Medallia Inc (MDLA) Q4 2020 Earnings Call Transcript

Medallia Inc (MDLA)
Q4 2020 Earnings Call
Mar 12, 2020, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to Medallia's fourth-quarter and fiscal 2020 year ending earnings conference call. Joining us for today's call are Medallia's CEO Leslie Stretch; and CFO Roxanne Oulman. [Operator instructions] With that, I would like to turn the call over to Roxanne Oulman for introductory remarks. Roxanne?

Roxanne Oulman -- Chief Financial Officer

Thank you, Josh. Welcome to Medallia's fourth-quarter and fiscal 2020 year-end earnings call. We issued our earnings release a short time ago and furnished the related 8-K to the SEC. To access the press release, please see the investor relations of our website.

With me on the call today is Leslie Stretch, president and CEO of Medallia. Before we begin, please remember, during the course of this call, we may make forward-looking statements about the operations and future results of Medallia, that may vary and involve many assumptions, risks and uncertainties. If any of these risks or uncertainties develop or any of the assumptions prove incorrect, actual results could differ materially from those expressed or implied by our forward-looking statements. For a discussion of our risk factors associated with the forward-looking statements, please refer to the text in the company's press release issued today and to our periodic reports filed with the SEC including our prospectus dated July 18, 2019 and Form 10-Q dated December 11, 2019.

We disclaim any obligation to update any forward-looking statements. On today's call, we will refer to both GAAP and non-GAAP financial measures. The non-revenue financial figures discussed today are non-GAAP, unless stated that that measure is a GAAP number. Please refer to today's press release for the reconciliation of GAAP to non-GAAP financial performance and additional disclosures regarding these measures.

Additionally, in conjunction with the release of our earnings report, we have posted on our website at medallion.com, under the Investor Relations section, additional charts that identify trend metric performance that we believe will aid in understanding and evaluating our performance over time. Now I'll turn the call over to Leslie.

Leslie Stretch -- President and Chief Executive Officer

Thank you, Roxanne. Hello, everyone. I'd like to begin by thanking every Medallian for their hard work in Q4 in FY '20, and especially for their customer focus at this trying time. I believe customer and employee experience is job number one every CEO and leader in today's world.

Our focus at this time is on the health and safety of our staff and on making sure we are set up for the long term. In our first year as a public company, we accelerated our SaaS revenue growth and added a record number of new customers. Turning to our Q4 report, I was very pleased with our execution and results in Q4. We had record SaaS revenues, record top line revenue.

Importantly, we met our goal of accelerating SaaS revenue from 22% in FY '19 to 26% growth in FY '20. For the full year, we delivered top line growth of 28% versus 20% in the prior full year, a significant acceleration in growth off of a much higher base. We added over 50 new enterprise logos. Our mid-market teams contributed nicely, and we made progress across verticals.

We ended the quarter with a trailing 12-month net revenue retention rate of 119% and a 44% increase in our total remaining performance obligations. Today, less than 20% of our signal data is simple survey data, and nearly 70% of our solicited feedback is sent via mobile. At the time of our IPO, we shared with you that Medallia annualized $4.9 billion experiences annually. Today, I'm pleased to report that we closed our fiscal 2020 with $6.1 billion experiences annualized annually.

In fiscal 2020, users of our platform increased more than 30%, while we captured nearly 50% more feedback signals. Our customer count has grown nearly 40% year-over-year. New business wins in Q4 included AkzoNobel, Cloudera, Freddie Mac, Freshii, Mazda Canada, Ryder, Smashburger, XP Investimentos Brazil, Samsung U.K. We continued with more great brands, Club Quarters, Under Canvas, and the PGA National Resort, ARC Europe, Copper CRM, Lovaza and Recurly.

We signed a major expansion with Woolworths, a flagship retail customer in Australia. We also had several significant retail expansions in the U.S. in Q4. In the quarter, we were recognized again as a leader in The Forrester Customer Feedback Wave and at RedThread's Employee Experience Review.

We comfortably extended our leader to legacy market research and survey players. Today, our top four verticals are: finance and banking; retail and automotive; technology and manufacturing; communications, media, and telco. For this quarter, I've chosen high-tech manufacturing as our focus vertical and our text analytics platform and our new video capabilities as product areas to review with you all. Turning to the manufacturing vertical for this report.

Customer feedback and insights are a critical part of the product development and support process at HP Inc. HP has partnered with Medallia to build a customer listening system that integrates multiple sources of feedback, including surveys, service support cases and online product reviews to help HP's people understand what customers think about their products and services and to take key actions. Product reviews from sites like Amazon, Target and Walmart, can all be combined with feedback data to produce comprehensive insights on customer sentiment and intentions. We recently won another contract with Samsung Electronics America, the U.S.

division of one of the world's largest and most successful manufacturers. We are helping Samsung run an innovative customer experience program in its care division, supporting more than 5,000 care agents and field technicians in the U.S. and Canada across digital, phone and in-person channels. Samsung has achieved significant improvement in Net Promoter Score and other key operating metrics.

As of Q4, we are also beginning to deploy our employee experience solution in their care division. And also as of Q4, we received a commitment from Samsung's European business. Turning to product themes for this report. Our technology can access many types of unstructured data elements from voice and video to survey and digital interactions.

Placing all customer feedback elements in one platform for complete analysis, visualization and predictive actions is a central capability of the Medallia Experience Cloud. Today, we have 60 customers who are using Theme Explorer to analyze over 80 non-survey data sources. These sources include social websites, such as: Facebook; messaging services, such as WhatsApp and WeChat; data from siloed signal vendors in social and survey; SMS text; contact center data and much more. In the context of the current health crisis, we have set up special tax analytics topics to help over 20 Medallia customers monitor and analyze the impact of coronavirus, for example.

The list of customers include a broad range of verticals from retail, e-commerce, financial services, and as you would expect, hospitality and travel. Turning to an update on our latest acquisition of LivingLens. We're now the only experienced management technology company that owns video and capture technology. This is a new rich and powerful source of feedback signals for our customers.

Companies using LivingLens include Airbnb, Colgate, SC Johnson, Red Bull, Deliveroo, and Hyundai. The combination of LivingLens and Crowdicity leapfrogs traditional market research. We believe that face-to-face field market research business is being digitally disrupted. We believe this is a $12 billion market spend per annum that can go into digital platforms like LivingLens and Crowdicity.

