Qualtrics International Inc.

Welcome to Qualtrics' First Quarter and Fiscal Year 2021 Earnings Conference Call. On the call we have Zig Serafin, CEO; Chris Beckstead, President and Rob Bachman, CFO.

Following prepared remarks, we will open the line up to answer questions. Our results, press release, and a replay of today's call can be found on the Qualtrics Investor Relations website.

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

We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.

For a further discussion of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC, including our annual report on Form 10-K for the fiscal year ended December 31, 2020 and our quarterly report on Form 10-Q for the quarter ended March 31, 2021 that we will file with the SEC. In addition, during today's call, we will discuss non-GAAP financial measures which we believe are useful as supplemental measures of Qualtrics' performance.

These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation of the GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release and investor presentation on our Investor Relations website.

The webcast replay of this call will be available on our company website under the Investor Relations link. Unless otherwise stated, all financial comparisons discussed on this call will be to our results for the comparable period of our 2019 fiscal year.

And with that, I would now like to turn the call over to Zig Serafin, CEO.

All right. Thank you, Steven.

And thank you all for joining our earnings call. So as you saw in our numbers, Q1 was an outstanding quarter for Qualtrics.

And it was a powerful start for our fiscal year. Revenue in the quarter rose to $238.6 million, which is up 36% year-over-year, and subscription revenue rose to $186.9 million, which is up 46% year-over-year, and we ended the quarter with more than $677 million in current remaining performance obligations is up 53% over the same period last year.

And what we're seeing in our results here is that Qualtrics has never been more relevant or impactful. And there's a massive market and category opportunity that's ahead of us.

Now organizations around the world are in the middle of an important shift. And it's bigger than a digital transformation.

In fact, it's an experienced transformation as what we're seeing. In 2020, 82% of all businesses had to design a remote work experience.

And to sum these changes, if you put it - to put some of these changes into context, at the beginning of last year, only 7% of the retailers had curbside pickup and by August that number was 44%. And in today's digital world where it's easier than ever for employees to switch jobs or customers to change service providers, every business leader I talked to is trying to figure out how to better retain and engage their employees and to more consistently find new customers and strengthen the relationships to keep the ones that they already have.

And as you can see in our results, companies are choosing Qualtrics to accomplish these two very important business objectives, finding and keeping customers and employees. And no one knows the importance of finding new customers and designing new services than the travel and hospitality industry.

Take Royal Caribbean International, which expanded the use of Qualtrics in Q1. And very few industries were hit by the pandemic as hard as travel and hospitality and Royal Caribbean had to rewrite their playbook.

And rather than pulling like, pulling back like some of their competitors, what Royal Caribbean did is they chose to lean in and invest. With Qualtrics they can now understand how their current and prospective customers are thinking and feeling.

And then they can design the right offerings to get them back on cruises. Another good customer example is UPS.

UPS is focused on customer first, people led an innovation driven strategy. And we're proud they chose Qualtrics in Q1.

Qualtrics will be their experience management platform enabling them to listen across the company, take action to lead on critical customer and employee experiences globally. And so with Qualtrics UPS is able to understand their customers and their employees at scale and take action to deliver what matters.

And these are just a couple of examples of how Qualtrics is helping companies transform experiences for their most valuable stakeholders. This quarter, we also formed new relationships and expanded our work with leading organizations around the world that include Bank of Montreal, Singapore Post, Stanford Healthcare, DocuSign, UK Department of Health and Social Care of many more.

And we increasingly see that large organizations like these are looking to consolidate their experience management programs and experience management becomes even more critical to every organization. And as it has, in fact, in Q1, the number of customers spending more than $100,000 annually with us rose by 119.

That's an increase of 35% year-over-year. So our results continue to validate that a platform that enables experience management across a company is what the market wants next.

Experience management is becoming as critical business success as any CRM or HR system. And experience data is becoming the most valuable data within our organization and we have a 10-year head start on this market.

And we see significant opportunity ahead only Qualtrics gives customers a single, secure, cloud native experience management platform. And we enable them to bring together all of their experience data, what their customers and employees are telling them about their company and their brand.

And we help them analyze it, and use workflows to take action. And we continue to innovate across our platform of speed and scale.

In Q1, we introduced a new Diversity, Equity and Inclusion solution to address a critical priority of organizations across all industries and segments. We're enabling HR leaders to measure and improve employees' experiences to create a more diverse and inclusive workforce.

We also launched a new customer XM Solutions that give organizations a holistic view of the health of their B2B and B2C customer relationships, and take automated action to design and continuously improve the experiences that they provided every touch point of the customer journey. And just last week, we unveiled new innovations across our XM operating system to make it easier than ever for organizations to quickly understand their customers and employee's needs.

And these innovations help our customers both design and improve experiences in real time to lead in times of disruption. Central to these innovations are new design XM offerings, which consist of powerful new research and testing solutions for designing new customer, product and brand experiences.

And so to help our customers turn insights into actions that drive impact, we've expanded the capabilities of Qualtrics X flow with 24 pre-built, these are new pre built workflow templates that give anyone in an organization the ability to create a Qualtrics workflow with clicks and not code. So from automatically creating a Zendesk ticket when a customer submits negative feedback, to immediately notifying an HR representative of specific words like safety concerns are detected in employee feedback.

