Medallia, Inc.

Thank you, Jassi. Welcome to Medallia’s second quarter fiscal 2021 earnings conference 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 sections 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 operations and future results of Medallia that may vary and involve many assumptions, risks and uncertainties, including those related to the COVID-19 pandemic.

To the extent possible, our forward-looking statement seeks to take into account the impact of COVID-19. However, the crisis that this pandemic has created is very fluid and the situation is constantly evolving.

If any of these risks or uncertainties related to the forward-looking statements develop, or if any of the assumptions related to the forward-looking statements proved incorrect, actual results could differ materially from those expressed or implied on 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 Form 10-Q dated June 9, 2020.

We disclaim any obligation to update any forward-looking statements. On the call today, 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 trended metric performance that we believe will aid in understanding and evaluating our performance over time. Now, I will turn the call over to Leslie.

Thank you, Roxanne. Good afternoon, everyone.

I hope you are all staying safe and healthy. Before I begin, I would like to thank each and every Medallian for their hard work and commitment so far in 2020.

I was pleased with our progress in Q2. We saw our company operate successfully as a virtual business.

We have record SaaS revenues up 25% year-over-year, record total revenue up 21% year-over-year. We added 57 enterprise customers in Q2, ending the quarter with 839 enterprise customers.

We had a record 146 customer go-lives versus 100 in Q1, all executed virtually. As we indicated in our last earnings call, we executed a $40 million total contract value renewal in the quarter in Q2 and a $17 million total contract value renewal quarter again in Q2 both in financial services.

Additionally in Q2, we signed a $9 million total contract value outlook for a major U.S. manufacturer and expanded a major retailer’s voice of employee program to 700,000 per year and uplifted a major healthcare provider at over $10 million of total contract value.

These large multiyear commitments are evidence of the land-and-expand opportunities we have and the stickiness of our solution set when implemented enterprise-wide. Our new economy sales motion, e-commerce, telehealth, digital and work from anywhere sectors showed great promise.

However, we have seen some hospitality feedback volumes increase significantly as this sector makes some progress and this bodes very well for our business. At the same time, many of our retail customers had record e-commerce and buy online, pickup in store performance, strengthening our opportunity pipeline in that sector too.

Our employee experience solutions have seen increased traction given the work from home trajectory. Understanding employee feedback is more important than ever.

Retaining and motivating top talent is top of mind for executives. We currently have nearly 100 enterprises using the value employee experience, ranging from $1 billion dollar Fortune 100 companies to mid-market players.

This is up from approximately 25 customers using employee experience a year ago. And then just 1 year ago, we established our new mid-market sales team, because Medallia’s scalable and easy-to-use platform can be leveraged by companies of all sizes today.

I am happy to report to you that we ended the quarter with over 400 mid-market customers. We are pleased with our early success in this exciting segment.

Each quarter, I have selected an industry, a region or product line to focus on. This quarter, I would like to highlight our traction in three new vertical markets for Medallia: public sector, healthcare and life sciences.

First, our public sector business, a long-term investment market for Medallia. We showed early signs of success with notable wins and go-lives, including the U.S.

Department of Health and Human Services now using Medallia Crowdicity to generate in advance new ideas to improve experiences for a diverse set of health initiatives. Since our last earnings call, the National Health Service in the UK has expanded usage to new areas of organization building on their crowd sourcing success on the Testing 2020 project.

The American Red Cross is leveraging the value to assess the availability of PPE across the communities they serve. And this is intended to accelerate actions associated with preventing the spread and impact of COVID-19.

The city of San Diego is using Medallia employee experience and citizen experience to identify and drive actions that will accelerate experience improvements throughout the city. We are proud that Idaho Department of Veterans Affairs has launched Medallia to help our veterans community ensure they have access to all benefits and services in the state.

Our new healthcare vertical saw intense activity in the quarter. This market has been exclusively served by legacy survey vendors.

We continue to expand our product offerings on investments in healthcare, including the addition of two new patient experience experts this quarter, who were previously seasoned patient experience officers at prominent healthcare systems in the U.S. In the quarter, we signed University of Alabama Medicine, a leading academic health player, using Medallia now to deliver 21st century patient experience beyond simple survey.

Additionally, following a very successful initial implementation, Northwestern Medicine signed a multiyear agreement to expand Medallia across the business, including in-patient experience, how they are deploying our video technology, LivingLens, as part of the mission to deliver a leading and innovative patient experience. We also introduced in the quarter Medallia Total Healthcare Experience, partnered with IPSOS to enable healthcare systems to ask patients to report on their healthcare experiences and the current highly regulated patient experience surveys, CAHPS and HCAHPS.

At the same time, one of the world’s largest healthcare and consumer packaged goods companies expanded its relationship with Medallia to understand the effectiveness of their internal IP services, which is critical for companies given that the work from anywhere world we are now in. Turning to our life sciences progress, a top three global pharmaceuticals company selected Medallia LivingLens to capture video from physicians and patients creating powerful show reels that inspire action and change, whilst establishing a single hub to store and analyze all video content.

And other major life sciences company chose Medallia Speech, utilizing our new speech to text capabilities. Let me just spotlight a few other wins in different industries.

Twitter selected Medallia to improve experiences in the critical digital support function, which handles 150 million plus cases per annum. 3M made a multiyear commitment to deploy the full suite of Medallia products as part of the broad initiative to transform their end-to-end customer experience.

