Medallia, Inc.

Thank you Josh. Welcome to Medallia’s fourth quarter and fiscal-2020 year-end earnings call.

We issued our earnings release a short time ago and furnished the related 8-K to the SEC. To access the press release, please see the investor relations of our website.

With me on the call today is Leslie Stretch, President and CEO of Medallia. Before we begin, please remember during the course of this call we may make forward-looking statements about the operation and future results of Medallia that may vary and involve many assumptions, risks, and uncertainties.

If any of these risks or uncertainties develop or any of the assumptions prove incorrect, actual results could differ materially from those expressed or implied by our forward-looking statements. For a discussion of our risk factors associated with the forward-looking statements, please refer to the text in the company's press release issued today and to our periodic reports filed with the SEC including our perspective dated July 18, 2019 and Form 10-Q dated December 11, 2019.

We disclaim any obligation to update any forward-looking statements. On today's call we will refer to both GAAP and non-GAAP financial measures.

The non-revenue financial figures discussed today are non-GAAP unless stated that that measure is a GAAP number. Please refer to today's press release for the reconciliation of GAAP to non-GAAP financial performance and additional disclosures regarding these measures.

Additionally, in conjunction with the release of our earnings report, we have posted on our website at medallia.com under the Investor Relations section, additional charts that identify trends, metric performance that we believe will aid in understanding and evaluating our performance over time. Now I'll turn the call over to Leslie.

Thank you, Roxanne. Hello everyone.

I'd like to begin by thanking every Medallian for their hard work in Q4 and FY20 and especially for their customer focus at this trying time. I believe customer and employee experience is job No 1 for every CEO and leader in today's world.

Our focus at this time is on the health and safety of our staff and on making sure we are set-up for the long term. In our first year as a public company we accelerated our SaaS revenue growth and added a record number of new customers.

Turning to our Q4 report I was very pleased with our execution and results in Q4. We have record SaaS revenues, record top line revenue.

Importantly, we met our goal of accelerating SaaS revenue from 22% in FY19 to 26% growth in FY20. For the full year we delivered top line growth of 28% versus 20% in the prior full year, a significant acceleration in growth off of a much higher base.

We added over 50 new enterprise logos. Our mid-market teams contributed nicely and we made progress across verticals.

We ended the quarter with a trailing 12-month net revenue retention rate of 119% and a 44% increase in our total remaining performance obligations. Today, less than 20% of our signal data is simple survey data and nearly 70% of our solicited feedback is sent via mobile.

At the time of our IPO, we shared with you that Medallia analyzed 4.9 billion experiences annually. Today, I'm pleased to report that we closed off fiscal 2020 with 6.1 billion experiences analyzed annually.

In fiscal 2020 users of our platform increased more than 30% whilst we captured nearly 50% more feedback signals. Our customer account has grown nearly 40% year-over-year.

New business wins in Q4 included AkzoNobel, Cloudera, Freddie Mac, Freshii, Mazda Canada, Ryder, Smashburger and XP Investimentos Braxil, Samsung U.K. we continued with more great brands Club Quarters, Under Canvas, and the PGA National Resorts, [indiscernible].

We signed a major expansion with Woolworths, a flagship retail customer in Australia. We also have several significant retail expansions in the U.S.

in Q4. In the quarter we were recognized again as a leader in The Forrester Customer Feedback Wave and in RedThread employee experience review.

We comfortably extended our lead over the legacy market research and survey players. Today our top four verticals are finance and banking, retail and automotive, technology and manufacturing, communications, media and telco.

For this quarter I've chosen high tech manufacturing as our focus vertical and our text analytics platform and our new video capabilities as product areas to review with you all. Turning to the manufacturing vertical for this report, customer feedback and insights are critical part of the product development and support process at HP Inc.

HP has partnered with Medallia to build a customer listening system that integrates multiple sources of feedback including surveys, service support cases, and the online product reviews to help HP’s people understand what customers think about their products and services as they take key actions. Product reviews from sites like Amazon, Target and Walmart can all be combined with feedback data to produce comprehensive insights on customer sentiment and intentions.

We recently won another contract with Samsung Electronics America, the U.S. division of one of the world's largest and most successful manufacturers.

We are helping Samsung run an innovative customer experience program in its care division supporting more than 5,000 care agents and field technicians in the U.S. and Canada across digital, phone and in-person channels.

Samsung has achieved significant improvement in net promoter score and other key operating metrics. As of Q4, they are also beginning to deploy our employee experience solution in their care division and also as of Q4 we received a commitment from Samsung's European business.

Turning to product themes for this report, our technology can access many types of unstructured data elements from voice and video to survey and digital interactions, placing all customer feedback elements in one platform for complete analysis, visualization on predicted actions is a central capability of the Medallia experience cloud. Today, we have 60 customers who are using theme explorer to analyze over 80 non survey data sources.

These sources include social websites such as Facebook, messaging services such as WhatsApp and WeChat, data from siloed signal vendors and social and survey, SMS text, Compact Data Center and much more. In the context of the current health crisis we have set-up special text analytics topics to help over 20 Medallia customers monitor and analyze the impact of coronavirus, for example.

The list of customers include a broad range of verticals in retail, eCommerce, financial services, and as you'd expect, hospitality and travel. Turning to an update on our latest acquisition of LivingLens, we're now the only experience management technology company that owns video and capture technology.

This is a new rich and powerful source of feedback signals for our customers. Companies using LivingLens include Airbnb, Colgate, SC Johnson, Red Bull, Deliveroo and Hyundai.