I mentioned to you in our last call that being independent would give us the opportunity to form exciting new partnerships. And we continue to deepen our partnerships in Q1 with global leaders like Bain, Deloitte and E&Y.

We also formalize a new partnership with Korn Ferry to extend the power of our diversity, equity and inclusion solution. And Q2 is starting out strong with an exciting new partnership with ServiceNow.

We're bringing together the leader and experience management with the leader in business workflows to enable our joint customers to quickly and effortlessly bring experience data from Qualtrics together with the ServiceNow platform. And this helps any customer to take action in the moment and delivering credible service experiences.

So as we work together to emerge from the pandemic, the best organizations are running their experience transformations by discovering what customers and employees want right now and, in the future, and then taking action. And they're already building the next chapter of great customer employee, product and brand experiences.

And they're doing it with Qualtrics. So I couldn't be more excited about the opportunity ahead of us.

And I'm deeply grateful for our team's hard work in Q1. And I'm grateful for the 1000s of customers they are choosing Qualtrics to manage their experience transformations.

Now I'll turn it over to Rob Bachman, our CFO to get into the numbers. Rob?

Thanks Zig and good afternoon, everyone. We are very excited to report our strong results for the first quarter of 2021.

As Zig mentioned, we continue to execute well against our long-term market opportunity, differentiating ourselves through our technology and multifaceted go-to-market and customer success model. We delivered subscription revenue of $186.9 million, up 46% year-over-year, professional services and other revenue was $51.7 million for the first quarter representing 8% growth year-over-year.

Total Revenue was $238.6 million in the first quarter, up 36% year-over-year. Our remaining performance obligations representing all future revenue under contract ended the quarter at $1.2 billion, up 77% year-over-year.

This metric includes both new and renewal software contracts, along with our professional services business. Current remaining performance obligations, which is all future revenue under contract that is expected to be recognized as revenue in the next 12 months was $677 million, up 53% year-over-year.

This performance was driven by strong new bookings across both net new and add-on business in addition to our subscription renewals. Current and total RPO benefited from a continued lengthening of average contract duration for both new customers and renewals.

In Q1, our net retention was 120% consistent with our performance in Q4, as customers continue to expand their usage of our experience management platform. On a net basis, as Zig said we added 119 customers in Q1 spending more than $100,000 in annual recurring revenue for a total of 1,457 customers.

Customers spending in excess of $100,000 annually still only represent approximately 10% of our customer base, and are experiencing accelerated growth of 35% year-over-year, our highest growth since the first quarter of 2020. Turning the margins, our non-GAAP gross margin was 77.2% in Q1, approximately 410 basis points higher than 73.1% in the year ago period.

This increase is mainly due to a continued increase in subscription revenue as a percentage of our total revenue. Subscription has increased from 72.9% of our total revenue in Q1 of 2020 to 78.3%, in Q1 of 2021.

As we focus on driving software usage on our platform, and continue to grow our partner ecosystem to provide expanded experience management services to our customers. Our non-GAAP operating profit for the first quarter was $6.8 million, resulting in a non-GAAP operating margin of 2.8% compared to negative 13.7% in Q1 of 2020.

This expansion was driven by our strong top line outperformance by continued operating efficiencies, and by a continuation of reduced spend in travel and events. Operating cash flow for Qq1 was negative $70.1 million, compared to negative $131.8 million in the year ago period.

Free cash flow in the quarter was negative $81.2 million, compared to negative $140.8 million in Q1 of 2020 due to operating margin expansion and lower cash payouts relating to SAP equity-based awards. In fact, $72 million of cash outflows in Q1 was related to the cash settlement of the stock-based payment liabilities compared to $98.3 million in the year ago period.

As we shared before starting in Q2, we will see a significant decline in cash settlement of stock-based payments. As the majority of our employee base elected to exchange their cash settled SAP equity-based awards to stock settled Qualtrics awards at the time of our IPO.

We ended the quarter in a strong cash position with approximately $586.5 million in cash and cash equivalents. Now moving on to our business outlook; for the second quarter of fiscal year 2021, we anticipate total revenue to be in the range of $240 million to $242 million representing 33% growth year-over-year at the midpoint.

Within this, we expect subscription revenue to be in the range of $190 million to $192 million representing 38% growth year-over-year at the midpoint. We expect non-GAAP operating margin in the range of negative 1% to 0% and non-GAAP net loss per share of $0.3 to $0.01, assuming 515 million weighted shares outstanding.

For fiscal year 2021, we expect total revenue in the range of $980 million to $984 million and subscription revenue in the range of $768 million to $772 million. At the midpoint of these ranges, this represents a subscription revenue growth of 34% year-over-year and a total revenue growth of 29% year-over-year, respectively.

We expect non-GAAP operating margin in the range of negative 3% to negative 2%. We expect a non-GAAP net loss per share of between $0.13 and $0.11, assuming 512 million weighted shares outstanding.

In closing, our runway for growth within our large market opportunity remains very exciting. We will continue to scale our business through strategic investments, extend our leadership in this market and drive towards long-term profitable and durable growth.

Thank you all for joining today's call. With that Zig, Chris and I are happy to take your questions and we'll turn it back to the operator.

Hi. Thank you for taking the question guys and outstanding quarter, it does really and an impressive way to start 2021.

