Qualtrics International Inc. (XM) CEO Zig Serafin On Q1 2022 Results - Earnings Call Transcript

Apr. 21, 2022 8:37 PM ETQualtrics International Inc. (XM)
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Qualtrics International Inc. (NASDAQ:XM) Q1 2022 Earnings Conference Call April 21, 2022 5:00 PM ET

Company Participants

Steven Wu - Head, FP&A & IR

Zig Serafin - CEO

Rob Bachman - CFO

Chris Beckstead - President

Conference Call Participants

Brian Peterson - Raymond James

Elizabeth Porter - Morgan Stanley

Brent Bracelin - Piper Sandler

Mark Murphy - JPMorgan

Terry Tillman - Truist Securities

Gabriela Borges - Goldman Sachs

Bhavin Shah - Deutsche Bank

Kirk Materne - Evercore ISI

Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.

Operator

00:02 Thank you for standing by, and welcome to the Qualtrics First Quarter Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's conference call is being recorded.

00:22 I would now turn the conference to your host, Mr. Steven Wu, Head of FP&A and Investor Relations. Please go ahead, sir.

Steven Wu

00:30 Thank you and welcome to Qualtrics first quarter fiscal year 2022 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.

00:56 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.

01:14 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 further discussion of the material risks and other important factors that could affect our financial results please refer to our filing with the SEC, including our annual report Form 10-K for the fiscal year ended December 31, 2021 and quarterly report on Form 10-Q for the quarter ended March 31, 2022 that will be filed with the SEC.

01:49 With that, I will turn it over to Zig.

Zig Serafin

01:51 Well, thanks, Steven and thank you all for joining us today. Before we get to the numbers, I'm going to take a moment just to talk about how saddened and we are about the invasion of Ukraine and the conflict that’s there. Our team in Poland have been incredible first responders helping refugees evacuate. And I'm immensely proud of the work the whole company has done to support relief efforts, both in terms of philanthropy and product innovation. In a matter of days, our team stood up new solutions on our XM platform that are already being used by 25 Regional Red Cross teams and other agencies. And because of this work, nearly 20,000 refugees have connected with shelter, support and medicine. Our hearts go out to everyone that's affected by the war and we're going to keep working with them to support them.

02:52 Now let's turn to the quarter. So as you can see in the numbers, Q1 was another outstanding quarter. This is our biggest Q1 in the history of the company, and it builds on robust growth in FY ‘21. Revenue for the quarter was $336 million, representing 41% year-over-year growth and subscription revenue was $281 million, up 50% year-over-year. And I'm particularly pleased that we have delivered another quarter of positive operating margin, while continuing to invest in our growth. We have significant momentum and we're raising our Q2 revenue guidance to $345 million at the midpoint of the range, representing 38% year-over-year growth.

03:41 Our Q1 net retention rate was 128%, matching our all-time high from last quarter. And we now have more than 2,000 customers spending more than $100,000 annually, which is a 41% jump since last year. This all highlights the critical need for experience management. It’s the category that we pioneer and that we continue to lead. Every CEO that I speak with has customer and employee experiences in their top priorities. They're trying to figure out how to find, how to keep customers, and then retain their best employees. And we give them the ultimate advantage by helping them build deep personal relationships. With Qualtrics, they can uncover unmet needs and build the products, services and experiences that people want. And we help them do that with empathy, speed and scale.

04:44 In our two decades as a company, we've seen that in uncertain times experience management is more important than ever. In fact, happy customers spend 37% more than unhappy customers. And an engaged employee who trust their manager is 60% more likely to stay in their job for the long-term. Take Chipotle which has more than 90,000 employees, who are navigating dine-in and pick up options, third-party drivers and mobile app users. In Q1, they chose Qualtrics Employee Experience Management to deliver a more seamless hiring and onboarding process, and to drive better employee retention.

05:21 And as a result, their teams will deliver better customer experiences that increase loyalty. Only Qualtrics to manage the full lifecycle of customer and employee experiences on a single platform with our XM operating system. And a central element that brings us to light is Experience ID, which captures every form of feedback and brings in operational data from CRM, CDP, and HRIS systems. And we now have more than 5 billion Experience IDs on the XM operating system. And every new innovation that we deliver strengthens the power of Experience ID.

06:10 We were busy in Q1, we launched new innovations across our platform. We made important investments in our category leadership. We integrated Clarabridge’s operations engineering and sales teams into Qualtrics. And we launched XM Discover, which is an incredibly powerful new layer of our platform. We now have the only platform that enables companies to proactively engage to find out how it's going and then in tune in and discover all of the other things that people are saying in the contact center, on social media, on review sites and dozens of other places. And we're seeing significant momentum with new and existing customers.

06:54 Kroger is a great example. In the pandemic, Kroger led the way in connecting with their shoppers through new digital initiatives and they use Qualtrics to improve their experiences. In Q1, they added XM Discover to get a single view of all customer feedback both structured and unstructured to understand what's important to customers, based upon what they're saying on social media. And this is just another way that Kroger is deepening their relationships and we're proud to be able to partner with them.

07:26 We also significantly expanded an XM Discover deal with one of the world's largest communication companies, who recognize the value of having all of their experience data on a single platform with Qualtrics. In employee experience, we launched the new workplace safety and well-being solution. Every company is trying to balance workloads and then take care of their people. We're giving them an inside view of their employee's mental and physical health to help them mitigate burnout, retain their best employees and to reopen safely.