And the top three Italian banks selected Medallia Experience Cloud digital and Crowdicity to deliver winning digital experiences and collaborate and take action based on employee ideas. I am pleased with the progress in our alliances business.

We have signed 11 new partners in Q2, Guidewire, People.ai, Clorox and Epic. We signed two regional systems integrators in Japan and gain innovation in the public sector.

We signed 4 customer experience advisory firms in the U.S., Asia-Pacific and EMEA. In the quarter, we launched our digital disruption QuickStart system with Adobe.

At the same time, Medallia and Adobe announced integration between Medallia Experience Cloud and Adobe Experience platform. In August, we placed a new listing in the Salesforce.com app exchange, showcasing our closed loop service for Salesforce.

And as I already mentioned, we launched Medallia Total Healthcare with IPSOS. In August, we launched Service Experience QuickStart for ServiceNow.

Today, I am pleased to announce the acquisition of Stella Connect. As I have previously discussed, we had originally planned to rebuild M&A later this year, early next year.

But after discussions with our customers, it was clear that Stella was a unique asset and now is the time to make this move. It’s becoming clear that the contact center has to reinvent itself virtually and with a much stronger service orientation combining the value with Stella Connect to turns feedback into direct in-the-moment action, not just for the contact center, but for all frontline agents in any industry.

Stella Connect automates the process of coaching key customer interactions in the contact center, reducing unnecessary and costly dialogues, increasing focus on priority customers whilst allowing companies to retain and cross-sell customers. All of this is done virtually reducing the need for physical contact center, an important capability in the new economy.

It’s contact center agents from around the world could now work anywhere. This is especially critical.

Stella is used by grounds that range from disruptive startups to the $1 billion companies, including ESPN, Lemonade, Lululemon, Postmates, Riot Games and Williams Sonoma. Customers use Stella Connect to provide feedback coaching, rewards and quality assurance for all customer interactions, including phone, digital and web.

Furthermore, by combining Stella with our AI-driven Medallia Speech Technology, we move towards the completely virtual contact center, driving higher staff retention and massive ROI. Looking forward, our performance in Q2 underscores the critical imperative of customer intelligence feedback and experience to action.

The customer is at the center of digital transformation. At this time, businesses need to know more about their customers not less.

Legacy survey companies that deliver tepid response rates are becoming irrelevant. Our customers demand technology that can guarantee more signal capture, deliver much higher response rates and more customer interactions.

At the same time, we combined smart analysis to drive action from the values rich experience data. In Q3, we have had a good start in August and we have already signed one of the world’s largest retailers for Medallia Speech in a 7-figure plus annual contract value agreement, which is an important milestone for this new solution.

I will hand over to Roxanne for a review of our financial performance and outlook.

Thank you, Leslie and good afternoon everyone. We reported strong financial results in Q2, 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.

Total revenue for Q2 was $115.5 million, an increase of $19.9 million or 21% over Q2 of fiscal 2020. In Q2, SaaS revenues were $92.8 million, an increase of $18.3 million or 25% year-over-year.

As a reminder, on our last call, we shared that we were working with certain customers and industries hardest hit by the pandemic, who requested modified subscription terms, flexible payment invoicing terms in exchange for extensions of their existing contracts. On average, the extension period was for 1 additional year.

As we projected on the last earnings call, the modified subscription terms negatively impacted Q2 SaaS revenue by approximately $1 million. We expect a similar quarterly impact for the remainder of this fiscal year.

The payment and invoicing flexibility is a near-term headwind to cash flow and billings. That said, it is important to keep in mind that this has no impact on our total RPO or long-term current economics.

As a reminder, the majority of our contracts are multiyear, irrevocable, include contracted minimums and we expect our customers to honor their agreement. Medallia is strategic to our customers who view us as essential to reduce operating costs, drive revenue and improve customer retention.

We believe strongly in partnering with our customers and we believe we will emerge stronger together. Professional services revenue was $22.7 million for the quarter, which increased 7% year-over-year.

As Leslie noted, once again this quarter, we have experienced a significant increase in deployment, with an approximately 60% increase in Q2 over Q2 of the prior year and a 46% sequential increase. Recurring managed services revenue accounts for more than 50% of our total professional services revenue, which has been consistent with recent quarters.

As a result, recurring revenue consisting of SaaS and managed services continues to be at 90% of total revenue. Turning to some key metrics, our new customer growth was strong.

We ended the quarter with 839 enterprise customers, an increase of 37% year-over-year. This includes 20 customers from our acquisition of Voci.

Medallia provides a high ROI to our customers as evidenced by our strong renewal rate. For the 12 months ended July 31, 2020, our dollar-based net retention rate was 117% consistent with the prior quarter.

We believe our strong retention rate underscores the ROI, our platform provides and our ability to retain and steadily expand business within our existing customer base. Turning to RPO, or remaining performance obligations, as I have shared with you before, our RPO metrics maybe 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. As of July 31, our total remaining performance obligation, or total RPO was $728 million, an increase of 33% year-over-year and an incremental step-up of over $97 million from the prior quarter.

The largest quarterly sequential increase since we started tracking this metric 7 quarters ago. In addition, current RPO, which is the amount we expect to recognize as revenue over the next 12 months, totaled $341 million, an increase of 20% year-over-year.