We're getting inbound interest from universities, organizations like the National Health Service and others looking to digital communication and cloud sourcing solutions, not just because of the current crisis. Let me update you on our partner strategy. Our collaboration deals with Adobe, Salesforce, ServiceNow and Workday executed in the past six months, marked Medallia as the only open partner of choice for feedback management. We have seen positive activity in Q4 and Q1 already.

And in Q4, we launched the Medallia sales and service app on the Salesforce app exchange. We're the only enterprise-ready, open- partner for these players when it comes to customer and employee experience capabilities at scale. We've also extended our partner efforts to focus on new vertical software partners in life sciences, manufacturing and insurance. Turning to our go-to-market efforts.

I'm pleased to report we achieved our 40% increase in productive sales capacity in FY '20. We continue to focus on a vertical go-to-market organization. Our vertical market best practice packages are currently purchased by 70% of new customers. These popular vertical-specific packages help customers speed up implementation and time to value.

In Q4, Medallia achieved FedRAMP certification, further validating our depth and delivery, delivering highly secure, leading solutions for consumer, employee and citizen experience management. FedRAMP has significance beyond the U.S. market as it is seen as a benchmark of quality by governments around the world. We've also made the decision to pursue FedRAMP High and HITRUST for healthcare.

And just yesterday, we announced that Lee Becker, former chief of staff for the Veterans Experience Office of the U.S. Department of Veterans Affairs, has joined the company to serve as the head of solutions for the public sector. Let me update you on our geographic expansion. In FY '20, we added strong leadership to our EMEA, APAC, and LATAM businesses.

All of these geographies made strong contributions in Q4 proving my thesis that upgrading leadership with proven sales coaches pays off, and I expect solid contributions in Q1 and beyond. On my recent APAC tour, I visited some of the biggest brands in the world. One of them, a very large Australian retailer, recently renewed for a five-year term. And the foyer of their global headquarters, they display Medallia-sourced customer feedback and lifetime placing their customers front and center in using this data to make decisions about store and e-commerce operations.

In light of coronavirus and its affecting global travel and large congregations, we already turned our attention and resources toward virtual events and conditions permitting a repeat of our very successful intensive one-day city tour series in the late summer and fall. In my opinion, these targeted digital and local events are more effective than one global event. It's interesting to note that in retail, retail pharmacy, travel and hospitality, we have seen recent significant spikes in usage for our customers. One retail business, for example, that we serve, saw a 300% increase in feedback activity just last weekend alone .

We believe customer employee feedback becomes even more critical in challenging times. As I've mentioned already, I believe the customer employee experience is job number one for all CEOs, now more than ever. Despite the global health crisis, our confidence in our current outlook is based on several key factors. Transforming customer and employee experience is a top digital priority.

And a report sponsored by our customer, Comcast, just published 76% of organization surveys said they are feeling pressure from multiple sources in the organization to deliver digital customer experience. We've seen no customer actual behavior to change our assumptions, and it's too early to tell what can happen in the second half of the year. We have a very strong book of business with the leading brands across industries. Our total remaining performance obligations, up 44% year-over-year, while the current RPO has increased 31%, as I mentioned.

Nearly 50% of our renewals in FY '20 were multiyear contracts mostly annually built, increasing two and a half times from the prior year. Our productive sales capacity has increased 40% year-over-year. Our cross-sell thesis is bearing fruit with three modules on average in our top accounts now. No implementation costs that we do today need physical presence on customer sites.

Our balance sheet is strong with no debt. We do not rely on any physical supply chain. We expect digital transformation to become digital disruption, which plays into our product portfolio of digital, video and broad signal culture. Our FedRAMP success opens up the global citizens experience market not just the U.S.

We don't charge customers for consumption like traditional survey players. We have now an intense focus on stay-at-home industries, including telco, entertainment, home automation, local retail, retail pharmacy, readout financial, insurance and others. And less than 10% of our book of business is in the hospitality sector, airlines are 1%. Make no mistake though, we intend to support those businesses through thick and thin.

I will now hand over to Roxanne to cover our financial performance and outlook in more detail.

Roxanne Oulman -- Chief Financial Officer

Thank you, Leslie, and good afternoon, everyone. Across the board, we posted strong financial results in Q4, including record total revenue and record SaaS revenue. As a quick reminder, unless otherwise noted, all numbers, except revenue, mentioned during my remarks today are non-GAAP. You can find a reconciliation from GAAP to non-GAAP results in today's press release.

Turning to some key metrics. Our new customer growth was strong. We ended the year with 757 enterprise customers, an increase of 39% year-over-year. Our trailing 12-month dollar net retention rate continues to be very healthy, coming in at 119% in Q4, an improvement from 116% in Q4 of the prior year.

We believe the strong retention rate underscores our ability to retain and steadily expand business within our existing customer base. We are also beginning to see traction in our cross-sell initiatives. These initiatives began in earnest midway through fiscal 2020 as the average module attach rate has increased from two to three. We are pleased to see this cross-sell motion gaining traction.

In fact, nearly 25% of our customers are using four or more modules. Total revenue for fiscal 2020 was $402.5 million, an increase of 28% year-over-year. As we communicated on our IPO roadshow, our goal was to accelerate SaaS revenue growth on an annual basis, and we're pleased to report that we clearly achieved this goal. SaaS revenue for fiscal 2020 was $312.2 million, up 26% year-over-year, demonstrating strong growth at scale and an acceleration.

This compares to the prior year SaaS revenue growth of 22%. For the year, we generated 76% of total revenue from North America. In terms of vertical diversity, our top four verticals are: finance and banking; retail and automotive; technology and manufacturing; communications, media and telecommunications. As Leslie noted, less than 10% of our business is derived from hospitality.

Total revenue for Q4 was $110.1 million, an increase of $23.7 million or 27% over Q4 of fiscal 2019. Total revenue exceeded our expectations due to solid contribution from subscription, managed services and implementation services revenue. In Q4, SaaS revenue was $86.2 million, an increase of $18.3 million or 27% year-over-year. Our SaaS revenue growth rate improvement benefited from the timing of new bookings in the quarter as we experienced a stronger-than-expected December.

