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Edited Transcript of MDLA.N earnings conference call or presentation 2-Jun-20 8:30pm GMT

Q1 2021 Medallia Inc Earnings Call

PALO ALTO Jun 4, 2020 (Thomson StreetEvents) -- Edited Transcript of Medallia Inc earnings conference call or presentation Tuesday, June 2, 2020 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Leslie J. Stretch

Medallia, Inc. - President, CEO & Director

* Roxanne M. Oulman

Medallia, Inc. - Executive VP & CFO

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Conference Call Participants

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* Bhavanmit Singh Suri

William Blair & Company L.L.C., Research Division - Partner & Co-Group Head of Technology, Media and Communications

* Brad Alan Zelnick

Crédit Suisse AG, Research Division - MD

* Brian Jeffrey Schwartz

Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

* Chad Michael Bennett

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Nicholas Ivan Negulic

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Philip Alan Winslow

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Richard Kenneth Baldry

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* Scott Randolph Berg

Needham & Company, LLC, Research Division - Senior Analyst

* Sui Ying Cheong

BofA Merrill Lynch, Research Division - Analyst

* Thomas Michael Roderick

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Walter Herbert Pritchard

Citigroup Inc, Research Division - MD & U.S. Software Analyst

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Presentation

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Operator [1]

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Welcome to Medallia's First Quarter of Fiscal 2021 Earnings. (Operator Instructions) Please be advised today's conference is being recorded. (Operator Instructions)

I'd now like to turn the conference over to your speaker today, Roxanne Oulman, Chief Financial Officer. Please go ahead.

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Roxanne M. Oulman, Medallia, Inc. - Executive VP & CFO [2]

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Thank you, Jesse. Welcome to Medallia's First Quarter Fiscal 2021 Earnings Call. We issued our earnings release a short time ago and furnished the related Form 8-K to the SEC. To access the press release, please see the Investor Relations section of our website.

With me on the call today is Leslie Stretch, President and CEO of Medallia.

Before we begin, please remember during the course of this call, we will make forward-looking statements about the operations and the future results of Medallia that may vary and involve many assumptions, risks and uncertainties, including those related to the COVID-19 pandemic. To the extent possible, our forward-looking statements seek to take into account the impact of COVID to 2019. However, the crisis that this pandemic has created is very fluid, and the situation is constantly evolving. If any of the risks or uncertainties related to the forward-looking statements develop or if any of the assumptions related to the forward-looking statements prove incorrect, actual results could differ materially from those expressed or implied from our forward-looking statement.

For a discussion of our risk factors associated with forward-looking statements please refer to the text in the company's press release issued today and to our periodic reports filed with the SEC, including our Form 10-K, dated March 19, 2020. We disclaim any obligation to update any forward-looking statement.

On today's call, we will refer to both GAAP and non-GAAP financial measures. The nonrevenue financial figures discussed are non-GAAP, unless stated that the 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 trended metric performance that we believe will aid in understanding and evaluating our performance over time.

Now I'll turn the call over to Leslie.

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [3]

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Thank you, Roxanne. Good afternoon. I'd like to begin my prepared remarks by wishing everyone a safe and healthy year ahead. I'd especially like to thank each and every Medallion for their responsiveness and flexibility through Q1 as we saw the pandemic in full effect. Notably, hospitality, travel and bricks-and-mortar retail business segments were the hardest hit, and the shock came quickly and cannot possibly be overstated. However, our company pivoted to work remotely in one day, and we began serving our customers completely virtually.

We beat our outlook, and our Q1 revenue was a record. Our operating income was well above our forecast, too. Our performance was backed up by solid cash collections and long-term renewals. Our digital signals increased in importance, and some sectors grew daily use and feedback volumes significantly. As you know, we previously shared with you that last year, we generated approximately 60% of bookings from Medallia's existing customer base. It's easier to sell to existing customers who have seen the ROI and the value that Medallia provides. So we pivoted some of our go-to-market efforts to focus on upsells and cross-sells through our existing customer base, as you'd expect.

Other sectors, which were, frankly, on life support in March and April, saw customer feedback decline with business activity, as you'd expect. I believe working alongside those sectors most deeply affected will bode well for the long term however, whilst we address the heightened appetite for feedback and connection and work from home, e-commerce, telco and media and other organizations engaged in virtual business.

Our own usage metrics reveal some important trends that I'd like to highlight. For example, from early March to the end of May, we've seen an increase in overall feedback in the retail, insurance and health care verticals, with retail digital volume increasing over 140%. In addition, 50% of our Conversations customers have seen an increase in messages during this time frame.

We also completed 40% more deployments in Q1 over the year ago quarter, proving our team's ability to successfully deliver for our customers remotely. Our remote working capability, coupled with the increased automation and our vertical best practice packs, enables customers to get live quickly with sophisticated operational feedback systems.

Turning to review our direct COVID-19 initiatives. We established a pandemic topic set in our Theme Explorer technology for every major customer to produce a heightened detection capability to surface COVID-related issues, concerns and ideas of feedback data. We established the idea and crowdsourcing platform in the U.K. for testing methods 2020 in just 24 hours, an implementation that would normally require 6 weeks of setup work.

Lord Bethell, the Under Secretary of State for National Health Service said, and I quote: "This particular project has been one of the most successful routes to making innovation in COVID testing succeed." We provided Medallia Experience Cloud to the World Health Organization and the International Chamber of Commerce to pull 45 million businesses on COVID-19 issues and reopening and start-up plans. To date, WHO has received more geographically dispersed feedback than ever before in its history.

We also joined a partnership with the Public Sector Commission in Western Australia to create iThink for employees to collaborate on projects that benefit communities in civic life in the region. The iThink community has now become a key tool in Western Australia's fight against the pandemic. More than 4,000 people are actively engaged in collecting COVID-19 problem solving.