08:03 And in customer experience, we released the new digital experience metrics, which uses scientific methodology and industry benchmarks to connect experience improvements directly to financial impact right within the product. Our growth continues to be fueled by a relentless focus on customer success, and this is a critical time to extend our category leadership and we continue to invest with discipline in attractive market opportunities. In Q1, we grew our workforce approximately 10% hiring more than 500 full-time employees, including top software engineers and scientists in an incredibly tight labor market.

08:44 Internationally, we expanded or formed new relationships with iconic brands, including NTT DOCOMO, Hyundai, ING Group, Mizuno and the Royal Mail. We also expanded our London office to better serve our rapidly growing customer base throughout Europe. And we launched the center for XM Innovation in Asia with SAP and the Singapore Economic Development Board to extend our innovation and leadership in the region.

09:18 We continue to make great inroads in industries, particularly in healthcare. In Q1, we formed a new relationship with Providence. They chose Qualtrics to understand their patient satisfaction with the price of their healthcare services, the billing experience, and cash collection at their 52 hospitals and more than 1,000 clinics. Using Qualtrics customer XM and XM Discover across their contact center, digital and in person channels, Providence will improve their patients’ financial experiences and increase the value they receive.

09:58 One of the ways that we scale the power of our platform is through our ecosystem, which has never been stronger. We're deepening our relationships with key partners, including EY, which recently launched an experience management practice built on Qualtrics. In Q1, they chose to deploy XM Discover internally across the organization. This investment builds on the success that they're seeing with Qualtrics and it enhances their ability to deliver even better outcomes for their clients. And Infosys, another great partner, launched a new Qualtrics center of excellence to help IT buyers around the world, improve employee experiences with IT and HR.

10:45 Now before I close, I'd like to invite all of you to watch X4 on our new streaming service XM+ which launches on April 27th. We've got a phenomenal lineup of speakers with Michelle Obama, Reese Witherspoon and executives from the world-leading experience brands. I want to congratulate our employees and I thank our partners and our customers for another outstanding quarter.

11:16 And with that, I'll hand it over to Rob.

Rob Bachman

11:18 Thanks, Zig. Good afternoon, everyone. Q1 was another outstanding quarter across the board during a time of economic and geopolitical uncertainty. It is our fifth quarter in a row of robust growth as a public company. As Zig said, total revenue was $335.6 million in the first quarter, up 41% year-over-year. Subscription revenue in the first quarter was $280.8 million, up 50% year-over-year. Professional services and other revenue was $54.8 million for the first quarter, representing 6% growth year-over-year.

11:56 Our remaining performance obligations representing all future revenue under contract ended the quarter at $1.767 billion, up 48% 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 $1.032 billion, up 52% year-over-year. We delivered strong expansion across our customer base, as our dollar-based net retention rate remained at 128% for the second quarter in a row. Customer spending more than $100,000 in annual recurring revenue grew 41% year-over-year to 2,060 customers.

12:49 Turning to margins. Our Q1 non-GAAP gross margin was 76.7% consistent with the prior quarter. Our non-GAAP operating profit for the first quarter was $4.1 million resulting in a non-GAAP operating margin of 1.2% compared to 2.8% in Q1 of 2021. Consistent with our plan, we returned to more in-person meetings and our colleagues began to travel more frequently for business in Q1. The increase in travel contributed to an approximately 200 basis point reduction in operating margins compared to the prior year period. Additionally, we were pleased to achieve a seasonally higher percentage of our annual hiring during Q1, allowing these new employees to have a significant impact in the current year.

13:36 Operating cash flow for Q1 was $23.1 million, compared to negative $70.1 million in the year ago period. Free cash flow in the quarter was $9.9 million, compared to negative $81.2 million in Q1 of 2021, due to significantly lower cash payouts relating to SAP equity-based awards, $2.7 million of cash outflows in Q1 was related to the cash settlement of stock-based payment liabilities compared to $72 million in the year ago period. As a reminder, free cash flow may fluctuate on a quarterly basis due to the timing of cash collections and we believe it’s best to assess our cash flow performance over a longer term.

14:19 During Q1, we paid $209 million of cash for taxes related to net share settlement of equity awards in the quarter. This amount will fluctuate quarter-to-quarter depending on if we sell to cover or use cash to cover the taxes related to the vesting of equity awards. Tax related to equity awards peaked in Q1 due to the one-year anniversary of our IPO, which triggered a one-year vesting cliff that exist in the majority of our outstanding equity awards. We ended the quarter in a strong cash position with approximately $836.4 million in cash and cash equivalents.

14:57 Moving now to our Q2 and fiscal year 2022 business outlook. We expect total revenue for the second quarter to be $344 million to $346 million, representing 38% growth year-over-year at the midpoint. Within this we expect subscription revenue to be in the range of $291 million to $293 million, representing 43% growth year-over-year at the midpoint. We expect non-GAAP operating margin in the range of 1.5% to 2.5% and non-GAAP net loss per share of one penny to net profit per share of one penny assuming $585 million weighted shares outstanding.