We expect to recognize approximately 40% of total RPO – excuse me 47% of total RPO over the next 12 months. Non-current RPO, which is the amount we expect to recognize beyond the next 12 months, totaled $387 million, an increase of 47% year-over-year.

This is a result of our success in signing a large number of multiyear contracts over the last 12 months. I will now turn to our non-GAAP gross margins and operating expenses.

SaaS revenue gross margin was 82%. Consistent with this year ago quarter, we believe our subscription margins are among the best-in-class for SaaS companies.

In Q2, professional services gross margin was 15.3% compared to 17.2% in Q2 of the last year. We continue to focus on driving more professional services to our ecosystem, along with subcontracting so that we continue – so we anticipate professional services gross margin will range between 10% to 12% for the remainder of the year.

Sales and marketing expenses in Q2 were $41.9 million or 36% of revenue. R&D expenses were $22.7 million for the quarter or 20% 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 $12.5 million or 11% of revenue in the quarter.

We expect additional leverage on the G&A line over the longer term. Non-GAAP operating income in the second quarter was $2.5 million compared to a loss of $2.4 million in Q2 of fiscal 2020.

Similarly, non-GAAP operating margin in the quarter was 2.2% compared to a negative 2.5% in the year ago quarter. Non-GAAP net income was $1 million compared to a loss of $2.6 million in Q2 of last year.

We incurred a non-GAAP income tax expense of $1 million in Q2, which is in line with the same period last year. Our GAAP net income includes a $7.6 million charge to G&A related to our decision to sublease our San Mateo office and a portion of our Pleasanton office.

We have recently signed a tenant to take over a portion of the Pleasanton space. Turning to the balance sheet, we ended Q2 with $347.5 million in cash, cash equivalents and marketable securities, a decrease of $60 million from the prior quarter, primarily related to the acquisition of Voci.

SaaS deferred revenue was $179.9 million, an increase of 24% over SaaS deferred revenue in Q2 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 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 future changes – 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 Q2 of fiscal 2021, our trailing 12-month SaaS billings growth rate was 20%. As I discussed earlier, the modified payment terms and invoicing flexibility is creating the near-term headwinds to SaaS billings.

For example, in Q2, SaaS billings was negatively impacted by approximately $2.5 million, primarily due to bookings within the quarter with invoicing terms that ramps over a multiyear period. Now, turning to cash flow, we used $19.4 million in cash from operations during the quarter, representing an operating cash flow margin of negative 17%, a 500 basis point improvement from the negative 22% margin we generated in Q2 of last year.

As a reminder, we have historically experienced seasonality in cash flow from operations, given that over 40% of our billings occur in the fourth quarter. As a result, our operating cash flow has been positive in Q1 and Q4 followed by cash flow from operations being negative in both Q2 and Q3 as it has been in the past few years.

We anticipate the seasonality to continue this year. Moving to guidance, while we see incremental improvement in Q2 over Q1 in several metrics, the uncertainty of the effects of the pandemic remains.

In context, we are only providing guidance for Q3. Let me touch upon the acquisition of Stella Connect.

This is a technology focused acquisition and we will have a haircut applied to opening deferred revenue balance. As a result, our Q3 guidance remains minimal.

Our Q3 guidance assumes minimal revenue and billings contribution from the Stella although we will be absorbing the full operating expense impact. For Q3, we are projecting a total revenue to be between $115.6 million and $117.6 million.

We expect SaaS revenue to be in the range of $94.6 million and $95.6 million, representing a growth of 19% to 20% year-over-year. For Q3, we expect non-GAAP operating income to be in the range of $200,000 to $700,000.

This reflects additional expenses related to the acquisition of Stella Connect and lower professional services revenue and associated lower professional services margin as we have been successful in expanding our partner ecosystem. In addition, we will continue to invest in product innovation and key vertical go-to-market initiatives.

We expect operating income and expense to be an expense between $500,000 and $1 million primarily due to the reduced interest rate environment. We expect income tax expenses to be in the range of $500,000 to $1 million.

We expect basic weighted shares outstanding to be approximately 147.5 million and fully diluted weighted shares outstanding to be approximately 174 million. Finally, we anticipate our capital expenditures in Q3 to be approximately $5 million primarily related to enhancing our datacenter capabilities to meet customer demands.

For the full fiscal year 2021, we remain committed to marginal non-GAAP profitability on an operating income basis. In conclusion, we will balance growth and profitability by continuing a financially disciplined approach.

Customer intelligence has become an integral part of digital transformation and is a critical area of software spend. We are committed to maintaining our innovative edge and the opportunity to invest in R&D and go-to-market efforts.

Leslie and I will now take your questions. Operator?

Great, thank you guys very much for taking my question. Hi, Leslie, hello, hi Roxanne.

I just wanted to ask on partnerships, Leslie, when you laid out your proposed strategic plan as you guys were coming public it was a bunch of things it was increasing the signals revamping the go to market and also the partnerships being a part of that go to market and you signed some really meaningful partnerships along the way and a bunch more this quarter really impressive. Just wanted to get a sense for your feeling as to where you are now which partnerships are driving both lead gen and deals for you, and which excite you going forward.

And then I just had a quick follow up.

Yes, thanks, Rob. So, I really like the whole play.

I like the launch scale cloud founders like Adobe and Salesforce and ServiceNow very much. I like the vertical plays that we are developing also with Veeva that we did in the prior quarter are not Guidewire I like that.