Recurring revenue, consisting of SaaS and managed services, continues to be at 90% of total revenue. Professional services revenue was $23.9 million for the quarter, which increased 29% year-over-year. Our services revenue benefited from strong customer demand. Recurring managed services accounted for more than 50% of our total professional services revenue.

As a reminder, services revenue ebbs and flows based on a variety of factors. I will now turn to our non-GAAP gross margin and operating expenses. SaaS revenue gross margin was 82%. We believe our SaaS margins are among the best-in-class for SaaS companies.

In Q4, professional services gross margin was 19%, compared to 13% in Q4 of the last year due to higher-than-expected utilization rates. We continue to focus on driving more professional services to our partner channel, along with subcontracting some additional services. Sales and marketing expenses in Q4 were $43.3 million or 39% of revenue. Our sales and marketing expenses increased in Q4 due to our large presence at Dreamforce.

R&D expenses were $20.5 million for the quarter or 19% of revenue. R&D remains an important investment area as we expand our platform with new features and capabilities each quarter. G&A expenses were $11.9 million or 11% of revenue. We expect additional leverage on the G&A line over the longer term.

Non-GAAP operating income in the fourth quarter was $3,000, compared to $2.4 million in Q4 of fiscal 2019. Similarly, non-GAAP operating margin in the quarter was breakeven, compared to 3% in the year-ago quarter. Non-GAAP net income was $491,000, compared to $1.7 million in Q4 of last year. Non-GAAP operating loss in fiscal 2020 was $2.4 million, compared to a loss of $47.7 million in fiscal 2019.

This significant improvement of over $45 million reflects our focus on balancing growth and profitability, while we continue to invest in go-to-market initiatives. We incurred a tax expense of $67,000 in non-GAAP income taxes in Q4. This was lower than prior quarters due to lower form withholding taxes and foreign income taxes. Our GAAP income tax benefit of $555,000 includes a benefit due to stock option exercises in Q4.

During the quarter, our weighted average basic share count was 129.4 million shares and our fully diluted share count was 171.4 million shares. Turning to the balance sheet. We ended Q4 with $343.7 million in cash and equivalents, an increase of $24.4 million from the prior quarter driven primarily by cash generated from operations. SaaS deferred revenue was $222.9 million, an increase of 27% over SaaS deferred revenue in Q4 of the prior year.

Let's move on to discuss SaaS calculated billings, which we define as SaaS revenue plus change in sequential SaaS deferred revenue and contract assets. As you know, there are a wide variety of factors that influence this metric. Therefore, quarter-to-quarter fluctuations in calculated billings should not be taken as an indication of changes in future revenue. For example, billings will fluctuate quarter-to-quarter due to the timing of renewals and annual contracted billings.

As we have communicated to you, we believe that the 12-month trailing billings growth rate is a more meaningful measure of our performance. For Q4 fiscal 2020, our trailing 12 months SaaS billings growth rate was 25%, compared to 24% in Q4 of the prior year. Moving on to RPO, or remaining performance obligations, as I have shared with you before, our RPO metrics may be impacted by contract duration and extension, as well as timing of renewals of large multiyear contracts. So while RPO provides for strong visibility, it may fluctuate from quarter-to-quarter.

At the end of the year, our total remaining performance obligation or total RPO was $679 million, an increase of 44% year-over-year. Current RPO, which is the amount we expect to recognize as revenue over the next 12 months totaled $344 million, an increase of 31% year-over-year. We expect to recognize 51% of total RPO over the next 12 months. In addition, noncurrent RPO grew 62% year-over-year.

This is a result of the large number of multiyear contracts signed this year as we have professionalized our operations as a public company. We generated positive $19.5 million in cash flow from operations for the quarter. For the year, cash used in operations was $1.6 million, compared to $15.2 million used in operations in the prior year. From a cash flow perspective, our operating cash flow fluctuates based on seasonal patterns that we've experienced historically due to the timing of bookings and cash collections.

As a reminder, we've historically experienced seasonality in our cash flow from operations given that over 40% of our billings occur in the fourth quarter. As a result, our cash collections in Q4 and Q1 are higher than other quarters. We anticipate this seasonality will continue in fiscal 2021. Now let me turn to our financial outlook for Q1 and fiscal year 2021.

For Q1, we are projecting total revenue to be between $109 million and $111 million, representing a 16% to 19% growth rate over last year. For Q1, we are projecting SaaS revenue to be between $87 million and $88 million, representing growth of 21% to 23% over last year. Please keep in mind that Q1 has two fewer days than all other quarters in fiscal 2021. For Q1, we expect non-GAAP operating loss to be in the range of $1.3 million to $2.3 million.

This includes nearly $3 million in fees related to the cancellation of our annual customer conference. We expect other income and expenses to be roughly $500,000 and income taxes to be in the range of $750,000 to $1,250,000. We expect basic weighted shares outstanding to be approximately $134.5 million. Now let me turn to our guidance for fiscal 2021.

While we haven't seen any changes in buying behavior thus far, we want to set ourselves up prudently as we take time to see how the current macroeconomic climate plays out. Therefore, we are maintaining our full-year revenue guidance for fiscal 2021. For 2021, we are projecting total revenue to be between $474 million and $483 million, representing growth of 18% to 20% year-over-year. We expect SaaS revenue to be between $382 million and $387 million, representing growth of 22% to 24% year-over-year.

We expect revenue to follow a similar pattern to this year with more than 50% of annual revenue to be recognized in the seasonally stronger second half. For fiscal 2021, we expect non-GAAP operating profit to be in the range of $1 million to $5 million. We expect other income to be roughly $2 million and income taxes to be in the range of $4 million to $5 million. We expect diluted weighted shares outstanding to be in the range of 174.5 million to 175.5 million.

Finally, we anticipate our capital expenditures will be slightly ahead of last year's level, which was approximately $22 million primarily related to the expansion of our data center capabilities to meet increased customer demand. We are committed to investing for growth while balancing growth and profitability. We are taking a financially disciplined approach. On an annual basis, we maintained our goal to be operating cash flow positive for the full year of fiscal 2021.

In conclusion, we are very pleased with our fourth quarter and fiscal 2020 results. Leslie and I will now take your questions. Operator?

Questions & Answers:

Operator

[Operator instructions] And your first question comes from Phil Winslow with Wells Fargo. Please go ahead.

