in force. The majority of these expenses will be incurred in the first quarter.

For fiscal year 2023, we expect total revenue in the range of $1 661 billion to $1 66 9 billion.

And subscription revenue in the range of $1 $4 6 billion to 141 4 billion.

At the midpoint of the ranges. This represents subscription revenue growth of 15% year over year, and total revenue growth of 14% year over year, respectively.

We expect non-GAAP operating margin in the range of 10% to 11%, implying 650 basis points of expansion at the midpoint and we expect free cash flow.

Margin to move more in line with non-GAAP operating margin for the full year.

We expect non-GAAP net income per share between 'twenty.

And 24.

Assuming 625 million weighted shares outstanding.

As we begin 2023, I'd like to Echo Zig and thank all of our employees and partners for their continued hard work and for our customers who continue to recognize <unk> as the clear category leader and experienced management. We are in a strong position to take market share while delivering long term.

<unk> durable growth through a challenging macroeconomic environment.

And to leverage our leading platform size and scale to accelerate growth when the macroeconomic environment stabilizes.

We're thrilled to be bringing X four back in person this year and we're looking forward to seeing many of you in Salt Lake City in March with that Chris and I are happy to take your questions and we'll turn it back to the operator.

Certainly ladies and gentlemen, if you do have a question at this time. Please press star one one on your telephone if you'd like to remove yourself from the queue simply press Star. One again, our first question comes from the line of Keith Weiss from Morgan Stanley . Your question. Please.

Great. Thank you. So much this is elizabeth on for Keith.

Mentioned Gill scrutiny continued into Q4 and I was wondering if you could provide any color on just the changes you saw.

<unk> around deal scrutiny over the last three months.

Curious if there's an opportunity to see some improvement in just the willingness to spend now that 2023 budgets are a little bit more firmed up and companies can get a bit more transparency on their go forward plans. Thank you.

Okay.

Hey, Thanks This is Chris.

I think what we saw in Q4 was pretty consistent with what we saw in the in the latter half of the year for 2022 and pretty broadly geographically overall inside.

In spite of that we saw continued strength in our win rates, especially from a competitive perspective, and so we felt like we continue to be very well positioned.

With regards to entering the new year, we just got done with our field kickoff. This week and feel as excited to get off to a strong start for 2023 and it's early early days in terms of what's going to happen with new budgets, but we are excited and motivated and driven to go after and make 2023 of a great year.

I had a little bit of Elizabeth This is <expletive> here.

I mean first off.

No one's immune from what we're seeing in the marketplace, but theres also been a continuation as Chris said.

Just the general pattern.

People exercise the more scrutiny.

Deal cycles extending.

And so that's been something that we've talked about but we believe that we are faring better than others because of the value of the platform, particularly right now where companies are honing in on technology and solutions that affect the way that they can drive performance in their own companies things like.

How to drive revenue with customers understanding what's most important how do we take the right actions in the right places while at the same time.

Finding ways to be able to save costs.

And operate more efficiently and we happen to own into areas that are at the intersection of those points given the way that we've designed our platform and that is why we continue to see demand.

<unk> strong in spite of the fact that you see elongated deal cycles. So that's the additional context.

Great. Thank you so much and I just wanted to quickly follow up on your comments about Clara bridge discovering in the NRI.

<unk> ticked down from last quarter.

Is the comment there that it wasn't a benefit in the quarter and since that the trailing 12 months 12 month metric, we should it should layer in over time, just trying to think Directionally is it Q4.

<unk> for NR.

Yes.

Relative to Clare bridge is that the NR then added coming in for this first quarter was consistent with the 120% that we represent.

We recorded certainly as we continue through the macroeconomic challenging time, you could see the NRI continuing to decrease.

Until there is more stability and consistent with the comments I made in my prepared remarks, when macroeconomic times stabilized. We believe there is very clear opportunity for us to Reaccelerate, where we're at on the growth profile.

Great. Thank you so much for the clarification.

Yes.

Thank you one moment for our next question.

And our next question comes from the line of Gabriel <unk> from Goldman Sachs. Your question. Please.

Good afternoon. Thank you Rob I wanted to ask about how you thought about the cadence of subscription revenue growth in 2023 eye Hickey, Chris talking about the macro environment being consistent and when I look at the subscription guidance, implying a b cell from 19% to 15% for the full year. So are you assuming that the.

Macro environment gets for us maybe just a little more detail on depending how you thought about linearity this year.

Yes.

I think part of the question Gabriele is relative to the guidance for the full year and consistent with our guidance philosophy and methodology. We believe it is.

Good to be prudent with how we guide for the full year and our guidance takes into account a persistence of those macroeconomic.

Challenges that we're seeing so Q1 is is here and upon us and so that guide is closer to US and then as we look at the full year. There is certainly again, some prudence in that guidance for the full year.

Okay, and so Chris I appreciate the comments on leaning on partnerships in the channel give us a little more detail on higher executing on efficiencies in sales and marketing without potentially compromising the deal pipeline. Thanks.

Yes, Great question as you see in our operating margin Garden is a fan of our performance in 2022, we are seeing the leverage we expect from our business model, including the sales and marketing costs coming down as a percentage of revenue.

One of the big changes for 2023, as we finished fully integrating Clare bridge, including from a go to market perspective, and so we've integrated the clearbridge sellers with our customer.

<unk> got some experienced sellers and brought that together so that they are both able to carry the full bag and run independently and a more efficient way and then as we we've set up our structure in a way that as we continue to scale the business and continue to grow.

Based upon the unit economics, we see continued opportunity to improve our sales and marketing as a percentage of revenue based upon that that business model and so we're set up to scale and continue to have that support our long term profitability objectives through continued efficiency in sales and marketing part of it also is important to note we've talked about this before.

It is the nature of how we built our platform.

<unk> two <unk>.

<unk> expand into new use cases, and how that then nicely ties in with the way that the sales force.

Starting to scale.

So that frankly is one of the capabilities of the company's business model and how that nicely ties in with the way. The technology has been designed in the first place.

Thanks for the color.

Thank you one moment for our next question.

And our next question comes from the line of Arjun Bhatia from William Blair. Your question. Please.

Hey, guys. Thanks for taking the question.

I just wanted to touch on the $110 million customers. It seems like there was a pretty big tick up in Q4 can you maybe just talk about how the business performed in Q4 and enterprise relative to some of your other segments mid market.

And in F&B.

<unk> direct and discover was that a part of the contributor to the big jump in large customers this quarter.

Yes. Thanks.

Terms of looking at the business in Q4 in particular, we did see the macro economic challenges across the board. We did have some some great examples of strong execution.

Especially with Upselling.

We've talked about in terms of some of the examples I gave of customers that are using the platform that it continues to expand and continue to bet on both customer experience and employee experience. So I think that.

Upsells and strength with our existing customer base helped as that metric reflects both new customers, but also customers that are expanding into larger organizations into the 100, K plus customers as well as the million dollar plus customers.

We also saw strong execution internationally. They gave the example of BMW that we're really pleased with that example, and so I'd say nothing.

Nothing particular to point out other than we feel like we're executing relatively well in the current challenging environment. We have overall in our existing customers continues to grow and expand.

Add to that just for a second I mean, one of the characteristics of this business is the fact that we have.

Strength in the enterprise, we also have strength in the mid market.