And I like it so often the market research or market research leader. They’re turning out be a super partner their really broad spectrum.

We’re still early days here, but very broad spectrum partner contribution to our business and us to theirs, and great cooperation in the field. And virtually it seems to be like the customer world, easier to have more meaningful dialogues and create meaningful go to market deals, which we have done, and I like the geographic side of it, too.

We got two new GSI’s systems integrators in Japan, and the quarter and Japan. I think it’s a very interesting early stage market for us and also, again, in the public sector.

I like that one too. So there’s not like I didn’t like about it.

I think it’s developing really well. I’m really pleased.

I think it’s a very special part of our business and it’s doing well.

Okay, great and that’s really helpful. Thanks, Leslie.

And then Roxanne just a quick follow up for you on just two issues. One was I think you said $2.5 million headwind to subscription billings, can you just maybe touch on that a little bit?

And then, you I think there was a $7 million plus exit cost on lease and leases. And I just wanted to know if there was anything you guys were considering relative to office space.

I know. You guys have had we work in the past?

Are you are you reconsidering your commitment to office space given the pandemic? Appreciate it, guys.

Thank you very much.

Perfect. Thanks for the question, Rob.

So first of all, on the billings, as I shared in the prepared remarks, we did enter into a contract with rent bill billings. So these billings have lower invoicing in the first year and then the invoicing increases as the years go on.

And these are multiyear, irrevocable contracts. So I just wanted to highlight for you that we are being flexible and we are working with customers and it did have an impact and if I wish to adjust our trailing 12 month billings growth rate, it would be 21% for these items in regards to your question for the $7.6 million of exiting facilities, so we have two facilities.

The first is our San Mateo facility. You are right we were formerly in a WeWork space there.

And we have been so successful working virtually. And we have obviously been working very closely with our employee base to understand how they intend to work in the future.

And as a result, we see our San Mateo space would be more of a collaboration space. Therefore, we are looking to sublease that space now in Pleasanton.

We did sublease a portion of our office space that we signed recently here over the last couple of weeks. So that’s the charge that you see in the income statement on a cash basis.

Great. Thank you guys both very much.

I appreciate it.

Thank you, Rob.

Excellent. Thank you so much for taking the questions.

First, maybe, I guess for Leslie, if we look to the strength in customer ads since last quarter, really, nice improvement. It just, digging into that a little bit wanting to understand I imagine some of this is the success that you are having down market.

But beyond that, is it fair to say that you are trying to land smaller deals and enterprise as well? And if so, how should we think about the progression of expansions?

Great question, and first of all, I just want to say and repeat what I said in prior quarters. I still think these are small beer numbers.

I think we have got much more exciting numbers ahead of us in terms of customer ads, because we have really just begun the mid market business. So it’s important for quantify that.

Having said that, it is the quality of the ads that I really like in this quarter. Q1 was a tough period for us.

April was a tough period. We are now in Q2, where we run the business virtually.

It’s been an exciting quarter. There is no doubt about it.

And so it’s the quality of the ads, I rattled off some of the names in the prepared remarks. But I think the main point to make is the agility of the platform, the land points that we can make, the partner land points that we can make are very different than Medallia several years ago, where it was very monolithic.

We have multiple modules to land with. I gave some examples of the video module.

We have got voice command. I gave you Medallia Speech example.

And so that’s really exciting for – if you have got a hungry sales force plenty to sell, plenty of latitude and deal dimension and size that we are not religious about that and we are going after the mediocre kind of legacy survey players that are really serving out kind of poor response rates, poor net promoter score outcomes for their customers, poor analytics and no action. Those are great opportunities and our sales force are hungry.

We have got sales people who will eat their quota by chunks or do big deals. We have got that capability.

So I am really pleased about where we are getting to.

Thanks, Leslie. And I don’t know if this is better for you or Roxanne, but just as we think about the pipeline, I appreciate that you are guiding us only to Q3, I think the entire world lacks visibility with all the uncertainty that lies ahead, but anything that you can share with us real time as you think about visibility into the pipeline and even the cadence of business coming off of last quarter and into the current quarter and as you see it possibly playing out into the end of the year?

Well, I think I will let Roxanne comment in a minute, because you give us the balance here, but we gave some clues, gave some insight. We had a good start here to Q3.

I mean, I talked about the significant 7-figure Speech deal that we just said that really validates that story beautifully for us. And I think I am looking forward to a good second half, but it’s – we are still in the pandemic.

We are still living this way. And I think for the foreseeable future, the exciting thing about that is there is longer a work-from-home world it’s a work from anywhere world.

That’s really important or not as important when it comes to look at this acquisition that we have announced today, Stella Connect. That is going to further enable work from anywhere for huge working populations that were hitherto trapped in the contact center.

Roxanne?

So, we have seen not only improvements in our pipeline. We were very clear on the Q1 call about what we had seen in the April timeframe.

We have also seen and we have proven this previously, we have proven this in the pandemic that we are absolutely able to land and expand and we do that successful with our new customers in addition to adding new logos. However, it is unclear – we don’t know what is going to happen in the future from a broader economic perspective, but what we do see promising is that we have seen a continual progression of improvement in not only the pipeline, but the activities of deals that we are closing on a monthly basis.

So, we had a very strong Q1 revenue growth rate. We had a strong Q2 revenue growth rate.

We are optimistic about the future. However, we are still in the pandemic, which has had broad economic impact on the entire world.