If I may a couple of kind of detailed questions. If I'm doing my math right, and you're talking about the 14,057 customers over $100,000, representing 10% of overall customer base that means your overall customer base is over 14,500.

And that's like 1,000 new customers during this quarter. Am I speaking about that right?

And what changed the trend to like, open up that top of the funnel? That's an amazing new customer number.

Yes, a couple of things there. We are certainly very pleased, Keith and good to chat with you with the ongoing growth that we have in our total customer count, and it is desirable growth.

And we're pleased to see the growth overall, in the volume number of customers, we indicated approximately 10% there, the total number of customers and may come up the number of million-dollar customers is a number that we plan to disclose on an annual basis. But you've hit on a point that we're definitely pleased with, in terms of the number of customer adds in Q1.

I'll just add to this, Keith, is that we just continuing to see the volume engine on Qualtrics. And we'll update the figures as they're growing.

But the idea of people being able to go in and quickly stand up and leverage the platform for solving problems. Sometimes overnight, sometimes within a few weeks.

Sometimes, it's taking over or consolidating some tool that it's just not running in real time. It's much more of a legacy system.

I mean, the efficiency of doing that massively contributes to the rate at which new logos come in as well as what we get for departmental expansions inside companies.

Got it. In fact, if I could sneak in a follow up for Rob.

So I'm looking at your forecast and if I'm doing my math right. It - even with the numbers coming up, it seems to me it denotes that your first half of the year for subscription revenues, you're guiding to $378 million in revenues.

And the second half of the year, your guiding to $379 million. Why would there be no sequential growth in Q3 or Q4 on a going forward basis?

Is there something that we should be aware of in terms of like revenue that accrued in the first half that won't accrue in the back half? Like that seems almost too conservative.

Yes, Keith, I think let's pause for a second and just recognize again, that Q1 was an outstanding quarter with great results. We're very pleased with those.

And we're similarly very pleased with the update to our guidance. As you look at this now on the subscription side with 34% guided growth for the full year, and total revenue growth at 29%.

There are always a couple things to think about where we're still early in the year. And as you think about that, there's path to be tread in the remainder of the year to go out and accomplish where we're at.

And overall, what I would tell you is we are comfortable with the guidance that we've provided. We're pleased with it.

And it represents our current view on the forward-looking business.

To be more specific, is there anything one time in nature in either Q1 or Q2 that won't occur in the back half of the year?

Yes, there's nothing that I would call out of concern here for you in the future, I would again, highlight the nature of the update to our guidance, and now showing that subscription revenue in the mid 30% at 34%. And, again, indicate that it's early in the year and we have some room to go here to go out and accomplish both the targets and the guidance that we've provided.

Yes, thank you. Zig, so you're approaching the $1 billion revenue threshold with just a ton of velocity that you've got the accelerating subscription growth here to 46%.

As you think about what's going to perpetuate the momentum going forward. I'm most interested in what inning do you think we're in with the transition to becoming the system of action that goes beyond measuring the experiences?

In other words, how much runway do you think until all have 13,000 or 14,000 customers are using Qualtrics as this closed loop, kind of a system.

Right. Hey, Mark, good to hear you.

So, look, number one, I think we're in the early innings. And there's a lot of opportunity ahead.

And number two, the thing that we're seeing is that the especially as I speak with other CEOs, across many different industries, as they're looking at the use of Qualtrics, as part of an experience transformation that's happening within their industries, you hear a lot about in terms of digital transformation is the terminology. But the reality of it is, is that what people really trying to figure out is, what's the customer experience that helps to drive growth, helps them lead in their market?

What's the employee experience? How do those two things come together?

How does that affect the products that you need design? What's the speed at which you needed to be able to do so?

And once you do so, how do you activate the entire company and organization to operate it differently, it isn't just about looking at the data, it's about the workflow, and it's about the way that you end up operationalizing the tools that you've already invested in as a company. And we're seeing a lot of momentum in that both on the front of the ecosystem that's plugging into the system, but also with what our customers are doing and exercising that capability.

And it is one of the greatest differentiating advantages of our system amongst many. And that's a key part of this.

And, frankly, I've heard words from a recent conversation with the CEO, where, he said your system is becoming indispensable to the way that we run our business. And that's because they're taking advantage of the workflow part of our platform, not generically, but in tune with the insights and statistical analysis that our platform helps to surface up based upon different customer segments and connecting that with employees, et cetera.

So that's kind of the macro picture that we see. And again, I think there's a lot of opportunity ahead of not only how people take advantage of it, but how people are innovating on it.

And, the ServiceNow partnership is another good example of that, they're tying in with the workflow engine part of, the workflow part of our platform. And it's - the experience management aspects of our system that then adds value to the significant strength that ServiceNow has in enabling ITSM workflows, customer service management, Help Desk workflows, and so that's another important example of how ecosystems tapping in and how we end up delivering something that is even that much more critical for a customer.

Okay, thank you for sharing that perspective. But I also just had a quick follow up for Rob, from a cash flow perspective.

I am wondering if - was anything a little different or did anything affect collections receivables? DSOs.

A couple of those metrics just looked seasonally a little different than we've expected. And I'm wondering, what's the dynamic and are just at a high level does that cash flow trend?

Does it normalize in that way? And also in terms of the settlement, as you get into Q2?