The combination of LivingLens and Crowdicity leapfrogs traditional market research. We believe that face-to-face field market research business is being digitally disrupted.

We believe this is a $12 billion market spend per annum that can go to digital platforms like LivingLens and Crowdicity. We're getting inbound interest from universities, organizations like the National Health Service and others looking to digital communication and crowdsourcing solutions, not just because of the current crisis.

Let me update you on our partner strategy. Our collaboration deals with Adobe, Salesforce, ServiceNow and Workday executed in the past six months marked Medallia as is the only open partner of choice for feedback management.

We have seen positive activity in Q4 and Q1 already. And in Q4 we launched the Medallia sales and service out on the Salesforce app exchange.

We are the only enterprise ready open partner for these players when it comes to customer and employee experience capabilities at scale. We've also extended our partner efforts to focus on new vertical software partners in life sciences, manufacturing and insurance.

Turning to our go-to-market efforts, I'm pleased to report we achieved our 40% increase in productive sales capacity in FY20. We continue to focus on a vertical go-to-market organization.

Our vertical market best practice packages are currently purchased by 70% of new customers. These popular vertical specific packages help customers speed up implementation and time to value.

In Q4 Medallia achieved FedRAMP Certification, further validating our depth in delivery, delivering highly secure leading solutions for consumer, employee and citizen experience management. FedRAMP has significance beyond the U.S.

market as it is seen as a benchmark of quality by governments around the world. We've also made decisions to pursue FedRAMP High and HITRUST for healthcare.

And just yesterday, we announced that Lee Becker, former Chief of Staff, for the Veterans Experience Office of the U.S. Department of Veterans Affairs has joined the company to serve as the Head of Solutions for the public sector.

Let me update you on our geographic expansion. In FY20, we added strong leadership to our EMEA, APAC and LATAM businesses.

All of these geographies made strong contributions in Q4 proving my thesis, that upgrading leadership with proven sales coaches pays off and I expect solid contributions in Q1 and beyond. On my recent APAC tour, I visited some of the biggest brands in the world.

One of them, a very large Australian retailer, recently renewed for a five year term. In the foyer of their global headquarters, they display Medallia sourced customer feedback in live time placing their customers front and center in using this data to make decisions about store and eCommerce operations.

In light of coronavirus and it's affecting global travel and large congregations we already turned our attention and resources towards virtual events and conditions permitting a repeat of our very successful intensive one day city tour series in the late summer and fall. In my opinion, these targeted digital and local events are more effective than one global event.

It's interesting to note that in retail, retail pharmacy, travel and hospitality we've seen recent significant spikes in usage by our customers. One retail business for example that we serve saw a 300% increase in feedback activity just last weekend alone.

We believe customer and employee feedback becomes even more critical and challenging times. As I've mentioned already.

I believe that customer employee experience is job No 1 for all CEOs, now more than ever. Despite the global health crisis, our confidence in our current outlook is based on several key factors.

Transforming customer and employee experience is a top digital priority, and a report sponsored by our customer Comcast just published 76% of organizations surveyed said they are feeling pressure from multiple sources in the organization to deliver digital customer experience. We've seen no customer action or behavior to change our assumptions and it's too early to tell what can happen in the second half of the year.

We have a very strong book of business with the leading brands across industries. Our total remaining performance obligations are 44% year-over-year while the current RPO has increased 31% as I mentioned.

Nearly 50% of our renewals in FY20 were multi-year contracts, mostly annually billed, increasing 2.5 times from the prior year. Our productive sales capacities increased 40% year-over-year.

Our cross sell thesis is bearing fruit with three modules on average in our top of accounts now. No implementation task that we do today need physical presence on customer sites.

Our balance sheet is strong with no debt. We do not rely on any physical supply chain.

We expect digital transformation to become digital disruption, which plays into our product portfolio of digital, video and broad signal capture. Our playground success opens up the global citizens experience market, not just the U.S.

We don't charge customers for consumption like traditional survey players. We have now an intense focus on stay-home industries including telco, entertainment, home automation and local retail, retail pharmacy, retail financial, insurance and others, and less than 10% of our book of business was in the hospitality sector.

Airlines are 1%. Make no mistake though we intend to support those businesses through thick and thin.

I will now hand over to Roxanne to cover our financial performance and outlook in more detail.

Thank you, Leslie, and good afternoon, everyone. Across the board, we posted strong financial results in Q4, including record total revenue and record SaaS revenue.

As a quick reminder, unless otherwise noted, all numbers except revenue mentioned during my remarks today are non-GAAP. You can find a reconciliation from GAAP to non-GAAP results in today's press release.

Turning to some key metrics, our new customer growth was strong. We ended the year with 757 enterprise customers, an increase of 39% year-over-year.

Our trailing 12-month dollar net retention rate continues to be very healthy, coming in at 119% in Q4, an improvement from 116% in Q4 of the prior year. We believe the strong retention rate underscores our ability to retain and steadily expand business within our existing customer base.

We are also beginning to see traction in our cross-sell initiatives. These initiatives began in earnest midway through fiscal 2020, as the average module attach rate has increased from two to three.

We are pleased to see this cross-sell motion gaining traction, in fact, nearly 25% of our customers are using four or more modules. Total revenue for fiscal 2020 was $402.5 million, an increase of 28% year-over-year.

As we communicated on our IPO road show, our goal was to accelerate SaaS revenue growth on an annual basis and we're pleased to report that we clearly achieved this goal. SaaS revenue for fiscal 2020 was $312.2 million, up 26% year-over-year, demonstrating strong growth at scale and an acceleration.