And we are diversified across many different industries and that plays in nicely as you go through ebbs and flows of economic cycles.

And that will also act as fuel to the way that we manage and grow the business towards some of the long term growth objectives that we have.

The markers that we've highlighted a $1 billion plus customers.

100, K plus.

Our.

Very much in tune with some of the milestones and objectives, we set for ourselves of where we want.

To be growing the business as people take more and more advantage of the capabilities that are built into the platform.

And so we think that is important signal of indicator for how we're building the business and frankly, all experienced management overall is growing as a category.

And if I can ask him.

Some of the.

Jason that you have in the contact center offerings.

It seems pretty exciting, especially the real time agent assist.

Does that change the.

Core buyer and.

From the rest of the <unk> platform and what does that mean for.

Your go to market motion.

What's nice about it and yes, they are exciting new innovations, but what's nice about it is it.

Not truly extends on the set of buyers that are already working with us.

One of the beautiful things about our technology is.

Using.

The ability to reason on the data create insights that are highly actionable.

And now what we're doing is we're taking the additional next step which is to create purpose built solutions.

That create highly efficient actions that high that create high level of value for customers and I think the one you pointed out realtime agent assist is one of several examples.

Getting back to the core of your question, which is it.

It extends on the buyer universe, we are working with however, it also expands.

The budget pool that we can be working with and it actually fuel the consolidation.

Larger sets of budgets that are coming our way.

That are uniquely tied to the nature of the intelligence in our system.

Perfect. That's very helpful. Thanks for taking the question guys.

Thank you and great questions.

Thank you one moment for our next question.

And our next question comes from the line of from.

<unk> Evercore ISI your question please.

Yeah, Hi, guys. This is actually Peter breakdown per kit I. Appreciate you taking my questions here.

I appreciate your comments on the macro just just curious what would have to happen to see sort of a reacceleration in your business over the over the course of the year relative to your current expectations.

Yes.

And are there any verticals or regions or perhaps use cases that you would call out Erik holding up better today or worse.

Well, that's a good question, but.

I'll, let Chris expand on this if he has any additional comments but.

One thing that is important.

Keep in mind is that.

The demand growth for our technology and in fact.

The nature of what we're doing.

Okay.

There are more strategic decisions that are being made around the use of our platform.

And that's informing larger budget pools that are becoming available to the.

The types of solutions that we can end up providing an often far more effectively than.

Pre existing legacy systems that might be using or even service oriented type solutions that they might have put together.

The demand continues to grow right now we also have highlighted the fact that we're seeing deal cycles extend.

There is more scrutiny more process, that's quite consistent across many different technology universes.

So to the heart of your question as you would actually see that speed up.

Right and it would be done consistently across geographies.

And.

And frankly across different industries. So Chris do you want to add anything yes, the only thing I'd add from a from an industry perspective, Hi Tech has been an area I think it's been well documented it's been challenging with a lot of conservatism built in especially in the U S. So we're anticipating that to continue to be challenging, but if that were to improve that could also help us.

Our results as well from an industry perspective, but as Dave pointed out earlier, one of the beautiful things about quality, because we're diversified REIT, we fell into health care, we saw in the public sector.

A variety of places and so we feel like we're positioned to regardless of what happens to do relatively well.

That's really helpful. Thank you both.

Maybe just a quick one for you Rob you guys have all taken a pretty thoughtful approach just in terms of discussing your ability to perhaps deliver more margin upside.

We're to see some pressure given the macro.

And I think your fiscal 'twenty, three guide sort of kind of.

Flex that reality. So just curious how you guys are thinking about that balance today.

What leverage you're finding in the business to drive those higher margins.

Yes, Chris talked about some of those earlier in terms of the sales efficiencies that we're seeing this is.

Something very important that I want to emphasize again, we are operating from a position of strength given our size our scale and our category leadership, we have the ability to continue to deliver durable top line growth, while also delivering the margin improvement.

Really pleased to see how we're moving that margin up in the current year up to our guide between 10 and 11%, but I would also emphasize that that is a step along the way and our margin expansion and would reiterate our long term targets for fiscal year 2026.

We're well over 20% operating margin in over 25% free cash flow.

Just to add onto that we've said this before but it's always worth repeating we see significant margins in this business and.

A lot of that ties in with the long term margin targets that we've set out.

And you're seeing evidence of our progress against that given the sequential quarter to quarter margin improvements that we've been making and it's a big focus.

Believe that.

Our responsibility is to be strong business operators.

We're committed to doing that both on the top and the bottom line, making.

The making of a great business.

Very helpful color. Thank you guys.

Thank you one moment for our next question.

And our next question comes from the line of Mark Murphy from Jpmorgan. Your question. Please.

Okay.

Hey, guys. Thanks for taking the question. This is already go on for Mark Murphy.

Just a quick question on you guys have a reference deal elongation and scrutiny. A couple of times now are you guys seeing anything in the way of deal compression or people solving projects kind of indefinitely or is it just been contained so that elongation. Thanks.

I'm definitely its more on the elongation as we're working through deals we're consistently finding that.

There is additional levels of approval that our customers are needed additional buy in across different organizations, whether it's procurement or the CFO or whatever and what we're hearing from our buyers themselves is that they are very interested in the quality platform and they're wanting to move forward and we're working to help.

Provides material to be able to coach through and get through that process, but.

It's just taking longer and additional scrutiny.

Taking a longer one, but we're not seeing a change to our win rates for example.

As a result of that.

And we're also not seeing a change in share gains that we're making as well, which is really important both in expanding and consolidating as always.

Net new customers that are coming our way, which is reflected in the update on the total number of customers.

Got it thanks, and one thing that you guys have talked around a little bit.

But are your customers finding new applications for <unk> or any of your products as their priorities have changed from kind of growth more balanced approached a little more caution or is it maybe new departments that are coming up that didn't maybe six months ago.

Yeah.

No what we're seeing is.

People.

Really honing in on the purpose built use cases, we've developed a lot of that ties in with.

The themes around how we help companies drive revenue.

How we actually create cost efficiencies for them.

And what we found is that people are prioritizing.

Our platform and the way that we can play a role.

<unk> those objectives at scale, where you can see material benefits to their companies, especially.

At a time, where you've got to make the right choices and where are you going to spend your money.

And.

The way we've designed our platform happens to actually help to O&M on the higher priorities that exist in some of these buying centers.

Yes.

Great. Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Bhavan Chung from Deutsche Bank. Your question. Please.

Great. Thanks for taking my question I guess I'll start off with one for Chris I know you talked early about sales kickoff just how are you.

I was thinking about evolving the go to market strategy given the macro both across all of your solutions, but in particular with Exxon discover given that solution traditionally has been a longer and more heavier sales cycle.

Yeah.

Yes, so so no major change to our sales strategy other than what I indicated earlier, which is that we're a year now into.

Clearbridge acquisition that enabled us to be able to.

Merge in essence, the Clair Ridge sales organization with our existing <unk> sales organization and Thats, a great opportunity for both efficiency and also great for our customers because now we have a single seller who can sell the combined solution, which is also how we've designed our product portfolio is to have a a single overall customer experience solution across both <unk>.

<unk> and discover as well as some of the other innovations that we've talked about that are coming out and we believe that model.

<unk> drive efficiency with.

A single sales organization focused on driving that.

