Medallia, Inc.

Thank you, Erica. Welcome to Medallia's First Quarter 2022 Earnings Conference Call.

We issued our earnings release a short time ago and furnished the related Form 8-K to the SEC. To access the press release, please see the Investor Relations section 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 expect to 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 statements seek 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 the risks or uncertainties related to the forward-looking statements develop or if any of the assumptions related to the forward-looking statements prove incorrect, actual results could differ materially from those expressed or implied on our forward-looking statements. Any forward-looking statements are based on information available to us as of the date hereof, and Medallia undertakes no obligation and does not intend to update the statements as the result of new information or future events, except as required by law.

For a discussion of 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-K dated March 22, 2021. 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 nonrevenue financial figures discussed today are non-GAAP unless stated that the measure is a GAAP number.

Please refer to today's press release for a 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'll turn the call over to Leslie.

Thank you, Roxanne. Good afternoon, everyone.

Before I begin, I would like to thank every Medallian for their hard work and superb execution in Q1. I was pleased with our progress in the quarter.

We had record top line revenues and record SaaS revenues. In Q1, subscription revenues came in over $2 million above the high end of our outlook.

We had a record 240-plus go-lives in the quarter, better than any prior quarter. During Q1, we added nearly 70 new enterprise logos.

Our platform and signal strategy is delivering in the market and clearly sets us apart from the survey software vendors, as evidenced by our wins in the quarter, which span many verticals and geographies and included: Hewlett Packard Enterprise, Oracle Corporation, LinkedIn, Blue Cross Blue Shield of Massachusetts, Brink's Home Security, Hot Topic, Gilead Sciences, TELUS Canada, VCA Canada, the Container Store, IoT Logistics, Franciscan Health, Southwestern Health Resources, Continental Properties and Terex. Internationally, we won Marks & Spencer's in the U.K., Valentino in Italy, and Tain Group, the gambling conglomerate in the U.K.

Reale Mutua, Italy's biggest mutual insurer; Cream and Graton Holdings in the U.K.; SE Bank in Sweden; Victoria University in Melbourne; Yorkshire Building Society; Kantar in Asia Pacific; Versace, again in Italy; Hitachi in Japan; and Chalhoub Group, a leading luxury retail and distribution business in Dubai; and Avianca Air, the flag-carrying Colombian airline. Worthy of special note is our progress in Q1 with several breakthrough deals in the technology sector at Oracle, Hewlett-Packard Enterprise and LinkedIn, all very significant wins for our company.

HPE will leverage Medallia technology to provide real-time feedback and insights to its global sales force and partner network. And Oracle will use Medallia's platform to help drive engagement within its customer base.

At the same time, we're collaborating on an integration between Medallia and Oracle's CX service. I also want to report that we are breaking through in public sector.

Medallia Experience Cloud has earned Certified status for Information Security by HITRUST. This achievement places us in an elite group of organizations worldwide that have earned this certification, reinforcing that Medallia is the most capable and secure platform for feedback data capture and privacy and security on the market.

In the same quarter, we achieved FedRAMP High authorization. We're only one of a handful of SaaS companies to hold this certification.

This allows us to provide Medallia to all agencies of the U.S. government, enabling the U.S.

Department of Defense, for example, to promptly invest in their first program with Medallia. The University of Minnesota is leveraging Crowdicity, our crowdsourcing and ideas platform, to accelerate collaboration between parents, students and teachers as they reimagine the 2021-'22 school year.

While on the topic of education, the Thurgood Marshall College Fund, another new logo of public sector, is leveraging Medallia to more effectively connect students and employers, facilitating job creation and the advancement of our collective mission to prioritize equity and diversity. We continue to see that once a company purchases Medallia, they use it extensively and expand quickly.

The Port Authority of New York, New Jersey expanded their uses of Medallia last quarter after only 90 days of results with their first program. The United States Postal Service renewed their multiyear contract with us as a provider of valued services to USPS employees and customers.

The Veterans Administration is another example. As a Medallia client for several years, we are proud to contribute to their record levels of trust among veterans.

Last quarter, the VA further expanded their uses of Medallia. The VA will now leverage Medallia's Crowdicity across their entire organization, including VA medical centers, to ensure they are capturing valuable ideas from their broad network of constituents.

Just two weeks ago, we held our annual customer conference, Experience '21. We have had over 65,000 views of our Experience content so far.

We ran live interactive feedback in Medallia Experience Cloud during the event and our ratings improved 30% over the prior year. Our celebrities are our customers, and we had fabulous keynotes, cameos and interactive sessions with some of the best brands in the world.

Our product keynote included a wave of new announcements, including adaptive text analytics, next-generation insights to power our customers' success. The Medallia Digital Suite, which now captures and processes omnichannel digital behavior through machine learning and automatically calculates the digital experience score for every virtual visit.

The virtual contact center is becoming the front line of customer experience. Contact centers witnessed an increase of 300% more calls than usual during the pandemic, and a corresponding increase in digital interactions, chat and e-mails occurred.

This all happened while 90% of global contact center agents were forced to work from home. With 72% of consumers likely to switch companies as a result of poor service, it is vital that we coach individuals in our customers' virtual contact centers to be high-performing and representative of brand for best experience.