15:41 For fiscal year 2022, we expect total revenue in the range of $1.428 billion to $1.432 billion and subscription revenue in the range of $1.202 billion to $1.206 billion. At the midpoint of the ranges, this represents a subscription revenue growth of 38% year-over-year and total revenue growth of 33% year-over-year respectively. We expect non-GAAP operating margin in the range of 1% to 3%. We expect a non-GAAP net income per share between $0.0 and $0.02 assuming $595 million weighted shares outstanding.

16:23 As we scale our revenue beyond $1 billion, we will continue to be disciplined in how we invest for growth, while working toward our long-term financial targets of over 20% operating margin and over 25% free cash flow margin.

16:38 With that, Zig, Chris and I are happy to take your questions.

Question-and-Answer Session

Operator

16:42 Thank you. [Operator Instructions] Our first question comes from Brian Peterson of Raymond James. Your line is open.

Brian Peterson

16:58 Hi, gentlemen. Congrats on the quarter. So I just wanted to start out with the NRR dynamics that was been strong 128 again this quarter. Can you help us kind of dissect that a little bit in terms of cross-sell, up-sell and maybe what products are really resonating on top of the base?

Zig Serafin

17:14 Sure. I'll start here. This is Zig and then I will ask Rob, Chris to just jump in and add more color. I mean, look first of all, I think it's important to step back and just look at the power of the technology and how we built it with very rich application suite, one that actually is highly relevant, many different budget centers inside of a company, but also there is the speed at which we are able to innovate on the system and how that translates into new value and use cases that customers can turn on quickly and that's the core of how we operate this business, you're landing, you're enabling the use cases and you're expanding and that importantly contributes to how we think about long-term durable growth at scale and that's partly what's reflected in the context behind the NRR number, but I'm going to let Rob or Chris add into this.

Rob Bachman

18:08 Yeah. I won't add much to it Zig, what I would say, and this is Rob. It continues to be balanced. It's something that we watch closely and that balance is something that we obviously appreciate and like to see. And then, as you've heard us talk about in the past, we continue to see consolidation, as our customers look at the variety of point solutions that exist within the technology and their spend. They find that they can consolidate on the Qualtrics and gain more value by having all that data in the same place and running off of the power of our experience management operating system.

Brian Peterson

18:43 Understood. And Rob, maybe a follow-up. Just on Europe, I know that's been a big conversation point for investors, it's an investment area for you guys. What have you guys seen internationally in particularly in Europe and is there been any impact from the conflict in Ukraine? Thanks, guys.

Zig Serafin

19:00 First off, this is Zig, here. I'll start off and let Chris comment a little more on this one. I mean, look, I mean, just like you guys, we've all been watching what's been happening in Europe and I got to tell you, first off and foremost, I'm again proud of our team in the way that we've been operating across the company, and particularly in Europe to be able to serve our customers and still be able to create high performance as we're going through it. And I think frankly, the company is naturally advantaged, especially in times of uncertainty to be able to create highly relevant product and capability that helps people to navigate their markets, right, whether it's navigating inflation, whether it's navigating the war for talent and part of the idea of experience management is we help organizations get closer to the customers and the workforce that they're dependent on and will be able to run their businesses and that's an important part something that we've been at for 20 years and we've only got better and better at in the way that we ended delivering. That's an important part of it. But I'll let Chris expand here a little bit more specifically relative to any other color on Europe in particular.

Chris Beckstead

20:08 Yeah. So first of all, really encouraged by the stability of our business as reflected in our overall performance and the guidance we gave, in this type of uncertainty, in terms of the performance that we experienced in the quarter. From a go-to-market perspective, there was a few customers in Europe who were hesitant to pull the trigger up in deals and delay into the following quarter that's fully reflected in the results and our guidance that we're providing. And overall, just pleased globally with the results that we had this quarter and the stability of the business, roughly about 20% of our business is in Europe overall. And as far as question about Russia and Ukraine less than 1% of our business is in that specific area so relatively small.

Zig Serafin

20:52 I think the biggest thing here is that we continue to see long-term growth on all over the international front. I think we're just in early days of what we see as potential given the relatively smaller percentage of our overall business that is international today and that's why you see us investing and it’s in my remarks earlier as well about what we're doing on the international front will be accomplished in Q1.

Brian Peterson

21:16 Good to hear. Thank you.

Operator

21:21 Thank you. Our next question comes from Keith Weiss of Morgan Stanley. Your line is open.

Elizabeth Porter

21:27 Hi. Thanks so much. This is Elizabeth Porter on for Keith Weiss. Congratulations on a really strong quarter. I wanted to touch on the vertical strategy in the past you guys have talked about going after the public and healthcare sectors. And wanted to get an update on, where do you see the biggest opportunity next and how we should think about the benefits to the P&L of verticalization strategy, whether it's higher ASPs per customers or lower retention? Any color there would be helpful. Thank you.

Zig Serafin

21:54 The first and foremost -- and Elizabeth, thank you and good to hear you. First and foremost, I think it's really, really important that the way that we've designed this company and the way that we've designed our technology, it scales horizontally. And it has the ability to make an effect and an impact across many different industries. I mean, we are tuned into helping companies understand consumers, helping companies understand their workforce, and also business that they end up serving. And that's an important technology design point. It's also an important design point of the go-to-market systems that we have in this company. We're building a platform, it's designed for scale and there is an ecosystem that's building around it.