This compares to the prior year SaaS revenue growth of 22%. For the year, we generated 76% of total revenue from North America.

In terms of vertical diversity, our top four verticals are, finance and banking, retail and automotive, technology and manufacturing, communications, media and telecommunications. As Leslie noted, less than 10% of our businesses derived from hospitality.

Total revenue for Q4 was $110.1 million, an increase of $23.7 million or 27% over Q4 of fiscal 2019. Total revenue exceeded our expectations due to solid contribution from subscription, managed services and implementation services revenue.

In Q4, SaaS revenue was $86.2 million, an increase of $18.3 million or 27% year-over-year. Our SaaS revenue growth rate improvement benefited from the timing of new bookings in the quarter, as we experienced a stronger than expected December.

Recurring revenue consisting of staff and managed services continues to be at 90% of total revenue. Professional services revenue was $23.9 million for the quarter, which increased 29% year-over-year.

Our services revenue benefited from strong customer demand. Recurring managed services accounted for more than 50% of our total professional services revenue.

As a reminder, services revenue ebbs and flows based on a variety of factors. I will now turn to our non-GAAP gross margins and operating expenses.

SaaS revenue gross margin was 82%. We believe our SaaS margins are among the best-in-class for SaaS companies.

In Q4, professional services gross margin was 19% compared to 13% in Q4 of the last year, due to higher than expected utilization rate. We continue to focus on driving more professional services to our partner channel along with subcontracting some additional services.

Sales and marketing expenses in Q4 were $43.3 million or 39% of revenue. Our sales and marketing expenses increased in Q4, due to our large presence at Dreamforce.

R&D expenses were $20.5 million for the quarter or 19% of revenue. R&D remains an important investment area as we expand our platform with new features and capabilities each quarter.

G&A expenses were $11.9 million or 11% of revenue. We expect additional leverage on the G&A line over the longer term.

Non-GAAP operating income in the fourth quarter was $3,000, compared to $2.4 million in Q4 of fiscal 2019. Similarly, non-GAAP operating margin in the quarter was breakeven compared to 3% in the year ago quarter.

Non-GAAP net income was $491,000, compared to $1.7 million in Q4 of last year. Non-GAAP operating loss in fiscal 2020 was $2.4 million compared to a loss of $47.7 million in fiscal 2019.

This significant improvement of over $45 million reflects our focus on balancing growth and profitability, while we continue to invest in go-to-market initiatives. We incurred a tax expense of $67,000 in non-GAAP income taxes in Q4.

This was lower than prior quarters due to lower foreign withholding taxes and foreign income taxes. Our GAAP income tax benefit of $555,000 includes a benefit due to stock option exercises in Q4.

During the quarter, our weighted average basic share count was 129.4 million shares and our fully diluted share count was 171.4 million shares. Turning to the balance sheet, we ended Q4 with $343.7 million in cash and equivalent, an increase of $24.4 million from the prior quarter, driven primarily by cash generated from operations.

SaaS deferred revenue was $222.9 million, an increase of 27% over SaaS deferred revenue in Q4 of the prior year. Let's move on to discuss SaaS calculated billings, which we define as SaaS revenue plus change in sequential SaaS deferred revenue and contract assets.

As you know, there are a wide variety of factors that influence this metric. Therefore, quarter-to-quarter fluctuations in calculated billings should not be taken as an indication of changes in future revenue.

For example, billings will fluctuate quarter-to-quarter due to the timing of renewals and annual contracted billings. As we have communicated to you, we believe that the 12-month trailing SaaS billings growth rate is a more meaningful measure of our performance.

For Q4 fiscal 2020, our trailing 12-month SaaS billings growth rate was 25%, compared to 24% in Q4 of the prior year. Moving on to RPO or remaining performance obligations, as I have shared with you before, our RPO metrics may be impacted by contract duration and extension as well as timing of renewals of large multiyear contracts.

So while RPO provides for strong visibility, it may fluctuate from quarter-to-quarter. At the end of the year, our total remaining performance obligation or total RPO was $679 million, an increase of 44% year-over-year.

Current RPO, which is the amount we expect to recognize as revenue over the next 12 months totaled $344 million, an increase of 31% year-over-year. We expect to recognize 51% of total RPO over the next 12 months.

In addition, non-current RPO grew 62% year-over-year. This is a result of the large number of multiyear contracts signed this year, as we have professionalized our operations as a public company.

We generated positive $19.5 million in cash flow from operations for the quarter. For the year, cash used in operations was $1.6 million, compared to $15.2 million used in operations in the prior year.

From a cash flow perspective, our operating cash flow fluctuates based on seasonal patterns that we've experienced historically due to the timing of bookings and cash collections. As a reminder, we've historically experienced seasonality in our cash flow from operations, given that over 40% of our billings occur in the fourth quarter.

As a result, our cash collections in Q4 and Q1 are higher than other quarters. We anticipate the seasonality will continue in fiscal 2021.

Now let me turn to our financial outlooks for Q1 and fiscal year 2021. For Q1, we are projecting total revenue to be between $109 million and $111 million, representing a 16% to 19% growth rate over last year.

For Q1, we are projecting SaaS revenue to be between $87 million and $88 million, representing growth of 21% to 23% over last year. Please keep in mind that Q1 has two fewer days than all other quarters in fiscal 2021.

For Q1, we expect non-GAAP operating loss to be in the range of $1.3 million to $2.3 million. This includes nearly $3 million in fees related to the cancellation of our annual customer conference.