And seeing some some great gains there.

Right.

The thing I'll comment at the top is.

Discover and engage capability those are platform level technologies and they are now showing up in a variety of applications that are built on top of our platform.

And they then materialize as product capabilities that.

Buying centers can efficiently procure to solve real business problems that they want to go after right. So we're making it easier.

And much more convenient for how companies can take advantage of solutions that are design specific to those those those opportunities in the marketplace.

Super helpful. Just following up one for Rob and you've always talked about seasonality of billings from IPO, becoming more backend loaded with the inclusion of Clearbridge. Among other factors, obviously today youre running into a more difficult macro so I guess in the context of deal cycles lengthening from <unk>, how do we think about the seasonality of billings.

In fiscal 'twenty three in particular for <unk>.

Yeah, I think as we've talked about.

The challenges that we're seeing which I think a lot of the market in the technology World is seeing with the additional scrutiny and bill cycle lengthening is not new to Q4, we've seen that for the majority of <unk>. We saw that for the majority of 2022, and we expect that to persist into 2023.

So given that Theres nothing that I would call out in terms of changes in the seasonality.

If those things persist then we would presume that the seasonality would stay fairly similar to what we saw in 2022.

Super clear thanks for taking my question.

Yes.

Thank you one moment for our next question now.

And our next question comes from the line of Terry Tillman from <unk>. Your question. Please.

Yes. Good afternoon, thanks for taking my questions, Hi, Chris and Rob.

Two questions for me first one and I don't know if this is for using or Chris but you were talking about service now so maybe I'll point of view, but whoever wants to go out and go for it.

I'd like to turn about the multimillion dollar deal what I'm curious about with service now and I think last quarter, you all talked about being a top five marketplace seller on AWS and then if we could look at those three.

Where are we in terms of the resources really being up to speed. They know the game plan they have their marching orders.

And how much are you starting to mature actually pipeline activity versus maybe more opportunistic early on type stuff I'm trying to understand if we could hear more of this kind of resonating each and every passing quarters theres more pattern recognition with either of those three partners and then I had a follow up for Rob.

Okay, So I'll start and Chris can add.

I mean first off it's really important to point out the power of the ecosystem, that's being built around our platform and bolt on how partners.

Build off of our platform from a software integration and innovation standpoint, as well as how partners construct.

Solutions and build services that.

Unlock value on specific business opportunities or business problems that customers are working on.

So companies like <unk> for example, and the way that they end up.

Constructing solutions.

That might tie in with business transformations that their customers are working on.

I think we're in very early stages as a company, we're very focused on ecosystem, but frankly relative to the opportunity that we have ahead.

We're taking a measured approaches we're focused we've got milestones there's objectives there is accountability.

But we're in very early stages of the opportunity that we see ahead, and we think that that will materialize both in <unk>.

Market opportunity pipeline growth.

As well as inefficiencies and leverage that we get.

For the business model is the larger ecosystem ends up.

Constructing the building solutions around the system as I have just described.

You pointed out service now.

That's a beautiful example, I think we're in the early stages, but I think.

There's really good indication that we're on to things that.

We'll have a lot of other customers that will want to go and replicate and they come both in small medium and large opportunities.

We pointed out one example.

What I would describe during the earnings call as well so.

So thanks, Jerry What's your next question sure.

Rob Thanks for answering that and in terms of somebody already asked about seasonality for billing, so I won't ask that but.

Rob I mean should we think about 120% is like the flag in the ground in terms of NR as we progressed through 'twenty three.

Or is there some cushion actually kind of how you've put your forecast together and maybe it could actually.

Be a little bit below that just a little bit more on that thanks.

I think it definitely.

Could drop below that 120%.

Given.

Where we're seeing the business and the growth in the guidance that we provided I think that's natural to understand.

On the subscription revenue growth, we're guiding at 15% at the midpoint. So you would expect in line with that the NRI to come down some but it will continue to be a key part of how we grow this business is with our existing customer base and we continue to see significant opportunity for expansion.

And cross sell with that customer base.

Thank you.

Yes.

Thank you one moment for our next question.

And our next question comes from the line of DJ Hynes from Canaccord Genuity.

Hey, this is Luke on for DJ. Thanks for taking my question. So given employee experience with such a hot area of investment during what has been a really heated job market over the last year when things finally softening in the labor market I'm curious to what degree you've seen a change in maybe the urgency.

Here are a priority of adoption around that solution relative to the rest of your offerings if at all.

Yes, so I think it's really important to recognize that its not one solution, it's a portfolio of applications.

That are designed around.

The.

Employee lifecycle.

Everything from the Onboarding experience of new employees to transition that happens all the way through to understanding the wellbeing and things that actually drive performance and impact.

And that's really important is that because we have a large portfolio, we're able to orchestrate that alright combination of applications for problems that customers are looking to solve.

In addition, though it's really important to understand that they are built on the same platform that our customer experience product experience and brand experience related solutions are built on and as a result, we're innovating I mentioned one of the new innovation called cross that Sam.

Cross the assembled a very unique system.

<unk> have the ability to be able to understand the correlation that takes place between.

What is happening with an employee base and the impact that's having on customer facing performance metrics within the business. If you look at Yum brands and what they're doing with KFC.

They are trusting contracts as a sore.

The solid platform for <unk>.

Our employee experience and customer experience across 27000 restaurants.

Leveraging the capabilities that we built at that intersection.

And we're seeing a lot of that.

So it plays in nicely and the advantages.

<unk> list of what timing customers might take to fully realizing all of the capabilities.

But because you can unlock off that same system turn it on and actually helps to drive.

A desire to leverage quadric strategically and over time turn on additional solutions as necessary. So.

We're seeing employee experience farewell.

In the marketplace given the nature of how it tuned in to the things that companies are paying attention to the other interesting statistic.

Recent.

Linked in report that came out.

Suppose the fastest growing roles.

Within companies and it was interesting we noted that three of the five fastest growing roles.

Our employee experience specific role in there.

Our roles that have to do with solutions that we built for them. So thats. Another interesting indicator of just trends that we think are our.

<unk> did really well with the way that we've been innovating and creating value in partnering with customers.

That's great and very helpful. Thank you and then just maybe one for Rob and it.

It's been talked about a lot already but maybe just thinking about your IRR of 120% in the context of your 15% subscription growth next year do you see maybe that growing as a percentage of the overall growth mix.

Sort of that.

Existing customer base contribution.

Yes, it's something.

You've talked about in terms of where we're seeing more impact from the macro is relative to landing those new logos.

So when you think about going forward. There is certainly the potential that a larger portion of our growth comes from the existing customer rates for a period of time, but that's also.

We believe gives a lot of opportunity as the macro stabilizes for US to then go and increase the customer base along the way certainly the growth will continue to come from both places you see that in the total number of customers increasing this year, but as a percentage of the total for the.

Let's call it the near term you could see the existing customer base become a slightly larger part of the overall growth.

Helpful. Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Adam <unk> from Bank of America. Your question. Please.

Okay.

Yes.

Adam.

Your line is open.

Hey, Thanks for taking my question.

I had a quick question just to make sure I was understanding the billings number correctly.

Some taking out.

Declarer bridge.

Portion of last year's Q4 is that correct.

That's right, yes, Okay and then.

Yes.

That was included there.