Phil Winslow -- Wells Fargo Securities -- Analyst

Hey, guys. Thanks guys for taking my question, and congrats on a great close to the year.I just wanted to focus on the two of the newer initiatives. First, obviously, the customer count was very strong again this quarter. So I wonder if you could update us on just sort of the move down market and how you're feeling about the investments there.

And also, you obviously signed a significant number of new partnerships over the course of last fiscal year. How are you thinking about those impacting the numbers this year, how do those roll on in your mind?

Leslie Stretch -- President and Chief Executive Officer

Great question. I think early days still in the partnership deals that were signed at the back end of the year, but we've seen some progress and some deals. So, I think, a small number, so we are pretty optimistic there. The mid-market has delivered.

We added a group of salespeople there, almost all new into the company, and they've been booking a good, decent contribution in Q3 and then a better one in Q4, and scrappy land-and-expand module deals, but we've even been selling experience cloud there. It's low- touch, cost-efficient sales. And that's been a really good initiative I'm very pleased with.

Phil Winslow -- Wells Fargo Securities -- Analyst

Great. Thanks, Leslie.

Roxanne Oulman -- Chief Financial Officer

Thank you.

Operator

Your next question comes from Bhavan Suri with William Blair. Please go ahead.

Bhavan Suri -- William Blair and Company -- Analyst

Hey, guys. Can you hear me OK?

Leslie Stretch -- President and Chief Executive Officer

Yes.

Bhavan Suri -- William Blair and Company -- Analyst

Hello? Yeah. Great.

Leslie Stretch -- President and Chief Executive Officer

Yeah. Go ahead.

Bhavan Suri -- William Blair and Company -- Analyst

So absolutely echo sentiments, great job. Great. I want to talk a little more about the partner ecosystem, right? So in Q3, you've talked about another 10 partners, over a size, advisory, technology, ISVs. Just a little more color on sort of Adobe, ServiceNow, how are those progressing? How are those initiatives, telcos and others, kind of helping play out in terms of reach and adoption, and then obviously, deals?

Leslie Stretch -- President and Chief Executive Officer

Yeah. Great. So I'll just say a sort of prior response, it's really early days. And in my prior life, I haven't really worked with Adobe or ServiceNow.

So I'm actually quite pleased with the progress there. We are seeing deals and traction. Salesforce is a great partner, and we're seeing some really significant campaigns. And so without getting into too much detail, the politics of the landscape really play into our hands at the moment.

We are the open partner, right? And we're actually the most credible scale platform and signal play. So that should be working very well for us. Not to say we have it all to ourselves, I'm very pleased with that. But I'm also excited about the vertical partners.

Obviously, we've got an interesting macro situation unfolding here. But there are some great vertical partners in financial services and some other sectors that we've started to form bonds with, that I think are going to be part of the story this year. And we'll update you as we sign deals, as we move along with those companies. And I think that could be -- those companies tend to be a little bit smaller.

I'm thinking companies in life sciences and insurance and financial services, it tends to be more of our size. And so that's going to be an interesting partnership and some of them are customers, too. So we'll give you more color as we go through the year.

Bhavan Suri -- William Blair and Company -- Analyst

So that's helpful, and that touches on two questions, but I'm going to ask one. So you touched on large companies and they're working with you, and this is the future. And we think through that process, when we think about implementation and sales cycles, and we think through currently COVID, and oil and macro concerns. When you think about -- does that slow down the process? So, a, sales process, because it's probably down because this is a complex sale.

It's not as simple, OK, you got a survey product, this is a much more customer experience product. And then, two, implementation. Like there is definitely an impact. Do you guys go there? Is there a utilization impact? We can't get to the site, we can't deliver.

So I'd love to understand two things. One, how are the sales cycle being impacted by the current situation? And then how is the delivery being impacted by the current situation? Thank you.

Leslie Stretch -- President and Chief Executive Officer

Yeah. Sure. And we go back to the partner question was the large partner play and our deal count there and our activity is so small and so new, but it's hard to say. I mean we're relatively small.

I think there's upside. In terms of implementations, one of the things we've been doing in recent days is working out what is really essential to do at the customer's side. I'll give you a couple of examples in a second. And I think we can do a lot.

So depending on the scale of an implementation, we can do a great deal without having to visit our customer site. Gone are the days when we have to go and connect physically, software and hardware and other technologies. So I feel pretty good about that. And people can work.

We have fabulous bond within technology. Video comps has been super for us. I was in APAC. I got stuck in Sydney, couldn't go to Singapore, couldn't go to Korea or Japan.

And we did not miss a single meeting. We did Webex, Zoom, etc., and it works seamlessly, beautifully. Every meeting went to the limit of an hour or over, so people were engaged. And just the technology is so much better today, I actually felt, I felt pretty good about it.

And we've got everything done that we wanted to get done. The same is true in collaboration and implementation, and we're encouraging our people. We are concerned about their welfare, first and foremost, nothing else matters. But we're encouraging them to work from places, locations that they're comfortable, home or wherever, supporting their bandwidth requirements and implementations can be conducted there.

So for us, that's the way we're approaching it. And I personally feel that -- and look, it's difficult times. But I personally feel quite a lot of productivity gains from me because I can get so much done by spending -- not spending 50% of my time in the year, now that will return. And I think there's nothing like personal engagement, especially since our buyer and the person we want behind everything that we do as the CEO.

Right? And those tend to be pretty short, sharp meetings. But I did one meeting in Q4, we did one upgrade to almost a seven-figure ACV deal in Q4 where we did the meetings and engagements with the CEO over Zoom, the first one for an hour, second one for an hour or so. I actually didn't meet the CEO until after we did contract, all right? So we're going for it. We're using digital, but keeping everybody safe at the same time.

Bhavan Suri -- William Blair and Company -- Analyst

That's really helpful. Thank you guys. I appreciate the color. Thank you.

Roxanne Oulman -- Chief Financial Officer

Thank you.

Operator

Your next question comes from Tom Roderick with Stifel. Please go ahead.

Tom Roderick -- Stifel Financial Corp. -- Analyst

Yeah. Hi. Thank you for taking my question. Roxanne, I was hoping we could just go a little bit deeper on Bhavan's question there on professional services.