Yes. So I think there's two parts in there, right, Mark.

So the one again, as we've indicated, the settlement of those liability classified awards that come through SAP, you're going to see a significant decline in that. That's obviously the largest portion of what's happening in the cash flow with $72 million of the cash outflows in Q1 due to that, there was a more temporary increase in the DSOs for Q1.

We had a handful of large customers with some open invoices where collections and the timing of which could have happened either in Q1 or Q2, it's now expected in Q2, or we're not experiencing any risk there. It's more around the timing.

So I think we will provide an even more fulsome update after Q2 as we see that normalized.

Hi, everyone thanks for taking the question. So I just looking at the strong RPO in the billings, I'm curious, how did the sales cycles trend versus your expectations?

And was there any pulled forward of demand versus what you maybe initially thought going into the year.

Hey, thanks Brian. Chris here.

I think when we look at what happened in Q1, we were really happy with the balance that we had with what occurred in terms of overall customer growth as referenced earlier, but especially when we're looking at what happened in the quarter, a lot of transactions in that kind of $100,000 to $1 million range, which was really encouraging as we kind of think forward to that lane and expand motion that's extremely healthy as a business. With it being a bit more of a volume quarter, I'd say that there wasn't any kind of major swings from one quarter to the other; it was more just kind of solid, just business growth demonstrating the adoption of the platform more universally.

And I really think that bodes well for the future as we continue to grow that landed base of customers, both overall, but also larger customers, that then we have the opportunity to play out from an expansion perspective going forward. So nothing, I'd point to major on kind of one ship versus the other, just overall kind of strength driving the numbers.

Got it. Thanks Chris.

And, Chris, I don't know if you would take this or Zig does. But just on the partnerships, obviously, there are a few announcements this quarter, I was just curious as you think about partnerships, like ServiceNow.

And there's more that you mentioned, do you feel like that helps you more on the land side? Or is that more on the expand side where you can get a lot more strategic with a lot of these enterprise customers?

I'm just curious how you think about that.

Yes, it's both, frankly, because what happens is, you have an existing customer that looks at the power of our workflow engine, and that customer wants to connect it in more deeply in an automated way easier to configure way with tools and systems that they're already using, right. So that would be an example of an expand.

But you also have opportunities that are ones where you're going and being introduced and can tie into entirely new budget centers. And or maybe deepening our ability to get into a budget center, because of the value that we open up in those examples itself.

I don't need to look further than, our partnership with SAP, where, by, our continued work on R&D there, and on go-to-market, we're moving into departments and scenarios that were - would have never been - it would have been harder for us to do in the timeframe that we're currently working on right now. And, ServiceNow, certainly another example of that, and there will be others.

Thanks very much, and congrats on a great quarter. Chris and Zig, you mentioned that this was a great, deserved quarter across the board.

And in terms of volume, customer size, I was just kind of curious, were there any verticals that stood out or any use cases in particular that sort of helped drive the performance, maybe, more employee this quarter, just because everyone's think about going back to work arise, you're always looking for a nice balance. But just kind of curious if anything stood out on either vertical or sort of a use case basis for you all this quarter.

Hi, Kirk. Nothing on an extreme basis.

Honestly, we really are trying to kind of kind of balance across industries across globe, but we had a strong quarter internationally as well continue to see strength internationally. I point out we continue to invest in and focus on our kind of government and regulated industries, including healthcare saw strength there as we continue to invest in and lead out in government type solutions.

And then you're seeing things strength, both in kind of traditionally stronger areas like hi-tech, but also as you saw an announcement with Royal Caribbean, some of the companies that have been hard hit by the pandemic starting to come aboard and grow their spend with us as they prepare to emerge from the pandemic. So really, really good balanced by industry, geographic, et cetera.

And like I'll just highlight a little bit of a theme, which is I mean there's very few organizations that we're encountering around the world right now, who are not looking to become more of software type company. I mean, most companies are looking at and said, look; software's going to play a key role in our industry.

And, naturally what happens is people call that digital transformation. And then when they get into it, they start to realize like, well, what we're really doing is we're reimagining the experience for our employees, our workforce, which when the pandemic hits, people rapidly started saying, what does this mean, how we're going to operate, because it's going to be a requirement to rewrite the playbook.

And then on the customer side is reimagine the experience. And those that have led out in front were actually leaders, and they're reaping the rewards from that.

And so what happens really is they're becoming, they're focused on experience transformation. And that's a theme that we're seeing constantly across almost every major industry.

And it's where, and what's important as part of that is you got to be able to call your shots have the right data available, hasn't become a part of the way that you retool your operations, the way that you think about how you engage with your customers. That changes the culture of the company.

So we're seeing that all over the place and there are examples of that. Bank of America, Bank of Montreal I mentioned earlier is a good example of how now they're standardizing on our enterprise platform.

And, they're one of North America's biggest banks. And they added Qualtrics employee experience, to their existing CX platform.

And they're continuing to create customer and employee experience as a key competitive differentiator and how they're leading in their market. And then you go over the chat for example, with DocuSign.

And they're expanding Qualtrics to use both brand and customer experience. And they're doing that to be able to better connect with their customers and ensure that they're staying ahead of and addressing their needs, and then much more connected fashion.