We have 2 key technologies to address the needs of the virtual contact center, Medallia Speech and Stella Connect, as well as great partnerships with companies like Five9 to help us build the contact center solutions of the future. Turning to our employee experience capability.

Our employee experience customer count grew to nearly 130, an increase of approximately 50% in less than a year. Treating employees like customers and creating the same high-fidelity understanding of the employee experience has never been more crucial.

Our new employee MicroPulse Digital EX solution allows companies to capture in-the-moment feedback through any app for all employees. At the same time, our new Employee MicroPulse Diversity and Inclusion solution helps organizations to understand how company culture and inclusion positively impacts the work environment.

Our new industry Employee Experience Benchmarks for HR leaders, powered by our partnership with DecisionWise, gives our customers the ability to compare important internal metrics with peers. We also announced our new Market Research Leader Experience, a fully self-service ad-hoc survey platform with a variety of market research question types and the ability to capture video feedback all in one.

You can launch a research project and a survey in minutes. We announced Total Experience Profiles, powered by Medallia's Experience Data platform.

Total Experience Profiles leveraging signals from 100% of experiences to provide a complete time line of every interaction with your company, whether online, phone, via chat or in person. Total Experience Profiles enable informed actions in sales, marketing and service by delivering lifetime access to sentiment and feedback history.

This enables the ultimate personalization context for optimized customer interaction. We continue to make progress with our all-important ecosystem.

As I've previously reported, we were awarded America's Top App Developer Partner of the Year by ServiceNow. And Medallia was named the fastest-growing ISV Partner of the Year for Salesforce.

Just recently, we were also awarded Digital Experience Global ISV Partner of the Year for Adobe. In addition, we just launched early availability of upcoming new applications for Microsoft Dynamics, Salesforce Marketing Cloud and Oracle Service Cloud.

At the same time, we just announced the Medallia Developer Network, a complete suite of open APIs, a no-code, low-code development platform for partners and developers to easily build connectors and applications which they can then publish on Medallia Exchange, our application directory. We've also intensified our focus on environmental and social goals.

Employees are taking a stand and expecting their executives to listen and act. Today, employee activism is shaping the C-level agenda in ways we've never really seen before.

Medallia is putting this front and center by bringing on René Carayol as a leader, to focus on our environmental, social and governance policies and goals. We just released our first Global Impact Report that adopted the SASB, Sustainability Accounting Standards Board, reporting framework.

Now looking forward, Q2 has started well with the top showing in the Forrester Wave. As I mentioned, we also had a record number of attendees at our annual Experience conference with superb in-the-moment feedback accessible for all sessions.

Our opportunity pipeline is healthy. You've heard me talk before about the importance of connecting insight to action.

In this vein, we'd already executed in Q2 our largest-ever messaging deal with a major hotel chain, delivering a completely touchless messaging service to over 1,000 global hotels, giving guests the ability to order services, check out and communicate with the hotel personnel and systems, whilst at the same time preserving the messaging data as well as feedback for insight discovery. I'm very excited about our prospects.

We're focused on execution for the rest of this year, with a larger team of quota-bearing salespeople and growing channel capability with more product to sell than our rivals and an unmatched reputation as the innovation leader, backed up by the opinions of the most credible industry analysts and partners. We're well positioned to reaccelerate our subscription growth in FY '22.

I'll now hand over to Roxanne to cover our financial performance in more detail.

Thank you, Leslie, and good afternoon, everyone. We reported strong Q1 financial results, including record total revenue and record subscription 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 Q1 was $131.4 million, an increase of $18.7 million or 17% over Q1 of fiscal 2021. In Q1, subscription revenues were $106.1 million, an increase of $17.1 million or 19% year-over-year.

Revenue generated outside of North America in Q1 represented 23% of total revenue. As we've shared with you on the past few calls, we have modified subscription terms, flexible payment or invoicing terms in exchange for extensions of existing contracts for certain customers hardest hit by the pandemic.

On average, the extension period was for 1 additional year, consistent with what we projected on our prior earnings call, the modified terms have negatively impacted our subscription revenue in Q1 by approximately $1 million and by approximately $4 million over the past 12 months. Looking ahead, we expect that this is the last quarter that we will have -- we will experience these headwinds.

As a reminder, the majority of our contracts are multiyear, irrevocable, include contracted minimum and we expect our customers to honor their agreements. Professional services revenue was $25.3 million for the quarter, which increased 7% year-over-year as we continue to build out our partner ecosystem.

Turning to some key metrics. We continue to see strong growth in new logos.

We ended the quarter with over 1,240 enterprise customers, an increase of 59% year-over-year. In addition, we have over 875 mid-market customers.

Through the 12 months ended April 30, 2021, our dollar-based net retention rate was 111%. Over the past 3 quarters, we had seen strength in bookings from net new customers.

We believe this bodes well for the future of our land and expand strategy. Our dollar-based net retention rate was negatively impacted by 1 percentage point due to the concessions I discussed earlier.

Turning to RPO or remaining performance obligations. As I have shared with you before, our RPO metrics are impacted by contract duration and extensions as well as timing of renewals for large multiyear contracts.