We've seen traction in the public sector, health care and life sciences. These initiatives are new for Medallia and come at just the right time. We also enhanced our solutions to address the new normal. Our customers are using Zingle to provide contactless services and our digital technology to enhance and gather feedback through their websites and mobile applications. Our new market insight suite combining LivingLens and Crowdicity replaces the old-school customer focus group. In this socially distant environment, this virtual capability provides great return on investment. This is one of the many activities that I believe will endure both today and tomorrow. Now with these technologies, companies can make their entire customer base their focus group and see and hear, not just read their feedback.

With the acquisition of Voci, we introduced Medallia Speech, incorporating Voci's best-in-class technology into our Experience Cloud platform, creating an industry-leading speech solution combining call transcription, speech analytics and artificial intelligence. It opens up a whole new market in the contact center that is important for our enterprise customers. We're seeing early traction in pipeline development.

And in Q1, we launched Quickstart Solutions, which are enterprise-grade, prepackaged offerings, which can be deployed in days without IT support. We currently offer several versions to understand customer, employee experiences as well as specific interactions tailored to specific use cases across multiple industries. These offerings are clearly differentiated as they include predefined signal capture and reporting as well as text analytics and video feedback. They also offer an easy upgrade path to our enterprise offerings.

As you know, Medallia primarily serves the large and medium enterprise market. And although even the largest companies are not immune to the current economic environment, we believe they are well positioned to weather this downturn. At the same time, we do see strength and opportunity in the mid-market.

Turning to our recent new logos in the quarter. Selected recent wins include Arnott's Biscuits, Eni gas in Italy, Hitachi Vantara, Hyland Software, Maersk in partnership with Ipsos, MSA Safety, Pandora Jewellery, Panera Bread, Pinsent Masons, QAD and Shipt, amongst others. One of our new customers I'd like to highlight here is Shipt, a membership-based shopping and delivery service. Shipt's business has experienced a rapid acceleration. At this moment, Shipt is embedding Medallia in their mobile application as they recognize that it's mission-critical to effectively manage and invest in the experiences they deliver to members and shoppers. We're thrilled to be a key partner in this mission and look forward to delivering great ROI. Expansions in the quarter included BAC Credomatic in Latin America and Charter Communications in the U.S.

Turning to a review of our Experience conference and our ongoing digital market.

Last month we held our now virtual conference, Experience, for over 7,700 participants. Prospects and customers continue to view the virtual content generated by the event. I was pleased with the production quality and the impact of this event. We generated positive pipeline and awareness of our new initiatives and new products. At the conference, a number of marquee customers shared their return on investment stories, including Bank of America, IBM, State Farm and the Veterans association.

Moving to a quick review of our channel alliances. Our Alliance business focuses on partnerships with systems integrators like Accenture and Deloitte; strategic cloud businesses like Salesforce, ServiceNow, Adobe and Workday; and vertical players now like Amadeus, Veeva and our important market research partnership that I mentioned with Ipsos.

In the quarter, we're pleased to extend our relationship with our newest partner, Microsoft. Medallia went live on the Microsoft Azure application gallery. We also announced recently a partnership with Veeva. In May, Medallia joined the Veeva Technology Partner Program for a tight integration between our Experience Management Platform and Veeva CRM. This partnership between the 2 leading platforms in their respective categories has the potential to drive significant value for the life sciences industry.

In May, we joined the Guidewire PartnerConnect Solution's Alliance Program, which provides property and casualty insurers running Guidewire access to a curated group of third-party solutions.

We recently integrated LivingLens with Zoom. This integration provides a valuable video asset management platform, allowing companies to video record research sessions, enabling the researcher to generate show reels for sharing. During our Experience conference, Atlassian demonstrated how they are using this powerful combination to provide a single secure home for recorded research sessions, allowing them to organize data and perform fast search on valuable video assets.

I want to spend a little bit of time talking about communicating return on investment in the virtual world. Solutions that demonstrate clear and sustainable ROI are our maniacal focus at Medallia. Navigating the virtual world, we pivoted to selling and implementing remotely, as I mentioned. My own customer interactions have increased, saving time and money as I travel the world virtually, and we no longer have to wait for a country tour to penetrate overseas markets.

I'm very pleased with our team's ability to sell virtually. Salespeople who are waiting for a return to pre-COVID conditions and who depend on physical meetings will not do well in the new world order, and I'm happy to report that our sellers have embraced remote working and virtual selling. And we've already seen entire campaigns develop and close virtually. Customers who actively listen to as many sources of feedback as they can and who use intelligent technology to analyze feedback at scale establish strong relationships. Strong relationships underpin healthy economic activity, leading to material return on investment.

Let's now turn to look at our outlook. It's actually exciting to see some of the most challenged businesses showing early signs of recovery, including improved occupancy, increased travel and more digital transactions. In Q2, whilst we'll see some continued pandemic impact, we do benefit from a predictable recurring SaaS business with a broad solutions portfolio and diverse vertical and geographic markets. We have a number of situation-relevant propositions, Zingle messaging, LivingLens video and Crowdicity for ideas. Our new Medallia Speech technology is proving mission-critical in contact center situations and other speech-to-text applications.

Whilst April was negatively impacted, we have had a stronger start in Q2. We've already closed several deals that pushed out of April into May, including a financial services business that renewed a 5-year $40 million, $4-0 million deal, including a small upsell component; and a global retailer that renewed a 7-figure contract alongside, again, a small upsell component. Both of these deals included Employee Experience, emphasizing the return on investment of staying connected to your teams at this time.

We still expect some challenged customers and also challenges around new business acquisition as everyone becomes more accustomed to building and sustaining virtual relationships. However, I am personally excited at the velocity and volume initiatives that are possible in virtual business engagement.

On the bottom line, we're benefiting from much-reduced travel expenses. We see more value in carefully crafted digital marketing, Medallia Masterclass, Medallia expert on demand and so on, customer webinars, and we'll continue to invest in these initiatives. At the same time, we are critically reviewing our present and future real estate needs as the opportunities of virtual work become fully realized.

We think the full year picture is still hard to predict. And whilst we are hopeful of a solid second half of the year, we think it's prudent to guide quarter by quarter for now. Last year, we added 40% productive sales capacity over the prior year. We will continue to selectively hire sales talent with product and vertical market skills through the year. I do believe we can maintain our profitable growth profile through this financial year and beyond. Our teams are fully staffed, and we have plenty of product to sell.