And I appreciate you pointing out on the script there, that 50% of those personal services are managed services. Can you just talk a little bit more, to Leslie's prior point there, on how the bulk of services are deployed and engaged? And when you think through some of the larger sales deals that you signed there in the fourth quarter, talk us through just the process around how you get those customers up and running, how often you actually do need to have implementation on site, or to Leslie's point, can you actually do the vast majority of it remotely? Would just love to hear a little bit more about that. Thank you.

Roxanne Oulman -- Chief Financial Officer

So Tom, that's a great question. We can do beyond the vast majority remotely. We've obviously spent time looking at how much time are we actually on site or need to be on site with the customers. And with the product and the way that we deploy the product, that's a very small portion where we actually need to go and have face-to-face meetings and be on site.

So what our professional services team has been doing is we are utilizing video conferencing and we had done that historically in the past. So we have not seen a significant change in going and working with the customers on site, and we don't see that the need to be on site will prevent us from doing implementations or delay implementations. Now that's what we see at this point in time, and that's consistent with the historical practice that we've had.

Tom Roderick -- Stifel Financial Corp. -- Analyst

Excellent. That's helpful. Leslie, just a quick follow up for you. You made the point about LivingLens being a nice tuck-in acquisition.

Can you just spend a minute here talking about what your customers are thinking about and seeing from the usage of video is yet another signal that they think through? And any sort of comparable customer references that are using your platform and LivingLens as well? Would love to hear about that. Thank you.

Leslie Stretch -- President and Chief Executive Officer

Great question. So we're really excited about LivingLens, and also about the other technologies, Crowdicity and so on. And when you combine the crowdsourcing of ideas with the video capture piece, it really does leapfrog traditional market research. And that was always a thesis.

Now we've started to see inbound inquiries around replacing traditional people-based, laborious small sample market research with mass- scale digital market research in the shape of ideas and crowd sourcing and video technology. So that's a real, very well-defined play for us, and we're going after that. We like that. And LivingLens can be set up, and you can be invited to a LivingLens survey or video in a heartbeat.

It's not a big implementation, right? But, really, all sectors are excited. And I encourage you to actually watch the LivingLens showreel or customer feedback. The ability to see a picture tells a thousand words. We're going to see the context of where the individual is to sense their emotions and sentiment around the feedback that they're leaving is second to none.

It's very powerful. It really is the way of the future. And I'd encourage you to look at that. I did mention in my prepared remarks, a number of customers.

And if you go to their website, you can actually see some great customer use cases. We'll send you a link. There's some great customers who are already using video. So very excited.

When I look at a pipeline activity with LivingLens, it's very encouraging, very exciting.

Tom Roderick -- Stifel Financial Corp. -- Analyst

Outstanding. Thank you for the detail. Appreciate it. Nice job.

Operator

Your next question comes from Kash Rangan with Bank of America. Please go ahead.

Jacqueline Cheong -- Bank of America Merrill Lynch -- Analyst

Hi. Thank you for taking our question. This is actually Jacqueline Cheong, on for Kash. Congratulations on the quarter as well.

You had another very strong quarter of net new customer adds at 59 new customers this quarter. And this represents a continual acceleration of net new adds on an organic basis. Can you double click on this? Like, is this just a result of salespeople hired six to nice months ago ramping up? And should we expect this trend to continue? And then secondly, has your sales hiring plans for this fiscal year changed at all in light of the coronavirus situation?

Leslie Stretch -- President and Chief Executive Officer

Great question. So I think that the result of -- the number of enterprise logos is good, pleased with it. It's very good. It's very early days in the store.

And I would expect, if we put aside the current healthcare crisis for a second, I would be expecting that to move nicely. We've already added 40% of salespeople from low number in the prior year. We need to absorb them, onboard them and make them effective. And we're focused on that and focused on execution this year.

We're day by day taking the coronavirus crisis very seriously. And day by day, we're assessing how to think about that for the future. But we're a recurring revenue business, a SaaS business. And so we always have to think about building up our go- to-market for the future, and availability of talent and all of those things.

And we're just balancing up day- to-day. But we've got a much bigger sales force than we had a year ago. They're very welcome. They're producing well.

Their attainment level last year was higher, even with a higher number and as you pointed out. And so we're happy with that. But take it day-to-day, things are changing rapidly as we go, but they're busy. And once again, digitally focused, highly productive, able to get things done, less time spent on long-road trips, more time spent on video, telecommunications and so on, which for this period, actually, we welcome.

Jacqueline Cheong -- Bank of America Merrill Lynch -- Analyst

Awesome. That's great to hear. Thank you so much.

Operator

Our next question comes from Chad Bennett with Craig-Hallum. Please go ahead.

Chad Bennett -- Craig-Hallum Capital Group -- Analyst

Great. Thanks for taking my questions. RPO numbers look outstanding. So a nice job there.

So just maybe, Roxanne or Leslie, for that matter, the net expansion continues to improve. I think you said 119%, Roxanne and Leslie. Do you expect that to continue to improve throughout this fiscal year?

Roxanne Oulman -- Chief Financial Officer

So you're right, our net expansion rate is solid at 119%, and we would always like to see it be higher. I think that we can be above 120%, and that's one of the things we focus. I mean what you need to look at and consider is the number of modules that we've added this year. So we've added over seven additional modules.

So now we have 12 modules that we can sell to our customer base. So not only do we've the opportunity to upsell and expand from a business perspective and multiple businesses and multiple divisions, which we do very effectively, we also have the opportunity to really go out and sell additional products, and we've seen that. As I shared in the remarks, now the app module that our customer uses is three. And we have over 25% of our customers or approximately 25% of our customers that are using four more modules, and we have customers that are using as many as 10 modules.

So there's a great opportunity for us to continue to expand. We're very focused on the products that we bring to our customers to ensure that they are continuing to help our customers expand their customer experience and get additional feedback from their customers so that they can continue to focus and improve the overall customer relationship that they have.

Chad Bennett -- Craig-Hallum Capital Group -- Analyst

Got it. And I know, I think a number of people are asking this in different ways, the coronavirus and the impact on the macro and so forth. And I think just the fact, if you look at your guide, in the reiteration of the guide, I'm not sure maybe if the guide would have been different three weeks ago or not. But if you assume net retention improves to, let's just say, to 120%, and your new logo activity has been outstanding, if not, accelerating, and I know it's not straightforward math, but you're guiding to 22% to 24% SaaS growth.