So while RPO provides for strong visibility, it may fluctuate. As of April 30, total RPO was $798 million, an increase of 26% year-over-year.

Turns RPO, which is the amount we expect to recognize as revenue over the next 12 months, totaled $397 million, an increase of 23% year-over-year. We expect them to recognize 50% of total RPO in the next 12 months.

I'll now turn to our non-GAAP gross margins and operating expenses. Subscription gross margin was 81% compared to 83% in the year-ago quarter.

The decline in subscription gross margin is primarily due to investments in infrastructure we have made as we scale both organically and inorganically. In Q1, professional services gross margin was 16% compared to 18% in the year-ago quarter.

We continue to focus on building out our partner ecosystem, so we expect professional services gross margin will be approximately 10% in Q2. Sales and marketing expenses in Q1 were $60.6 million or 46% of revenue.

We continue to invest in productive sales capacity. R&D expenses were $25.8 million for the quarter or 20% of revenue.

Our go-to-market initiatives and R&D both remain an important investment area as we expand our platform. G&A expenses were $13.8 million or 10% of revenue in the quarter.

We expect additional leverage on the G&A line over time. Non-GAAP operating loss in the quarter was $10.5 million compared to operating income of $3.5 million in the year-ago quarter.

Non-GAAP net loss was $12.1 million compared to income of $3.1 million in Q1 of last year. Now turning to the balance sheet.

We ended Q1 with $540.5 million in cash and marketable securities. Subscription deferred revenue was $232.7 million, an increase of 21% year-over-year.

Let's move on to discuss subscription billings, which we define as subscription revenue plus change in sequential subscription deferred revenue and contract assets. As you know, there are a wide variety of factors that may influence this metric.

Therefore, quarter-to-quarter fluctuations in billings should not be taken as an indication of changes in future revenue. For Q1 of fiscal 2022, our trailing 12-month subscription billings growth rate was 18%.

Adjusted for Decibel's acquired deferred revenue, the billings growth rate would have been 17%. As a reminder, on a trailing 12-month basis, subscription billings were negatively impacted by approximately $10 million primarily due to new bookings with invoicing terms that ramp over a multiyear period.

Now turning to cash flow. We generated $14.3 million in cash from operations during the quarter, representing an operating cash flow margin of 11%.

As a reminder, we've 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 Q2 and Q3 as it has been in the past few years.

We anticipate this seasonality to continue. Now moving to guidance.

For Q2, we expect subscription revenue to be in the range of $113 million to $114 million, representing growth of 22% to 23% year-over-year. We are projecting total revenue to be between $137 million to $139 million, representing growth of 19% to 20% year-over-year.

For Q2, we expect non-GAAP operating loss to be in the range of $12.5 million to $11.5 million. Looking ahead, we expect other income and expense to be a quarterly expense between $500,000 and $800,000 primarily due to interest expense associated with our convertible debt.

We project income tax to be a quarterly expense in the range of $600,000 to $1.1 million. In Q2, we anticipate basic weighted shares outstanding to be approximately 160 million and fully diluted weighted shares outstanding to be in the range of 184 million to 185 million.

Finally, we anticipate our capital expenditures in Q2 to be approximately $8 million, primarily related to enhancing our data centers to meet customer demand. For fiscal 2022, we are increasing our guidance for subscription revenue from $465 million to $469 million to a range of $467 million to $471 million, representing a subscription growth rate of 22% to 23% over the prior year.

We are also increasing our guidance for total revenue from $563 million to $567 million to a range of $566 million to $570 million, representing a growth rate of approximately 19%. We continue to expect revenue to follow a similar pattern for this year, with more than 50% of annual revenue to be recognized in the seasonally stronger second half.

Professional services revenue growth is projected to be in the low single digits as we have significantly expanded and plan to continue to expand the number of SI partners for this year. For fiscal 2022, we expect non-GAAP operating loss to be in the range of $22 million to $20 million.

For fiscal 2022, we expect basic weighted shares outstanding to be approximately 164 million and fully diluted weighted shares outstanding to be in the range of 185 million to 187 million. Finally, we continue to expect our capital expenditures in fiscal 2022 to be a little over $30 million.

Leslie and I will now take your questions. Operator?

Great. I apologize if -- for the connection if it's not great.

Leslie, a question for you. Just on the Fed opportunity, obviously very exciting.

We've been tracking VA for a while and the nice expansion there. You also mentioned DoD.

Do you have all the feet on the ground that you need in Fed to execute on the opportunity now? Or is that still a part of the sales hiring ramp?

And then, is it going to be a normal Fed spend year? I know a lot of employees are going to be at home.

And does that also create an opportunity for you guys on the employee experience sales side for Fed? So a whole lot in there.

I appreciate that. Then I have a quick follow-up for Roxanne.

No, super question. Well, I've got -- all of our team are probably listening to this, so if I tell them we've got enough feet on the street, they'll be shaking their heads.

There's a lot of opportunity and so I think the answer is no. We need to keep putting.

But quality is the key and that we've got a great quality team in government, actually around the world now. We're building up public sector.

But obviously, the dominant group is in the U.S. But they're emboldened by the fact that we're the only company with FedRAMP, FedRAMP High and HITRUST.