For now and for the remainder of FY '21, our focus is on execution and the support of our customers and our critical employees.

I will now hand over to Roxanne for more color on the financials.

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Roxanne M. Oulman, Medallia, Inc. - Executive VP & CFO [4]

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Thank you, Leslie, and good afternoon, everyone. We reported strong financial results in Q1, 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.

The total revenue for Q1 was $112.7 million, an increase of $19.1 million or 20% over Q1 of fiscal 2020. In Q1, SaaS revenue was $89 million, an increase of $17.3 million or 24% year-over-year. Recurring revenue, consisting of SaaS and managed services, continues to be at 9% of total revenue. Professional services revenue was $23.7 million for the quarter, which increased 8% year-over-year. Our professional services teams have worked -- always worked in a remote environment, so the work-from-home restrictions did not impact our service's, organization's ability to implement our platform. As Leslie noted, we completed 40% more deployments in Q1 over Q1 of the prior year. Recurred -- recurring managed services revenue accounts for more than 50% of our total professional services revenue, which has been consistent.

Turning to some key metrics. Our new customer growth was strong. We ended the quarter with 782 enterprise customers, an increase of 38% year-over-year. Medallia provides a high ROI to our customers as evidenced by our strong renewal rates. For the 12 months ended April 30, 2020, our dollar-based net retention rate was 117%, a slight moderation from 119% in Q1 of the prior year. This metric has varied slightly quarter-to-quarter. However, it consistently remains in the mid- to high teens. We believe our strong retention rate underscores the ROI our platform provides and our ability to retain and steadily expand business with our existing customer base.

I'll now turn to our non-GAAP gross margin and operating expenses. SaaS revenue gross margin was 83% compared to 82% in the year ago quarter. We believe our SaaS margins are among the best-in-class for SaaS companies. In Q1, professional services gross margin was 18% compared to 15% in Q1 of last year due to higher-than-expected utilization rates. We continue to focus on driving more professional services to our ecosystem, along with subcontracting some additional services. And we anticipate professional services gross margin will range between 10% to 15% for the remainder of the year.

Sales and marketing expenses in Q1 were $41.5 million or 37% of revenue.

On our last earnings call, we anticipated that we would incur approximately $3 million of termination fees related to our physical Experience annual conference. I am pleased to note that by working closely with our vendors, we did not incur termination fees.

R&D expenses were $20.1 million for the quarter or 18% 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 $12.9 million or 11% of revenue in the quarter. We expect additional leverage on the G&A line over the longer term.

Non-GAAP operating income in the first quarter was $3.5 million compared to $2 million in Q1 of fiscal 2020. Similarly, non-GAAP operating margin in the quarter was 3.1% compared to 2.1% in the year ago quarter. Non-GAAP net income was $3.1 million compared to $1.5 million in Q1 of last year. We incurred a non-GAAP income tax expense of $636,000 in Q1, which is in line with the same period last year. Our GAAP income tax benefit of $60,000 includes benefits due to stock option exercises in Q1.

Now turning to the balance sheet. We ended Q1 with $407.5 million in cash and equivalents, an increase of $63.8 million from the prior quarter, driven by cash generated from operations. And we drew $43 million from our line of credit in anticipation of funding the acquisition of Voci that we subsequently closed in Q2. While we have a strong cash position, the rates of the revolver were extremely attractive, and this allows us additional flexibility. SaaS deferred revenue was $192.9 million, an increase of 23% over SaaS deferred revenue in Q1 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 SaaS billings growth rate is a more meaningful measure of our performance.

For Q1 of fiscal 2021, our trailing 12-month SaaS billings growth rate was 23% compared to 30% in Q1 of the prior year. There is some variability in this metric. As in Q1 of last year, we benefited from the changes in our go-to-market strategy that Leslie instituted upon joining Medallia.

Now moving on to RPO or remaining performance obligation. As I have shared with you before, our RPO metrics may be impacted by contract duration and extensions as well as timing of renewals for large multiyear contracts. And while RPO provides for strong visibility, it may fluctuate from quarter-to-quarter. At April 30, our total remaining performance obligation for total RPO was $631 million, an increase of 35% year-over-year. Our noncurrent RPO grew 53% year-over-year. This is the result of the large number of multiyear contracts we signed over the last 12 months.

In addition, current RPO, which is the amount we expect to recognize as revenue over the next 12 months, totaled $323 million, an increase of 21% year-over-year. We expect to recognize approximately 51% of total RPO over the next 12 months.

Please note that the 2 large deals that Leslie mentioned, which closed in May, are not reflected in our Q1 RPO metrics.

Turning to cash flow. We generated a positive $23.1 million in cash flow from operations for the quarter, representing an operating cash flow margin of 21%, an increase from the 19% we generated in Q1 of the prior year. As a reminder, we've historically experienced seasonality and cash flow from operations given that 40% of our billings occurred in the fourth quarter. As a result, our operating cash flow has been positive in Q1 and Q4 followed by cash flow from operations being negative in both Q2 and Q3, as it has been for the past few years. We anticipate the seasonality to continue this year.

Despite the current economic uncertainty, we believe we can continue to drive operating margin expansion in fiscal 2021 over the prior year. We're pleased to have a strong balance sheet and liquidity as we navigate this environment relative to companies that rely on large amounts of new business from new customers, Medallia is in a better position given our overall new business has traditionally been driven more by our existing customers who expand their use of Medallia. As Leslie noted, it's easier to sell to existing customers who have realized ROI and the value Medallia provides.