We expect other income and expense to be roughly $500,000 and income taxes to be in the range of $750,000 to $1,250,000. We expect basic weighted shares outstanding to be approximately $134.5 million.

Now let me turn to our guidance for fiscal 2021, while we haven't seen any changes in buying behavior thus far. We want to set ourselves up prudently as we take time to see how the current macroeconomic climate plays out.

Therefore, we are maintaining our full year revenue guidance for fiscal 2021. For 2021, we are projecting total revenue to be between $474 million and $483 million representing growth of 18% to 20% year-over-year.

We expect SaaS revenue to be between $382 million and $387 million, representing growth of 22% to 24% year-over-year. We expect revenue to follow a similar pattern to this year with more than 50% of annual revenue to be recognized in a seasonably stronger second half.

For fiscal 2021, we expect non-GAAP operating profit to be in the range of $1 million to $5 million. We expect other income to be roughly $2 million and income taxes should be in the range of $4 million to $5 million.

We expect diluted weighted shares outstanding to be in the range of 174.5 million to 175.5 million. Finally, we anticipate our capital expenditures will be slightly ahead of last year's level, which was approximately $22 million.

Primarily related to the expansion of our data center capabilities to meet increased customer demand, we are committed to investing for growth, while balancing growth and profitability. We are taking a financially disciplined approach.

On an annual basis, we maintain our goal to be operating cash flow positive for the full year of fiscal 2021. In conclusion, we are very pleased with our fourth quarter and fiscal 2020 results.

Leslie and I will now take your questions. Operator?

Hey, thanks guys for taking my question and congrats on a great close to the year. Just wanted to focus on the two of the newer initiatives, your first, obviously the customer count was very strong again this quarter.

So I wonder if you could update us and just sort of the move down market and how you're feeling about the investments there. And then also, you obviously signed a significant number of new partnerships over the course of last fiscal year.

How are you thinking about those impacting the numbers this year, how do those roll on in your mind?

That's a great question. I think early days still in the partnership deals that were signed at the backend of the year.

But we've seen some progress in some deals. So I think a small number.

So we are pretty optimistic there. The midmarket has delivered.

We added a group of salespeople there, new – almost all new into the company and they've been booking a good decent contribution in Q3 and then a better one in Q4. And we had a scrappy land and expand module deals, but we've even been selling Experience Cloud there, it's low touch, cost efficient sales and it has been really good initiative I’m very pleased with.

Great. Thanks, guys.

Hey guys, can you hear me okay?

Yes.

Hello? Yes, great.

So as a echo sentiments, great job. Great, I want to talk a little more about the partner ecosystem rates.

So in Q3, you've talked about the other 10 partners Global SI, advisory, technology, ISVs. Just a little more color on sort of Adobe, ServiceNow, how are those progressing?

How is those initiatives Salesforce and others kind of helping play out in terms of reach and adoption and then obviously deals?

Okay, great. So I just said, so prior response is really early days and in my prior life, I’m really worked with Adobe and ServiceNow.

So I'm actually quite pleased with the progress there. We are seeing deals and traction.

Salesforce is a great partner and we're seeing some really significant campaigns. And so without getting into too much detail, the politics of the landscape really play into our hands for the moment.

We are the open partner, right? And we're actually that the most credible scale platform and signal play.

So that's really working very well for us. Not to say, we have it all to ourselves, but I'm very pleased with that.

But I'm also excited about the vertical partners. Obviously we've got an interesting macro situation unfolding here, but there's some great vertical partners in financial services and some other sectors that we've started to form bonds with that I think is going to be part of the story this year.

And we'll update you as we signed deals as we move along with those companies. And I think that could be – those tough companies tend to be a little bit smaller.

I'm thinking companies in life sciences and insurance and financial services, they tend to be more of our size. And so that's going to be an interesting partnership.

And some of them are customers too, so we'll give you more colors as we go through the year.

So that's helpful. And that touches on two questions.

But I'm wondering to ask one. So you touched on large companies and they're working with you and this is the future and we think through that process and we think about implementation and sales cycles.

Let me think through currently COVID and oil in macro concerns, when you think about does that slowdown the process. So a, sales process does, it slowdown because this is a complex sale.

It's not as simple, hey, you got a survey product. This is a much more customer experience product.

And then two, implementation, like there is definitely an impact on – you guys go there. Is there a utilization impact, we can't get to the site, we can't deliver.

So I want understand two things. One, how are the sales cycle being implemented – impacted by the current situation?

And then how has the delivery being impacted by current situation? Thank you.

Yes, sure. I mean, go back to the front part of the question was large – the large partner play.

Our deal count there and our activity is so small and so new that it's hard to say, I mean, they were relatively small, I think there's upside. In terms of implementations, one of the things we've been doing in recent days is working out, what is really essential to do at the customers’ site?

I'll give you a couple of examples in a second. And I think we can do lots, depending on the scale of an implementation.

We can do a great deal without having to visit a customer's site. Gone are the days when we have to go and connect physically software and hardware and other technologies.

So I'm feel pretty good about that and we're – people can work. We have fabulous bonds with them technology.

Video comp has been super for us. I was in APAC, I got stuck in Sydney, I couldn't go to Singapore, I couldn't go to Korea or Japan and we did not miss a single meeting.

We did WebEx, Zoom, et cetera. And it worked seamlessly, beautifully.

Every meeting went to the limit of an hour or over. So people were engaged and just the technology is so much better today.

I actually felt – I felt pretty good about it and we got everything done that we wanted to get done. The same is true in collaboration and implementation and we're encouraging our people, we're concerned about their welfare first and foremost.