Nobody can touch us in terms of scalability and security. The survey software vendors really are just not there and it's going to take them a massive investment to get there.

It took us plenty of time. We did it the smart way.

It's a big investment. And so short answer is, there's room for more and we're about getting them in.

And then in terms of the employee experience piece, employee experience is so important. Treat your employees like customers and in the government case, treat your employees the way you want citizens to be treated.

I think connecting them is a great opportunity. And definitely, the major agencies do see that and they're engaged.

So it's an exciting time to be present in that market.

Great, Les, appreciate it. And Roxanne, just 1 follow-up for you.

I appreciate the details around the modification of billing terms and obviously, market improvement relative to last quarter. And I know you said this is the last quarter where that would be an impact.

Is that just purely because of the improvement in the end markets? Is there anything else that you guys have done from a product perspective or bundling or anything else that you guys have done to address that?

Or is it -- is that just your end markets getting better, which sounds like, with Avianca and with the hotel deal, it sounds like year-end markets are decidedly improved, but just curious on that.

Rob, the concessions that we made were early on in the pandemic as some of our customers had been impacted. Now as we've progressed forward, we have seen the overall markets and, for example, you see leisure travel.

Leisure travel is coming back, I'll say I'll be bold to say with a vengeance. But -- so what we've seen is, from the concessions early on, we have seen overall improvement.

We've seen overall demand, especially in travel and hospitality, as I said, around the leisure side. But as I say that, I want us to think about corporate travel and corporate travel has not recovered to the levels it was before.

And I'm not sure when corporate travel will recover and to what level. However, I don't expect that the corporate travel will result in any additional concessions based on what I've seen at this point in time.

So I'm pleased with what I see from the change over the last several quarters.

This is actually Danica on for Dan. My question is around new logos.

Congrats, your new logos have been growing really strongly. So I wanted to understand, is that more of a greenfield opportunity or do you see it as just facing existing vendors?

And have the competitive dynamics changed at all?

Yes, great question. I mean, replacements is not really that exciting a thing for us.

But when we are replacing technology, we're replacing survey software with much broader signal capture, with a much richer digital capability. Now it's really digital transformation of the traditional survey.

So it's not quite a replacement like-for-like. It's not the way that we think about it.

So we're doing something different. We're capturing video, voice, messaging, ideas, the broad spectrum of feedback that our customers need, a much, much richer data pool, and we've got a much more sophisticated operational system for the distribution of lifetime feedback that the others don't have.

So we're just doing a very different thing. And that's resonating and it's now implementable very quickly.

We've got much more self-service and ease of use and automation in the product and in the platform. We've doggedly invested in that.

We've continued and persisted to deliver on that. We had -- I'll give you 2 examples.

We had Container Store going live in under 3 weeks and we had D2L just go live in Canada, great learning company, in 30 days. They signed their contracts and went live in the same quarter.

And so that's a testament to how quick it is to get this rich digital platform up and running, way beyond the traditional survey vendors capability and can.

So nice job coming out of the gates on the year. So I mean, if I look at the new customer count, I mean, mid-market was very good.

But even your enterprise new customer count, I thought, especially maybe for a first quarter looked very good. And Roxanne, you sound certainly more constructive on the impacted verticals than you have for pretty much a year.

So I guess, what would you attribute the new logo on the enterprise front, this -- well, my perceived strength there? And also, are we to a point now where we can think about moving to kind of existing business but we can think about net expansion, kind of accelerating more aggressively?

I understand it's a 12-month look back. But do you have any kind of near-term data points that could -- that you believe we're going to see kind of an improvement there?

That's a great question, Chad. And I think when you stand back though and look at what is 1,800-or-so total customers with annual contracts, whatever it is, it's a small number, relatively, to be honest.

It's great, it's good. It's very solid.

They're great, it's great quality. But there's a massive market here.

There's a massive market. We have invested in go-to-market, in our field and marketing to capture that.

And so that's where my focus is. I do think that the net retention will resolve nicely over time.

But right now, it's about net new, to be honest. And you've seen in the last 6 months that -- winning that battle of the new is fantastic.

It's great for the confidence of the team and the company. It's great for -- reassures us around our product strategy, which is absolutely spot on, on target.

And so that's really the focus. But I think over time, we'd like to be in a higher place, on the net retention.

But as I said, let's focus on winning and landing and expanding over time.

Right. And then Roxanne, any other follow-up just in terms of the -- again, the expansion potential or maybe kind of near-term metrics you're seeing around that?

Yes, Chad, you're right. When you look at our net retention rate, it is a backward-looking metric and it has been impacted by a couple of things: one, it's been impacted by the concession; two, although our overall gross retention rate has increased slightly over the last 12 months, the customers that were in these impacted industries did not expand at the same levels that they had historically prior to the pandemic year.

So when I looked at it, I anticipate that our NDR rate will be consistent in Q2 and then we will have some uptick, as Leslie said, as we move forward and we may see some uptick in the [indiscernible]

Wanted to focus in on the contact center opportunity that you talked about and you've really been investing heavily around. At this point, even at the customers that you are providing services to, do you have a sense of sort of how much of the total spend you're capturing now versus what the platform is ultimately capable of doing?