Now turning to our outlook. The current economic environment is clearly uncertain for the businesses across the globe. As a result, we are withdrawing our previous annual guidance. However, based on Q1's performance and Q2 quarter-to-date, coupled with our strong level of revenue visibility, we will be providing our outlook for the second quarter of fiscal 2021. With our extended technology portfolio, there are many ways that we can work creatively with our customers to engage their employees and customers. However, there are certain customers that have been more financially impacted than others. The majority of our contracts are multiyear, irrevocable. They include contracted minimums. And we expect our customers to honor their agreements. For a limited number of special customer cases, we have offered a modified subscription or flexible payment terms in exchange for extensions of their existing contracts. On average, the extension period has been one additional year. As a result, we anticipate that Q2 SaaS revenue will be impacted negatively by approximately $1 million due to those modified subscription terms. Medallia is strategic to our customers who view us as essential to reducing operating costs, drive revenue and improve customer retention. We believe strongly in partnering with our customers and believe we will emerge stronger together.

For Q2, we are projecting total revenue to be between $109 million and $111 million. We expect SaaS revenue to be between $89.5 million and $90.5 million, representing growth of 20% to 21% year-over-year. For Q2, we expect non-GAAP operating income to be in the range of $1.8 million to $2.3 million. We expect other income and expense to be between negative $500,000 to negative $1 million, primarily due to the reduced interest rate environment. And we expect income taxes to be in the range of $500,000 to $1 million. We expect basic weighted shares outstanding to be approximately 140.5 million and fully diluted weighted shares outstanding to be approximately 173.5 million.

Finally, we anticipate our capital expenditures to be in Q2 approximately $5 million, primarily related to enhancing our data center capabilities to meet our customer demand. In conclusion, we will balance growth and profitability by continuing a financially disciplined approach. We are committed to be a profitable business while maintaining our innovative edge and optionality to invest in R&D and go-to-market efforts.

For the full fiscal year 2021, we're committed to marginal non-GAAP profitability on an operating income basis. We continue to focus on breakeven cash flow from operations for fiscal 2021. However, as I discussed earlier, our priority is to partner with our customers in severely impacted industries to allow for flexible payment terms where necessary, which will impact cash flow from operations.

In closing, we are confident in the strength of our business and believe we are well positioned to execute during these uncertain times and emerge as a better, stronger company. Our Customer and Employee Experience solutions are even more relevant in this new environment.

Leslie and I will now take your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Brian Schwartz with Oppenheimer.

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Brian Jeffrey Schwartz, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [2]

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Leslie, can you provide a little more color in regards to what that customer bought on that $40 million deal? We usually don't hear about that size of a deal. And I was also curious if that deal closed virtually in terms of the deal process. And then, Roxanne, can you share at all in terms of the duration of the deal or just thinking about how that will be recognized on the financials over its life? And then I have a follow-up.

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [3]

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Cool. So thanks, Brian. So it's a 5-year -- $40 million total contract value over 5 years. It's Employee Experience, and there are some other technology elements to it. And there was an upsell piece to it. It was a renewal after a customer has really sort of tried for a year. So it's a really successful implementation, and they came back and it was closed entirely virtually.

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Roxanne M. Oulman, Medallia, Inc. - Executive VP & CFO [4]

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And Brian, I'd like to share that as we shared in our remarks, the upsell portion of it, the expansion was a small portion in the total renewal.

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Brian Jeffrey Schwartz, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [5]

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And then the one follow-up question that I had and then I'm happy to pass it along is, Leslie, you talked a little bit in terms of kind of comparing and contrasting what you've seen in -- from the business and the demand in May versus April versus March. Can you maybe elaborate on that and maybe any thoughts on over the next several months?

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [6]

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Sure. So -- I mean if we -- remember, we had a blowout Q4. We did very well. And we were setting up for a nice, steady beat and raise and an acceleration story, and then COVID really took on momentum from the end of March. So we're in a different place now. April was a tough month, no doubt about it, especially for hospitality and transport, but also for bricks-and-mortar retail, as I mentioned. May has been a much better month, thankfully. It's still unpredictable. We don't know how things will play out. We have other issues, macro issues coming on the scene. And our solution is a sophisticated customer feedback platform that requires careful thought and careful planning but implementations are virtual. We've been able to implement everything virtually, implemented and went live with more situations in Q1 this year than we did last year. So I'm super confident we're able to operate the company virtually as we are. But most importantly, to sell, not just to existing relationships but to make new relationships virtually and also to capitalize on the efficiency that this operating model brings, getting to see more customers, getting to deal with more opportunities and more situations and doing good land-and-expand deals. And so I'm actually quite optimistic, quite excited about the remainder of this quarter and actually the back half of the year. But it's an unpredictable environment out there, so let's not get too ahead of ourselves.

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Brian Jeffrey Schwartz, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [7]

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Roxanne, can I ask you one last question, too? Because it's certainly going to be topical in regards to the acquisition contribution in the quarter. Leslie talked about the uptake in the adoption of the Crowdicity and Zingle and LivingLens. Is there anything that you can share with us in terms of either the contribution to revenue or deferred revenue or billings? That's all I had.

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Roxanne M. Oulman, Medallia, Inc. - Executive VP & CFO [8]

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So as we've shared previously with you, the contribution from the acquired revenue for these acquisitions was very immaterial. We're focused on buying the best technology and bringing it to our customers. So we are very pleased to have these technologies. We feel that LivingLens and Crowdicity, as we shared in our remarks, have brought additional signal capture and additional functionality to our customers that we didn't have. And then in the beginning of Q2, we added Voci. And Voci is also very important for our enterprise customers, and it gives us a gateway into the contact centers.

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Operator [9]

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Your next question comes from Terry Tillman with SunTrust.

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Nicholas Ivan Negulic, SunTrust Robinson Humphrey, Inc., Research Division - Associate [10]

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This is actually Nick on for Terry. So I guess just to start, at the user conference, you mentioned some analytics capabilities that you announced. How are those capabilities resonating with customers? This potentially led to increased platform usage or adoption? Just -- I guess just how should we think about those?

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [11]

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Yes. Great question. Well, the speech-to-text capability was the highlight. That's brand new. So we have a very exciting pipeline, but it's brand new. And so we need to see how execution plays out, but great opportunities to extend our footprint.