And those are two examples finance services and tech. But I could give you just as many examples and in about 20, other vertical markets.

And that's what we're seeing consistently. And, again, that's hard to do at scale, if you haven't built a platform that allows for building new solutions and best practices and cutting-edge programs that serve different needs.

And the fact that a lot of this technology is you're doing it with clicks and not code helps to affect the speed and efficiency of how we end up enabling new value and use cases that customers can use. And there's no better evidence of that, than when you start to have to answer that question across different industries.

That's a really big deal here. Like, some people will talk about the fact that they're doing this, but then when you double click, they've got massive concentration within specific industries.

And we're not seeing that, right. We're seeing momentum across the board and hard to do that unless you've actually built the technology foundation that provides for it and then an ecosystem around that platform.

Hey, guys, thanks for taking my questions. Nice quarter, Zig, I was hoping you could go a bit deeper on some of the strategic steps you're taking as it relates to how you plan on addressing the customer service and contact center use cases.

There's this backdrop of legacy contact center models going away that was obviously accelerated in 2020. But you've got new paradigms of customer service models emerging.

So it appears you have some contact center functionality with the voice analytics piece. And, workforce engagement solutions and things like that today, though, I get the sense that it's early days for you in terms of really penetrating that opportunity.

So how are you thinking about focusing investments and navigating ecosystem relationships in that area? Where do you see yourself ultimately, fitting in there?

How seriously, are you taking that vector? And what are you doing to get yourself there?

Now, look, first off, I'll start by saying that two and a half years ago, three years ago, this market as we size, it was about a $40 billion Tam. We look at it today as a $60 billion Tam.

That's partly because as we work with our customers, they're taking us to where their customers are. And you're going to continue to see I think market expansion over time with what we're doing because of how focused we are on sometimes unstated needs.

Sometimes I'm just changing the way that people think about serving their customers and being able to call their shot more effectively. So when you double click, and you say, oh, what's going on and customer care?

Well, what's interesting about our world is, first off, we have a product and a product line called customer XM, for customer care. And the way that we look at that world is it's an omni channel experience for people.

And that's a terminology that people have been using for a long time. But what does it really mean?

Well, the way you end up interacting with the business, you want that business to know you, irrespective of what channel you use to connect with them. And then you want that business to be able to predict and serve you in the best possible manner.

Whether you engage with those channels or not, that's another important part. Sometimes these call center scenarios or, we like to call it it's like the sort of the chief apology officer lives, because people end up engaging with a call center environment because something was broken.

So how do you solve the root cause behind what was broken, when you might have a product problem, you might have employees that are not engaged, or maybe they're not enabled or not trained on how to best serve that customer, you might have a billing cycle issue, and a whole combination of different things, right. So the thing that we look at here is, number one, understand the customer as a whole.

Number two drive action, with the systems that are in the call center, but frankly, outside of the call center environment, sort of there's this inner loop and an outer loop and what happens with product teams that actually caused the issue in the first place of why people are actually having engaged with the call center. And then the third thing around it is we're constantly watching, where there's opportunity for innovation, and that's kind of what we'll be doing.

So we see a lot of momentum in that area. And, I would say just, over time, we'll just keep listening to the customer on how we take it but I think I want to keep coming back to it.

When you take an XM approach to a world where people are engaging with their customers across different channels, you now have the ability to solve product problems, employee experience problems, not just the customer service issue, right. And then you can end up helping to rewire and redesign the best way for that customer and engage, it could be, hey, let's use chat more proficiently, or let's change what's on the website, right.

And that's the power of our platform. So when a customer works with us, they say, hey, we want one experience to every one of our customers and how we end up working with us with a market as opposed to what happens in the silo of the call center.

And so our product when people use our customer XM or customers care products, they're solving problems there. So that's connected for digital experience for customer product, it's connected to our employee experience, product line; it's going to be our brand experience product line.

And this was what's this doing is customers are realizing that you can't do this in a siloed fashion, you have a team that connected single systems, single software for one data assets, that actually allows you to be able to then work and operate and serve that customer with one voice, so to speak, one experience for that customer. So yes, it's been a really important topic here.

Yes, thanks for the context there. I just had one quick follow up question on the ecosystem relationships specifically with some of the other ISVs I think the motivations for ranking the ServiceNow relationship are obvious.

And we can pretty easily look to some of the other systems of record and large enterprise application vendors is low hanging fruit, but how are you prioritizing those integrations going forward? Are you following customer demand there?

Or are there other factors guiding your efforts, as you continue to build those relationships?

Yes, they're deeply customer led. And but that's the beauty of our platform is we got to watch the signal around what people are doing around actioning with our system, and then you take a look at where there's friction or opportunity.

And that's what allows the innovation engine work for the company. And so you're right, there are other systems of record systems of engagement that are in these different departments.

And in some of these things, customers already are able to connect and turn on their own, don't have to wait for us because of the programmability and configurability of our system. But then we look at that, and we say what can we do to be able to even innovate on those scenarios as well, which is and I said that is the example of ServiceNow.

Hey, thanks. And congrats from me as well.

And if you look what's going on at the moment, it seems like there is a growing appetite in terms of pipeline building, et cetera. What we are hearing in terms of doing slightly bigger projects, slightly more complex stuff as well.