Nothing else matters. We were encouraging them to work from other places, locations that they're comfortable home or wherever supporting their bandwidth requirements and implementations can be conducted there.

So it's a – for us, that's the way we were approaching it. And I personally feel that and look at difficult times, but I personally feel quite a lot of productivity gains for me because I can get so much done by spending – spending 50% of my time in the air and now that will return and that’s why I think it was nothing like personal engagement, especially since our buyer and the person we won't behind everything that we do as the CEO, right.

And those tend to be pretty short, sharp meetings. But I did one meeting in Q4.

We did one upgrade, so almost a seven-figure ACD in Q4, where we did the meetings and engagements with the CEO over Zoom, the first one for an hour, a second one for an hour or so. I actually didn't meet the CEO until after reading the contract.

All right. So we're going for it.

We're using digital but keeping everybody safe at the same time.

That's really helpful. Thank you, guys.

I appreciate the color. Thank you.

Yes, hi. Thank you for taking my questions.

Roxanne, I was hoping we could just go a little bit deeper on Bhavan’s question there on professional services and I appreciate you pointing out on the script there that 50% of those professional services are managed services. Can you just talk a little bit more to Leslie's prior point there on how the bulk of services are deployed and engaged?

And when you think through, some of the larger sales deals that you signed here in the fourth quarter, talk us through just the process around how you get those customers up and running? How often you actually do need to have implementation onsite or tell about this point, can you actually do the vast majority of it remotely, but just love to hear a little bit more about that?

Thank you.

So Tom, that's a great question. We can do beyond the vast majority remotely.

We've obviously spent time looking at how much time are we actually onsite or need to be onsite with the customers and with the product and the way that we deploy the product. That's a very small portion, where we actually need to go and have face to face meetings and be onsite.

So what our professional services team has been doing is, we are utilizing video conferencing and we had done that historically in the past. So there – we have not seen a significant change in going and working with the customers onsite and we don't see that the need to be onsite will prevent us from doing implementations or delay implementations.

Now that's what we see at this point in time and that's consistent with the historical practice that we've had.

Excellent. That's helpful.

Leslie, just a quick follow-up for you. You've made the – you made the point about LivingLens being a nice tuck-in acquisition.

Can you just spend a minute here talking about what your customers are thinking about and seeing from the usage of video is yet another signal that they can think through and any sort of comparable customer references that are using your platform and LivingLens as well. Would love to hear about that?

Thank you.

Yes, great question. So we're really excited about LivingLens and also about the other technologies Crowdicity and so on.

And then when you combine the crowdsourcing of ideas with the video capture piece, it really does lead probe, traditional market research. And that was always a thesis.

Now we've started to see inbound inquiries around replacing traditional people-based laborious, small sample market research with mass scale digital market research in the shape, all of ideas in crowdsourcing and video technology. And so that's a real, very well defined play for us and we're going after them.

We like that and LivingLens can be set up and you can be invited to a LivingLens’ survey or video in a heartbeat. It's not a big implementation, right?

So but really all sectors are excited and I encourage you to actually watch our LivingLens showreel of customer feedback, the ability to see, a picture tells a thousand words, you're going to see the context of where the individual is to sense their emotions and sentiment around the feedback that they're leaving is second to none. It's very powerful.

It really is the way the future. And I'd encourage you to look at that.

I did mention in my prepared remarks a number of customers and if you go to their website, you can actually see some great customer use cases. We'll send you a link, but some great customers who are older using video.

So very excited. And when I look at a pipeline activity with LivingLens, it's very encouraging, very exciting.

Outstanding. Thank you for the detail.

I appreciate it. Nice job.

Hi, thank you for taking our question. This is actually Jacqueline Cheong on for Kash.

Congratulations on the quarter as well. You had another very strong quarter of net new customer adds that 59 new customers this quarter and this represents a continual acceleration of net new adds on an organic basis.

Can you double click on this? Like, is this just a result of salespeople hired six to nine months ago ramping up and should we expect this trend to continue?

And then secondly, has your sales hiring plans for this fiscal year changed at all in light of the coronavirus situation?

Great question. So I think that the result of the number of enterprise logos is good, pleased with it.

It's very good. It's very early days in the store.

And I would expect put aside the current healthcare crisis for a second, I would be expecting that, it's a move nicely. We've already added 40% of sales people from low number in the prior year, we need to absorb them, onboard them, and make them effective.

And we're focused on that and focused on execution this year. We're day by day taking the coronavirus crisis very seriously and day by day we’re assessing how to think about that for the future.

But our recurring revenue business is SaaS business. And so we always have to think about building up our go-to-market for the future and availability of talent and all of those things.

And we're just balancing up day to day. But we've got a much bigger sales force than we had a year ago.

They're very welcome. They're producing well.

Their attainment level was last year was higher even with a higher number and as you pointed out. And so we're happy with that.

But take it day to day, things are changing rapidly as we go, but they're busy. And once again, digitally focused, highly productive, able to get things done, less time spend on long road trips, more time spent on video, telecommunications and so on, which for this period I actually we welcome.

Awesome. That's good to hear.

Thank you so much.

Great. Thanks for taking my questions.

RPO numbers look outstanding, so nice job there. So it just maybe Roxanne or Leslie for that matter, the net expansion continues to improve.

I think you said 119%. Roxanne and Leslie, do you expect that to continue to improve throughout this fiscal year?

So you're right, our net expansion rate is solid at 119%. And we would always like to see it be higher.