And then also as you look out, are you primarily in cloud-based contact centers now? Or have you been able to penetrate some of the legacy larger on-prem versions as well?

Yes, great question. It's really a new focus for the company and the technical capability that comes from Medallia Speech, which is the voice transcription and text analytics combined, and also the fabulous technology that we acquired with Stella Connect are new.

They're a couple of quarters old in our hands, a couple of quarters, and we've made some fantastic deals and great strides with the technology. But what's become clear, we've got some best-in-class, I would call, Williams Sonoma best-in-class implementation of lifetime coaching of contact center personnel using Stella Connect.

We've got some fabulous brands, leading brands out there. But there's a huge number of opportunities for us to show what can be done, connecting feedback to cloud contact center.

And yes, we do have customers where it's more traditional, as you say, more legacy on-prem contact center capability as well. We're agnostic as to whether it's cloud or not.

But we formed a nice partnership with Five9 that we're very excited about. It's only a few months into that.

It's a massive opportunity, though, to your point. It's just -- it's huge for us.

And the survey companies are not there. It's something very different.

Being aware of the topography of the cloud contact center is something that is very important to us and we see great opportunity there.

Great, that's helpful. And then Roxanne, in terms of the ramp-up in sales hiring, in particular, have we sort of reached a good cadence that we're at here?

Or is there still more builds likely [indiscernible] kind of the levels you're expecting?

Matt, we're only 1 month into the ramp-up that we've talked about or 1 quarter, excuse me, into the ramp-up that we've talked about from a sales hiring perspective. So we have started to make some of the hiring.

We are on path in regards to our hiring plan. We do anticipate that we will continue to make some additional hiring moves this year, specifically in our mid-market and in certain markets in our enterprise space where we have seen strength in some of the verticals and also from a geography perspective.

We've seen a lot of strength in EMEA. So that's another area and the, like I said, the verticals in North America.

Wondering if you could do a little bit of a deep dive into the mid-market segment, sort of as a newer area for you, how you feel about the current utilization, sort of the marketing execution to support it for lead generation. Maybe contrast that to your enterprise and how much room you think you have to move the dials on those things.

Yes. Well, mid-market is -- has been a super opportunity for us, where the company, as you probably know, didn't really play.

We were enterprise exclusive. We have brought on great land and expand deals, fabulous new verticals and we're very excited about it.

We've invested significantly in our virtual sales force that's very capable and productive. And they can land and expand with a dozen or so modules.

So we've been very pleased with Medallia Experience Cloud take-up in the mid-market. And some of the deals have been significant, some mid-6-figure deals.

There's also a channel dimension for the mid-market that we're just getting started on with some new reseller capability that we'll probably talk about in more detail in coming days and weeks, where we have some great global footprints that have come over to us from the survey software world to really want to get into this omnichannel digital transformation that we deliver through our platform, our hub-and-spoke model platform and signal, as we call it. And so very excited about the growth in the mid-market.

Very pleased with the performance of the team. They did very well in Q4 and again in Q1.

You've actually continued to be active in M&A even while COVID's been sort of an overhang to portability. How do you think that changes or the environment's changing with COVID sort of easing at least domestically as a headwind?

I think that our M&A around bringing in signals that were part of the platform already, helping customers get that solution without them having to integrate it on their site. From us, they can get voice, video messaging ideas.

They can get the full spectrum of capability or you can buy a survey software product and then add-on voice from somebody else, add-on video from somebody else and you do the integration. I know which way I would go, just doesn't make any sense to do that.

And that has captured the imagination of the industry analysts, which has really been important for us. We've got a great showing from Forrester based on the execution of this strategy.

But I think we've also taken a lot of medicine around acquisitions. And so -- but I think we're going to be proven to be right.

As things unfold here, we can see it. It's decisive in our enterprise wins to have all of that signal capture and some of the other technology that we've acquired.

For now, this year is execution year. This is all the execution.

We've got enough. We might do the odd tuck-in here and there, nothing like the last acquisition that we did, Decibel, which was a significant one for us.

But the rest of this year is execution. We have enough.

We've got plenty of that, and we need now to focus on our channel evolution and build, focus on global and vertical expansion. We have relatively small footprints in APAC and Latin America.

EMEA is getting bigger and had a fantastic run here. So that's what we're focused on, execution for the rest of the year.

Last thing would be, if we think about your guide for sequential growth, it's very strong, sort of above what we've seen for quite a while now. Is there anything unusual in that or do you feel like this is sort of getting back to normal business from an overall perspective?

No. Rich, there's nothing unusual in that guide.

What our guide reflects is the overall strength that we see in the pipeline, the overall strength that we see in the business. And as you know, Rich, when we provide a guide, whether it's a quarterly guide or whether it is an annual guide, it is going to be a guide that we feel comfortable with.

So this is purely a reflection of what we see going on in our business.

Great. Congrats on a good start to the year.

Congratulations. It was a great set of numbers and the record go-lives is great, too.

I guess, let me start there with the record go-lives. You gave us some color a couple of quarters ago about sort of average number of modules adopted.