Congrats on all the strong execution amidst the uncertainty and thanks for taking the questions.

Thank you, Brad.

Thank you.

Hey, thanks for taking my question. Congrats on a strong SaaS billings quarter, particularly despite those headwinds you mentioned in addition to the tough comp.

One of the metrics that really stood out to me was the EX customer account growth, obviously, supercharged growth year-over-year. I guess question for you, Leslie and maybe, Roxanne, you can chime in, too, I mean how much is called the reopening trend playing into upselling EX through that CX customers or the sort of the full view of the experience across a few?

And is that one I think that’s driving acceleration here and this is the sort of opportunity as we kind of go forward?

I think it’s a great question. I think – so I wouldn’t characterize it as reopening, I would characterize it as adjustment to work from anywhere.

And when you think about that connection, deep connection with your employees and your team is really important and traditional HR spectrum, feedback platforms, 360 platforms were built for the old world, which is built for the in-the-moment connectivity that we have enjoyed in the customer experience world and I attribute that to the growth. I think there is still a long way to go.

I think there is many more opportunities, but the ability to use voice to use video to connect them that way. And now to add in a coaching dimension to the current activity, it’s so important deep connective tissue at this time for employees, it’s vital.

And we have also we are investing we are adding great skills as I mentioned in the prepared remarks.

Got it. And then just also a follow-up I mean, you mentioned video voice, conversations.

So these multiple channels that Medallia now offers as part of the platform. Yes, just with the pandemic and some of the change in customer behavior is something I have heard from service desk vendors you have more messaging, more chat, etcetera.

How is sort of your voice platform resonating and positioning yourself competitively versus others out there?

Yes, so I think that every single customer and employee journey patient journey citizen journey has changed and changed in some cases for the better low emotion transactions would become high emotion, simple transactions would become sophisticated and complicated. And so waypoints on journeys with multiplied so feedback is more important than ever understanding how you are designing ideal customer journeys and how you are making it work.

And also taking action on its feedback, feedback is pointless without action. And so there is really nobody doing the platform play and doing the understanding the customer intelligence play that we are working on their survey businesses, they can say one thing that they are doing enough of their survey as market research and some of them with markets that are, really challenged academia and so on.

We are in a different place we are about understanding we are about, signal capture. We will go into survey situations, massively improve response rates, through additional signals or just through understanding customer journeys and in a better way, I think those things are all playing into the growth for the business and so on.

pipeline and opportunity set.

Okay great. Good work.

Thank you.

Hey, Leslie and Roxanne, congrats on a good quarter. I guess.

Yes, let’s start on some of your mid market traction. You have talked about 400 plus customers a year, you are really after starting those initiatives?

Are you seeing those customers purchase anything materially different than the large enterprise customers? Whether it’s a module or what that cadence looks like, at any color on maybe the attraction?

That would be great.

Yes, that’s a great question and it is actually surprising the number of mid market customers that have gone from Medallia Experience Cloud, we normally think they go for simple survey or digital or one module. But why can’t small businesses have that same three dimensional radar scope of the customer or the employee and so we are making it as easy as we can for any size of business to get the full power of the platform.

So it’s really exciting. But we are seeing great traction and the ideas to increase the traction and video, obviously.

And we have had our first significant transaction when Medallia Speech, the voice technology combined with our text analytics solution that we already have. So it’s across the board and the field are agile and they can play if a customer who is ready for one capture technology or for text analytics or for the understanding platform, they can take another and so there is plenty in the bag for a virtual agile sales force.

Great, quite helpful. And then from a follow up perspective, you are obviously adding on more partners.

You mentioned some of the geographic focus partners outside of the U.S. when you look at those partnerships in areas with maybe different languages or different requirements there is does that pose a challenge to the platform longer term?

Or do you think language is really not an inhibitor to just the most international customer usage?

Well, again that’s pretty insightful, because we have just been looking, I actually just did last week gearing up the current environment is I can do customer tours around the world on the plane. And last week was a week before last, excuse me, will be Asia Pacific, where actually we are beginning to open up Japan.

Now, Medallia is available in a massive language library, but there is always another language, there is always another opportunity. And so technically that doesn’t present any challenges.

What’s interesting is the communication. And actually I have to say we have been using video technology with simultaneous translation and some of our called foreign language interactions that have been going on with customers and prospects.

And that’s turned out to be much more successful actually than I expected. And more successful and more potent than a traveling roadshow in a region, which is counter to everyone’s intuition.

So – and I think we do have a big language initiative for all of the modules to be available in every major language, dialect, usage, idiom around the world, it’s very important to us. There are new markets to open up, Portuguese and Brazil, of course, it would be a great business area for us and we have started to do some transactions in that country.

Great. That’s all guys.

Congrats again.

Thanks so much.

Hi, Leslie. Hi, Roxanne.

Thank you for taking my questions. So, well, Leslie, if we go back 90 days ago, you were really emphasizing that the nature of your sales team sort of had to be adaptive and flexible to the time that we ran at – the time you are really emphasizing more midsize deals and land and focus on the expand later and yet here we are in early September, it sounds like you had a number of pretty substantial key 7-figure, 8-figure TCV-type of wins.

Has your approach to managing and coaching the sales team changed at all from that desire to see them going after some of them, perhaps shorter sales cycle midsized opportunities? Is it more of a green light to go elephant hunting again, just tell me a little bit more about how you and your sales leaders are thinking about the construction of that pipeline and the go-to-market?