I think that we can be above 120% and that's one of the things we focus. I mean, what you need to look at and consider is the number of modules that we've added this year.

So we've added over seven additional modules. So now we have 12 modules that we can sell to our customer base.

So not only we have the opportunity to upsell and expand from a business perspective in multiple businesses in multiple divisions, which we do very effectively. We also have the opportunity to really go out and sell additional products.

And we've seen that as I shared in the remarks now the average modules that our customer uses is three and we have over 25% of our customers or approximately 25% of our customers that are using four or more modules. And we have customers that are using as many as 10 modules.

So there's a great opportunity for us to continue to expand. We're very focused on the products that we bring to our customers to ensure that they are continuing to help our customers expand their customer experience and get additional feedbacks from – feedback from their customers, so that they can continue to focus and improve the overall customer relationship that they have.

Got it. And I think a number of people are asking this in different ways, the coronavirus and the impact on the macro and so forth.

I think just the fact, if you look at your guide. And the reiteration of the guide, I'm not sure, maybe if the guide would have been different three weeks ago or not.

But if you assume net retention improves to let's just say to 120% and your new logo activity has been outstanding, if not accelerating. And I know it's not straightforward math, but you're guiding to 22% to 24% SaaS growth.

And if your net expansion, net retention is 120% plus, that's not a lot of revenue coming from net new, so to speak. If you look back, I think you said net retention was 116% same time last year, trailing 12 last year and you put up 26% SaaS revenue growth.

So just am I thinking about that correctly and maybe who knows what's going to happen, right? Day to day, like Leslie said, but maybe there is some level of conservatism in the guide.

Thanks.

Thanks, Chad. So one thing I would highlight is that approximately 40% of our bookings came from new customers this year and that's relatively consistent with what we've seen in previous years.

So you do highlight a good point. However, when we give you our guidance, it's important that we take all factors into consideration.

Now we haven't seen an impact on our business and we really think that customer experience is center and foremost of digital transformation and there could be an opportunity for us here. However, with that said, I don't think that we would be prudent at this current time since things are so early, not to factor in all consideration – all considerations and all factors going on from a global economic basis into our guidance, so that's what we've done.

Yes. Understood.

Thanks. Nice work.

Yes. Hi.

Thanks for taking my question and again, good job here on the quarter. I've got a few questions here.

So one the first one, Leslie, I just wanted to get your color, what you're seeing on the OpEx in terms of the options of some of those newer acquired products Crowdicity and Zingle. And then if I'm that at all was a driver in terms of the acceleration that we saw on the quarterly subscription revenue growth and that trailing 12 months, SaaS billings growth?

A little bit, there are very small businesses, there are technologies, but growing fast. And the uptake and acceptance and interest and excitement of the customers’ is phenomenal.

And I see that myself, I'm on the road a lot as you know. It's a great time to test the validity of some of the thesis thought.

If you look at each one of those small technologies, they came with some great customer logos and great proof points and use cases. So I bet they're not hard to sell is what I'm trying to say.

And our fields are very excited about them, it's really phenomenal. It's got in the field and hear them position and the proposition and how it fits together with the core feedback proposition in Medallia Experience Cloud, so good contributors, good high growth and those gems that we're putting together.

But some of them are big stories. Video is a big story.

I had to do it properly with integrity on ethically and use customer data ethically, where it requires a big investment in platform, which we've already made. And I expect that to be a big story for us.

Thank you. And then second question, I wanted to ask, it was just on the cross-selling activity.

I think Roxanne gave us a number, clearly the product, penetrations increasing in the customer base. What I wanted to ask you, Leslie, is just the speed at which these add-on deals are starting to come into the business.

If you're seeing a shrink edge between say the initial sale and when these add-on expansion start to roll into the business, first, maybe the middle of last year or at the beginning of last year? And then I have one more follow-up.

Well, yes, that is a good question. I think – I don't know that we are seeing that.

Do we have enough data to suggest that? But keep in mind we did add a fair bit of sales capacity.

We added the partnerships and so I think those things are all in the mix. But I think, it's a pretty straight forward once you've got the feedback platform in place to add digital, to add a video, to add Crowdicity and ideation is a very straightforward technical step for a customer.

And so no reason they should deny themselves with that. But it's still early days, some of these properties we've had for less than four months but so far very positive.

Great. And then the last question I had, Leslie, you did touch on this just a little bit in the call.

It was just about it sounds like some of the excitement about these newer vertical practices that are starting to ramp. And so the question I just wanted to ask you and Roxanne, for yourself, you know, what is your expectation on how long it's going to take to ramp these newer vertical practices and partnerships too.

And then for Roxanne should we even, should we expect because of these investments that we could see a rise in the sales and marketing percentage as a revenue next fiscal year along with these deepening opportunity in the verticals. Thanks.

So we're already underway with the our evolution. We'd already gone out added some vertical focus prior year and then started this year we turned the wheel again, and put our go-to-market organization behind the verticals.

Mid-market is geographic outside of the U.S. is geographic.

So I feel we have a nice spread mix of geographic territory on verticals. And I think it's essential.

We know it's essential to be intimate with your customers industry and business in order to penetrate quickly. I think it speeds up deals, increases the volume, increases the volume of the pipe, we tune into vertical market partners and also we tune in to vertical organizations and vertical events or vertical marketing.

And I think that's just way more powerful and I think we're in the early stages of vertical marketing. You see more of that through the year nicely right now, you have a great opportunity to refocus money and time we would have spent on big physical events and congregations, we can focus on vertical market messaging and product messaging and so on that really resonates.