22:38 Now that said, when it comes to specific industries, they create unique points of extending on that value and getting deep and rich specific to the markets that we're playing in. Healthcare is one of several examples that we are in. We tie into very specific business problems in those industries, unique, urgent things that companies are looking, organizations are looking to solve, and that we can tie also because of the nature of our platform, with systems that operate in those industries. As an example, the integration we have with health records management platforms in healthcare and the way that we end up tying in with the patient lifecycle and then how that nicely tunes into in much more authentically tunes into the way that the patient experience evolves.

23:40 In fact before person even becomes the patient. And the way that providers end up interacting with their customers and frankly, the health and well-being of the provider as well. And so these factors are multi-dimensional, the beauty of everything I just described is you're building on the core kernel that scales horizontally. It's a really important part because I've been around and if you're bidding -- building a business only to be able to operate on a specific industry level, you will have a very hard time scaling across multiple industries, and that will negatively reflect them in the growth of the company. We've designed to the opposite. We want to be able to scale horizontally, but also give us the option to go on more deeply and vertically. Chris?

Chris Beckstead

24:05 Nonetheless. All right. Great answer.

Elizabeth Porter

24:09 And then just a quick follow-up on the margin side. It looks like margin came on the lower side of the guidance. And just wanted to see if there were any drivers to call out that limited to be the margin upside despite revenue coming in above the range. Now you mentioned some of the bigger head count, but any other to drivers to be aware of there?

Rob Bachman

24:27 Yeah. It's great question. Appreciate it. Consistent with what I shared in the prepared remarks, we saw about 200 basis point from the travel that return something that we are very pleased to see, as we move into this world, that is a hybrid world going forward focused on both digital experiences and in-person experiences. So that opportunity to travel and be with customers is something that we were pleased to see return. And then as we've talked about in the past, we're making important investments as we continue to integrate the Clarabridge business and move forward. And then also still seeing some margin pressure from the purchase price accounting on Clarabridge.

Elizabeth Porter

25:11 Thank you.

Chris Beckstead

25:12 Yeah. This is Chris. The one thing I just add to that is, as we make these investments that we've made this year in travel and integration, we are feeling really good about the return on those investments and opportunity for it to provide us leverage as we go into 2023 and beyond, and see tremendous opportunity there to get leverage out of our business model and to be able to continue to have return on that investment in our go-to-market.

Zig Serafin

25:38 Yeah. I’m going to highlight, -- Zig your last comment on this one is, it's the discipline of the company to go after attractive markets and make sure we're well positioned and that we're investing in the right way. But at the same time, we also have a track record for going in a discipline, being nimble, making pivot's where necessary because our interest is long term durable growth and doing that in a way, we're also creating good margins as part of that. So that's part of the philosophy and what we hold ourselves accountable to.

Elizabeth Porter

26:08 Great. Thank you so much.

Operator

26:12 Thank you. Our next question comes from Brent Bracelin of Piper Sandler. Your line is open.

Brent Bracelin

26:19 Good afternoon. Global risk factors are clearly increasing here Zig, and really wanted to better understand how the experience management area holds up in an environment where there are more challenges. Can you help us understand how you positioned the business, how we should think about this -- this category? And in an increasingly risky environment, are you going to lean in on new products? Is it really about consolidating competing products? Just help us understand how you're thinking about navigating an environment that they are clearly is very different than it was a year ago.

Zig Serafin

26:57 Sure. First off, I'm going to highlight that something that's really important. This is a company, Qualtrics as a company, it has been around for two decades. And we've seen many different cycles and throughout those cycles, this is a company that has been a consistently growing performer that has the discipline to understand how to engage in different markets, but also happens to be responsible for a technology that helps to be able to capture and understand with all the different human variables that in play as uncertainty goes through its ebbs and flows, right. We're obviously in a market today where we all see inflation, we see geopolitical situations. We see a war for talent, many other factors, right, macroeconomic, microeconomic depending upon where you are. What makes our technology special and the solutions that we build on them, is that we help companies to get closer to the markets that they serve and much more timely way be able to make the proper pivots, decisions, pricing packaging reorientation, how they serve their customers which markets are going after, where they may be to go and go after other markets and opportunities, where they've got an opportunity to be the wallet share expansion and that is the core of experience management is to get closer and put in a deeper lens around how you end up building relationships with the people and stakeholders that you serve.

28:27 So why this is such an important category, and it's why this technology is so well positioned given the different ebbs and flows that we are seeing in the marketplace. And it is why CEOs and other leaders in companies are coming to Qualtrics and saying, look, we want to run our companies differently. The timing of the decisions that we're making are so vitally important that we've got to be able to operate our companies from an outside in perspective and make decisions where we're calling our shots more effectively time and time and time again. This is an extremely important part of how you think about the role of our technology, the way that we've been building our platform. Now as a company in the way that we run the company internally, look, our discipline is be highly focused on customers. We obsessed around how we operate with customers and part of that philosophy also means that we're going after where we see the attractive market opportunities, but we also have a discipline of being nimble, one of the core values of this company is being scrappy, Taco's right. And Taco is the last of the letters is the S, and being scrappy means being resourceful, being creative and operating in a world of constraints and being able to pivot and make the adjustments and go after nailing the opportunities as we seen in the market, but also learning quickly and reestablishing position wherever and that's an important philosophy.