And if your net expansion or net retention is 120-plus, that's not a lot of revenue coming from net new, so to speak. If you look back, I think you said net retention was 116%, same time last year, trailing 12 last year, and you put up 26% SaaS revenue growth. So am I thinking about that correctly? And maybe, who knows what's going to happen, right? Day-to-day, like Leslie said, but maybe there is some level of conservatism in the guide. Thanks.

Roxanne Oulman -- Chief Financial Officer

Thanks, Chad. So one thing I would highlight is that approximately 40% of our bookings came from new customers this year, and that's relatively consistent with what we've seen in previous years. So you do highlight a good point. However, when we give you our guidance, it's important that we take all factors into consideration.

Now we haven't seen an impact on our business, and we really think that customer experience is center and foremost of digital transformation, and there could be an opportunity for us here. However, with that said, I don't think that we would be prudent at this current time since things are so early, not to factor all consideration. All considerations and all factors going on from a global economic basis into our guidance. So that's what we've done.

Chad Bennett -- Craig-Hallum Capital Group -- Analyst

Yes. Understood. Nice work.

Roxanne Oulman -- Chief Financial Officer

Thank you, Chad.

Operator

Your next question comes from Brian Schwartz with Oppenheimer. Please go ahead.

Brian Schwartz -- Oppenheimer -- Analyst

Yeah. Hi. Thanks for taking my question. And, again, good job here on the quarter.

I got a few questions here. So the first one, Leslie, I just wanted to get your color, what you're seeing on the uptick in terms of the option of some of those newer acquired products, Crowdicity and Zingle? And then if that at all was a driver in terms of the acceleration that we saw on the quarterly subscription revenue growth in that trailing 12-month fast billings growth?

Leslie Stretch -- President and Chief Executive Officer

A little bit. They're very small businesses. There are technologies, but growing fast. And the uptake and acceptance and interest and excitement of the customers is phenomenal.

And I see that myself. I'm on the road a lot, as you know. And it's a great time to test the validity of some of the thesis. But if you look at each one of those small technologies, they came with some great customer logos and great proof points and use cases.

So they're not hard to sell is what I'm trying to say. And I feel we're very excited about them. It's really phenomenal. It's got in the field and hear them position the proposition and how it fits together with the core feedback proposition and the value Experience Cloud.

So good contributors, good high growth in those gens that we're putting together. Some of them are big stories. Video is a big story, and to do it properly with integrity, and ethically and use customer data ethically, requires a big investment in platform, which we've already made. And I expect that to be a big story for us.

Brian Schwartz -- Oppenheimer -- Analyst

Thank you. And then second question I wanted to ask you was just on the cross-selling activity. I think Roxanne gave us a number. Clearly, the penetration is increasing in the customer base.

But I wanted to ask you, Leslie, is just the speed at which these add-on deals are starting to come into the business. If you're seeing a shrinkage between, say, the initial sale and when these add-on expansion start to roll into the business versus maybe the middle of last year or at the beginning of last year. And then I have one more follow up.

Leslie Stretch -- President and Chief Executive Officer

Yeah. No, that is a good question. I think -- I don't know that we are seeing that that we have enough data to suggest that. But keep in mind, we did add a fair bit of sales capacity.

We added the partnerships. And so I think those things are all in the mix. But I think it's pretty straightforward. Once you've got the feedback platform in place, to add digital, to add video, to add Crowdicity and ideation is a very straightforward technical step for a customer.

And so no reason they should deny themselves with that. But it's still early days. Some of these properties we've had for less than four months. But so far, very positive.

Brian Schwartz -- Oppenheimer -- Analyst

Great. And then the last question I had. Leslie, you did touch on this, just a little bit in the call, it was just about -- it sounds like some of the excitement about these newer vertical practices that are starting to ramp. And so the question I just wanted to ask you and Roxanne, for yourself, what is your expectation on how long it's going to take to ramp these newer vertical practices and partnerships, too? And then for Roxanne, should we expect, because of these investments, that we could see a rise in the sales and marketing percentage as revenue next fiscal year, along with these deepening opportunity in the verticals? Thanks.

Leslie Stretch -- President and Chief Executive Officer

Yeah. So we're already under way with our evolution. We've already added some vertical focus in the prior year. And then at the start of this year, we turned the wheel again and put our go-to-market, our organization behind the verticals.

Mid-market is geographic. Outside of the U.S. is geographic. So I feel we have a nice spread mix of geographic territory and verticals, and I think it's essential.

It's essential to be intimate with new customers' industry and business in order to penetrate quickly. I think it speeds up deals, increases the volume, increases the volume of the pipe. We tune into vertical market partners. And also, we tune in to vertical organizations and vertical events and vertical marketing.

And I think that's just way more powerful. And I think we're in the early stages of vertical marketing. You see more of that through the year. And actually right now, we have a great opportunity to refocus money and time we would have spent on big physical events and congregations.

We can focus on vertical market messaging and product messaging and so on that really resonates. I feel we've got a great story to tell, and now is our chance.

Roxanne Oulman -- Chief Financial Officer

And I think that the vertical alignment of the sales organization and the vertical alignment of our marketing organization actually allows us to do things in a more cost-effective manner because we can do it in a more targeted fashion. And we've made a significant investment in our productive sales capacity, and we will continue to evaluate and make the investments we need for the future years. But with that said, what we're looking at is that we'll be able to maintain, relatively maintain our sales and marketing percentage, expense percentage as a percent of revenue.

Brian Schwartz -- Oppenheimer -- Analyst

That's real helpful. Thanks for answering my questions this afternoon.

Roxanne Oulman -- Chief Financial Officer

Thank you.

Operator

Your next question comes from Richard Baldry with ROTH Capital. Please go ahead.

Richard Baldry -- ROTH Capital Partners -- Analyst

Thanks. You've had a pretty rapid pace of tuck-in acquisitions over the past six or nine months. So I'm sort of curious, what your comfort level is to pursue acquisitions in a world where maybe a little tough to meet face- to-face, or whether you've had a pipeline ongoing and ones that you kind of, through moving down the pipeline, that those might be easy enough to consummate, but looking at new one, might be tough for a short period of time.