And then if I do the same thing for <unk>.

When I look at current bookings I'm, taking out $78 million from last year's Q4 see IPO digital subscriber.

Okay, and then just to get.

Is it like possible to give like the how.

How much of it was currency impacted for structuring bookings I know you guys gave for subscription billings.

Yes, the overall impact is about.

That two five percentage point.

Growth and Thats for the total billings that that is almost entirely subscription billings, but so you could think of them as one and the same in terms of the FX impact.

Okay got it and then just last question on these.

Can you explain the delta between.

The IPO growth and the total IP address thank you.

Yes, the therapy growth is occurring so as we continue to do multi year deals that have two or three years or maybe longer under total contract you can see the CRP.

Our <unk>, which is all revenue under contract grow faster than the <unk> in any given period.

Okay, great. Thank you.

Thank you one moment for our next question.

And our next question.

It comes from the line of Brian Schwartz from Oppenheimer. Your question. Please yes, hi, Thanks for taking my question. This afternoon.

It's a question on your customer conversations it's either for class or is there I guess, it's relating towards your expansion opportunities and activities.

You are talking about clearly youre seeing more deal scrutiny is elongated cycle like everyone is seeing.

My question is what is underlying that.

How much of the scrutiny as it related to customers absorbing what maybe had previously spent on cloud tracks and what they had bought versus what.

What your customers are seeing in terms of demand changes to their own business.

Yes, I would say, it's not customers absorbing we have greater adoption and usage and renewal rates from our existing customers I think it's more of the customers' customers themselves and their scrutiny themselves in terms of their financials and spending money and putting in additional controls and looking at especially for new.

Grams of looking at that and having additional approvals or CFO looking at those types of things and so when our buyers are going in there and they are interested in expanding our program, it's harder to get things on internally within our customers within our customer base and they've got to go through additional approvals to get it done. So I don't think its reflective of of them.

Absorbing what they've already purchased from US it's more a matter of internal budget approvals within our customer base themselves.

Thanks, Chris can I ask you one follow up.

Can you just can you comment or share with us the trends that youre seeing with that top of the funnel activity lots of comments on we understand what's going on with the cycles, but what are you seeing in the very early stages.

How is the top of the funnel trend trending compared to what <unk> seen in prior quarters. Thanks again for taking my questions.

Awesome question.

As <expletive> mentioned earlier demand remains really strong for our platform and program for our customers. They continue to put this as a priority area of spend and we're entering this year with significantly stronger pipeline that we entered last year.

Overall, and so that has us excited and is a positive signal that this is an area of prioritization of spend across all of the solutions that we have overall and so that's that's a real positive we had a real focus on continuing to expand our pipeline development seek out opportunities and thats borne fruit.

So we see that positive signal at the same time as we've discussed we do continue to expect this deal scrutiny.

And so we're just uncertain on the timing of the conversion of that pipeline, but the pipeline itself is starting out significantly stronger than we did last year and the other important.

Trend around pipeline and I referred to this earlier.

Is that more budget centers are looking to consolidate.

Relatively less efficient post point solutions that they've been running.

For example in the call Center and there is many other examples like that and so be.

The color in the mix of the type of pipeline coming our way.

Unlocking access into adjacent budget centers <unk>, maybe deeper levels of budget that people want to deploy towards our system, which also contributes to.

The building up of increasingly higher levels of pipe also expands the opportunity.

That said keep in mind, what Chris said also which is fuel cycle still are elongated and people have.

More process that they're actually applying to the way that they end up making decisions.

That's helpful. Thank you very much.

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

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Ladies and gentlemen, thank you for standing by welcome to electronics fourth quarter and fiscal year 2022 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. Please be advised that today's conference is being recorded I would now like.

To hand, the conference over to Rodney Nelson head of Investor Relations. Please go ahead.

Thank you operator, welcome to <unk> fourth quarter and fiscal 2022 earnings conference call.

On the call, we had zig Sarafin CEO , Chris <unk>, 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.

We disclaim any obligation to update any forward looking statements or outlook.

Please refer to our filings with the SEC, including our annual report on Form 10-K for the quarter and fiscal year ended December 31, 2022 that will be filed with the SEC.

With that I'll hand, the call over to Doug.

Thank you Rodney and thank you all for joining.

Q4 was a solid quarter capping off a very strong year of growth and operating margin improvement.

Revenue in the quarter was $389 1 million up 23% year over year.

And subscription revenue.

With $327 $6 million up 26% year over year.

2020 to annual revenue.

Was $146 billion, which represents 36% annual growth.

Our current remaining performance obligations grew to $1 $2 billion at the close of the quarter.

And total remaining performance obligations grew to $2 $1 7 billion.

As customers around the world.

<unk> to grow their investments in quadrex and commit to multiyear deals.

I've mentioned before that we're building a generational business focused bolt on both on growth.

And profitability.

And I am pleased that we delivered Q4 non-GAAP operating margin of six 1%.

Up from breakeven in Q4 of last year.

Looking ahead, we're more committed than ever to helping our customers realize even greater value from our cortex platform.

While focusing on both revenue growth.

And margin expansion.

We believe that macroeconomic challenges will persist through 2023.

This is reflected in our guidance.

As well as our focus on operating with discipline in 2023.

We're initiating full year 2023 revenue guidance.

166 $5 billion at the midpoint of the range.

Representing 14% year over year growth in Q1, total revenue of $392 million to $394 million Rep.

Representing 17% growth at the midpoint.

And importantly, we expect more than double our full year 2023, non-GAAP operating margin to 10, 5% at the midpoint.

Which is an increase of 650 basis points from last year.

We finished the year with more than 18750 customers as organizations invest in call tricks.

For our proven leadership platform capabilities and innovation roadmap.

The number of customers spending more than $100000 with <unk> annually increased by 17%.

And the number of customers spending more than $1 million annually increased 32% year over year.

While we continued to see increased scrutiny of deals in Q4, our win rates remained strong.

And our existing customers continue to invest in Quadrex would you can see in our 120% net retention rate.

The <unk> platform.

Is becoming central to how organizations make mission critical customer.

And employee decisions.

And drive automated actions to protect their revenue.

Increased efficiency.

And improve their operations.

We help them quickly identify and resolve points of friction across all of digital.

And human touch points.

That makes our business resilient, even in times of macroeconomic uncertainty.

In Q4.

Market leaders like Delta Airlines.

Principal financial Roche.

Rich stone.

Farmers insurance and quanta screw their investments in quality mix, because they understand the value of truly knowing their customers and employees. So they can make the right decisions and take the right actions for them.

And I couldnt be more excited about our expansion with the BMW group.

BMW.

He is focused on customer centric innovation.

And we're proud to be their experienced management partner.

We're working with them to manage every aspect of the customer experience.

From how people build and ordered their vehicles online.

To test drives at the dealerships to.

To service management for owners with.

With contracts.

Can bring all of their experienced data together on a single platform to create a seamless experience across these channels.

There'll be able to identify issues faster and intervene in the moment.

And this will help the BMW group deliver more connected holistic and personal experiences.

Building deeper relationships with their customers at every turn.

Another customer.

That continues to invest across the <unk> product line as Yum brands.

In Q4.

<unk> expanded in both customer experience and employee experience for KFC.

At a time when frontline employees are in short supply.