I'd love to understand if you're seeing the initial number of modules or deal sizes change with the new customers, especially sort of towards the end of the pandemic. I know when you'd come in, Leslie, you'd broken it down from million-dollar deals, we'll take smaller deal sizes, we'll grow.

But are you seeing the small deal sizes expand as you've added so much more product to the base from an initial land perspective?

Yes, that's a great question. I think we are seeing some of that.

We saw a little bit in Q4 and again in Q1, but we really are focused on giving our sales force the ability to meet the customers where they are. We have -- we come up against companies that are selling survey.

What the company wants -- the customer wants is digital, and they want unsolicited digital. So the new Decibel capability, Voice of the Silent Majority, they want that.

And so we are -- we're really focused on landing customers first and adding on products later. But we have had some great wins that are a combination of full digital, so interactive digital and unsolicited digital and survey.

For example, we've had a lot of customers taking ideas and video independently and then coming back for survey later. So we've got the opportunity to really enter accounts from many different angles with our buyer population that's really hungry for digital transformation versus just the liquid paper simple survey stuff that's out there.

So that's really what's going on.

Got you, got you, got you. And then I wanted to touch on sort of this idea of AI and automation, but tied to different data sets.

So you could obviously automate, like someone complains about a menu, they'll get directed with the food and beverage director at a hotel and they can solve that problem. And you've got that technology.

You've got partial AI, partial routing, partial workflow in there. But does this concept of sort of observing a user and watching where they get stuck in a process and understanding that without having people look at sort of an AI-based computer vision, learning process.

Help me think through where that fits in the data scheme, maybe the customer experience or employee experience scheme, the training scheme? And how does Medallia sort of absorb that data to drive a better outcome?

Well, that's a great question. There's so many dimensions to that.

If we take the digital experience piece first, that's why we wanted to own Decibel rather than just be a partner with Decibel and others. We look at that unsolicited spectrum that you talk about, and we wanted to own that.

And they have that capability and we have the capability to understand the behavior of cohorts of customers. Just simple things like a breakdown in navigation on the website, abandoned transactions, what reasons why and what are the reasons of -- using the machine learning capabilities to understand and interpret and infer has turned out to be invaluable to our customers.

When you combine that with interactive feedback and combine that with digital interactive feedback or combine that with physical behavior of a customer who's crossing channels, digital and physical, the insights are absolutely golden for our customers.

Just wanted to ask you a question on the partner channel. Actually, 2 on it.

One, if you're seeing any meaningful change with the partner velocity of the deals or in the execution. The second question on the partner channel is just on the Oracle announcement.

Did I hear right that you're starting out with service with Oracle? Is that corrected in net sales or employee?

And then I guess the follow-up would be if there's opportunities to expand that partnership down the road.

Yes. I think with Oracle, that's where we're starting out but there's opportunity for us to obviously expand.

And of course, they've also become a customer, so their knowledge of the platform and its value across the spectrum of sales and service and marketing, it's just going to get better and better. So early days and that's where we're starting.

And then the other question was putting Oracle aside, what are you seeing in general from the partner channel? You've been scaling that over the last couple of years.

I'm just wondering if you're saying as employees are getting back to work and the economy is opening up more, if you're seeing any meaningful change in the velocity of deals or in the execution on that side of the business.

No, I think it's one quarter. I mean, just to give you color, we look at -- we're looking at herd immunity and vaccination rates around the world.

We're looking again today at all the major countries around the world so we're focusing our efforts on those reopening economies. And so our channel, the different segments of the channel have really started to come alive for us.

The SI is certainly, a major SI department, that is our Marks & Spencers in the U.K., for example. But also the independent software vendors, they have -- the major cloud vendors have turned out to be a good source of opportunity for us.

And then lastly, the reseller community is a big opportunity. We were just able to bring over survey vendors, largest -- one of their largest international resellers into our fold because they wanted more access to the full spectrum of technology that we have in our more sophisticated, powerful capability, which is understandable.

And so I think the reseller piece, particularly in the mid-market, is going to be important for us going forward. And we've got a great team in the company leading that initiative for us.

And then my last question, just on the sales and hiring comments, been a lot of color on the call. Thank you for all of that.

My question's on the process. I'm just wondering, new fiscal year here, Leslie, if you made any noticeable or material changes beyond the capacity to the sales organization or to the go-to-market?

Yes. Well, that is a very insightful question because actually, we have built a command of the message process with our Chief Revenue Officer.

And her team have built and put in place the, I think, is a fabulous, in any measure across the industry. It's a superb approach.

It makes sense for our customers. It's about meeting customers where they are, and about giving them and showing them value from all of the fabulous best-in-class use cases that we have.

So certainly, process, expectations, everything so that we can enable people quickly, bring them on quickly. People don't want to be brought on and wait for months and months to hit their first deal.

We brought in people that are doing their numbers in the quarter that they write in the company. And that's what hungry salespeople want.

And I think the enablement process that's been implemented this year has helped that.

Leslie, I wanted to get your view on a theme we've been hearing a lot of in our field work. Customers are telling us they're using various point solutions for different pieces of this customer experience puzzle today and are really hoping to consolidate those vendors in 2021.