Video is really very topical at the moment. Obviously, LivingLens is a very exciting situation for us from a small business, same with Ideas, same with Crowdicity. So actually very pleased with their contribution to pipeline and their contribution to the business in the quarter. And cross-sell and upsell opportunity is very significant. And the main thrust of what we're doing is moving from or setting out our store as delivering understanding. Surveys are old-school text ways of getting to validation. We're about capturing video, voice, messaging, all of those signals that deliver understanding. Survey, too, but together and combined, they deliver the understanding of where our customer is going, what they're going to buy next, what they're not going to buy, why they say and why they leave. That's the proposition that's really resonating with customers who want to stay connected now to their customers, whatever shape they're in, and also their employees. So that's what's really going on in every discussion right across the verticals.

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Nicholas Ivan Negulic, SunTrust Robinson Humphrey, Inc., Research Division - Associate [12]

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Got it. That's helpful. And just as a follow-up, could you guys touch a little bit more on just partner engagement over the past few months? I guess how has engagement overall been tracking recently? And then I guess how should we think about activity with some of your newer partnerships with Salesforce and others?

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [13]

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Yes. Sure. I'm really pleased with the ISP segment, in particular, so the big cloud player Salesforce, Adobe, ServiceNow and so on. Microsoft is new, so we'll see how that plays out. But as I mentioned on our prior report, I'm really excited about these vertical partners like Veeva and Guidewire. That's a new dimension for us. We have a lot of target customers and prospects in common. And working together with those players who I think is good and I'm very happy with what our channel -- the way our channel business -- which in its current form, didn't exist really a year ago. I'm really pleased with the progress that we've made, and I think we'll see a good contribution supply from them.

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Operator [14]

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

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Sui Ying Cheong, BofA Merrill Lynch, Research Division - Analyst [15]

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This is actually Jacqueline Cheong on for Kash. You guys have shown strong net new customer adds over the past 4 to 5 quarters. I'm just wondering how much of this was driven by the sales reps ramping up versus marketing and inbound efforts. And how sustainable is this?

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [16]

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I think it's very sustainable, especially now that we see some of the more challenged sectors showing some improvement. I'll just give you one start. I was talking to a CEO of a hotel chain a couple of weeks ago who was celebrating 43% occupancy. 8 weeks prior, you had 5% occupancy. Really interesting since that's an important, although not a massive sector for us, it's high profile for us and it's very important.

So I think it's really all of those things we've done. I think our marketing team did a great job with a very real broadcast-quality virtual conference with great customer engagement and super feedback that we've had on it. I think that the new salespeople are ramping. They're not all fully ramped by any means. We added a lot at the end of Q1, and so those people are beginning to come on stream. And they're excited about what they're selling, the proposition and the way that they've embraced -- actually the proposition's value in the pandemic situation. They've really gone for it and pivoted beautifully. So I think it's all those things. It's inbound, it's marketing story and the way that we present the story, and it's also the execution of our field.

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Sui Ying Cheong, BofA Merrill Lynch, Research Division - Analyst [17]

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Got it. And then if I could have a follow-up. You talked a little bit about existing customers expanding spend. What are customers buying in this moment? Are there particularly some modules that are more mission-critical to them? Are they buying more suites? And then also, what percentage of your existing customers have asked for help in terms of like flexible payment plans?

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [18]

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Yes. So I'll start, and I'll let Roxanne talk about the -- she can dimension the flexible payment plans. And I think the headline on that really is, look, we don't have a stall out there that says come and get your flexible payment plan. But we are prepared to work with really very challenged sectors who have had, in some cases, no customers and no revenue, right? But actually, we have contracts, and we expect them to be honored. We've honored every single one of our contracts. So -- but I'll let Roxanne fill in the detail.

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Roxanne M. Oulman, Medallia, Inc. - Executive VP & CFO [19]

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So in regards to concessions that we made with our customers, we're looking at it on a case-by-case basis, and we're taking multiple factors into account. And so this is really on a limited basis. Even when you look at our bricks-and-mortar retail customers, some of our bricks-and-mortar retail customers are thriving, while some of the other ones have fully had to pivot to digital. So we're working with everyone on a case-by-case basis. We shared with you what we thought the expectation would be in Q2 from a revenue impact. And then in addition to that, we're still focused on the fact that we will be operating cash flow-positive for the year. However, we do believe that some of the specific situations with some of these customers will have an impact on our cash flow. But we're working together with the customers because, ultimately, we feel we'll be stronger coming out of this.

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Sui Ying Cheong, BofA Merrill Lynch, Research Division - Analyst [20]

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Got it. Perfect. And actually, could you comment on the existing customers' expense then in terms of what the exactly they're buying?

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [21]

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Yes. Sure. Sorry, I forgot to -- about it. It's really -- we have a broad portfolio, but really whole interest in LivingLens. So video feedback, as you can imagine, if you can see and hear and analyze that, it's much more exciting than a textual response to a survey, which is only one-dimensional. Clearly, we are very excited about the speech-to-text technology, but it's too early to make a report there. But we will be making, I believe, a very interesting report in the coming quarters and our Ideas platform. But it's the fact that we take the data from ideas, from messaging, from video and ultimately now, speech-to-text to combine that with other feedback sources like survey, like social listening to create this understanding that's so powerful. That's where the ROI is, knowing where your customer is going to go next.

So each time we sell one of those additional modules, we're really on a journey to get them to that complete understanding suite. That's where we really want to get them to, and they get that. They totally get it. It's crystal clear. The ROI is obvious. But I would say those are the hot things. You've got to expect people when they see the ability to have a show reel of customers or employees and do a video pulse, it's infinitely more valuable and more exciting than a survey. So I -- that's red hot. And we've enabled customers to take it on, trial it and really try things out in a way that Medallia hadn't before. And that's turned out to be a very exciting move in the business. And I think we're actually in the very early stages of that approach to selling. I think it's going to be very successful.

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Operator [22]

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Your next question comes from Brad Zelnick with Crédit Suisse.