<unk> will use quadrex discover engage and social connect to rapidly collect and analyze millions of data points across 27000 restaurants.

And there'll be able to enhance the ordering and delivery experience across the network.

Give operators a real time view of employee and guest feedback so franchisees can take immediate action to improve experiences on the ground.

Onto product.

We're leading the next wave of innovation and experienced management with purpose built solutions.

That help our customers do more with less.

For their customers and employees.

As the leader in <unk>.

We have a vast universe of experienced data advanced AI and analytics and a system of action.

That gives us and our customers a competitive advantage in fact in Q4.

We passed a major milestone doubling in one year.

$10 billion experience Ids on the XM platform experienced IV captures structured feedback across every touch point of the customer journey.

As well as unstructured feedback like effort in motion and intent.

We build this into a rich profile that allows customers to know their customers like never before.

And then take the right action at the right time together these experience Ids form the largest database of human sentiment in the world.

We're the only ones with this technology.

And it makes the <unk> platform incredibly sticky for our customers.

Now I'd like to highlight a few new innovations from the quarter.

We launched cross XM.

Our new innovation.

And then enabled leaders.

To see how their employee customer and brand experiences impact one another with just a few clicks.

For example.

Cross exam reveals how key employee metrics, such as manager support career development and recognition.

Directly impact customer outcomes.

So leaders can focus on initiatives that will drive their highest value.

<unk> is the only company.

That manages these experiences together.

On a single platform.

For customer service.

Is the number one reason customer.

Customers switch brands.

And in Q4.

We delivered new.

Contact center renovations, including real time agent assist.

And automated call summaries.

To increase agent productivity.

Drive operational efficiency.

And improve customer service.

Drink of water.

Okay.

Yes.

Real time agent is that uses advanced AI.

To analyze the support conversation, while it's happening.

And to deliver real time.

Informed recommendations.

And automated call summaries, delivering instant call recap like.

Capturing all of the relevant details.

Other customer support call.

Including sentiment like confusion or frustration.

But all in we call tricks can discover.

And then trigger what needs to happen next and employee experience.

Launched manager of Sip, which gives every manager of the data.

And the tools that they need to increase productivity to reduce unwanted attrition.

Manager assist brings sophisticated analytics employee feedback, including engagement survey data.

As well as insights into feedback.

That they're sharing on slack and help best conversation that even social sites like Glassdoor.

A great example of the value of employee experience in this environment is the new relationship that we formed with Qualcomm.

Qualcomm.

He is intensely focused on making the right investments in 2023.

And they standardized on politics employee access, replacing their stand alone engagement systems.

Now Qualcomm will be able to look at feedback holistically.

Across the organization.

To identify high impact options that build confidence in the future of the company and improve both engagement and retention.

In March.

Youre going to have the chance to CBS .

And other latest innovations and be with thousands of our customers live in person at X four in Salt Lake City.

And we're hope youre going to be able to join us.

Our ecosystem continues to be a key contributor to our growth we have more than 400 partners in our network, creating unique IP.

By leveraging the corporates developer platform.

And we continue to strengthen our strategic partnerships and work together to solve our customers' most pressing challenges.

In the quarter.

<unk> and service now jointly closed a multi million dollar deal.

With a fortune 500 energy company.

This company is going to bring together service now customer service management.

Quadrex customer SM discover.

To give service agents the tools that they need to automatically trigger actions based on feedback.

I mean credit drivers for customer satisfaction.

And to improve their cost to serve the <unk> platform.

As the system of action and its growing around workflow integrations like this across critical systems such as SAP.

Microsoft AWS and service now and.

And these workflows continued to deliver increasing value for our customers.

The number of customers using five or more patrick's workflow integrations more than doubled in Q4 compared to the year before.

In closing.

We continue to manage for long term durable growth and youre going to see that in our strong net retention rate or.

Our growing customer base and the number of customers that are spending $100000 or more.

We've been actively realigning our resources to the highest priorities of our business with an eye on both growth and efficiency.

And as part of that.

Earlier this month.

We made the difficult decision to eliminate approximately 270 roles globally across the company.

Which is less than 5% of our workforce.

The decision was made after careful consideration.

Especially for those that are leaving.

And our priority is to support them and whats next and.

And whether that's a new role Paul tricks were outside of the company.

Demand and loyalty from customers remains strong which is going to give us.

An opportunity to accelerate our growth in an economic recovery.

I'm proud of our team who continue to demonstrate their ability.

To adapt to dynamic markets and the changing customer needs in the marketplace.

Of course I'm grateful.

For our customers and our partners for putting their trust in call tricks.

Now over to you Rob.

<unk> year over year.

Up 25% year over year. This metric includes both new and renewal software contracts, along with our professional services business.

For reference Q4, 2021, RP O included an opening balance of $130 million related to declare bridge acquisition.

Current remaining performance obligation, which is all future revenue under contract that is expected to be recognized as revenue in the next 12 months was one to one 2 billion.

Up 19% year over year for reference Q4, 2021 current remaining performance obligations included an opening balance of approximately $78 million, resulting from the Clearbridge acquisition.

Fourth quarter calculated billings were 571 $6 million up 11% year over year. As a reminder, Q4 2021 deferred revenue included an opening balance of $36 million related to declare bridge acquisition.

FX movements resulted in a headwind of just over $13 million or approximately two five percentage points of growth to calculated billings in the fourth quarter.

Fourth quarter subscription billings grew 14% on a reported basis and 17% on a constant currency basis.

Our <unk> platform is mission critical for customers in these uncertain times.

As demonstrated by our net retention rate of 120%, while gross retention remained consistent with historic levels.

Q4 marked the first quarter Clearbridge began to contribute to our net retention rate and its impact was consistent with our net retention rate for the quarter.

Given we calculate net retention rate on a trailing 12 month basis Clearbridge subscription revenue will continue to layer into our net retention rate calculation over the next three quarters.

We ended 2022 with more than 18750 customers an increase of approximately 2000 compared to year end 2021.

Turning to margins, our Q4 non-GAAP gross margin was 75, 9% down slightly versus the prior quarter, while non-GAAP subscription gross margin of 87, 5% was consistent with the prior quarter.

Our non-GAAP operating profit for the third quarter was $23 $9 million, resulting in a non-GAAP operating margin of six 1% compared to 0.1% in Q4 of 2021.

The increase in our fourth quarter operating margin reflects our slower pace of hiring and ongoing investment discipline as we focus on durable and efficient growth.

Operating cash flow for the fourth quarter was $23 9 million <unk>.

Compared to $13 7 million in the year ago period free cash flow in the quarter was $8 9 million compared.

Compared to negative $64 million.

In Q4 of 2021.

And no debt.

Moving now to our Q1 and fiscal year 2023 business outlook.

We are focused on delivering durable efficient revenue growth. Despite what we believe will be a challenging macro economic environment throughout 2023.

This combination at our size and scale enables us to take share during market macroeconomic uncertainty, while driving significant operating leverage.

These factors are reflected in our Q1 and 2023 guidance.

We expect total revenue for the first quarter to be 392 million to $394 million representing.

Representing 17% year over year growth at the midpoint within this we expect subscription revenue to be in the range of 333 million to $335 million.

Representing 19% growth year over year at the midpoint.

We expect non-GAAP net income per share of one penny to two pennies, assuming 605 million weighted shares outstanding.