What are you seeing in terms of your customer conversations, in terms of people kind of thinking about this as like, a big platform opportunity versus kind of solving well point solutions around employee feedback, customer feedback, ground feedback, et cetera?

Hey, Raimo, thank you for asking. Well, first off, we see a trend of customers that are expanding with Qualtrics, by consolidating point solutions in customer employee, and other use cases.

And the reason why they do that is they see the power and flexibility and efficiency of the XM operating system. It's a single software core, it's cloud native, not stitched together piecemeal parts that have been, people are trying to put a marketing pitch against, but it's a very unique system.

And so we've seen more of these types of enterprise deals. And I think it's really, it's what we're seeing is also a validation that now the value that people get from the platform, and being able to start to treat the platform, like a mission critical system for running their company is actually possible.

And so, they end up unplugging point solution vendors that have been built years ago, multiple different code bases, siloed data systems, sometimes they're even consulting projects where, there's an agency that may have been managing some data, and they may bring it together on one system. And that unlocks what we like to call a culture of action within a company, no real draft department by department.

But that's a trend that we're seeing. Chris might have some additional thoughts to offer on this one.

Yes, I just add that trend, favorite Qualtrics. And it plays right into our strengths of being the holistic system of action across the four core pillars of experience.

And as we see that trend continue, we believe it will continue to benefit us as we're the logical choice and leader as they look to a single vendor to help manage all their experiences.

Okay, perfect. And then one quick follow up.

Rob as the RPO number especially in the short term was up the kind of might be in quarter-on-quarter as well. But you also pointed out some duration benefits like for short term, I wouldn't expect this too much.

But like, can you kind of double click on that, at least?

Yes, let me give you a little bit of color there, it gets just a little end of the detail, Raimo. But as you think about the lengthening of contract duration, it's more it's naturally understood that that benefits the total RPO.

But it also benefits the current RPO. Because as we have any customer today, in a multi-year contract that has more than 12 months on that contract, they will de facto have what I would call a fully loaded 12 months in their CRPO, so as you take a comparable set of customers today to a comparable set, call it a year ago, and more customers today in multi-year contracts, that comparable set of customers a year ago, they - those customers on an annual contract could be anywhere between zero and 12 months left on their annual contract as they come up for renewal.

So you do get uplift there. Also in your CRPO, as you have lengthening of the contract duration, which we've seen throughout COVID, both in our new business and in our renewal business.

As many of our customers, we partner with them during COVID to lengthen their contracts and commit to long term programs.

Yes. Hi, thanks for taking my question.

I just had one follow up. I think you mentioned in your commentary, you had a really good international quarter.

And I was wondering if you could unpack that, was that driven by maybe rebound in the Asia Pac area? Or did you see a good performance over your European markets, too.

Thanks.

Awesome. Thank you.

This is Chris. So it was both, we saw strength in EMEA, we saw strength in APJ, we continue to have international be a major source of investment for us.

We also were encouraged by that hiring, that we did internationally in terms of bringing in some great talent into Qualtrics, as we continue to invest in people to be able to service the local markets and be where our customers are overall. And so good, broad based growth, we also continue to partner really strong with SAP in our international markets, given their broad customer base, and that continues to pay dividends with a major focus.

And we had, over a third of our new business in Q1 was from international, which is a signal of continued, expansion and growth internationally, that percentage of revenue.

Thank you. Chris, maybe just one follow up just on that metric.

A third of the new bookings came from International. How did that compare, say a year ago?

It's up for sure. You can see in our metrics, what percentage of our overall revenue which is in the high 20s International so you can see with it being, your new business is going to be a leading indicator of your future growth.

And so with it being up over a third, up versus through our current revenue mix is internationally signaling that our international share is growing.

Thank you very much and good to hear the references to Bank of Montreal. I know both of our teams that are using it are very happy with the value they're getting from it.

Two questions. The first is, there have been some questions on pull forward, and I want to ask a different question on catch up.

And what I mean by that is there a notion of catch-up spending? If I look at the last four March quarters, on average subscription revenue grew by little under 10%.

I think it's 9.6% or 9.7%. In this quarter, your subscription revenues grew sequentially 16.5%, so almost 700 basis points forward, higher, rather.

And so was there a notion of during COVID in '20, in the June, September, December quarters, that there were some the pipeline was longer and therefore you had some pads up a little bit in December. And perhaps some of that was showing up in March.

Is that something you could react to?

Sure, this is Chris. I think it's partly a reflection of what we experienced last year as we went through the year where our business strengthened as we went through the year with Q1 being a tough quarter as companies were adapting to the new environment, and then every quarter last year, it sequentially got stronger in terms of our new billing performance from Q2 to Q3 to Q4 and as you know, subscription growth really reflects what's happened over kind of our last four quarters.

So Q1 is kind of a culmination of that with Q4, as you saw, we were really, really pleased with our Q4 results. And then further benefited from a strong Q1 on top diving that sequential improvement from Q4 to Q1, you'll typically see some of that seasonality when you think about sequential results, with Q1 being the strongest due to that strong Q4 driving that subscription revenue growth.

Okay. My follow-on question then is on the cash flow.

And I think this is for Rob, is there any comments, you could provide on cash flow for CY'21, in terms of puts and takes to consider, or even some comments specifically on what you would think about as a free cash flow margin, excluding the settlement, cash charges that you had in March quarter and June quarter, just trying to think about, is there any comments you can provide on what we consider to be a normalized free cash flow yield for CY'21?