29:50 Now everything I just said about the internal part of that would be difficult to do, if we didn't have a technology system that accommodates that. Look if we were a company that was stitching together a whole bunch of different technology stacks, forget it. We are a company that as the really important philosophy around single platform, the operating system. We're building applications on top of that. We shared data across the different components of applications. It enables our customers to move quickly, but it also enables our engineers to build new solutions like the ones I mentioned in the remarks that are very relevant in a timely way given where the market is headed. And today, look not anyone market is all the same. And we see different things happening in Europe, we see different things happening in the U.S. Some are common and we are different. And so that's a really important factor of how the technology helps us to actually accommodate a lot of the philosophies and values we have in how we're running the company. So hopefully that gives you additional color and context on how we think about these things.

Operator

30:51 Thank you. Our next question comes from Mark Murphy of JP Morgan. Your line is open.

Mark Murphy

31:00 Yes. Thank you very much. So Zig, I'm wondering how pronounced was the trend of customers unplugging other products and consolidating onto Qualtrics in Q1 and just as they do that, are they viewing Qualtrics as the main system of record for customer data kind of over and above CDP’s and CRM systems? And I have a quick follow-up.

Zig Serafin

31:27 One of the unique advantages that we have is companies can move off of point solutions like social media monitoring type solutions as an example. Like, a call center, analytics system that's truly not an analytics, but they've been trying to analyze, but they're not developed and designed for scale. And so we make it very easy for companies to be able to bring their data over to our platform. We can assimilate those programs and systems on our platform. But more importantly, like the telecom vendors that I mentioned in our remarks, helping them to bring all that data together. And so to the heart of your question, we are seeing a continued trend of companies standardizing on our system. That's an important part.

32:11 Now the other part of your question is around things like CDP’s and other platforms. I mean one of the other attributes of our technology is that it's an ecosystem platform. So we make it very easy for companies to connect the data that they have, let's say, it's inside of a CRM, let's say it's inside of an HRIS system, let's say, it's inside of one of 80 different CDP’s that are in the market. We support 19 of the more relevant ones today. And bringing that data into populate that information inside of our Experience ID which we've got 5 billion plus profiles in. And then augmenting it with a very rich kernel of new information around human factors which they can’t do in those other systems. So we're not competing with those systems. We're complementing them. And we're gracefully coming in, connecting and we light up a whole new value set of capability for companies which speed the rate at which companies can end up adopting our system and that partly reflects in the way that you see not only new logos coming onto our system. But also supports the NRR rate, that you also see.

Mark Murphy

33:20 Understood. I'm sorry, go ahead.

Chris Beckstead

33:23 I was going to add with -- we want to be integrated Clarabridge into our platform and the people there and as we did that and added layer of XM Discover into our platform that just furthered this trend that we saw in terms of consolidation, as we are now able to couple the layers of the platform. Organizations out there that have historically been using the service technology now have an opportunity to consolidate on the Qualtrics platform and vice versa. And so I'd say that if anything has accelerated the trend, we're seeing consolidation as we continue to innovate and enhance our leadership.

Zig Serafin

34:03 And part of that is also tapping into new budget pools. Yes. Like in the call center.

Mark Murphy

34:08 Okay, understood. Thank you for that color. The other question I had was you're delivering solid results. It's despite the comment about a few customers in Europe. I think you said delaying into the following quarter. What -- is it safe to assume that, that was isolated to just a few customers in Europe or is there any sign of any sporadic hesitancy in North America for instance, because I think the guidance, seems to convey pretty good business confidence out there?

Chris Beckstead

34:43 Yeah. So to the question, the overall kind of macro factors we've seen to date have been relatively isolated, it has not really changed our annual outlook. We reflected anything that we've seen into our current view of the overall business, overall and, we didn't see those organizations necessarily moving away from the technology we didn't lose any of those deals. They just kind of got delayed into the following quarters and not seeing anything spreading systematically at this point and what we have seen is adequately reflected in our guidance.

Zig Serafin

35:16 I’m just going to highlight really importantly is that our scale, we're very happy to be guiding the 38% subscription growth year-over-year, right. And that just indicates what we're seeing for growth, what we're seeing for demand, it kind of reflects also how we look at the different markets that we're in and that's really important because there is fewer and fewer companies that the scale are actually being able to prove out the ability to perform. And we factor in these different dynamics, but with all that said and put into the picture, it reflects the guidance that we're providing.

Mark Murphy

35:53 Excellent. Thank you.

Operator

35:55 Thank you. Our next question comes from Terry Tillman of Truist Securities. Your line is open.

Terry Tillman

36:03 Yeah. Thank you, Zig, Chris and Rob, and a strong results for the first quarter. I have two questions, I guess the first question is based on kind of where we are with Clarabridge. I know we're not going to get updates every quarter like PinPoint where they contributed, but you do have a very large go-to-market team and so how would you rate, how they're doing in terms of getting exposed to this technology and starting to cross-sell and up-sell the solution. Just kind of a report card, what are you surprised by positively? What could you be doing better with? And then I had a follow-up.

Chris Beckstead

36:32 Yeah. In a word to be very, very pleased with what we've seen in terms of how the go-to-market teams are coming together. We've had the teams on-site together building relationships working well together. One comment from that I received just within the last week from the CEO of Clarabridge, it's one team now. Any when who is saying we're not working together and passing together has been that we've come together well, I'd say, it's all on track what we expected to happen and so far, so good. And we're seeing a great amount of pipeline build to help us to go execute and take these solutions to our broad customers.

