Medallia, Inc.
Q4 2021 Earnings Call Transcript

Published: 4 Mar 2021

Operator:

Good afternoon, and welcome to Medallia's Fourth Quarter Fiscal 2021 Earnings Conference Call. Joining us for today's call are Medallia's CEO, Leslie Stretch; and CFO, Roxanne Oulman. . With that, I would like to turn the call over to Roxanne Oulman for introductory remarks. Roxanne?
Roxanne Oulman:

Thank you, Gabriel. Welcome to Medallia's Fourth Quarter and Fiscal 2021 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.
Leslie Stretch:

Thank you, Roxanne. Good afternoon, everyone. Before I begin my prepared remarks, I'd like to once again thank each and every Medallian for their hard work in FY '21. I was pleased with the way our team stayed focused, stayed connected to our customers and grew our business during the year. Our opportunity in FY '22 looks good. For our Q4 FY '21, we had record SaaS revenue, record top line revenue, record new logos and record go-lives. To be precise, we had 172 go-lives in the quarter. Now nearly 50% of our enterprise customers have over 1,000 users. We added 67 new enterprise logos, bringing us to over 1,070 enterprise customers with annual contracts over 40% up in the prior year. Our employee experience customer count rose to over 130. Bookings from new customers in Q4 was nearly 50% of total bookings versus 40% in FY '20. This illustrates the strength of our platform as well as our significantly improved ability to land and expand. This is great for the long-term health of our business.
Roxanne Oulman:

Thank you, Leslie, and good afternoon, everyone. We reported strong financial results in Q4 and for fiscal 2021, including record total revenue and record SaaS revenue. We accomplished this while transitioning from our limited physical presence to over 2,000 virtual offices. As a quick reminder, unless otherwise noted, all numbers, except the 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 Q4 was $128 million. An increase of $17.9 million or 16% over Q4 of fiscal 2020. In Q4, subscription revenues were $103.8 million, an increase of $17.7 million or 20% year-over-year. As we've noted on the past call, 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 last earnings call, the modified subscription terms have negatively impacted our subscription revenue in Q4 by $1 million and approximately $3 million on a year-to-date basis. We expect a similar impact in Q1 of fiscal 2022 as we lapse this. As a reminder, the majority of our contracts are multiyear, irrevocable include contracted minimums, and we expect our customers to honor these agreements. Professional services revenue was $24.2 million for the quarter, which increased 1% year-over-year as we continue to build out our partner ecosystem. For the year, recurring managed services revenue accounts for more than 50% of our total professional services revenue, which is consistent with recent quarters. As a result, recurring revenue continues to be 90% of total revenue. Turning to some key metrics. We continue to see strong growth in new logos. We ended the quarter with nearly 1,800 customers, including over 1,070 enterprise customers, an increase of 40% year-over-year and approximately 700 mid-market customers, an increase of 75% from midyear. For the 12 months ended January 31, 2020, our dollar-based net retention rate was 115%. As Leslie noted during the last half of the year, we saw strength in bookings from net customers as our land-and-expand strategy saw success, both within our enterprise and mid-market segments. As a result of this and the continued progress within mid-market, we expect to see fluctuations in our net dollar retention rate. We are continuing to see traction in our cross-sell performance as 35% of our enterprise customers are using 4 or more of our 15 modules compared to 25% in the year prior.
Operator:

. And our first question will come from Phil Winslow of Wells Fargo.
Philip Winslow:

Congrats on a great close of the year. Just really want to focus in first on employee experience. You have another quarter here of strong growth in customer count year-over-year. Has the customers' understanding of the tie between EX and CX changed, especially as they're thinking about a sort of reopening and return-to-work scenario? And then just one follow-up to that.
Leslie Stretch:

Yes. I think with the message is getting out that the old story, HR 360 review on its own is not enough. The simple survey is not enough, having a digital connection that you can turn on/off any time, creating a safe space. In other words, giving employees the same high fidelity that you give your customers is now being seen by the best brands as essential. And I think this is a great opportunity for expansion in the business because that market has been served by survey vendors and also HR, traditional HR, kind of utility applications. So we see that as a major opportunity. The juncture is important between customer and employee, but the main thing is why would you give your employee, your customers a high-fidelity signal - in other words, why did you give out an iPhone and give your employees a Telex or a fax machine? Give them state-of-art communication capability, feedback capabilities, safe space technology, ideas technology, video, all the ways that they can interact with you and help them to onboard how to replace some of the physical manifestation of culture and onboarding with this great virtual capability to stand out.
Philip Winslow:

Great. And then in terms of the acquisition, congrats on closing another one. But if I think about your strategy over the past, call it, 12, 18 months ago, it seems to be that you're not only acquiring channels, but call it, systems of interaction or systems of action. Can you just provide us an update of those add-ons, whether it be contact center voice, video, et cetera, and then how Decibel fits into that?
Leslie Stretch:

Yes. They really are all about the same mission. They share a number of characteristics. They're great technology. They're all in use in customer environments where Medallia and feedback platforms are present. And we see them as either part of the signal capture spectrum or part of the intelligence and action. In Decibel's case, it's a hugely important part of signal capture today, to get all of that unsolicited data, all of that screen recording - legitimate screen recording data, session recording data, nice movement, tracking all of that, understanding why baskets get full and closed, why they don't, why transactions happen, why they don't, all of that and creating a metric out of a digital experience score, if you will, which is vital at current time. So we thought this was the best technology at the best terms. And we saw this demand surfacing through the back half of the year, with customers across verticals. So this is a really important technology tuck-in for us that we're already working with. And we think that customers don't want to buy these thin slices of technology from small vendors. They want to buy the entire capture capability, the entire analysis, the predictive action capability that we are building.
Operator:

Your next question will come from Bhavan Suri of William Blair.
Bhavan Suri:

Leslie and Roxanne, and congrats. Nice job, especially on the global count. I want to touch initially on the investments you're making. So Leslie, you and I have had conversations about Salesforce productivity and you ramped that. Where is Salesforce activity in your view, vis-à-vis sort of perfect or offset more Salesforce productivity? And if there's room to drive productivity, why spend so much more in sales in the coming year versus driving productivity, which should be better leveraged? Help me understand sort of that thought process and how you're thinking about that between balancing that productivity improvement and then obviously investing in new go-to-market?
Leslie Stretch:

I think - yes, it's a great question. I think there's a number of dimensions to it. Part of it is international expansion. We've had great results in APAC, Latin America and EMEA. We've seen fabulous new logo take on, and we've frankly been simply covered. So you can't quite do the productivity trade-off there. We just don't not cover it. Our biggest challenge is that we are not at every single at bat. When we get to out that in enterprise, we win most of the deals that matter and so we need to have more at that. So that is really important to us. So I think the second thing you get at, which I think is very important to recognize, is there's a ton of bottled-up energy, a ton of bottled-up energy around every aspect of the economy in this pandemic. We need to be positioned to really let it rip as things return to a new normal, which will be a hybrid of where we were. But more physical experiences already beginning to happen. We can see those. And remember, last year and especially in Q1, the physical experience business of some traditional retailers, hospitality, travel and transport, was really severely impacted, right? So we want to be positioned to really let it rip as we go forward. It's very hard to judge anything in the pandemic year, but we have seen more and more consistency, more and more concrete evidence of many touch points and many different data points about the importance of this market, especially the digital spectrum and especially this concept that our environment, Medallia Experience Cloud, is the system of record that makes all other systems customer aware, employee aware, patient aware and citizen aware, those are big market opportunities. So let's be positioned to let it rip.
Bhavan Suri:

Yes. And you're seeing demand of data points accelerating or stepping pretty quickly on the gas, makes sense. I guess, let's touch on one more quickly, time to value. That's become such an important part of customer combinations - conversations, excuse me, during the pandemic, right? Appetite for 9-, 12-, 2-year types of projects is growing dramatically. I'd love for you to talk through how you've adjusted to increase time to value for customers and what have you seen in your sales cycles and implementation times?
Leslie Stretch:

Yes. That's a great point. So I mean I'll give you a quote from one of our largest - one of the largest, largest, largest U.S. companies, largest retailers in the world, talking to their CMO recently. She was telling me that they don't think in terms of 48 weeks anymore, they think in terms of 48 hours. And if you look at some of the things that we did in 2020 or FY '21, we fired up a national health service on our ideas platform, key current feedback, we fired them up within a week. So time to value is absolutely critical. You don't need - the beauty of our platform is you can acquire 1 signal capture technology, simple self-service survey. You can add digital, you can then add voice, you can then add video. You don't need to borrow the ocean to get value very, very quickly. After that, ours and our partners improving and getting better and better professional services capability, but especially the Medallia experts themselves. The professional services team understand that, that customers want to see results and impact. And in some cases, it's mandatory. If you take - we gave you an example in the prepared remarks of a pharmacy business who has to get ready for these on-premises vaccines. It's - and they're doing them now. You can't have a, let's get ready, let's do a traditional enterprise implementation. You have to move quickly. And you have to be able to turn on a dime and get things going within hours or days, versus weeks and months. So I'm very pleased. And actually, I don't want to be overconfident, but I'm very pleased with our products facility there, but also our professionals and our professional services, people and our partners' abilities to move quickly and get results fast for customers.
Operator:

And our next question will come from Scott Berg of Needham & Company.
Scott Berg:

Leslie and Roxanne, congrats on the quarter. First, Roxanne, I want to see if you can give us a little bit of color on Decibel. You gave the revenue contribution in - from a GAAP basis for fiscal '22 here. But any thoughts on trailing 12-month revenues, how fast they were growing? Just trying to understand maybe the financial scale of the business, that would be great.
Roxanne Oulman:

Perfect. Well Scott, when we bought Decibel, we were really focused on the technology of Decibel and what the technology has brought to their customer base. And so I've shared with you that in fiscal '22, we anticipate that it will be about $8 million revenue contribution. And so what we looked at is what the value is that we were getting for Decibel versus other companies out there. And other companies that you looked at, they have multiples of 20 to 30 times revenue in this space. So we'd have about 100 customers that come with this. So it's not a large number of customers, and it's not a large amount of revenue. But we felt that this is a really sweetheart deal, as they were impacted by COVID, as they did have some customers in the hospitality and transport space that has impacted their growth rate. What we're looking at is, what does their pipeline look like? And what does our pipeline look like? And what does our customer demand look like for digital? And how important this is now, and really taking this, accelerating their growth rate and bringing this key product offering, not only to our current customers and also to our 2 prospective new customers. And one of the things that really pleases us about Decibel is the fact that it has a broad representation from an industry and a vertical perspective. And it also serves enterprise and mid-market customers. So it fits perfectly into our wheelhouse from a technology and platform perspective.
Scott Berg:

Got it. Helpful. And then from a follow-up question, Leslie. You guys have highlighted partners a lot on this call. And I remember when you and I first met after - first, after you joined Medallia. Partners was a big component of your go-to-market strategy with the company and has been for you historically. But how should we think about the Partner contribution to the business maybe in FY '21? And then what should our assumptions - the impact of your net new sales here going forward, maybe over the next couple of years?
Leslie Stretch:

Well, that's a great question. I was really pleased with the traction. And actually, albeit small, but the now revenue and contract traction that we had. And I called out some of that in the prepared remarks when you get these awards because you're actually adding value, you're contributing revenue for these companies. It's still small. It's our first full public year, if you like, where we had signed up some of these deals. But I think it's an increasingly important part of the spectrum. Of course, we don't expect them to do it all for us. But this key concept of the system of record for customer experience that makes all other applications and systems customer aware, is where - that's where we've landed. We've hit on this value equation that our partners agree with and see. And so I'm really excited about it. It's a long-term play, first year, good progress. We're not going to depend on our partners to do our numbers for us, which is why we are increasing our investment in sales and marketing, but I think we're very well positioned. We're also perceived very much as the open enterprise partner of choice. We don't have any other confusion about our independence. And I think that is powerful for us. But above all, it's really our technology difference that excites these partners.
Operator:

And our next question will come from Drew Foster of Citi Group.
Drew Foster:

Roxanne, on the fiscal '22 guidance there, just wanted to touch on the net expansion rates. I mean, you made some comments in the past around the 115% sort of threshold potentially being a bottom and maybe even accelerating that in the future? What are you assuming about where net expansion rates go into fiscal '22? And also related to that, I mean, you had a really strong contribution from mid-market this year. Just wondering if you're sort of thinking about contribution from that cohort differently as you get into next year?
Roxanne Oulman:

So Drew, we had very strong bookings contribution from new customers in the back half of the year with nearly 50%. And this compares to prior years that were approximately 60% or a little higher than that. And you're right, our new logo additions have been great. We have over 1,800 customers, 1,070 - over 1,070 enterprise customers at a 40% increase, and we've seen a 75% increase in just 6 months in our mid-market space. And so our focus, our number one focus, as we've shared on the call, is our subscription revenue growth rate. And so we see strong new customer adds and the investments that we're making from a go-to-market perspective, we anticipate we are going to continue to see strong customer adds. And we think that these customer adds are great for the long-term health of our business. And our long-term ability to cross-sell and upsell to our current customer base. But right now, what we are focused on is being as successful we can possibly be with these customers and continuing to execute on our land-and-expand strategy. And so with the strength that we have seen in the last 2 quarters, I see our net retention rate may moderate here between the low to the mid-teens as - if we continue to see the strength in new logos. But with that said, we're really focused on the subscription revenue growth rate, accelerating the subscription revenue growth rate, and we truly believe that the addition of these new customers and the momentum we've seen is only going to continue and help to strengthen the business as we go forward.
Drew Foster:

The other thing I wanted to just get some more color on was you had a shift in the sales organization since the last update. And I would love to hear what Elizabeth Carducci's key priorities are, whether she intends on making any additional changes to the organization or switching up the playbook for 2021 or reprioritizing some investments? Would love to hear some additional color there.
Leslie Stretch:

Yes, great question. So Elizabeth really was already in place in the company and leading so many of our high-value campaigns, and it was a nice succession, seamless and we had a great quarter. I'm very delighted, so congrats to Elizabeth and the team. She's already intensified investment in our key verticals and also the ecosystem that supports sales, enterprise sales. She is a formidable sales leader and extremely potent and well-regarded, especially in the customer experience world. And so it's fabulous to have her leading that senior field. Couldn't have had a better succession and couldn't know how a better leader in place. We did not have a Chief Revenue Officer. So this was a promotion, and she has a much bigger organization than the individual that led the industry group in the past. And so this is - we're really well positioned. This is just another one of our investments to be positioned, just to let it rip, as things change through fiscal '22 here.
Operator:

Our next question will come from Rob Oliver of Baird.
Robert Oliver:

First, a question for either one of you guys, just on how you're thinking about the COVID impact and recovery relative to the subscription outlook of 22% to 23% for the fiscal year? What was contemplated in terms of recovery? And then also what you guys are kind of seeing from customers right now?
Roxanne Oulman:

So Rob, when we contemplated our guidance and the increase in our guidance in FY '22, this did not assume there was going to be a significant recovery in the economy from the pandemic situation. What we're focused on looking at is, what do we see in the pipeline? What is the strength we have seen in the back half of the year? And you look at the strength we've seen in the back half of the year, the strength we've seen in the pipeline, that we're really optimistic about our ability to continue to grow this business and ultimately accelerate our subscription revenue growth rate. And so those are the things that we considered when we put our guidance together.
Robert Oliver:

Okay. Great. And then one follow-up. Just on the ACVs. And I apologize, I missed it. I don't know if you guys gave out, but the ACVs were - but you guys have been doing a nice job, I think as part of your plan of bringing those down, and it seems as if the - just skewed towards mid-market in terms of new customer adds, would portend that we're going to continue to see that ACV come down. Is that right? Should we continue to expect to continue to see that come down throughout the year? And will that continue even if we see a snapback in some of the larger spending engagement from customers that may be either delaying or stalling projects because of COVID or whatever?
Leslie Stretch:

Yes. I don't know that we can or should predict that. But I think the main point is the agility of the field to land and expand, the value is known as a large-scale, top-of-pyramid, enterprise-only. And I think - and also heavy lift, big enterprise solution. This is not the case, actually never been the case. That's the positioning of some of the more fearful competitors. The truth is, we have a land-and-expand capability. We have a lot of automation in the product. Now we have a great self-service capability, as good as anybody. But self-service doesn't take you all the way when you're implementing 10,000 stores, 90,000 employees of big enterprise. So I don't know which direction that's going to go in. My main point is that we are much more agile and we're going to go after markets where other people, frankly, have been on their own, shooting fish in a barrel, right? And we're going to go after that aggressively. There's a fantastic opportunity there. And there are new markets that don't have, and have not implemented experienced management in the way that we could deliver it. So the point is agility, the point is flexibility, a land-and-expand modular approach, an effective proper, fair commercial pricing approach, all of those things are in place now, which position us very well alongside the sales and marketing investments that we're making. We'll see. We'll keep reporting on it and talking about it, but it - just is indicative of our ability to land and expand and go there and be aggressive commercially when we need to.
Operator:

Next question will come from Daniel Bartus of Bank of America.
Daniel Bartus:

Maybe for both Leslie and Roxanne. Just want to circle back to what you're seeing in the pipeline that gives you confidence that growth accelerates through the year and that you have such a strong second half, is that pipeline already there to support it? Or do you need your recent sales and marketing investments to ramp to support that?
Leslie Stretch:

Great question. The pipeline is healthy. I mentioned a little bit in the prepared remarks. That certainly is one of the factors that gives us confidence, but the other thing is that in the pandemic and in this virtual selling environment, we have more time. We have decoupled productivity from air miles and I think that's extremely important, same for implementations. So we also have, as we mentioned in the previous response, an ability to land and expand and win more logos. And so all of those things are part of it. And we're not really heavily - we're not depending on some return to the old normal, we're not depending on that at all, but just look at the quality of the wins that we had, all of them competitive. All of those were superb wins, some replacements, but mostly head-to-head wins with a bunch of survey people and our difference is really shining through all of these things together. It's just there. The market's there. There's other data points that tell us that it's just a good situation for us to invest smartly and prudently in our growth.
Daniel Bartus:

Great, great. That's helpful. And then Roxanne, I just - I would have thought that your expansion business might have been stronger in the second half of '21 just because the pandemic clearly makes it tough for you to actually land new logos, but you guys showed the reverse. So just curious if you can speak to the pricing power that you had in the second half as customers came back for renewal under these different, uncertain times, how did your pricing power compare to maybe pre-COVID?
Roxanne Oulman:

So our expansion business was strong in the second half. However, our new logo business was even stronger. And so as we have been focused on expanding our presence, expanding our presence in mid-market, expanding our presence geographically and in specific verticals, such as health care and pub sec, where we have been very successful. We've been very successful in EMEA. We've been very successful in APAC, that has really allowed us to drive the new logo. And we feel that our pricing is fair and our price - our ability to price and how we price, in our pricing preference is consistent with what it has been before. And we provide a high value to our customers. We provide something that no one else provides out there. Our ability to capture these signals and analyze these signals and allow organizations to act on them and bring all the other systems that they have into our system, to analyze and make these systems employee and customer aware is like something that is not out there with anyone else. So that really helps us. And we drive a high level of ROI and a high level of return, either through a cost reduction or improving customer retention and revenue with the customer base for our customers.
Operator:

Our next question comes from Bhavin Shah of Crédit Suisse.
Bhavin Shah:

Great. Leslie, if you think in terms of experience management embedded from the beginning of a new product service or experience versus added at the end, based on your conversations, where are customers on this adoption curve? And how has COVID maybe changed that?
Leslie Stretch:

Great question. So I mean, I think it's still - people are still not investigating seeing building products from scratch with feedback embedded wholesale. And that's why we are here. We're here to take that message to market. But there's more and more of that. We did see some people - if you take the restaurant business, for example, last year, all of a sudden, there were no customers, right? If you take some of the hotel business, all of a sudden, there were no customers. So the desire to have this deep connection with customers is suddenly very urgent. And you can't depend on just old school loyalty systems to do that. So we did see some benefit from that. And you saw that in the prepared remarks, and I talked about the restaurant wins in particular that we had. And also the renewals that took place in the hospitality business, you had 94% renewing for a year or more in one of the most, if not the most, challenged sector in our economy - our global economy. And so people do understand that they have to make these deep connections, that there's an opportunity to create customer context which informs them in a much more intelligent way. And so becoming this platform of customer awareness is the goal. That's absolutely gold, that has value to everybody, has great value to our partners because we add value to their CRM environment, their HR environment, their marketing environment and so on. So all of these themes are beginning to build nicely to a nice crescendo, sort of when we see some - if we do get the benefit of a return to normal, which we're not depending on, we're in an even better position.
Bhavin Shah:

That's very helpful. And then just one quick follow-up. Just on the demand environment. Where are we relative to pre-pandemic levels? And if you think about customers that maybe delay decisions in the middle of the pandemic, did they come back in the fourth quarter? Or are they maybe more of a fiscal '22 story?
Leslie Stretch:

No. So the demand environment, we feel good about, hence, our investment position, our disposition. But it's a demand environment that isn't just going to be satisfied with old school, simple survey and market research, masquerading as high technology. It's going to look to leverage high technology. That customer awareness capability, that ability to create fast touch points with other systems and other environments, that's what - our customers are sophisticated, small, medium and large, and so that's why we built out the platform the way we have. Again, the road map is really commissioned by our customers. So I think we're very well positioned this year especially, and I'm very excited to get on with the selling mission.
Operator:

Your next question will come from Chad Bennett of Craig-Hallum.
Chad Bennett:

Great. And maybe we've kind of harped on this a little bit. Just the commentary around kind of the strong second half and strong fourth quarter, in the business, both from, I think Roxanne said from an expansion and net new logo business standpoint. I guess I'm trying to compare and contrast the commentary to the kind of secondary metrics. And I understand we have to do the normalization for the deal mods. But I mean, relative to your long-term targets, is there something other than SaaS billings, net retention, RPO, under the hood, that we're not seeing that's much stronger than those numbers dictate?
Roxanne Oulman:

No. First and foremost, like I said, Chad, I think that what we should be looking at is our subscription growth rate. And when we - we've given you guidance for this year, and it's just the first quarter, right? We just started the first quarter. So we're very optimistic about what we're seeing, what we've seen in the growth of the pipeline, what we're seeing when we're having conversations with the customers. And you're right, our billings growth rate, you need to adjust it for the $10 million that's associated with ramped billings. And it has a 17% growth rate. The other thing is, we've been very open about, in the first half of the year, that we had impact. We had customer impacting concessions we've made, we've made to the tune of $3 million this year that had a 1% impact on our growth rate. For customers who had been impacted in the high-end retail and the travel and hospitality space. So all we can give you is the confidence in our guy, knowing that we're starting early in the year and the confidence in what we see from a pipeline perspective as we move forward here.
Chad Bennett:

And then I don't know, Roxanne, if you spoke to this. But just from a deal mod standpoint, was it material in the fourth quarter? And should we expect that to continue into the New Year here?
Roxanne Oulman:

So as of Q3, the modifications that we made from our ramped billing perspective was $5 million, and now we're at $10 million. So it was $5 million for the quarter. And this is a very effective means for us to sell to our customer base. What we're focused on with these customers, whether it's new customers or whether it's expansion with the customers, is landing and continuing to grow and if we need to do ramp invoicing from a multiyear contract perspective and the revenue with that customer, obviously, we straight line, but the invoicings ramp over time, then that's what we'll do, because we are ultimately focused on the fact that we're going to focus on our subscription growth rate.
Operator:

Your next question will come from Terry Tillman of Truist Securities.
Terry Tillman:

Yes. Leslie and Roxanne. I guess maybe the first question, Leslie, relates to, as you've been adding more IP, more products, either through acquisitions or just building out your already strong platform. How is your sales force, whether they're hunters or farmers? How adept that they were selling these additional tools? Now it's too early on Decibel, but like LivingLens, Crowdicity, some of the other tools bought in the past. How often are you starting to see these attached to the new logo business because it seems like across enterprise and mid-market, it feels like your ASPs would go higher over time because you just have more to offer the customer day one? And then I had a follow-up for Roxanne.
Leslie Stretch:

Well, I think in mid-market, and if we have a small number of customers, the name of the game is to start to put together thousands of customers in that space. And so whether we land at one module or another, it's something we're not religious about. We do like them to have Medallia Experience Cloud. In terms of the sales force's ability, we use grade sales enablement technology, we have a superb sales enablement team, and we're constantly focused on bringing that team on board. They're intelligent, smart people. Video is a very simple concept to grasp. We do a lot of video cross-sell, the Crowdicity ideas platform ha really surprised us in the cross-sell, upsell, new sell that we've seen from that technology. And voice has gone very well. We remunerated some of the deals in our prior report, in our first quarter actually holding the asset, some great brands have jumped into the transcription business with us in a big way. So again, fairly straightforward, common sense propositions. There's - you don't need a PhD to sell this stuff, although some of them do have PhDs, thankfully, but you don't need that. But it's very straightforward. Why don't I add the color of video to my feedback spectrum? Why don't I add voice? Why am I not looking at chatbot interactions? Why am I not looking at the billions of voice minutes that exist in call center systems locked away, value locked away. These are simple concepts and our field gets them very well.
Terry Tillman:

Got it. And then just - Roxanne, in terms of the prior question or questions around ramp deal structures, and I think you just gave color on $5 million impact in 4Q. Like, as you're looking at kind of middle of the funnel or kind of late-stage funnel activity, any thoughts at all about how to think about potential, that impacting billings through the year? Because we're going to update our models, and there's no reason for us to be aggressive in thinking about subscription billings, knowing it, we could still have this divergence from billings of revenue. I'm just curious what you could say to that.
Roxanne Oulman:

Terry, it's hard for me to predict what I think will happen from a ramp billings perspective. We've had $10 million this year, as I shared, $5 million in this quarter. This is our - historically has been our largest quarter of the year from a bookings perspective. And so I guess what I want to share with you is that we're really focused on our subscription revenue growth rate, and we're focused with meeting our customer where they are. So we need to do a ramped billing over a multiyear term with the customer, we feel that, that's the right thing to do from an overall business perspective. That's what we're really focused on. We're focused on growth rates. We're focused on working with our customers because customers are at different stages of their the CX journeys, different stages of their EX journeys and different stages of how they've been impacted by the pandemic. And so we feel our customers are really proven. You can see at that 95% of our customer count in hospitality, they renewed when some of these individuals have had or most of these individuals have had their business - health care and transporters had their business significantly impacted. So we're working with people in those industries, and we're working with people as they continue to progress their CX and EX journey, because they don't think there's any doubt that this market is a large market, and that customer experience and employee experience is really essential to the future of companies and their ability to grow their business and retain their customers.
Operator:

Your next question will come from Brian Schwartz of Oppenheimer.
Brian Schwartz:

One for Leslie, one for Roxanne. Leslie, I wonder if you can comment or just shed some light with us on what you're seeing under the covers here in terms of the sales cycles and the pace of conversions, those trends, is it possible to compare it to the year ago period? I know that's pre-pandemic, you had Dreamforce in the year ago period, and the business did really well in Q4. But anything that you can share with us, what you're seeing in terms of those trends? And maybe how they compare to pre-pandemic levels? And I have a follow-up for Roxanne.
Leslie Stretch:

Sure. I mean, basically, it's smaller deals, faster cycles, land-and-expand yields. And more often, so quite a lot more of them, as you can see from our new logo programs. So those are the things that characterize the market at the moment. And it's a good business environment. It's higher energy, more volume. We like it. I think we will see some return to some of the larger enterprise deals, but we're not complaining. We've got plenty to go up.
Brian Schwartz:

And then Roxanne, one question for you. Is there anything that you can just share with us, either qualitatively or quantitatively, and how much you're planning to grow the sales force in fiscal 2022? I think you highlighted in your introductory comment that sales and marketing expense is something that you're planning to lean into this year.
Roxanne Oulman:

So that's a great question, Brian. And I would love to give you specifics, but for competitive purposes, I just don't think giving specifics is the right answer. What I can give you is some color, is that we're looking at it from a spread back perspective. We're looking at it to make investments both in mid-market and in our enterprise space, because we have seen success in both areas, and we continue - and we believe we can continue to see success. And I can only reiterate what Leslie had said previously and what we've said in the prepared remarks, is that this is a large market. IDC, for example, shared last year that they had gone out and interviewed the C-suite. And the C-suites that they interviewed said that CX is going to be the number two priority that they invest in a post-COVID world versus the pre-COVID world. So we see what we bring from the broad spectrum and our ability to really impact the return and the ROI that we bring to our customers. And where this market is, is now is the time to invest and invest and get to the deals that we're not even getting to and increasing our footprint from a geographic perspective and also from some of the key verticals.
Operator:

Your next question will come from Richard Baldry of ROTH Capital.
Richard Baldry:

I know you don't break it down sort of publicly, but is it fair to look at accelerating growth and argue that your mid-market team is probably growing much faster off a smaller base and still maturing, headcount growing much quicker, sort of your go-to-market messaging, tuning up much faster, versus the traditional enterprise, which has been in sort of a steady-state growth for a while that really algebraically, that explains a lot of your acceleration in fiscal '21.
Roxanne Oulman:

So yes, we have seen significant growth in our mid-market sales force. I mean, go back 18 months to 2 years ago, we essentially didn't have a mid-market sales force. We had a very small footprint. So you're right, Rich. It's a very small footprint or a bookings perspective, but we've grown, the acceleration growth has been high from that. But we're also seeing strength in enterprise in specific verticals and specific geographies. EMEA, for example, has been great. APAC has been great. Health care has been great. We've seen a great growth in pub sec and some other industries. While some industries have been impacted, as we talked about with hospitality and travel. So you're right. We have seen, from a percentage perspective, significant increases in mid-market, although be it a lower base. But we've also seen some in - some key accelerant in our enterprise space that we're very excited about and some of these accelerants we see in the pipeline that we look into today.
Richard Baldry:

Great. We'll take the rest offline.
Operator:

We have time for one last question from Matt VanVliet of BTIG.
Matt VanVliet:

Nice job in the quarter. I guess from a higher-level perspective, Leslie, when you're talking to customers now that you have, I would say, that maybe some of the most obvious types of brands and big companies out there on the platform. When you're going into that next tranche of customers, that's maybe kind of the later adopters, is there still any sort of educational element of the sales process that you have to bring, that transition to the survey - digital survey model is maybe more straightforward from someone that went to business school 20 years ago and studied marketing, to what it is today? So just curious how much more of an education of how all the different channels can impact and be measured and analyzed that you can do different than your competition?
Leslie Stretch:

Yes, that's a great question, Matt. So I think it's pretty quick. We - the proposition is powerful, and it penetrates in executive discussions very quickly, especially even when you're dealing with people who've never implemented a feedback platform, who perhaps only have familiarity with survey technology. It happens pretty quickly. They get it. They get the idea that they should be listening to social feedback, that they should be leading that unsolicited spectrum. They should be listening and watching video. Airbnb has been using video for a long time for feedback. They should be tapping into everybody that makes things and sells things has some kind of contact center process and operation. Why aren't we mining that data legitimately, for feedback nuggets that will tell us where to go next for insight? Why is that? So it's pretty straightforward. Our best salespeople are a lot better than me, and positioning the proposition and they do it very quickly. And so I think the education is pretty simple. And we have superb content. We have a lot of video content that we use in the selling engagement. And receptions everywhere, and I'm doing many calls, many more, many more students and interact with the customers than I did pre-pandemic. And the reception everywhere is opened - it's pretty inviting for us to educate them where it takes that. But campaigns are pretty quick, and we expect people to get the proposition across in minutes, not taking multiple meetings to explain what we do. You don't have to. It's pretty straightforward. And the value offer that gets transmitted is very clear for people to understand.
Matt VanVliet:

Got it. And then on the partner side, as you continue to build that out, are there any particular areas of strength, whether it's on the CX or the EX-side or in particular regions where you've had maybe more success? And then conversely, what - which areas would you say are sort of needing the most investment over the next 12 to 24 months?
Leslie Stretch:

Great question. I called out in the prepared remarks, some of the progress that we've made from a very focused investment with Deloitte, also called out the independent software vendor progress where we've had superb recognition from 3 of the biggest brands on the planet. But I think to your investment question, internationally is where I think we need to ramp up our focus. Our APAC team are doing a great job, especially in the markets in Korea and Japan, where they are working with several new - potentially new great partners. Japan is, after all, the second or third largest software market in the world. And so investing there and investing in EMEA to build up specialist local partnerships is probably the next phase for us.
Operator:

I'll now turn the call back over to Mr. Stretch for closing remarks.
Leslie Stretch:

Okay. Thank you for taking the time. Look forward to seeing you all on the road.
Operator:

This concludes today's conference call. Thank you very much for joining. You may now disconnect.

Medallia, Inc. Q4 2021 Earnings Call Transcript

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Medallia, Inc.
Q4 2021 Earnings Call Transcript