I feel we've got a great story to tell and that is our chance.

And I think that the vertical alignment of the sales organization and the vertical alignment of our marketing organization actually allows us to do things in a more cost effective manner, because we can do it in a more targeted fashion. And we've made a significant investment in our productive sales capacity and we will continue to evaluate and make the investments we need for the future years.

But with that said, what we're looking at is that we'll be able to maintain our – relatively maintain our sales and marketing percentage – expense percentage as a percent of revenue.

That's real helpful. Thanks for answering all my questions this afternoon.

Thank you.

Thanks. You had a pretty rapid pace of tuck-in acquisitions over the past six or nine months.

So I'm sort of curious, what your comfort level is to pursue acquisitions in a world where maybe a little tough to meet face-to-face or whether you've had a pipeline ongoing and ones that you kind of through moving down the pipe on that those might be easy enough to consummate, but looking at new ones might be tough for a short period of time.

Well, I think that's a good discussion. So, for me personally the diligence process and one or two of the teams here that are very experienced in not, those are small meetings one to ones, they're small groups, they're not big congregations.

And so that's my point on that. So in my personal commitment is to go where I am needed, within CDC, WHO government guidelines of course.

So I – seriously I mean that, to take that very seriously. So I don't feel that that's an issue for us in our pipeline that we have.

And let me be very direct about that. We do have a pipeline of opportunities and secondly, I'm frankly, I see opportunity here, I smell opportunity and I think that we should be continuing.

What I like about our approach is the platform and signal framework lends itself beautifully to smart M&A in my opinion, and by acquiring Zingle, in many cases we've already worked with, we already have the Zingle in our base we were already using and working with LivingLens and other video technologies. So we were familiar.

These types of approaches are what you should expect from margining with signals that we already worked with. And so I think that that is one dimension of the business where we are going to continue and we have plenty of cash.

We have no debt and our tuck-in strategy has proven to be a good, a good approach, so I see no change there.

How about almost from an opposite cost perspective, what do you think about would there be some challenges to, in a world where people are flying around less to recruiting and again, meeting people face to face, bring them on board, on board training, et cetera. So is there a possibility that your headcount growth might be more, maybe second half weighted than normal, as you kind of push off some of those things then what would typically be the pattern?

Well, I mean I think that's a very thoughtful discussion and we have been thinking about that in the past few weeks and days. We don't have a process where we need to bring people into California for big panel interviews for recruitment.

We really do like video interaction and then we have great locations, around the world. And in the U.S.

in particular where we can bring people in for one-to-one, so far I think that's, we can continue to do that in a – within guidelines and in a sensible way. What we want to avoid are unnecessary large, long trips, unnecessary large congregations.

And so I feel that we do have the tools and approach and the understanding of what we're looking for to use digital technology and use our local contact where necessary to keep things moving. And I have to tell you, that in my travels I've been talking, I talk to every executive that I meet and every CEO I meet about this.

And people want to run their business, they're not throwing in the towel. They want to run their business.

And they expect their demands will be placed on them and they expect to execute. And so, we're no different.

As it be as you're really approaching now more of a suite sale than a point solution. So are you seeing any change in the new logo wins in terms of how many are just Greenfield wins, people are approaching this as a new process within the company versus how many are competitive displacements because of the breadth of what you can do versus a point solution?

That is a great discussion. So my view is that the vast majority of the market is still tuning into customer experience and feedback through survey technology and old school market research technology.

What we provide is an operationalization of data and a platform and we seek to consume individual silos that are very costly for customers. So one of our propositions in the current market is to go in and say to customers, you're buying a social listening service over there, a survey surface over here, a digital service over there and nothing – they never meet in the middle.

The data doesn't end in the platform, we can’t operationalize the feedback, we can't analyze it, we can't visualize it and we can't act on it. And Medallia does all of that.

And that's a really powerful proposition of the current sign that all of our salespeople are being trained on it. We're asking them to take to customers, consolidate siloed data pools from old school social listening, old school survey.

Get rid of all that nonsense, right? And put it into a platform where we can operationalize customer experience.

That's what Medallia does better than anybody else. So get feedback where it matters so we can act on it.

Machine read feedback at massive scales, right? That's where Medallia really comes into its own.

So this is an exciting, for many people obviously tough situations, but this is a very exciting opportunity for us to really disrupt digitally. And I think most of the market still sees customer experience as, simple survey and stuff like that.

Our enlightened customers, some of the biggest best brands in the world see the value of operational analysis and distribution of feedback at scale, machine learning and so on. And these are the things that we're majoring on.

Thanks. Congrats on a great quarter.

Thank you.

Hi, it's [Bob] on for Brad congrats again on the quarter. And thanks for taking my question.

Great to see the metrics on module adoption. Can you just dive in a bit deeper here?

What modules are you seeing the most attraction with their customer base and then just on employee engagement what does the pipeline look like here?

Perfect. So from a module perspective, we see obviously our platform and our theme explorer, text analytics product use the most.

And then beyond that we see our digital, we see our social product being used and then it starts to vary based on vertical in regards to what's most important from them from a signal capture. So Crowdicity is a great example.

Zingle is a great example. Our customer success platform, which is Strikedeck is another great example for our business to business company.

So, it really varies, but we're seeing a – we're pleased with the uptick that we're seeing. And the other half of your question was?

Just the pipeline on employee engagement.

Yes. So, employee engagement is really important and employee engagement has a direct impact on customer experience and we think, based on where the world is right now at this moment in time, employee experience is extremely important for all the companies.