Yes, I think we've, and I'll reference my earlier comment as well around, I would recommend that we look at the first half of the year. And so post Q2, and look at how that is set up.

After we eliminate that cash settlement of the liability based towards more long term, we do believe that we will return and trend towards historically how we performed before the SAP acquisition in terms of the non-GAAP operations relative to the cash flow. So we will see a trending over time back to that type of relationship.

Yes, congrats for me as well. Maybe Zig or maybe this is for Chris.

But I think somebody touched on this on one of the prior questions on retention and new hires key new hires, the IPL that was part of the whole ideas is being able to improve retention or keep retention strong and hire new people. You've got on some pretty seasoned executives, Brad Anderson and a bunch of other folks at the end of the year, early this year.

Look, they're not coming on board to change things, because things are going really well clearly. But like anything you could share about what Brad Anderson and some of these other senior execs are up to whether it's evolving, go-to-market, just operations or new product cadence.

And then I had a quick follow up for Rob.

Yes, as I, look, I mean, first off, we have a world class leadership team before these additional new teammates came into the company. And, so I want to really highlight that that's really important.

And it's quite exceptional to see a leadership team fit together after being acquired, and then saying, what we're in here for the long run. And we want to be parts of making history in the way that we think you need to build and lead this category.

But in addition to that, the new people that have joined us people like [Gina Shively], as an example, Brad Anderson. [Giuliana], and [Avi] England and a number of other people like Eddie from Twilio, I mean, everybody is coming in to go and effectively build the next 10 chapters.

So where this company is going, and if you double click, and you look at the skill set, these are people who are enterprise leaders, there are people who understand how to build systems that span an entire company. These are people who understand how to go build new markets, these are people who understand how to scale organizations, and build an experience that unique and to the culture of Qualtrics.

So that hopefully gives you a sense of that. And we've been busy.

We've been very busy. Lots and lots have been happening.

I mean, not only did you see the results in Q1, but we're focused on, where we want to be a year from now and two years from now as well. And that's where the attention is.

Got it. Thank you for that.

And I guess Rob; just did you actually say what the average contract duration is? And should that drift higher just because this is becoming a more strategic category?

And they want to commit longer. Thank you.

Yes, we expect the trend to continue. And we, it's not a number that we're disclosing but we have seen that consistent trend now over the last year and I do think we can see some trending forward, but it's probably again in the short to mid-term and then we expect that it will regulate around an average length.

Hey, thanks guys. Congrats on the results.

One of the numbers for Rob and then a go-to-market follow up. So Rob that 119 net new over $100,000, just some ballpark terms, how many of those are existing customers kind of graduating or growing over that threshold versus new lands?

Right, I'm just trying to assess kind of whether the profile of the typical land is changing much.

Yes. So to answer in the back end of that the profile is not changing much.

I think you can also infer this, as you look at the net retention rate of 120%, which stabilized in Q1 compared to Q4, and the growth that that's driving, as well as the growth that's coming from our new business, this $100,000 is similar. We're seeing immediate lands with customers north of $100,000.

We're also seeing existing customers who are expanding over time, and it's in a consistent fashion and or balanced fashion, alongside how you can get to, again, as I say, infer the growth that's happening between the net retention rate and the total growth on our subscription business.

Yes. Okay.

And then maybe for Chris, as we think about Qualtrics driving expansion, like what are the best practices or strategies that you have for taking a customer from, customer or employee experience, which I think are the more common lands to brand and product, right, is that - can you guys influence that motion materially? Or is it more about, time and customer needs and buy into kind of the holistic vision of what you guys are selling?

Yes, I think the simple answer of how you get customers to expand is to deliver value to them on what they bought, and they see the return on the investment for what they purchase, they're happy, they're delivering value from that. And then the natural question comes up of how can, they can get additional value through expanding and growing their platform.

One of our keys to success is that we do take a long-term approach with our customers, we meet them where they are, and really understand deeply their needs, what problems they're trying to solve, as well as where they are in their experience, transformation journey. And then think long term with them about how we can be great partners with them, to help them to solve those near-term problems.

But then have the experts in house. We have a really great team of experts who come from various industries and can speak the language of our customers to understand and help to signal some of the future problems and issues they may face as they continue to mature and grow and look to continue to differentiate themselves in the marketplace.

And so we will provide those opportunities, those opportunities and ideas for them and then grow from there.

And so I add, we also have, obviously a very large ecosystem of experts that are building on the platform. And so that creates use cases and brings other departments into using the system, or existing departments taking advantage of new capabilities.

But I want to reconnect to one of the earlier questions too, because when people start to use our platform, say, as an example, in Customer Care or a call center, they might detect that they've got other root cause issues, and maybe an employee engagement issue, and maybe a product experience issue. And the old way of doing things is you go and say okay, that's good to know, we'll write that down.

And we'll have a follow up meeting, but you don't have the system to go solve that problem. We do, we can help to redesign an entire product offering, we can help to redesign packaging, and we can help to redesign the customer journey in its entirety, for a specific type of customer segments.

And when you do that, you're expanding into other products and product modules on our platform. There's never been anything like that before, because the old way of doing it is yet either hit a dead end, or you got to go try to find some other vendor instead of something together that doesn't really work in practical reality, right.