Zig Serafin

37:11 Well, I’m going to say, like really importantly here is, it's not separate companies and a lot of times when people bring companies together, they waste time for year. We met fast, great, specific focused on our customers and there is no word called Clarabridge anymore. It's called XM Discover. XM Discover is a powerful element of our overall platform and expand our market opportunity. And to your point about the sales organization, these are some of the world's best conversational analytics, contact center customer care solution specialists and they are now connected with the larger Qualtrics sales organization and it works both ways. Their opportunities for actually expanding and the Qualtrics team who has been serving many, many customers are also able to now bring in the power and the value of the conversational and analytics system, the power and the value of the social media monitoring part of that system and several other solutions that we're building in around employee experience and others. So that's helps you gives you get a contact, but the most important part of it is, it's one company and it's one product solution set that we are delivering to the marketplace and it's part of the philosophy of how we expect to execute and operate and that's part of the playbook that we were expecting to sign up to as we were bringing the two companies together.

Terry Tillman

38:31 That's great. Thanks again. I promise I won't say Clarabridge again it'll be Discover. Just a follow-up question. The markets were obviously turbulent in November and December and it’s continue through this year. I don't think you'll got much play on this November 15 press release related to the partnership with AWS. I think there was a lot in there. I would love it if you could unpack a little bit more maybe because part of this is taking your platform technologies importing at AWS. They're becoming an incremental customer on the CX side, I think and I'm just curious if they could become an influencer on helping win business in the market. Just anything more you can share about what looked like a pretty important press release back then? Thank you.

Zig Serafin

39:11 Yeah. It's noteworthy and very important. I mean, here you have the world leaders and what leading in running a company based on its customer experience looks like and they picked Qualtrics, right. And this is really important because effectively shows a lot of other companies, what the potential pathway to be for them in other industries, a lot of people look up to the with it the way that Amazon has been running the company from the beginning as being customer experience center then, we had -- and that's really one part of that and helps with that we made.

39:48 The other part of it is, as you know as well, we are innovating on AWS stack. And if you think about other customers who are also doing so, it naturally introduces both platform and commercial synergies that they have, as well as in some places patient solutions that are both on the same platform plugging and connecting Qualtrics with data control between the platforms for example. So yes, everything that you said plus a little more.

Terry Tillman

40:18 Thank you.

Operator

40:21 Thank you. Our next question comes from Gabriela Borges of Goldman Sachs. Your line is open.

Gabriela Borges

40:28 Great. Good afternoon. Thank you for taking the question. I'd love to follow up on Discover a little bit. So I have a question for Chris and Zig. Talk a little bit more about how Discover is priced and when you see customers in the pipeline engage on both Engage and Discover, how do those deal sizes typically break out? Do you see, for example, half the deal Engage, half the deal Discover. What does that mix look like and how do you think it will evolve at the time?

Zig Serafin

40:55 Hi, Gabriela. So I'll answer the first part, and Chris answer the second part. Pricing is pretty straightforward. It's a natural extension of the platform pricing that we had for customers. So, there is both a product utility based license as well as a consumption based license that actually ends up existing based upon a number of conversations and response. Thanks to the conversations or data flows that run through the system. It's how to think about that in a simplistic way. But I'll let Chris answer the second part.

Chris Beckstead

41:29 Yeah. Related to the relative size, it really does depend upon the used case. If you think about a call center simply solution where you're analyzing hundreds of thousands or millions of call that can be a significant engagement along there or an industry, which is heavy in terms of online reviews or there other channels like that can be heavy on there. And as you know, and as we've shared the industry trend is to more and more unstructured data and unstructured feedback and that's the power and why we're so excited about having the XM Discover layer added to it given the trends that we're facing. And the reality is the technology of Clarabridge also helps us analyze both the unstructured data as well as the structured data that you get through our layer of the platform. So it really does kind of all come together. As Zig mentioned, as an overall solution that we are integrating seamlessly to give customers what they need across the board, so they can analyze all experience data. I mean, take action in real time.

Zig Serafin

42:25 Yeah. Let me elaborate on that really because maybe not everybody on the call understands XM Discover and this is an incredibly powerful new addition and that's because we're helping companies to tune into any form of unstructured feedback that's coming through a company such as support conversations, in an IT department, call center interactions both on the employee and the customer side, chat, social media posts, review sites and other sources. And then what we do is, we help companies not just pull that data together, okay. All of these different channels information but we analyze it in a highly sophisticated way. There is over 150 different industry models that we end up applying that data through. And then we automate manual and time intensive processes that people typically have had to go through, especially in things like call centers, in order to be able to improve the efficiency and then save key customers, improved loyalty, deepen the relationships. And so these themes our partly what are also adding to some of the momentum that we have in the company, both in net new logos as well as existing customers that we're seeing and some of which I mentioned in the remarks. Thank you. Gabriela.

Gabriela Borges

43:43 That color is helpful. Chris, one follow-up for you on Europe. The dynamic that you saw that was isolated to a few customers delaying. Has that been structured in April. How is the trend is it worsening or getting better?