Yes. That’s a very well put question.

I think that the – for us, we never said to the big game hunters, I will put it that way, stop doing that. We just kept adding agile virtual sellers.

So, those guys were still motoring. They are still going for it.

That never changed. But for sure, in Q1, especially and in April, people were in some state of shock in some industries.

And so we are stopping the big deal traction across the board, not with us exclusively. So, we never cauterized that.

And in fact, we have as many big deal – big game hunters or more than we had before, but we have expanded to your question, the mid-market capability. But we have also said look, there is no shame in eating your quota in bite-sized chunks.

And also, there is a very, very lucrative market in the low-end, if I call it that, it’s been served by legacy survey companies by the say they do one thing, but they actually do another. They do survey, they do market research, they sell to academia, they have a lot of services, right.

And those businesses, in my opinion, aren’t getting good value for money for those customers and we now have self-service agility, who can do that. So, we are letting our people sell that and go after it.

Yes, that’s really helpful. Thank you, Leslie.

I mean, Roxanne just with respect to the Stella acquisition totally understand that this will be a quarter of integration. So, the minimal – the context on minimal revenue and billings contribution this quarter is helpful.

Can you provide any sense as to what they were looking at an annual run-rate? Obviously, $100 million is not an insignificant chunk of money to spend on something.

So, it seems like they perhaps had a some sort of run-rate, but could you provide us with just maybe any historicals on the revenue side, number of employees, the idea of how much this will sort of add to the operating expenses on a annual or quarterly basis. If anything else you can think you can help us with there would be wonderful?

Thank you.

Okay, thank you, Tom. So overall, we bought Stella for the technology, there is about 15 employees today and we are very focused on what the technology is that we can bring to our customer base, especially when we combine this with speech and we think we can really virtualize the contact center.

So yes, we paid $100 million. The multiple we paid was significantly less than our multiple.

And keep in mind that the contact center space is a very attractive base at this point in time from an acquisition perspective. So, I don’t say that this is going to have a significant impact for this year.

But what I am excited about is our opportunity to turn this into something much bigger than it is today, because we absolutely believe that this coupled with our Experience Cloud, coupled with our Speech, we will have a whole new entrant into the contact center that as the contact center is virtual and as we go through the new world that we are in that we can really continue to expand and as Leslie stated in his prepared remarks, we – this is something that we get specifically in response to discussions we have had with our customer base. Now from our operating income perspective sharing the view that it’s not that big my estimate is that the impact the drag that it will have on your operating income is about $1 million a quarter.

That’s really, really helpful. Thank you, Roxanne.

Thank you, Leslie. That’s great.

Thank you.

Yes hi, thanks for taking my questions this afternoon and good job on the bookings in the quarter. Got a couple of questions on that.

The first for you Leslie, I believe even when you started you were bringing you were going to bring into the sales force kind of in upselling motion and I think when COVID-19 hit you even pivoted, even in a more stronger way to relay on, looking to the install base, to off-sell them. So I am just wondering the speed at which these ad ideals are coming in if you are seeing a compression in them, or maybe even compression from your initial new customer sale and when they come back for add-on expansions, those, maybe before the start of this year and before?

I see I gave some examples at the start of the prepared remarks of really quite significant renewals which had expansion and so, I think people that use our products for use the solutions and understand the value that’s being generated, or looking for more from us, which is really exciting when they are well engaged and trench they are looking for more. So maybe that’s what I am seeing, but also, there is new business opportunity.

There’s nice new business. There is people we have been using survey there’s survey is not customer experience, you can say it as often as you like, it is not a customer experience market research is not customer experience.

That’s something different we are about intelligence. The intelligence play is becoming more and more significant.

And so as taking us into these new lands and may be landed a good chunk of new logos. We’ve got the mid market really underway now a real, real business real contributing business with big opportunity and you so it’s neither one nor the other, we have to do both.

But I like the land and expand motion that’s been created for it’s fair to say it’s been neutral Medallia, the sales team has taken it and run with it. And I’m happy with the progress that we are making so far.

Thank you. And then Leslie in the your highlight in your introductory commentary that you had a seven figure, speech win in August now just wondering if that was a new customer, or if that was an up-sell deal?

Well, it was an up-sell actually and what’s interesting about it, is that the traditional voice players they are in contact center are not giving the customer the facility to deeply analyze, transcribe voice to text and deeply analyze customer sentiment and those goals in that data. There is billions of minutes of data that can be analyzed by combining our clean exploration text analytics technology, with Voci, which is the technology we now call Medallia speech.

And so I’m very excited about the prospects for that business.

And then my last question, I just want to ask you on the acquisition with Stella Connect, connect, so I think we are all aware, messaging has been one of the big beneficiaries with COVID-19 in the market. We have been hearing that from a lot of companies out there.

And the interesting is, we are hearing about that development being reported by the customer service vendors in the contact center. So, clearly there’s a big opportunity there, but how do you think this plays out between, say, more of the marketing core focus buyers, versus those customer service buyers.

And do you think from a competition standpoint that, in the future, you could run up against them more as you look to further penetrate the context? Thank you.

Thank you. That’s a great question.

I think that actually we are doing something new. We are taking all of that data.