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Brad Alan Zelnick, Crédit Suisse AG, Research Division - MD [23]

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Maybe I'll start, if I may, with Leslie. Leslie, we noted a lot of emphasis out of Medallia on Employee Experience during the crisis. And today, we talk about this $40 million mega deal. Congratulations on that. Can you maybe just talk about the growth and the opportunity here? And are you seeing more customers who previously weren't looking at this type of solution adopting it? And is it as simple as with working from home, my employees are now distributed, and it's even more critical to be in touch?

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [24]

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I think it almost is, Brad, as simple as that. And I think that the annual survey has gone the way of the dodo. It's a waste of money, right? And people get annoyed when I say that, but frankly, it's a waste of time and money. At the current time, you want to know how your people are faring, how they're dealing with all kinds of crises that we're facing, how they're equipped to do their job and how they're equipped to serve your customers. That's thrust of the understanding platform for employees, and that's why we saw that transaction and the other one I mentioned in the retail space, which was another proving transaction where we did replace conventional survey technology.

So that's important. And I think we are at the very early stages of a massively untapped opportunity in connecting employees and connecting customers to employees and through employees to the customer as well. That's very important. That junction between employee, customer is where it's at. Frankly, we couldn't have enough people selling and servicing and building products and ideas around Employee Experience.

I think the Crowdicity platform has proved to be a game changer, too, because we present the ability to create ideas, to create challenges, cross-reference that with feedback in a way that other people can't do. Nobody in our space can do video, can do voice-to-text, can do ideas and can do messaging for connectivity. I think it's huge right now in the current environment. But I think it's permanent. I think many aspects of this are permanent. We can see that value. And companies that are doing their annual surveys. We've been pulsing our own people with videos and with quick surveys on an ad hoc basis throughout the crisis. Companies that depend on an annual survey are toast. I mean it's pointless. And it's not cheap, and it costs a lot of money. And there are companies -- other companies that realize that, and they're trying to get to this understanding point. And looking at a sequence of your own people on video, expressing their needs, expressing the way they serve customers is way more powerful than a simple survey.

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Brad Alan Zelnick, Crédit Suisse AG, Research Division - MD [25]

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And maybe just in follow-up, you increased your sales capacity by 40% last year, how are you thinking about headcount growth this year given the pandemic? And how are you able to track the productivity of last year's hires and the ramping of that productivity, just given the unusual circumstances in the world?

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [26]

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It's a great question. I think at the same time as we ramp the hiring, we did ramp our investment in enablement technology. We're using great enablement technology. We're using good work-from-home dashboards and technology to understand contribution and productivity. I won't enumerate. We know exactly who did a deal in Q1 and who was challenged. We know the breakdown between renewals and new business. We know the breakdown between upsell and cross-sell. So we're tracking those metrics almost constantly on a daily basis, actually, as it should be. And so we -- like other companies, we see all of that data now digitally. It's crystal clear.

Now I think that in terms of the rest of the year, we keep -- people don't want me to say picking off, but I think we're able to pick off talent. We've seen some of our competitors extremely compressed, cash strapped or consumed by a big organization and unable to be agile. We've seen them unable to enable their entrepreneurs in the field. Every one of our salesperson is a Chief Experience Officer. They're CEOs. They're out there in the field with their own businesses and their own territories. Our job is to empower and enable them very, very quickly with insight on their customers from our own platform, right? And so I don't see other people doing that.

But I think we're going to pick off talent through the rest of the year. We've got plenty of production capacity right now. We're going to keep -- we want to -- we're going to grow. We're not going to save and cut our way to growth, but we are going to manage the bottom line financially. From IPO, we said we wanted a profitable growth story, and that's now emerging slightly ahead of where we originally predicted, which is a good thing.

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Operator [27]

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Your next question comes from Phil Winslow with Wells Fargo.

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Philip Alan Winslow, Wells Fargo Securities, LLC, Research Division - Senior Analyst [28]

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I'm glad to hear that all of you are doing well and the same is true for your family and your teams. Leslie, a question for you about, what I call, your change in tone from customers because, obviously, there's a lot to talk about right now about reopening the economy. And I would have to think Experience and management, whether it be Employee or Customer, is pretty key in the reopening process. Have you just heard that sort of change in tone from your customers in terms of your conversations with those? And then just one follow-up.

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [29]

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Well, I think that's a great question. I was discussing that with another CEO actually this morning with one of our prospective customers. He knows who he is, and he is going to become a customer. I should say that. But this is really important. I think that a lot of checklists need to be built to reopen safely and successfully. And when someone enters the plane, enters the restaurant or enters the store and that checklist hasn't been followed through, they need to immediately signal that to the company that they're dealing with. And so our platform can help them with that through Zingle messaging, through video feedback as we just talked about or the other feedback mechanisms that we have. That's what's going to be happening, right? And so I think that's absolutely vital to create that connection, that communications channel, which is sophisticated and can be analyzed at massive scale. You cannot possibly read individual survey responses from customers. The machine has to read the signal for you, and that's what we specialize in. So I think it's very important.

And I think -- I thought it's a thoughtful way to look at the reopening, but we are seeing signals. I will remind everyone -- I should remind you, we don't charge by the drink, right? And people would say, "Maybe you should." But when you look at the growth in our digital signals in the sectors that are reopening first and also in the work-from-home sectors, as we mentioned in the prepared remarks, they've grown very significantly. That's a great portent of what can happen here. And so I'm excited about the near term. There's a lot of challenges around, right? But I am excited about what's going on.

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Philip Alan Winslow, Wells Fargo Securities, LLC, Research Division - Senior Analyst [30]

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Great. And then also just a follow-up for Roxanne. Just looking at total customer count, it obviously continues to grow in the high 30s, a pretty solid acceleration in the past 3 quarters. I wonder if you could break that down for us. How much of this is coming from that mid-market push versus, let's say, you're going to more land and expand but inside of it, you get larger customers? Just help us unpack that metric.

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Roxanne M. Oulman, Medallia, Inc. - Executive VP & CFO [31]

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So that's a great question. So first of all, obviously, we use our new logos, so they would not be a land and expand. And then we just entered into the mid-market in Q2 of last year and brought the team on board. And so these are enterprise customers. These are larger customers who are either buying the entire Medallia platform or they decided to buy a portion of the platform and then continue to expand on the platform.