Chris Beckstead

44:00 Yeah. I would say, it's relatively consistent, but it continues to persist in terms of what we're seeing overall in terms of the market dynamic in Europe, where there is a degree of hesitancy amongst some customers. At the same time, we have seen stability overall in our business as reflected by the fact that Qualtrics is never more relevant in uncertain time. And so with that, it's been, I think that's one of the drivers behind why it's been relatively isolated in terms of where we've seen it because experience management is never more relevant when customers are facing uncertainty.

Zig Serafin

44:32 What’s interesting about this is they may go from one part of our product and then they have the option to go to another product area like leveraging for example Design XM or Core XM to be able to go and do research on the part of the market and understand how to better position themselves. And then they may go back to another part of our product suite. So that helps, notwithstanding the comments that Chris just made a bit ago.

Gabriela Borges

44:58 Understood. Thank you.

Operator

45:01 Thank you. Our next question comes from Bhavin Shah of Deutsche Bank. Your line is open.

Bhavin Shah

45:08 Great. Thanks for taking my question. Zig or Chris, just expecting another question that was brought up as customers continue to adopt and leverage CDP, can you maybe elaborate on how usage of Qualtrics changes when customers go through this transformation. And are there certain products that become more prioritized and maybe others that maybe become a little bit less prioritized as customers look to ingest segments and activate all the data that they now have?

Zig Serafin

45:28 Well, look, I going to pop up to a larger important theme and that is that there is very few industries out there that are not in a race to become more digitally connected with the business or the end customer that they end up interacting with. And often, this is for convenience factors. It's for efficiency factors but a very important parallel theme that's taking place, is to be more directly connected from a relationship standpoint with that end customer. And this is where Qualtrics is beautifully designed. We get brought in and people will end up internally seeing the use of Qualtrics to start to collect and pulling information that the customers telling you that you're, you have to ask them for and then be able to start to populate the Experience ID with really important human factors like personas and segments that are going to be influential around how you navigate your business, trends that you have to pay attention to. And then very powerfully, you can start to orchestrate the way that you operate your business.

46:39 So for example, you might need to engage differently through the customer care lifecycle or you might need to do a better job with the products or features that you're recommending to someone. And so these are dynamics and capabilities that we can provide in a scalable fashion, okay. There's a lot of one-off point solution that you can spend a lot of engineering money on to go sit something together. And you'll notice that the businesses that are doing that are fairly low growth and they are not very interesting businesses. What we're doing is we're helping companies to actually break through this idea of bring it all together one data system.

47:14 Secondly, create a workflow to create automation or semi automation, the more efficiently and more urgently connect with people in a more personalized way. If you step-up, if you look at the big picture, at the end of the day, what we're doing is we're helping to build much more deeper personalized relationships for companies between who they are as an organization and the stakeholders that they're serving, which could be the end customer could be the patient or could be a business, right. And so if you think about the other systems of record like a CRM or CDP or some marketing automation system, those are important, right. They play their role. But what happens as we integrate with them and then we help to orchestrate the way that those systems both published data into our platform. And then the way that they end up automating behavior that is much more closely tailing or enabling an outcome, business outcome, it might be not just finding and keeping our customer but building your business with the customer as an example. So that's all these things come together. The big trend is the role of digital and how relevant we are to it.

Bhavin Shah

48:20 Super helpful. And just a quick follow-up for Rob. Just on the guidance, just given that you've seen some of this European impact persist into 2Q. Why not embed additional conservatism into the guide or is it just that you guys may confident in the impact becoming fairly isolated?

Rob Bachman

48:37 Yeah. Here's what I would comment on the guidance and as we've done historically, our philosophy is consistent here. We are tuning into the factors both the macro and the company level factors and we set our guidance at a level that we are comfortable with. So, it's taken into account. And I think that's why you hear the tone that we're talking about and where we're taking this business to relevance of Qualtrics in times of uncertainty is coming -- you're seeing that come to past.

Zig Serafin

49:10 Look, I mean at the end of day, I'm going to keep repeating this is really important, a mindset of building a business for long-term durable growth at scale. That is how we're operating and look, the reality is, you got to pay attention to a lot of different factors in the market. We are fortunate to have the technology system that actually helps us with that. But at the end of the day, we're not thinking this quarter-to-quarter. That's important. We're also thinking two, three years out, and the type of company we want, which is reflected in the closing remarks that Rob made at the end of the type of economics that we want in this business as we grow it.

Bhavin Shah

49:46 Super helpful. Thanks for the color.

Operator

49:50 Thank you. Our next question comes from Kirk Materne of Evercore ISI. Your line is open.

Kirk Materne

49:57 Yeah. Thanks very much and congrats on the quarter. Zig, I was wondering if you talk about or maybe Chris might want to chime in here too as well, but can you just talk about sort of the partner engagements you've seen maybe year-to-date thus far, and how you're kind of thinking about partners helping to influence deal or selection or deals especially when we get up into some of your bigger customers where there might be more organizational change required to take on the technology?

Zig Serafin

50:25 Yeah. Great question, Kirk and thanks for asking. So first off, I can't overemphasize how important it is that we have a platform built for an open platform ecosystem. And what that does in the type of innovation that is enabled and frankly, new value in used cases. And it's really important because sometimes people talk about partner ecosystem and they think of one class of partner, you might think of a systems integration company. We have a partner ecosystem. Ours is multi-dimensional. It's extremely important. One dimension is we have companies who build solutions on our system, who are practitioners and their experts in their crafts that uses IO psychology they might be coming from the HR industry or they might be coming from customer experience industry, it's companies like Bain, McKinsey and many others like Korn Ferry as an example.