And so that's really key to the landing and expanding is you have to have the right technology platform to do that.

Thank you and good afternoon. I'm going to stay on the thread of what looks like a really phenomenal start to the year and maybe asking a slightly different approach.

It sounds like the number of $100,000 customers that accelerated here this quarter was bought based it sounds like it was balanced across lands expands. From a product perspective, what are you seeing there?

Are the trends similar, mostly customer XM or are you really starting to see broader bundling of the employee XM and designed XM and product XM just from a product perspective as you look at the momentum in Q1, what are you seeing there and I had one quick follow up for Zig.

Hey, thanks, Brent. I had to sound like a broken record but definitely, really balanced well from a product perspective, that's, you've heard that a lot today, which is the balance.

But really, it is something we're really pleased with, as we kind of digest the numbers and see what's happening and, seeing strengthen employee customer, really emerging in the brand area, as well as on design XM. And so really strong balance from a product perspective.

And it's really, I think, partly driven by what we've talked about that trend towards consolidation and customers standardizing on a platform that bodes for customers wanting to continue to evolve their programs to cover the four core experiences of business. And that means that a customer who's only buying customer XM, it's only a matter of time, before they look to us for employee XM or to go to brand.

And that trend is going to drive the balance that we should see across the portfolio.

Maybe you want to double click on here that I want to make sure it's not lost, this is really important, we have the four core application product lines that are on top of the platform. But those are product lines.

Okay, so that means when you get into say, for example, customer XM, we've got a lot of innovation that's happening within the sub products in that portfolio. And the speed and when you're seeing new capabilities that's being they're being delivered by our R&D team is like nothing else right in the marketplace, because of how quickly you can end up building new value new use cases on the system.

I'll call attention to a couple of announcements that we made. One was on April 13th, which was new innovations around designer XM, experience design, market research functionality, product experience, capability, customer experience for loyalty program design scenarios.

And then the other one was another announcement that we made, which is specific to the customer, XM product line around relationship health, that's a new product capability that's been added. Account based relationship diagnostics and digital support optimization.

And I want to really highlight that because the growth doesn't just come from going from customer XM, employee XM, to Chris's point is there. But it's also coming from the new modules and new value that we're actually unlocking for people to take advantage of within those existing product lines, and then double clicking, and that continues to expand.

So I just like to highlight to, take a look at, some of those announcements that we had, and what we're unlocking there in terms of new value for the customers within those product lines.

Helpful color there, Zig, and we certainly will do that. And clearly great to see the balance, particularly with the highest subscription growth rate we've seen in over a year and probably the highest CRPO growth we see in two years.

And Zig for you, it's been less a little less than 90 days since the IPO, love to get a progress report on the less tangible items. Clearly the revenue growth is impressive.

But as you think back, since the IPO, are you saying - are you pleased with the partner engagements and activity? Are you pleased with the quality of resumes coming in just any sort of tangible in, less tangible progress report you can give since the IPO, I think would be helpful as well?

Sure. There are a lot of benefits with the fact that we can say with Qualtrics as an independent company, and we're building for a very long future.

And how we will continue to lead and develop this category and innovate on it. And that's not to say that there aren't benefits for that, because there's a ton of benefits.

And that's a deep partnership that we have that will continue to remain for the long run. And they're quite bullish about what we're doing both on product as well as go-to-market.

But to point to the examples, you gave some of the intangibles, talent that we're able to attract, I mean, we are competing with some of the best of the best SaaS companies and attracting talent to this company, given the high growth nature of the company and the opportunity to be innovating on something that doesn't exist in the marketplace. And the way that we continue to read and define this category, as an example.

What we're also finding is the kinds of partnerships we had, we had meetings here in Utah recently, just this week, and with a major ecosystem company that came and we spent a whole day with them. And the way they're looking at Qualtrics is not as part of a portfolio of a company but rather a technology system that sits amongst the most important technology platforms in the industry.

So for example, amongst the top-level CRM systems, the top level, HRS system, the top-level workflow systems, the top-level marketing automation systems, and they have practices that are built around, these other companies technologies, and they look at Qualtrics. And they say, hey, Qualtrics from a CIO level, and the CMO level, is an asset that, is now clearly going to continue to be able to hold the talent amongst some of these other capabilities, and then a value unlocking that takes place.

So there's a positioning of how people look at investing in this platform. And I'll add a little bit of what I said earlier, which is, as people, that trend that we're seeing is people consolidating their point solutions onto the Qualtrics platform, and the way we've designed this technology and how the ecosystem plugs in is playing to our advantage.

It's just validation of that, and the ecosystems coming out and says, okay, we get it. And that's - it sort of tangible, but it's intangible too, because people look at Qualtrics as its own entity.

And the investments we're making are ones that will span an entire ecosystem of other technology providers, as opposed to just being a subset of saying, well; you're just part of the SAP portfolio, right? It's a different ballgame now.

And that's something that we're just constantly seeing reiterated as we talk with customers, and as I talked with CEOs.

Well, thank you very much everyone. And as always appreciate the depth of the questions and just any perspective, additional context that you're providing.

It's very helpful and we appreciate that. So appreciate it.

We look forward to talking to you in - for Q2 results.