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Operator [32]

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Your next question comes from Bhavan Suri with William Blair.

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Bhavanmit Singh Suri, William Blair & Company L.L.C., Research Division - Partner & Co-Group Head of Technology, Media and Communications [33]

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So I wanted to talk a little bit about sales productivity. You've talked about it, Leslie, in detail before. And I'm trying to understand, given the environment today, as you think about that, a, what does sales hiring look like? And then how did productivity fall out in the last few months given COVID? Just as per expectations, below expectation, the work from home, is that playing out? Or is productively slower?

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [34]

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So April, definitely below expectations; May, a nice start. I'm pretty pleased, actually. And as I mentioned, I think earlier in some of my prepared remarks, entire campaigns -- the key test is -- I hear a lot of people saying, "Getting relationships and maintaining relationships you already have virtually is one thing. Getting new relationships virtually is another. It's very challenging." And we all know there are all kinds of websites out there where people form personal relationships and conduct them entirely virtually, right? And so -- but in the selling mode, we're seeing people start and finish campaigns virtually. If you think about our inside sales group, that's all they did, right? And now we're seeing high-touch -- traditional high-touch, big ticket salespeople conducting campaigns very smartly over Zoom, Webex, whatever it may be, right, and the associated collaboration tools, right? Think about it, you don't have to make an appointment. Half the time, I don't care what the high-end salespeople say. Half the time, they're using their valuable time to make appointments, physical appointments with customers and with executives. They don't have to do that anymore. You don't have to align diaries in quite the same way, all right? You can get onto things quicker. You don't have to wait to fly into a country.

Our teams are here. Our product teams and sales teams and myself can be doing calls at midnight to Germany. We did one to Aon, in fact, the other week to Germany at midnight in what is essentially a new business situation. So I'm actually very confident now. I wasn't in April, but I'm very confident now about our team's ability to conduct business virtually.

And also, we've got -- put good price points in place. We put trials in place. We put simple 3-click try and buys in place for some of the products, right? And so we've completely pivoted to that way of doing business. I think it's for the better permanently, frankly. I think we're going to get more done. So I'm pretty excited about the capacity for production. But even in Q1, if we'd look at the number of people who did a transaction and/or a renewal, actually, it was better than I thought it was going to be. But April's certainly tough; May, much better.

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Bhavanmit Singh Suri, William Blair & Company L.L.C., Research Division - Partner & Co-Group Head of Technology, Media and Communications [35]

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Got you. Got you. And one more -- that was very tactical, but one more strategically. When you think about content, right, and survey is only sub-20% of your ingestion business, but there is this idea of paid advertising content and there's the idea of nonpaid content, contents generated by a firm or a business that's not paid. It's not necessarily marketing but content. And when you think about that and the growth in that vis-à-vis the paid stuff, help me understand or help us understand how that drives growth for you because it should, right, like ultimately that should be a growth driver for you ingesting all this stuff, especially on the social product and the social integration. Like, "Hey, a lot of stuff being posted on Facebook that is not paid," but still, a sense -- businesses from a brand and a CX perspective. Are you seeing the benefit of that? Or am I early? [I love -- strategic] to think about how you think about that.

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [36]

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No. I think that's a great question. And I think our social listening capability combined with feedback is a very powerful proposition that many of our customers are using today. Our ability to run Theme Explorer over that social listening data is very important. But again, very valuable when you combine it with feedback.

But the way we charge for the product is on an annual subscription basis, so we don't charge by the drip. So whether it's paid or unpaid content, maybe -- the way we think about it is a lot of that social content is anonymous and anonymized. Combine that with your direct feedback from customers and our employees, combine that with survey, combine that with video, combine it with voice, combine it with messaging, combine it with ideas, and you have the understanding picture that every customer is seeking. It's getting to that point of understanding.

So we've seen -- and I gave some stats in the prepared remarks. We've seen, in some cases, a pretty significant uptick in social listening and grounding data from social listening and digital and in messaging. But we charge on an annual contract basis. We don't get the benefit of a metered deal, but then we don't get the downside of a metered deal either. And so I like that model. I think it works. I think it's a very strong value proposition for our customers.

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Operator [37]

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Your next question comes from Chad Bennett with Craig-Hallum.

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Chad Michael Bennett, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [38]

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So maybe for Roxanne. So Roxanne, based on the Q2 guide, it appears at least based on backing into the services number, which is straightforward, that services likely decline on a year-over-year basis. I guess should we expect -- I know you're not guiding for the full year. But modest to no services growth, is that to be expected, I guess, for the next several quarters?

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Roxanne M. Oulman, Medallia, Inc. - Executive VP & CFO [39]

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So Chad, the first thing I want to highlight you -- highlight for you for services is that if you look at Q2 last year versus the prior year, it was also flat or down because most of our bookings occur in Q4. So we have a strong services quarter typically in Q1. As we've been sharing, we are not focused on growing this huge, robust professional services revenue and professional services organization. One of the things that we are proactively working on is continuing to build out our partner programs.

So yes, we're not giving guidance on a full year basis from a revenue perspective because due to the uncertainty, I just don't think that, that would be a prudent decision at this point in time. However, with that said, I think you can expect that we will be productive in our ability to moderate some of our services, activities and move these to some of the partners this year.

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Chad Michael Bennett, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [40]

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Okay. And then based on your overall revenue guide, overall revenues are in rough -- from a growth standpoint, are in the mid-teens, call it, 15%, 16%. Again, considering that situation we're in, at least for the remainder of the year, if you just look at typical seasonality of your subscription business, it sounds -- well, at least it appears to me, mid-teens in overall growth seems to be an appropriate way of thinking about things for the rest of the year?