We expect to incur approximately $5 8 million in one time expenses associated with our reduction in force. The majority of these expenses will be incurred in the first quarter.

For fiscal year 2023, we expect total revenue in the range of $1 661 billion to $1 $66 9 billion.

Subscription revenue in the range of $1 $4 6 billion to 141 $4 billion at the midpoint of the ranges. This represents subscription revenue growth of 15% year over year, and total revenue growth of 14% year over year, respectively.

We expect non-GAAP operating margin in the range of 10% to 11%, implying 650 basis points of expansion at the midpoint and we.

<unk> free cash flow.

Margin to move more in line with non-GAAP operating margin for the full year.

We expect non-GAAP net income per share between 'twenty and.

24.

Assuming 625 million weighted shares outstanding.

Durable growth through a challenging macroeconomic environment.

And to leverage our leading platform size and scale to accelerate growth when the macroeconomic environment stabilizes.

Thank you so much this is elizabeth on for Keith.

Mentioned.

Certainly continued into Q4 and I am wondering if you could provide any color on just the changes you saw.

<unk> around deal scrutiny over the last few months.

And I'm curious is there.

There is an opportunity to see some improvement in just the willingness to spend now that 2023 budgets are a little bit more firmed up and companies can get a bit more transparency on their go forward plans. Thank you.

Okay.

Hey, Thanks This is Chris.

I think what we saw in Q4 was pretty consistent what we saw in that in the latter half of the year for 2022 and pretty broadly.

Geographically overall.

In spite of that we saw continued strength in our win rates, especially from a competitive perspective.

So we felt like we continue to be very well positioned.

With regards to entering the new year, we just got done with our field kickoff. This week and feel as excited to get off to a strong start for 2023 and it's early early days in terms of what's going to happen with new budgets, but we're excited and motivated and driven to go after and make.

2023 of a great year.

A little bit of Elizabeth This is <expletive> here.

I mean first off.

No one's immune from what we're seeing in the marketplace, but theres also been a continuation as Chris said.

Just the general pattern.

People exercise the more scrutiny.

<unk> cycles extending.

The way that they can drive performance in their own companies things like how to drive revenue with customers understanding what's most important how do we take the right actions in the right places while at the same time.

Finding ways to be able to save costs.

And operate more efficiently and we happen to own into areas that are at the intersection of those points given the way that we've designed our platform and that is why we continue to see demand.

<unk> strong in spite of the fact that you see elongated deal cycles. So that's the additional context.

Great. Thank you so much and I just wanted to quickly follow up on your comments about Clara bridge discovering in the NRI.

<unk> ticked down from last quarter.

Yes.

Relative to declare bridge is that the NRI.

Added coming in for this first quarter was consistent with the 120% that we represent.

We recorded.

Certainly as we continue through the macroeconomic challenging time, you could see the NRI continuing to decrease.

Great. Thank you so much the clarification.

Yes.

Thank you one moment for our next question.

And our next question comes from the line of Gabriel <unk> from Goldman Sachs. Your question. Please.

Good afternoon. Thank you Rob I wanted to ask about how you thought about the cadence of subscription revenue growth in 2023 eye Hickey, Chris talking about the macro environment being consistent and then I look at the subscription guidance, implying a b cell from 19% to 15% for the full year. So are you assuming that the <unk>.

Macro environment gets for us maybe just a little more detail on the pending how you talked about linearity at the Sam.

Yes.

I think part of the question Gabriele is relative to the guidance for the full year and consistent with our guidance philosophy and methodology, we believe it.

It's good to be prudent with how we guide for the full year and our guidance takes into account a persistence of those macroeconomic.

Challenges that we're seeing so Q1 is is here and upon us and so that guide is closer to US and then as we look at the full year Theyre certainly again, some prudence in that guidance for the full year.

Okay. So Chris I appreciate the comments on leaning on partnerships in that channel give us a little more detail on higher executing on efficiencies in sales and marketing without potentially compromising the deal pipeline. Thanks.

One of the big changes for 2023, as we finished fully integrating Clare bridge, including from a go to market perspective, and so we've integrated the clearbrook sellers with our customer.

Or is the nature of how we built our platform.

<unk> two <unk>.

<unk> expand into new use cases, and how that then nicely ties in with the way that the sales force.

Starting to scale.

So that frankly is one of the capabilities of the company's business model and how that nicely ties in with the way. The technology has been designed in the first place.

Thanks for the color.

Thank you one moment for our next question.

And our next question comes from the line of Arjun Bhatia from William Blair. Your question. Please.

Hey, guys. Thanks for taking the question.

I just wanted to touch on the 100 K in million dollars customers. It seems like there was a pretty big tick up in Q4 can you maybe just talk about how the business performed in Q4 and enterprise relative to some of your other segments mid market.

And in F&B and.

Clara brand direct and discover was that a part of the contributor to the big jump in large customers this quarter.

Yes. Thanks.

In terms of looking at the business in Q4 in particular, we did see the macroeconomic challenges across the board. We did have some some great examples of strong execution.

Especially with Upselling.

<unk> talked about in terms of some of the examples I gave of customers that are using the platform that it continues to expand and continue to bet on both customer experience and employee experience. So I think that.

Upsell and strength with our existing customer base helped as that metric reflects both new customers, but also customers that are expanding into larger organizations into the 100, K plus customers as well as the million dollar plus customers.

We also saw strong execution internationally. They gave the example of BMW that we're really pleased with that example, and so I'd say nothing.

Nothing particular to point out other than we feel like we're executing relatively well in the current challenging environment. We have overall in our existing customers continues to grow and expand Doug I wanted to add to that just for a second one of the characteristics of this business is the fact that we have.

Strength in the enterprise, we also have strength in the mid market.

And we are diversified across many different industries and that plays in nicely as you go through ebbs and flows of economic cycles.

And that will also act as fuel to the way that we manage and grow the business towards some of the long term growth objectives that we have.

So the markers that we've highlighted a million plus customers 100 K plus.

Our.

Very much in tune with some of the milestones and objectives, we set for ourselves of where we want.

To be growing the business as people take more and more advantage of the capabilities that are built into the platform.

So we think that is important signal of indicator for how we're building the business and frankly, all experienced management overall is growing as a category.

And if I can ask him.

Some of the.

Innovation that you have in the contact center offerings.

It's pretty exciting, especially the real time agent assist.

Does that change the.

The core buyer.

And.

From the rest of the coffee platform and what does that mean for.

Your go to market motion.

What's nice about it and yes, they are exciting new innovations, but what's nice about it is it.

Not truly extends on the set of buyers that are already working with us.

One of the beautiful things about our technology is.

Using.

The ability to reason on the data create insights that are highly actionable.

And now what we're doing is we're taking the additional next step which is to create purpose built solutions.

That create highly efficient actions that high that create high level of value for customers and I think the one you pointed out real time agent assist is one of several examples.

Back to the core of your question, which is it.

It extends on the buyer universe, we are working with however, it also expands.

The budget pool that we can be working with and it actually fueled the consolidation of larger sets of budgets that are coming our way.

That are uniquely tied to the nature of the intelligence in our system.

Perfect. That's very helpful. Thanks for taking the question guys.

Thank you and great questions.

Thank you one moment for our next question.

And our next question comes from the line of <unk> from Evercore ISI. Your question. Please.