51:20 But then there is another class of partner, which was software companies, companies like ServiceNow companies do like SAP, companies like Microsoft, and companies like Adobe, Google, right, and that's the whole another category we have over 275 different types of integrations that exist with our system and the applications and tools that our customers are using and that list is only growing. A lot of those by the way are driven by customers. They want to use our platform. They want to tie it in with the applications and systems and tools that they're already using today.

51:48 Another class of partner are companies who are the solution builders. They help create leverage for us. They take on the delivery expertise. We partner with them hand-in-hand. We stay closely engaged with them. There are companies who are also experts on strategy. They are experts on consulting. E&Y is an excellent example of this. Accenture is another example. Deloitte is another example. PwC is an excellent example of this. And I mentioned Infosys as well as the call. And so these types of companies and also the other ones I've mentioned too, are all playing their parts in bringing their customers along. And one of the unique advantages that we have because we have such an open platform. It is, is that companies like these find that they have existing applications or practices. You might have a whole practice that's for example focused on HIRS as an example.

52:40 And so that company will then bring Qualtrics operates on top of that each HRIS system and they'll create unique new value that expand the capability that opens up the door to experience on top of that system of engagement for a system of record or the workflow system, that company might be using. So that might then turn out to be something that layers on top of what an Oracle HIRS us system has or SAP success factor has or hey, for example, the Salesforce CRM system implementation or Microsoft Dynamics system. So companies that have practices around those applications now bring in an experience management layer in order to better understand the human factors and the experiences that are associated with the business or operating outcomes that are associated with those systems. This then drives new inbound opportunity. It drives expansion, right and it partly contributes to the flywheel effects of how we run the business. So hopefully that gives you more color.

Kirk Materne

53:48 Yeah. That's helpful. And if I just ask one follow-up. Chris, you mentioned obviously a couple of those deals that slipped through the quarter. You guys can control or is the conversion there's a customer element to that, but when you think about the pipeline building you've seen has anything changed? I mean it seems like you're at the very early days of this opportunity to Zig’s comment earlier about sort of building a long-term business, has pipeline generation changed at all for you from the beginning of the year because of the sort of geopolitical or is that still on track with what you would have thought augments the conversion rate that obviously might have a little bit more of a customer implication aspect to it?

Chris Beckstead

54:25 Yeah. So always the life of -- part of our business is driving pipe generation and it’s getting out there. We recognize just the magnitude of this opportunity and our sales force is engaged on going in and capturing this opportunity globally. And so kind of business as usual on that front in terms of a major focus on pipe generation, we're focused on it, we know that’s the leading indicator of our future success and a lot of focus on driving pipeline in the new XM Discover layer. A lot of focus on driving pipeline there on our employee experience category, given the relevance and importance and current situation is facing of driving employee retention among what we're hearing among our customers. The digital transition that's going on, a lot of focus on types in there, so it's the lifeblood of our organization. We're focused on it. We're on track. Our guidance reflects the progress we've made on pipe gen and continuing to drive that.

Zig Serafin

55:24 Look, I’m going to say, clearly, macro trends in Europe for example because of the war they are what they are right, but that doesn't change the fundamentals of how we end up earning our way into the right opportunities going after the right use cases. So those fundamentals are what they are. We continue to operate on them. We do see sustained demand going into this quarter and the following quarters. And like any quarter we got our work to do that's always been the case.

Kirk Materne

55:55 Sounds good. Thank you all very much.

Operator

55:59 Thank you. Our next question comes from Arjun Bhatia of William Blair. Your line is open.

Unidentified Participant

56:05 Thanks. This is Chris on for Arjun. So I want to build on the first part of the last question. So you mentioned in the prepared remarks kind of the importance of the growing ecosystem. And I remember correctly, you know you were around the time of the IPO that about 60% of your customers were using integrations. I was curious, can you give us an update on where that stands today. And any color you can provide on how that might differ among your largest customers?

Zig Serafin

56:32 Yeah. I don't have an update on what statistics have been shared before, but what I will tell you is that we did publish publicly, and maybe Chris or Ron, can you remind me, the number of actions that have been executed on our system less, last year, so that's a public statement that we provided. That's a really important part of how to think about the outcomes that we're enabling companies to create off of our system that are results oriented. So it’s not just number of insights that you end up getting, but it's actually having to do with the end result.

57:09 So I think, and there is a -- we actually published this last year, which is 1.5 billion actions in 2021 and the way you think about the actions is effectively the workflow that ends up being orchestrated through our system as a result of an insight that's been created on our platform that our customers and enabling both internally facing with their employees or in conjunction with interacting with the customer. And, this is an important statistic that we look at because it is not just saying all we had X amount of integrations on the system, it's what's happening and the actual usage flow consumption, impact that's been generated through the platform and it's one of several statistics, but that's one of the ones that we look we do look at that we've shared.

Unidentified Participant

58:02 Great. Thank you and congrats on the quarter.

Zig Serafin

58:07 Thank you.

Operator

58:09 Thank you. I'm showing no further question at this time. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.

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