And we are putting it into the feedback platform, and creating the opportunity for deep analysis on a very rich data set that was further to not mind at all. That’s what we are doing and so, but that space at the moment in terms of speech, in terms of recording in terms of transcription is quite fragmented, actually.

And bringing it together with feedback it is creating something new and new innovation. And then when we add it in Stellar, we have the ability to create in the moment alternated coaching, on the fly to turn the contact center agent into a smart service professional, which is what they all really want to be.

And I think that’s transformational and customers have been trying to do that themselves. I think that our industry needs to do it and that’s why we are combining these technologies.

Thank you very much.

Thank you.

Great. Thank you, guys.

Thanks for taking my question and congrats on really nice job there, Leslie, Roxanne and team. I wanted to touch really quickly on one of the solutions we launched in Q1 is QuickStart.

Obviously, quick implementations are like critical. Have you seen traction with that and then which markets and use cases are you seeing some of the early adoption with QuickStart?

I would love to – and then I have a quick follow-up on some of the ROI related topics?

So, we have seen – when you look at the overall QuickStart, we have offered QuickStart in various industries. We have offered QuickStart, some of them have been really focused about returning to the new economy.

So, first is the Employee Experience QuickStart, we have a Fulfillment QuickStart, which is focused on pickup and delivery. We have under our employee experience QuickStart, we have a QuickStart that is focused on how you interact with furloughed employees or how do you handle employees when they are returning to the workplace after they have been furloughed?

And those are just some of the examples of the QuickStart. We also have really expanded the new economy in telehealth.

And so we really think that the ability to implement some of these items in 3 to 7 days maximum and the ability to expand your overall footprint over time if you so choose has really helped and we have seen an increase in the pipeline, not only from our QuickStart, but we have also seen an increase in our pipeline from the trials that we have put out there that you heard us talk about earlier, when we refer to them as COVID trials and then we have some other specific trials that we have started.

That’s really helpful. And then one quick one here, when we look at competition, if we take out sort of that the typical ones, I think the question I have is, you have seen a number of folks say, okay, well, we will purchase from the data angle.

So, let’s build a data warehouse type offering and let’s pull together lot of data, survey data, social data, maybe even some sentiment data and then create dashboards and things like that. I guess, have you seen any of those guys impacted business or is that just so full of sort of like consulting approach customer approach and it’s not a product or too difficult to productize in the way you have, that you don’t see them, I would love to have some sense of what you are seeing that’s based on guys approaching from the data angle?

I think that’s a really important discussion. I think that’s where the market moves, especially in the new economy and the work from anywhere economy.

The business as usual survey approach doesn’t cut it. We look at the world as capture understanding create action and reaction to the person that can take it.

And in the capture space, which is actually pretty straightforward, if you are just doing a couple of capture technologies, you can’t deliver response rates that customers need, you can’t deliver the understanding. You absolutely have to do not just survey, but digital, social media listening at massive scale.

You have to add in video, you have to do voice, you have to be able to do conversations, text, WhatsApp, WeChat with full spectrum and that is now taken for granted. And then the understanding platform that combines all of that data and looks at trends and customer cohorts can produce million and billion dollar decisions for companies, clearly not inventory decisions, but the market decisions and now real estate decisions based on that feedback and then the reaching of action based on feedback is non-trivial, I don’t believe any of the survey vendors can touch it.

I just don’t believe they can do it. It’s non-trivial dealing with complex hierarchies in the workplace, dealing with massive scale is a non-trivial technical problem that Medallia has solved.

So, that’s the way we look at this.

Got it. Great.

Thanks for taking the questions, guys. Really appreciate you getting me in.

Thank you.

Hi, guys. Thanks for taking the question.

I have a follow-up on M&A and so you have acquired 8 or 9 companies over the last year and a half and have done a nice job sort of integrating so far considering the volume and should we assume that you are sort of in integration mode and we will focus more on organic growth here for at least the next few quarters, Leslie and are there other signals that you are sort of keen on bringing into the platform. Do you think you have what you need to kind of execute on the market opportunity now or how do we think about what else you need to satisfy the appetizer?

Well, look, it’s a great question. We are always looking at – we are acquisitive and we are always looking at great technologies.

But an interesting thing about this domain is it lends itself to this, because we can see our experience platform surrounded by other signals that some we would like to partner with, and go to market with some we would like to own and so we are always doing that analysis to be pointed and answer to your question. We are very interested in the whole realm of unsolicited feedback as very important to us and has relevance today more than ever across all industries.

And there are some machine learning and other technology, integrated capture technologies that interest us, but we have been a technical document specialist for the most part and I think yes, I mean, it’s these aren’t these integrations are not heavy workloads is what I am trying to say. And that you should expect us to continue to look at some small traction as we go through the rest of this year.

Okay, that’s really helpful. Thanks.

And just one follow up at the outset of when COVID came into the fray here, you said you had relatively small exposure to impact the industry is just given your comments on linearity, change between the pace of business at the end of April versus what you saw at the end of this quarter. Are you continuing to see conservatism from those impacted verticals and for sales and marketing resources where you have dedicated people that are focused have you have you had to shift people away from focusing on those verticals and focus on where opportunity lies here today?

Yes, I think that’s a great discussion. So if we start with bricks-and-mortar retail, that is a really important segment because the pivot is really going fiercely, the e commerce, and we have been to some degree are a bit of a beneficiary of that.

So we have stayed connected. And I could give you some really steady examples, but we stayed connected.