Yes, Hi, guys. This is actually Peter breakdown per cake I appreciate you taking the questions here.

Yes.

Are there any verticals or regions or perhaps use cases that you would call out Erik holding up better today or worse.

Well that's a.

Good question, but.

And I'll, let Chris expand on this if he has any additional comments but.

One is.

It is important to keep in mind is that.

Do you see demand grow for our technology and in fact.

The nature of what we're doing.

Okay.

There are more strategic decisions that are being made around the use of our platform.

Thats informing larger budget pools that are becoming available too.

The types of solutions that we can end up providing an often far more effectively.

Then.

Pre existing legacy system, but might be using or even service oriented type solutions that they might have put together. So demand continues to grow right. Now. We also have highlighted the fact that we're seeing deal cycles extend.

There is more scrutiny more process, that's quite consistent across many different technology universes.

So to the heart of your question as you would actually see that speed up effectively right and it would be done consistently across geographies.

And.

And frankly across different industries. So Chris do you want to add anything the only thing I'd add from.

From an industry perspective, Hi Tech has been an area I think has been well documented it's been challenging with a lot of conservatism built in especially in the U S. So we're anticipating that to continue to be challenging, but if that were to improve that could also help us.

Improve our results as well from an industry perspective, but as Dave pointed out earlier, one of the beautiful things about quality, because we're diversified REIT, we fell into health care, we saw in the public sector.

A variety of places and so we feel like we're positioned to regardless of what happens to do relatively well.

That's really helpful. Thank you both Chris maybe just a quick one for you Rob you guys have all taken a pretty thoughtful approach just in terms of discussing your ability to perhaps deliver more margin upside.

Both were to see some pressure given the macro.

And I think your fiscal 'twenty, three guide sort of kind of.

Flex that reality. So just curious how you guys are thinking about that balance today and what leverage you are finding in the business to drive those higher margins.

Yes, Chris talked about some of those earlier in terms of the sales efficiencies that we're seeing this is.

We're well over 20% operating margin in over 25% free cash flow.

Just add onto that we've said this before but it's always worth repeating we see significant margins in this business and.

A lot of that ties in with the long term margin targets that we've set out.

And you're seeing evidence of our progress against that given the sequential quarter to quarter margin improvements that we've been making and it's a big focus we believe that.

Our responsibility is to be strong business operators.

We're committed to doing that both on the top and the bottom line, making.

The making of a great business.

Very helpful color. Thank you guys.

Thank you one moment for our next question.

And our next question comes from the line of Mark Murphy from Jpmorgan. Your question. Please.

Okay.

Hey, guys. Thanks for taking the question. This is already go on for Mark Murphy.

Just a quick question on you guys have a reference deal elongation and scrutiny. A couple of times now are you guys seeing anything in the way of deal compression our people solving projects kind of indefinitely or is it just been contained to that elongation.

I'm definitely its more on the elongation as we're working through deals we're consistently finding that.

Provide the material to be able to coach through and get through that process, but.

It's just taking longer and additional scrutiny, that's driving a lot of them, but we're not seeing a change to our win rates for example.

As a result of that.

And we're also not seeing a change in share gains that we're making as well, which is really important both in expanding and consolidating as always.

Net new customers that are coming our way, which is reflected in the update on the total number of customers.

Got it thanks, and one thing that you guys have talked around a little bit.

Yeah.

No what we're seeing is.

People.

Really honing in on the purpose built use cases, we've developed a lot of that ties in with.

The themes around how we help companies drive revenue.

We actually create cost efficiencies for them.

And what we found is that people are prioritizing.

Our platform and the way that we can play a role to achieve those objectives at scale, where you can see material benefits to their companies, especially.

At a time, where you've got to make the right choices on where youre going to spend your money.

And the way we've designed our platform happens to actually help to O&M on the higher priorities that exist in some of these buying centers.

Yes.

Great. Thank you.

Thank you one moment for our next question.

And our next question comes from the line of <unk> Shah from Deutsche Bank. Your question. Please.

Great. Thanks for taking my question I guess I'll start off.

With one for Chris I know you talked earlier about sales kickoff just how are you.

Thinking about evolving that go to market strategy, given the macro both across all of your solutions, but in particular with axon discover given that solutions traditionally has been a longer and more heavier sales cycle.

Yeah.

Yes, so so no major change to our sales strategy other than what I indicated earlier, which is that we're a year now into.

Clearbridge acquisition that enabled us to be able to.

Merge in essence, the Clearbridge sales organization with our existing CX sales organization and Thats, a great opportunity for both efficiency and also great for our customers because now we have a single seller who can sell the combined solution, which is also how we've designed our product portfolio is to have a a single overall customer experience solution across both <unk>.

<unk> and discover as well as some of the other innovations that we've talked about that are coming out and we believe that model.

<unk> drive efficiency with.

A single sales organization is focused on driving that.

And seeing some some great gains there.

Right.

The thing I'll comment at the top is.

Discover and are engaged capability those are platform level technologies and they are now showing up in a variety of applications that are built on top of our platform.

And they then materialize as product capabilities that.

Buying centers can efficiently procure to solve real business problems that they want to go after and so we're making it easier.

And much more convenient for how companies can take advantage of solutions that are design specific to those those those opportunities in the marketplace.

Super helpful. Just calling up one for Rob and you've always talked about seasonality of billings and our Po, becoming more back end loaded with the inclusion of Clearbridge. Among other factors. Obviously today you are running into a more difficult macro so I guess in the context of deal cycles lengthening from <unk>, how do we think about the seasonality of billings.

Into fiscal 'twenty three in particular for <unk>.

Yes, I think as we've talked about.

40 of 2022, and we expect that to persist into 2023, so given that theres nothing that I would call out in terms of changes in the seasonality. If those things persist then we would presume that the seasonality would stay fairly similar to what we saw in 2022.

Okay.

Super clear thanks for taking my question.

Chip.

Thank you one moment for our next question.

And our next question comes from the line of Terry Tillman from Truest. Your question. Please.

Yes. Good afternoon, thanks for taking my questions, Hi, Chris and Rob.

Two questions for me first one and I don't know if this is for us dig or Chris but you were talking about service now so maybe I'll pointed it but whoever wants to go out and go for it I like to turn about the multimillion dollar deal what I'm curious about with service now and I think last quarter, you all talked about being a top five marketplace seller on AWS and then if we could look at those three where are we in terms of the REIT.

<unk> really being up to speed. They know the game plan they have their marching orders.

Yes, so I'll start and Chris can add.

Right.

I mean first off it's really important to point out the power of the ecosystem, that's being built around our platform and bolt on how partners build off of our platform from a software integration and innovation standpoint, as well as how.

Partners construct.

Solutions and build services that.

Unlock value on specific business opportunities or business problems that customers are working on.

So companies like <unk> for example, and the way that they end up.

Constructing solutions.

That might tie in with business transformation that their customers are working on.

I think we're in very early stages as a company, we're very focused on ecosystem, but frankly relative to the opportunity that we have ahead.

We're taking measured approaches we're focused we've got milestones theres objectives, there is accountability.

But we're in very early stages of the opportunity that we see ahead.

We think that that will materialize both in.

Market opportunity pipeline growth.

As well as inefficiencies and leverage that we get.