Leslie Stretch -- President and Chief Executive Officer

Well, I think that's a good discussion. So for me, personally, the diligence process and one or two of the team here that are very experienced in that. Those are small meetings, one-to-one. They're small groups.

They're not big congregations. And so that's my point on that. And my personal commitment is to go where I'm needed, within CDC, WHO, government guidelines, of course. And I'm seriously, I mean that, to take that very seriously.

So I don't feel that that's an issue for us in our pipeline that we have. And let me be very directed by that, we do have a pipeline of opportunities. And secondly, frankly, I see opportunity here. I smell opportunity, and I think that we should be continuing.

What I like about our approach is the platform and signal framework lends itself beautifully to smart M&A, in my opinion. And by acquiring signals that, in many cases, we've already worked with. We already have Zingle in our customer base. We were already using and working with LivingLens and other video technologies.

So we're familiar. These types of approaches are what you should expect from us, working with signals that we already work with. And so I think that that is one dimension of the business where we're going to continue. And we have plenty of cash.

We have no debt. And our tuck-in strategy has proven to be a good approach, so I see no change there.

Richard Baldry -- ROTH Capital Partners -- Analyst

How about almost from an opposite cost perspective. When you think about, would there be some challenges to -- while were people are flying around, left to recruiting. Again, meeting people face-to-face, bringing them on board, onboard training, etc., so is there a possibility that your headcount growth might be more maybe second half weighted than normal as you kind of push off some of those things than what would typically be the pattern?

Leslie Stretch -- President and Chief Executive Officer

Well, I mean, I think that's a very thoughtful discussion. And we have been thinking about that in the past few weeks and days. We don't have a process where we need to bring people into California for big panel interviews for recruitment. We really do like video interaction.

And then we have great locations around the world and in the U.S., in particular, where we can bring people in for one-to-one. So far, I think we can continue to do that within guidelines and in a sensible way. What we want to avoid are unnecessarily large, long trips, unnecessary large congregations. And so I feel that we do have the tools and approach, and the understanding of what we're looking for to use digital technology and use our local contact, where necessary, to keep things moving.

And I have to tell you that in my travels and I talked to every executive that I meet, every CEO I meet about this, and people want to run their business. They're not throwing in the towel. They want to run their business, and they expect the demands will be placed on them, and they expect to execute. And so we're no different.

Richard Baldry -- ROTH Capital Partners -- Analyst

It has to be -- you're really approaching now more of a suite sale than a point solution. So are you seeing any change in the new logo wins in terms of how many are just greenfield wins, people approaching this as a new process within the company versus how many are competitive displacements because of the breadth of what you can do versus a point solution?

Leslie Stretch -- President and Chief Executive Officer

Yeah. No, that was a great discussion. So my view is that the vast majority of the market is still tuning into customer experience and feedback through survey technology and old school market research technology. What we provide is an operationalization of data in a platform, and we seek to consume -- individual silos are very costly for customers.

So one of our propositions in the current market is to go in and say, the customers you're buying a social listening service over there, a service over here, a digital service over there. And they never meet in the middle. The data doesn't end in the platform. We can't operationalize the feedback.

We can't analyze it. We can't visualize it and we can't act on it. And the value does all of that. And that's a really powerful proposition at the current sign, that all of our sales people are being trained on.

And we're asking them to take to customers, consolidate siloed data pools from old school, social listening. Old school survey, get rid of all that nonsense, right, and put it into a platform where we can operationalize customer experience. That's what modality does better than anybody else. So get feedback where it matters, so we can act on it.

Machine read feedback at massive scale, right? That's where Medallia really comes into its own. So this is an exciting, for many people, obviously, tough situation. But this is a very exciting opportunity for us to really disrupt digitally. And I think most of the market still sees customer experience as simple survey and stuff like that.

Now our enlightened customers, some of the biggest, best brands in the world see the value of operational analysis and distribution of feedback at scale, machine learning and so on. And these are the things that we're majoring on.

Richard Baldry -- ROTH Capital Partners -- Analyst

Thanks. Congrats on a great quarter.

Roxanne Oulman -- Chief Financial Officer

Thank you.

Operator

Your next question comes from Brad Zelnick with Credit Suisse. Please go ahead.

Bhavin Shah -- Credit Suisse -- Analyst

It's Bhavin, on for Brad. Congrats again on the quarter, and thanks for taking my question. Great to see the metrics on module adoption. Can you just dive in a bit deeper here? What modules are seeing the most attraction with their customer base? And then just on employee engagement, what does the pipeline look like here?

Roxanne Oulman -- Chief Financial Officer

Perfect. So from a module perspective, we see, obviously, our platform and our Theme Explorer, text analytics product to use the most. And then beyond that, we see our digital, we see our social product being used, and then it starts to vary based on vertical in regards to what's most important from them from a single signal capture. So Crowdicity is a great example.

Zingle is a great example. Our customer success platform, which is Strikedeck is another great example for our business to business companies. So it really varies. But we're seeing -- we're pleased with the uptick that we're seeing.

And the other half of your question was?

Bhavin Shah -- Credit Suisse -- Analyst

No, just pipeline on employee engagement.

Roxanne Oulman -- Chief Financial Officer

Oh, yeah. So employee engagement is really important and employee engagement has a direct impact on customer experience. And we think based on where the world is right now at this moment in time, employee experience is extremely important for all the companies. So we've seen a significant uptick.

We've talked about some of our large customers who have been a customer experience, customer who have now deployed EX products. So we have won a very large retailer in the United States, who has employed -- sorry, rolled out EX and they rolled out their EX product in about three to month-month time frame, and now they're bringing on another country every two to three weeks. So we've seen that happen. We've seen other large deployments of EX.

And we've seen companies who have come to us for EX and then they choose to deploy CX afterwards.

Bhavin Shah -- Credit Suisse -- Analyst

That's very helpful, Roxanne. And then just a follow up for Leslie. I appreciate the color on the vertical exposure. Maybe can you just give us an insight into what some of your hospitality customers are saying to you more recently? And how have you been seeing, in terms of the user engagement, trending for this industry?

Leslie Stretch -- President and Chief Executive Officer

Yeah. I just visited one of our great hospitality customers in the Midwest last week. Obviously, it's challenging for them, especially those with properties in the APAC and China and so on. There's no doubt it's a challenging time.