And that’s really worked well for us and travel and transport. We have small exposure, we have, less than a dozen airlines out of the 700 in the world, or so today using the platform.

And I think there are opportunities and I think the consumer blinds actually leave way because corporate is where, the big players are and where there are still challenges in hospitality, we have actually seen feedback volumes coming back and as I mentioned that my prepared remarks. And so actually, for me, personally, I stayed in touch with a lot of that those segments and so some of our account management teams, and top sellers because we believe that they will come back in different forms and there is great opportunity there for but right now we are having our growth without much contribution from those segments, which is very significant, they just need to come back in a small way for us to benefit so we are staying in touch we are supporting and helping them and being flexible as they go through this journey.

Super helpful. Thanks a lot.

Thank you

Hi, guys. Thanks for taking my question.

I really appreciate it. In terms of the mid market expansion, obviously, it was a strong quarter with a mid market net adds.

I guess what are you seeing in terms of sales cycles relative to the enterprise? We’re seeing shorter sales cycles there and there’s been any change in that process.

And I was not sure if you said this or not, but maybe what percentage of new deals are coming from this kind of expanding partner ecosystem that you guys are building?

Well, we haven’t given up percent bookings or something like that for partner yet where we hope to get, specifically, 50% to 60% of our bookings influenced or touched by our of our ecosystem that we are building, we are a year into building it. And I feel very successfully under the speed and agility.

You know, a lot of the smaller deals happen fairly quickly, needs are quite urgent we just did a, a messaging using our single technology, just a messaging deal a couple of weeks ago, and just literally a few days six figure deal, because of the urgency of the situation that was related to, interaction of people because of interaction with people in a business. So it was very important.

We just did it actually for our part question or we actually just did a new customer in APAC, an airline that rolled out one of the QuickStart programs that Roxanne was talking about pretty quickly. So we have a manufacturer a Midwest manufacturer who moved very quickly for a contactless solution for employee interaction.

We have got curbside pickup deals going very quickly, fulfillment deals going quickly, employer return to work, that doesn’t mean return to physical places, that means return to work through the work for anywhere world that we believed in. And so you can see it in the mid-market expansion, there are small quick deals, quick lines that we then want to expand later on.

Alright. Thanks.

Thanks. Maybe focus on the sales and marketing side, just from a high level, how hard has it been to try to find new channels to redirect spending away from some of the effective things in the past that obviously you can’t do right now like shows, events conferences, etcetera?

Are you finding good new avenues to deploy it into, that you think will be effective sort of as they pickup some experience in them? Thanks.

Yes, sorry about the limit, Rich for the question. Look, I think the question is what channels and mediums in marketing.

This is really an interesting unprecedented phenomenon. But our ability to travel the world virtually is I am doing 2x to 3x as many customer and prospect interactions, which I love, I enjoy very much and I think it’s very important in some of the strategic deals for our C-level execs to be engaged with our customer’s C-level execs.

The level of contact is higher. It’s C-level.

It’s I believe in top-down selling get in at the top and then help the teams that want to actually get something done to the support of their executives and that’s turning out to be a lot better. We are seeing – we have more attendees at our virtual conference than ever.

We are running master classes with our customers constantly that I am not sure if I see any other software company running as many master classes, where customers as we are, I think we are doing a great job with that. We are really exploiting digital medium.

We are doing low cost advertising, even low cost television. We are doing some – about to do some new outbound deals as highly creative and we are putting the Medallia brand in front of as many CEOs as we can and there is a lot more to do.

Hi, thanks for taking my question. You added an impressive number of quarters of customers this quarter.

Can you comment on the trends that you are seeing in June, July and even August? And are you seeing any change in tone from customers as well?

Yes, great question. I think people have adjusted.

We have still got challenged sectors, obviously, hospitality and travel, but actually there is opportunity in those sectors, which is very significant. I just gave an example, a question or two ago about a new airline that we signed.

So there is opportunity, but I gave some color on the prepared remarks on how I feel we have started in August and actually called out one of the 7-figure deals that we did. So, I feel good about the business, I feel bullish and you just got to temper that with the pandemic presents us with unknowns, so I don’t know what the future holds.

I know that our solution set is resonating, but it facilitates work from anywhere. The deep connective tissue of feedback for employee and customer was vital.

And you can see that in the very large renewal and up-sells that we have been able to do was just so much to go for that we are investing still in sales and marketing, we are growing nicely. And so that’s how I am looking at things.

Got it. That makes sense.

Thank you.

Hey, this is actually Nick on for Terry. Thanks for taking our question.

I was wondering could you dig a bit deeper on the strategic value in some of the recent acquisitions. It seems like they are definitely driving some meaningful upside activity considering the Medallia Speech deal you called out earlier.

So is it better to say these acquisitions are more so helping on the expansions there or are they bringing in meaningful new customers as well?

It’s both. They are bringing customers, customer, they buy video or may buy ideas and then discover at Medallia’s, they have a chance to replace oftentimes in a fairly tepid sort of survey technology with Medallia Experience Cloud, which is very exciting for them and they have the chance to go from one type of signal capture survey, add digital, add conversations, add social listening, add voice, add video, and that’s exciting for customer experience and employee experience, patient experience, students and experienced professionals.

So, it’s really across the spectrum.

Got it. Thanks, guys.

Well, thanks very much for joining us. Stay safe, look forward to talking to you in few months’ time.