Is that something you're hearing from customers just generally? And curious if that was a dynamic that played out as billings reaccelerated here in Q1.

Yes, it is something that we're hearing from customers consistently, especially customers that have got 3, 4, 5 or a dozen, in some cases, more, survey solutions that have been implemented departmentally around an organization, and also where customers have had survey fatigue and low historic response rates, we just won a decision with a retailer around a very low response rate from a major survey player that doesn't have the spectrum that we have. So it's a very consistent message.

They're going to consolidate them and that implies a massive amount of unstructured data. Which platform should we go with?

Having FedRAMP, FedRAMP High and HITRUST is valuable beyond the public sector market. It just gives so much credibility to what we've already said about our platform.

Having the ability to operationalize feedback and distribute it in live time to the people that need it, is really something that no one can touch us at, nobody can touch us or come close. And so people want to consolidate those first-generation liquid paper survey market research-oriented solutions into the modern digital platform.

And we're seeing some of that. Still early days, but we're definitely seeing that action out there.

Got it. And Roxanne, how should we think about your assumptions for the back half of the year?

I would think that given the ratable nature of SaaS revenue, the $2 million upside in Q1 would also benefit the quarters thereafter, but it doesn't seem like that based on the full year guide. That's the case.

Anything you have visibility into that's giving you more caution or how should we think about that?

Well, if you look at our full year guide, that full year guide is 22% to 23%. And if you look at that from the back half of the year, not only do you see an acceleration in the Q1 guide that we've given you over -- sorry, the Q2 guide that we've given you over Q1, you'll also see that there's acceleration in the gross subscription growth rate in Q3 and Q4 over the first half of the year.

As you look at subscription billings, how should we think about the growth rate there for the remainder of the year? Should we expect it to grow faster than maybe subscription revenues or any color on that?

So I apologize but you broke up a little bit when you -- you were asking about the growth rate of subscription, what?

Subscription billings for the rest of the year, relative to subscription growth.

Yes. So we don't guide to billing.

And there's multiple metrics that we look at or like, we all look at, right? You look at CRPO.

You can see the strength in our CRPO and our total RPO this quarter. You can see, as Drew highlighted in his comments, the acceleration in our billings growth rate and we look at it on a 12-month trailing basis.

But when you look at where we are from a billings growth rate, on a 12-month trailing basis and you look at what we're giving you from a guide perspective, that implies that you will also see an acceleration in our billings growth rate.

That helps. And then maybe on back half of the year profitability.

It seems like your $21 million non-GAAP operating loss guidance is really for the first half and we should expect back half of the year operating income to be about breakeven. Should we see, I guess, sequential improvements as we enter the next year?

Or how should we think about the cadence of profitability improvements?

So Brett, that's a great question. When you look at -- let's start with this year.

So when you look at this year, spot on, right, obviously, that we would see the profitability be breakeven in the back half of the year. However, I do anticipate that in Q3, we will continue to be in a loss position, and then we will be profitable in the Q4 time frame.

Now as we move forward to FY '23, we haven't given guidance but there are a few things that you should think about or things that we're considering. So we are monitoring our investments that we're making very closely and benchmarking them against the return that we are anticipating.

And we will continue to measure because what we're really focused on is we want to accelerate our subscription growth rate. So when you look at next year and you look at it from a quarterly basis, one, I would not assume that we would have this significant profit next year, but we have not given you guidance for this year -- for next year at this point.

But when you also think about next year, I would think about the same seasonality as this year, that we would be -- the income or losses would be higher or higher/lower in the first half of the year than they would be in the second half. It would follow the same seasonality.

Does that make sense, what I'm saying?

Yes. No, that makes sort of sense.

I guess, Leslie, let's start off with your customer conference. What type of takeaways do you have this year versus last year or maybe over the last 2 years, I guess?

And then what -- how do you view maybe customer engagement in the virtual format versus more in-person, what you're certainly more used to?

Yes, super questions, Scott, yes. So you can see that we're adding more and more logos.

You can see the progress in the mid-market. It's never enough for me, but it's strong, given our coverage and the ramping of the new people that we brought on.

I'm all in on virtual selling. While someone's flying to go and see a customer for 30 minutes, we can call into their prospects and customers 5 or 6 times over.

And I think we can get a great deal done in this medium and it's working very well. Doing -- also implementing, doing 240 go-lives in a quarter, albeit we're getting to go-lives faster now.

We've got more automation, more self-service, so that's what we expected. But getting to that number of go-lives for our size of the business virtually is phenomenal.

It's a record. And so I think the virtual way of working for us, as a software company, as a cloud software company, is highly successful.

We're still going to have meetings. We're still going to collaborate and who knows where the hybrid, physical, virtual world pendulum will swing, but our team are [indiscernible] themselves.

They're working perhaps too hard, in some cases, they're working very hard, and they're being successful and are confident. And we spend a lot of time with one another virtually, making sure that their needs are met, we're supporting one another and we've got a great team, and they've really gelled virtually as well as they did physically.

So we're very confident about their ability to use this medium successfully in the future and also take advantage of the physical world when it comes back uniformly around the world.

Got it. And then from a follow-up perspective, Roxanne.