But this is also a good time to regroup and think about -- get a breadth and set up the digital feedback environment the way they want it. So that was kind of the bulk of one of the recent discussions that I have, but we're going to serve them. You know, it's a relatively -- we're very well-known for hospitality because people see a survey from a hotel or an airline or whatever. But actually, it's -- combined, it's about 10%, 11% of our business.

And so we'd like to be bigger there over time. So key to being bigger there over time is in this crisis time is to serve them and help them and look at opportunities to explore new digital initiatives. And so we navigate through this with them, and that's what we're doing. So the intensity of communication with those customers to me, at this time, is more important than ever.

It's no doubt, it's tough for them. They have the most direct effect. But that's how I see it. Fortunately, we have some of the biggest, boldest brands in the space, and we have good long-term contracts.

So we intend to continue to support them.

Bhavin Shah -- Credit Suisse -- Analyst

I appreciate all the color, and congrats again.

Roxanne Oulman -- Chief Financial Officer

Thank you.

Operator

Your next question comes from Rob Oliver with Baird. Please go ahead.

Rob Oliver -- Baird -- Analyst

Great. Thank you guys very much for taking my question. Two for me. One, just congrats.

You guys made a hire. I saw the Lee Becker hire, which you announced, Leslie, on the fed side. And I know you guys just got FedRAMP approval. And coming from VA, I think, particularly interesting, we spent some time at D.C.

last year in VA, has been a real thought leader in terms of digital transformation in government. So much so that I think other government agencies have got to beat them up to put their specs online and let everyone else know how they did it. So just curious what you guys are thinking about from that fed vertical? There's just been a lot of talk about verticals on this call. So I figure I'd touch on one that hadn't been touched on yet.

And then I had a quick follow up.

Leslie Stretch -- President and Chief Executive Officer

Yeah. Great. I think it's a long-term plan in government. You've got to be all in or all out.

We are all in. Lee is an outstanding exec, and I'm really pleased that he chose Medallia. A great person to lead our efforts. This has significance beyond the U.S.

And I think as I am a U.S. citizen, I'm American, but originally, he was a European. And in my tech career in Europe and when selling to public sector, that brand was always a tick in the box. You needed to have it even if you were in Europe and the U.K.

or whatever. So that's very significant, I think, our commitment to FedRAMP High. It's a small club of people that actually execute on FedRAMP High. You don't commit to doing that unless you're confident in your platform.

I think the other thing is, what we've learned from the VA is the early warning signal around veteran's health and mental health, in particular, picked up in the feedback platform is a really powerful offer for other verticals. And so we have a healthcare vertical that's really brand-new, a year old for us, and we really need to look at patient experience alongside citizen experience. And then if you think of the U.K., two of the biggest employers in Europe are -- in the world, in fact, in Europe are in the U.K., National Health Service and the Inland Revenue. And so we haven't even scratched the surface of that market.

So that is absolutely brand-new for us, and we're going up all in, as you can see from Lee's hire. And we have a great team. We have an ex government guy, an ex CIA guy who's an absolute, absolute dynamite leader, Brian Michael, in the business. And we have Nick Thomas leading it.

And we have some great players going on to that global market. I'm very excited. It is a long-term plan, right? You've got to have a three-year plan minimum in a three-year view of the world, but getting through FedRAMP positions as well.

Rob Oliver -- Baird -- Analyst

Great. Thanks, Leslie. That's helpful. And then, Roxanne, just a follow up on the previous question on employee experience.

Just wanted to just follow up on that a little bit. I know it's still very, very early in the ramp for employee experience as you get more traction with the suite sale, how is that resonating? And then obviously, a lot of questions around COVID and the impact on the business, but this strikes me as potentially one that could in part benefit. I think there's probably a lot of companies that are concerned about blind spots now in their employee base as they suddenly send their employees out into the world of remote work. I'm just curious to get more color there.

Thank you guys very much.

Roxanne Oulman -- Chief Financial Officer

Yeah. Rob, I can completely agree with you. Every customer we talk to, we always talk about our employee experience platform and how the employee's experience, not only impacts the customer experience, but impacts the overall company. And really where we are today, it's more -- to your point, it is more important than ever for our customers to really be able to see how their employees are being impacted by this.

And be able to see some early warning signs and that they can, I'll call, alleviate some of the anxiety that maybe out there, specifically for their employees. So I think, not only is employee experience a great opportunity for us, also some of our digital products, where you're able to gather signal feedback is an opportunity. And also CX is an opportunity. In a time of uncertainty, it's really important not only to hear from your employees, but also to hear from your customers.

Operator

And we do have time for one more question. Your last question comes from Terry Tillman with SunTrust Robinson. Please go ahead.

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

Hey, Leslie and Roxanne. A lot of great questions have been asked, and I'm pretty much run out of all of them now because of all those great questions. But I did have one question, maybe Roxanne in terms of, as we're thinking about our model, anything that you could call out that could be different from a seasonality standpoint or some particularly large renewals as we're thinking about our subscription billings or current RPO for the year? Thank you, and nice job.

Roxanne Oulman -- Chief Financial Officer

So, Terry, I think that's a great question. No. From a seasonality perspective, when I look at the key metrics overall, there's not anything that I see particularly that would drive any material differences in the seasonality.

Operator

That is all the time we have for questions. I'll turn the call back to management for closing remarks.

Leslie Stretch -- President and Chief Executive Officer

Great. Thanks very much for joining us. I hope to see you on the road or hope to talk to you soon.

Duration: 65 minutes

Call participants:

Roxanne Oulman -- Chief Financial Officer

Leslie Stretch -- President and Chief Executive Officer

Phil Winslow -- Wells Fargo Securities -- Analyst

Bhavan Suri -- William Blair and Company -- Analyst

Tom Roderick -- Stifel Financial Corp. -- Analyst

Jacqueline Cheong -- Bank of America Merrill Lynch -- Analyst

Chad Bennett -- Craig-Hallum Capital Group -- Analyst

Brian Schwartz -- Oppenheimer -- Analyst

Richard Baldry -- ROTH Capital Partners -- Analyst

Bhavin Shah -- Credit Suisse -- Analyst

Rob Oliver -- Baird -- Analyst

Terry Tillman -- SunTrust Robinson Humphrey -- Analyst

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