So, we've seen a significant uptick. We've talked about some of our large customers who have been a customer experience customer who have now deployed EX products.

So we have won a very large retailer in the United States who has employed sorry, rolled out EX and they rolled out their EX product in about three to four month timeframe and now they're bringing on another country every two to three weeks. So we've seen that happen.

We've seen other large deployments of EX and we've seen companies who have come to us for EX and then they choose to deploy CX afterwards.

That's very helpful. Roxanne.

And then just to follow-up for Leslie. I appreciate the color on the vertical exposure.

Maybe can you just give us an insight into what some of your hospitality customers are saying to you more recently and have you been seeing in terms of the user engagement trends trending for this industry?

Yes, I talked about this. This business is one of our great hospitality customers in the Midwest last week.

Obviously it's challenging for them, especially for those with properties in the APAC and China and so on. This is no doubt it's a challenging time.

This is also a good time to regroup and think about, get a breath and set up the digital feedback environment the way they want it. So that was kind of the bulk of one of the recent discussions that I have.

But we're going to serve them. It's a relatively, we're very well known for hospitality because people see a survey from a hotel or an airline or whatever, but actually it's a combined, it's about 10%, 11% of our business.

And so we'd like to be bigger there over time. So key to being bigger there overtime is in this crisis time is to serve them and help them and look at opportunities to explore new digital initiatives, and so navigate through this with them and that's what we're doing.

So, the intensity of communication with those customers to me at this time is more important than ever. It's no doubt, it's tough for them.

They have the most direct effect. But that's how I see it.

Fortunately we have some of the biggest boldest brands in this space and we have good long term contracts, so we intend to continue to support them.

I appreciate all the color and congrats again.

Thank you.

Great. Thank you guys very much for taking my question.

Two for me one just congrats, you guys made a hire, I saw the Lee Becker hire, which you announced Leslie, on the fed side and I know you guys just got FedRAMP approval. And coming from VA I think particularly interesting, we spent some time in DC last year in VA has been a real thought leader in terms of digital transformation in government.

So much so that I think other government agencies, have got to beat them up to put their specs online and let everyone else know how they did it. So just curious, what you guys are thinking about from that fed vertical, as there's been a lot of talk about verticals on this call, so I figured I'd touch on one that hadn't been touched on yet.

And then I have a quick follow-up.

Yes, great. I think it's a long-term plan in government.

You've got to be in, you’ve got to be all in or all out. We are all in.

Lee is an outstanding exec, and I am really pleased that he chose Medallia, great person to lead our efforts. This has significance beyond the U.S.

and I think as a – I am a U.S. citizen, I'm an American, but I'm originally as a European and my tech career in Europe and when selling public sector that bronk was always a tick in the box.

You need to have it, even if you were in Europe and the UK or wherever. So that's very significant.

I think our commitment to FedRAMP High, it's a small club of people that actually execute on FedRAMP High. You don't commit to doing that unless you're confident in your platform.

I think the other thing is what we've learned from the VA is the early warning signal around veterans health and mental health in particular picked up in the feedback platform is a really powerful offer for other verticals. And so we have a healthcare vertical that's really brand new, a year old for us.

We really need to look at patient experience alongside citizen experience. And then if you think of the UK, two of the biggest employers in Europe, or in the world in fact but in Europe or in the UK National Health Service and Inland Revenue.

And so we haven't even scratched the surface of that market. So that is absolutely brand new for us.

And we’re going up, all in as you can see from Lee's hire and we have a great team. We have we have an ex-government guy, and ex-CIA guy who's an absolute, absolute dynamite leader, Brian Michael in the business.

And we have Nick Thomas leading it and we have some great players going after the global market. I'm very excited.

It is a long-term plan, right? You've got to have a three year plan minimum and a three year view of the world, but getting through FedRAMP positions us well.

Great. Thanks Leslie.

That's helpful. And then Roxanne, just to follow-up on the previous question, on employee experience, just wanted to just follow up on that a little bit.

I know it's still very, very early. In the ramp for employee experience as you get more traction with the suite sale, how is that resonating?

And then obviously a lot of questions around COVID and the impact on the business, but this strikes me as potentially one that, could in part benefit, I think there's probably a lot of companies that are concerned about blind spots now in their employee base as they suddenly send their employees out into the world of remote work and just curious to get more color there. Thank you guys very much.

Yes. Rob, I completely agree with you.

Every customer we talk to, we always talk about our employee experience platform and how the employees experience not only impacts the customer experience but impacts the overall company and really where we are today it's more to your point, it is more important than ever for our customers to really be able to see how their employees are being impacted by this and be able to see some early warning signs and that they can, I'll call alleviate some of the anxiety that may be out there specifically for their employees. So, I think not only is employee experience a great opportunity for us, also some of our digital products where we’re able to gather signal feedback is an opportunity.

And also CX is an opportunity, in a time of uncertainty it's really important not only to hear from your employees but also to hear from your customers.

Hey Leslie and Roxanne, a lot of great questions have been asked and I've pretty much run out of all of them now because of all those great questions. But I did have one question maybe Roxanne, in terms of, as we're thinking about our model, anything that you could call out that could be different from a seasonality standpoint or some particularly large renewals is we're thinking about our subscription billings or current RPO for the year, and thank you and a nice job.

So Terry, I think that's a great question. No, from a seasonality perspective, when I look at the key metrics overall, there's not anything that I see particularly that would drive any material differences in the seasonality.

Great. Thanks very much for joining us.

Hope to see you on the road or hope to talk to you soon.