Your deferred revenue on the -- there's quite a difference between the balance sheet and the cash flow statement this quarter, roughly $7 million in round numbers. Can you help us understand the difference?

I assume it was acquisition based but it's a bigger difference than what we've seen historically.

That's a great question, Scott. When I look at the acquired deferred implication on the 12-month trailing billings growth rate, was about 1%, so it was not that significant.

I don't have anything that specifically comes to mind that would stick out. You know that deferred revenue on the balance sheet is obviously total deferred.

And then we do provide you, in our supplemental schedules, the SaaS deferred or the subscription deferred and then there's 12-month trailing billings growth rate is also calculated on the subscription deferred.

And I'll echo earlier comments in terms of a nice improvement in the quarter. Leslie, maybe the first question relates to looking at software and technology companies.

You have some great logos there, HP, LinkedIn and Oracle. Could you remind us, is this one of the kind of more emerging parts of your business?

I mean, how does tech stack for you all in terms of mix of business? And these 3, in particular, what were their landings like?

Were they sizable or were they more kind of bite-size but big future potential? And then I have a question for Roxanne.

No, no, these were significant. These were not bite-size, which is why we called them out.

So I think what's great about your question is that software companies, in particular, the technology companies think they can do this. And I think when they discover the sophistication and capability and power of our platform, they realize that there's a lot more to it.

And so actually, I think the team is in place now that is winning in the technology space has done a phenomenal job. I think it's one of the hardest spaces to sell to because people think you're bringing sand to the beach.

They can do it, they're software companies. Lost a little bit of feedback.

It's just a wee survey. But it's not, is it?

There's so much more to it. And so I think this is an important beachhead for us, actually.

And you should think of these as certain figure types of lands, not bite-size.

Or otherwise, they're very big bites, maybe. Okay.

Then maybe Roxanne, for you in terms of -- you may have mentioned this but it was really good to see the CRPO growth. I think at 23%, that's, I don't know like, about 5 points or so higher than the billings growth on a TTM basis.

Is the difference there, is that just more periodic billings, so there's just more activity around the nonannual prepay? Or was it just timing of when invoices were sent out that made that difference?

Anything more you could add on the difference in the billings growth and CRPO?

Yes. So Terry, as we've shared with you historically, we have had a history, over the last 2 quarters, of doing these ramp spins, where we will have a benefit in our current RPO, where you won't see it in our billings.

And then you were also flexible with customers even though we -- nearly all of our customers still have annual invoicing and they all have -- all the customer counts that we share with you are all annual contracts, we deal with our customers from time to time, because what we are focused on is our subscription revenue growth rate and making sure that we have the appropriate contractual backlog and RPO to support that growth rate.

This is Parker Lane on for Tom Roderick. Leslie, as we think about the largest messaging deal that you signed with the global hotel chain this quarter, can you just talk about why now is the right time for them to lean in?

What they're getting on an incremental basis from a technology perspective? And I guess, what the competitive landscape looks like there in the messaging space, considering that, that's not a technology that a lot of the competitors you normally bump up with have today?

Yes. Well, that's a great question.

And I think it kind of reveals the story of where we are, certainly as a country but as a world, and as Roxanne mentioned, leisure travel coming back faster. But I think it speaks to a couple of things.

Number one, the confidence of that particular business and their opportunity and the way that they have pivoted to meet the needs of the traveler today in today's world, which is so much more sophisticated and complicated by the pandemic. But think about touchless messaging.

I think it just, even without the pandemic, the convenience of touchless messaging, that I can actually message for any of my needs on-site or off-site, think about the value of -- think about the way to think about revenue per available room. Revenue per available room can be affected positively by messaging because the client can stay in the resort, stay in the hotel and message for everything they need.

They don't have to interact with people. They can even book off-site venues from their phone.

Secondly, the connection of messaging to feedback, so understanding the pattern of that messaging and associating it with any feedback is the potential here to really understand the customer in their entirety. And so if you do that, you need way more than survey.

You need the digital spectrum that we have, you need the messaging capability. The Holy Grail is combining messaging with feedback to create this pool of golden data for these organizations.

And it applies, we've got messaging deals going in retail. We've got messaging deals going in restaurants, not just hospitality.

Think about it in the travel context. The fewer -- reduce my physical interactions to high-quality essential interactions, everything else, I can do on my phone.

But that messaging needs to be captured as a corporate asset for our customers, not left to dwindle away as a personal messaging service. That's why messaging, as we have built it, is the right way to go for our corporations, major opportunity for us, and I expect to report more success in this business as we go through the year.

Got it. Maybe one last one.

On the public sector side of things, just given the scale of those organizations, I mean, how big of an opportunity do you see for employee experience down the line? And would it be fair to say that most of these new deals you've had in public sector have been CX so far?

Yes. That's right, the right commentary, they have.

There's 1 or 2 employee implementations but they're only going to increase. Again, treating employees like citizens, a public sector case, treat employees like customers.

This is the epiphany of the pandemic. And for that, you need the same digital capability as you give to your customers.

And that's Medallia. So I see a massive opportunity for us in public sector, not just staff, federal, state and local in the U.S., but globally as well.

And to the earlier question point, we need to continue to increase our investment in that team.