For the business model is the larger ecosystem ends up.

Constructing the building solutions around the system as I just described.

You pointed out service now.

It's a beautiful example, I think we are in the early stages, but I think that theres really good indication that we're on the things that.

We'll have a lot of other customers that will want to go on to replicate and they come both in small medium and large opportunities.

We pointed out one example.

What I would describe during the earnings call as well so.

So thanks, Jerry What's your next question sure.

Rob Thanks for answering that and in terms of somebody already asked about seasonality for billing, so I won't ask that but Rob.

Rob I mean should we think about 120% is like the flag in the ground in terms of NR as we progressed through 'twenty three.

Or is there some cushion actually kind of how you've put your forecast together and maybe it could actually.

Be a little bit below that just a little bit more on that thanks.

Yes, I think it definitely.

Could drop below that 120%.

Given.

Where we're seeing the business and the growth in the guidance that we've provided I think that's natural to understand.

<unk> and cross sell with that customer base.

Thank you.

Yes.

Thank you one moment for our next question.

And our next question comes from the line of DJ Hynes from Canaccord Genuity.

Hey, this is Luke on for DJ Thanks for taking my question.

Given employee experience is such a hot area of investment during what has been a really heated job market over the last year when things finally softening in the labor market I'm curious to what degree you've seen a change in maybe the urgency or priority of adoption around that solution relative to the rest of your offering.

If at all.

Yes, so I think it's really important to recognize that its not one solution, it's a portfolio of applications.

That are designed around.

The.

Employee lifecycle.

From everything from the Onboarding experience of new employees to transition that happens all the way through to understanding the wellbeing and things that actually drive performance and impact.

That's really important is that because we have a.

A large portfolio, we're able to orchestrate that alright combination of applications for problems that customers are looking to solve.

In addition, though it's really important to understand that they are built on the same platform.

Our customer experience product experience and brand experience related solutions are built on and as a result, we're innovating I mentioned one of the new innovation called cross that Sam.

And cross sell some of those very unique system because of the ability to be able to understand the correlation that takes place between.

What is happening with an employee base and the impact that's having on customer facing performance metrics within the business. If you look at Yum brands and what they're doing with KFC.

They are trusting contracts as a sore.

A solid platform for <unk>.

The employee experience and customer experience across 27000 restaurants.

Leveraging the capabilities that we built at that intersection.

And we're seeing a lot of that and so it plays in nicely and the advantages.

Regardless of what timing customers might take to fully realizing all of the capabilities.

But because you can unlock off that same system turn it on and actually helps to drive.

A desire to leverage quadric strategically and over time turn on additional solutions as necessary. So.

We're seeing employee experience farewell.

In the marketplace given.

The nature of how tuned in to the things that companies are paying attention to the other interesting statistic.

Reset link.

Linked in report that came out.

Suppose the fastest growing roles.

Within companies and it was interesting we noted that three of the five fastest growing roles.

Our employee experience specific role in there.

Our roles that has to do with solutions that we built for them. So it's another interesting indicator of just trends that we think are our.

<unk> did really well with the way that we've been innovating and creating value in partnering with customers.

That's great and very helpful. Thank you and then just maybe one for Rob.

It's been talked about a lot already but maybe just thinking about your IRR of 120% in the context of your 15% subscription growth next year.

Maybe that growing as a percentage of the overall growth mix.

Sort of that.

Existing customer base contributions.

Yes, it's something.

Talked about in terms of where we're seeing more impact from the macro is relative to landing those new logos.

So when you think about going forward. There is certainly the potential that a larger portion of our growth comes from the existing customer rates for a period of time, but that's also.

We believe gives us a lot of opportunity as the macro stabilizes for US to then go and increase the customer base along the way certainly the growth will continue to come from both places you see that in the total number of customers increasing this year, but as a percentage of the total for the.

Let's call it the near term you could see the existing customer base become a slightly larger part of the overall growth.

Helpful. Thank you.

Thank you one moment for our next question.

And our next question comes from the line of Adam <unk> from Bank of America. Your question. Please.

Yes.

Adam.

Your line is open.

Hey, Thanks for taking my question.

I had a quick question just to make sure I was understanding the billings number correctly.

Some taking out.

Declare a bridge.

<unk> of last year's Q4 is that correct.

That's right, yes, Okay, and then yeah.

Yes.

That was included there.

Yes, and then if I do the same thing for <unk>.

When I look at current bookings I'm, taking out $78 million from last year's Q4, as the IPO is that all Scott.

Okay, and then just to get.

Is it like possible to give like the.

How much of it was currency impacted for structuring bookings I know you guys gave for subscription billings.

Yes, the overall impact is.

About that two five percentage point.

Growth and Thats for the total billings that that is almost entirely subscription billings, but so you could think of them as one and the same in terms of the FX impact.

Okay got it and then just last question on these.

Can you explain like the delta between.

<unk> growth and the total IP address thank you.

Yes, the <unk> growth is occurring so as we continue to do multi year deals that have two or three years or maybe longer under total contract you can see the CRP.

Our <unk>, which is all revenue under contract grow faster than the <unk> in any given period.

Okay, great. Thank you.

Thank you one moment for our next question.

And our next question.

It comes from the line of Brian Schwartz from Oppenheimer. Your question. Please yes, hi, Thanks for taking my question. This afternoon.

It's a question on your customer conversations it's either for crafts or I guess, it's relating towards your expansion opportunities and activities.

You are talking about clearly youre seeing more deal scrutiny is elongated cycle like everyone is seeing.

My question is what is underlying that.

How much of the scrutiny as it related to customers absorbing what maybe had previously spent on call tracks and what they had bought versus what youre.

Customers are seeing in terms of demand changes to their own business.

Grams of looking at that and having additional approvals or CFO looking at those types of things and so when our buyers are going in there and they're interested in expanding our program, it's harder to get things on internally within our customers within our customer base and they've got to go through additional approvals to get it done so I don't think its reflective of them.

Absorbing what they've already purchased from US it's more a matter of internal budget approvals within our customer base themselves.

Thanks, Chris can I ask you one follow up.

How is the top of the funnel trend trending compared to what <unk> seen in prior quarters. Thanks again for taking my questions.

Awesome question.

Overall, and so that has us excited and is a positive signal that this is an area of prioritization of spend across all of the solutions that we have.

Overall, and so that's that's a real positive.

We'll focus on continuing to expand our pipeline development and continue to seek out opportunities and thats borne fruit.

But that positive signal at the same time as we've discussed we do continue to expect this deal scrutiny persist and so we're just uncertain on the timing of the conversion of that pipeline, but the pipeline itself.

Starting out significantly stronger than we did last year and the other important.

Trend around pipeline and I referred to this earlier.

Is that more budget centers are looking to consolidate.

Relatively less efficient post point solutions that they've been running.

For example in the call Center and there is many other examples like that and so the.

The color in the mix of the type of pipeline coming our way.

As unlocking access into adjacent budget centers <unk>, maybe deeper levels of budget that people want to deploy towards our system, which also contributes to.

The building up of increasingly higher levels of pipe also expands the opportunity.

That said keep in mind, what Chris said also which is fuel cycle still are elongated and people have.

More process that they are actually applying to the way that they end up making decisions.

That's helpful. Thank you very much.

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

Q4 2022 Qualtrics International Inc Earnings Call

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