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Roxanne M. Oulman, Medallia, Inc. - Executive VP & CFO [41]

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So we're not giving you guidance for the full year. We're focused on guidance in Q2 due to the uncertainties that are out there. Now I do want to highlight in Q2, if you look at our guide, our growth rate from a SaaS perspective is maybe 20% to 21%. So I wish I could help you some more, Chad, in regards to the overall year. But with all the uncertainties that are out there, I just don't think that would be a prudent decision at this point in time.

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Chad Michael Bennett, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [42]

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Okay. Maybe last one for me, just on -- for Leslie. So you talked about, in the prepared remarks, pivoting towards an expansion in the base in this environment, which is hopefully a quicker and somewhat easier sell. Net retention -- I guess considering that net retention of 117%, with the refocus on the base, should -- do you believe that number can be stable here? Or is there some risk in the net retention number going forward?

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [43]

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Look, I think it can be stable. And I think when we see a return of some of the more challenged sectors, we'll bring that back. And actually, in our case, there were very -- a couple of very specific reasons why that came down. And maybe Roxanne could give you the color on that. But I believe that we should maintain our aspirations, wish for higher net retention and we should maintain our accelerating growth aspirations. But this time, right now, is the time for our sales team to put bread on the water in the market, take territory to land and expand and to not let anything get in the way of them bringing on new logos.

And so that's how I'm viewing the current time. It's all about investment, right? The market's there, the demand's there, the customer interactions are certainly there.

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Roxanne M. Oulman, Medallia, Inc. - Executive VP & CFO [44]

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So Chad, our net retention rate does fluctuate in the mid- to high teens. And I would anticipate -- I don't know what's going to happen here, but I would anticipate that it would continue to fluctuate in that range.

Now one thing I will highlight is for -- that we did have one customer who chose not to renew because they were having financial issues. And ultimately, that customer has filed for bankruptcy. And if we were to adjust our net retention rate for that customer, our net retention rate would be 118%.

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Operator [45]

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Your next question comes from the line of Scott Berg with Needham.

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Scott Randolph Berg, Needham & Company, LLC, Research Division - Senior Analyst [46]

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I have 2 of them. I guess, Leslie, wanted to dig into your second quarter or, I guess, your May comments just a little bit with regards to a couple of moving parts. You said you've seen some strength return. Would you qualify that statement more on some of the upsell initiatives that you're doing or some of -- some more new logo traction? And then as a part of that same question is, is the incremental traction more of your traditional CX Experience Management solutions? Or is it more revolving around this newer Quickstart program that you're trying to leverage?

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [47]

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It's really, right -- Scott, it's really all of the above. The -- there's new business in the mix. There's renewal, upsell and cross-sell. I mentioned the 2 big ones that slipped into April. And I think they came through because of renewed confidence in those businesses. And so it's all of those things.

And then the video signal field is very exciting. It's too early to make any sensible predictions there, but a very exciting pipeline build, great engagement and great initial customer deployments. We mentioned one of them on the call, the Atlassian deployment. So I'm very excited about that. Also, idea platform. But I'm most excited about the combination. Why wouldn't you want to know more about your customers and your employees, their tensions and their needs? Why wouldn't you want to know more? I think you get that understanding through the combination of very rich video, voice-to-text, messaging, ideas and feedback. And I think that's where everybody is headed.

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Scott Randolph Berg, Needham & Company, LLC, Research Division - Senior Analyst [48]

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Got it. Helpful. And then for my follow-up is on your comments about somewhat moving into the content -- contact center arena with some of your recent acquisitions. I guess from a higher-level perspective, that's a competitive end market, a lot of established vendors in there. And some of them are doing -- or at least attempting to promote some of the similar type of functionality. Why is Medallia's perspective, bringing like speech-to-text in that environment, the right solution versus maybe what some of the contact center vendors are trying to do?

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [49]

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Yes. That's a great question. I think there's a lot of it long term, may be long in the 2 established players there doing very vanilla things. They're not effectively combining those data streams and other data streams like chat box and so on, with data in an analytics platform where we can look at feedback carefully in combination. And that's what our proposition is. It's actually to run our theme exploration technology across the text that has come derived from speech, right? So that's really our proposition.

And I also think we have a better economic and total cost of ownership story there emerging with Medallia Speech and with Voci. And so I think we're going to let that play out. We don't have the cost base around that technology that those other companies have, but we have a new perspective. What's -- financial institutions have to record all of those conversations. What's the point of having that if you can't analyze it and understand what customers are really looking for and what they need, right? And so that's the power of the combination with Medallia. So I think it's very exciting.

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Operator [50]

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Your next question comes from Tom Roderick with Stifel.

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Thomas Michael Roderick, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [51]

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So this is going to build, Leslie, just a little bit on a couple of earlier questions. But we keep hearing the thematic of digital transformation. Everyone's talking about it. Perhaps the pandemic is actually accelerating it even in the enterprise. Would love to hear about your conversations at the C-level because I think we all get it, that the first -- that the spring here was spent on a lot of projects for work from home, mobility, networking and customer-facing logically sort of put on the back burner. But as you have conversations in real time, would love to hear what CEOs, CIOs, CTOs are sharing with you about their plans as they think about 2021 and their own digital transformation and where CX sits in their spending priority.

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [52]

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Yes. I think -- as I've said, that is the central discussion actually. The -- it's really digital disruption now in force. And people that had measured, sensible, well-planned projects have now been forced to execute in part -- in some or in part those initiatives quickly in a disruptive way, grabbing technologies to enable remote working and so on. In our own company, we were already -- in the field, it was already remote. We were already using Zoom, Smartsheet and other technologies to collaborate. And I'm absolutely delighted with the way our company pivoted very quickly.

But this is an opportunity for people to do business differently and faster, and it's an opportunity to serve people quickly. If you think of the whole contactless arena, everything, that's a digitally disruptive essential now, right? We have to be able to get on the plane with as few steps as possible, but we have the checklist that it's safe. We have to -- we can check in with Zingle in a contactless way. We don't have to go near a reception. We don't have to pick up a phone in a hotel room. We can pick up our food at the curbside or even order and sit in the restaurant and reduce and reduce those points of unnecessary physical contact that put us at risk. Actually, that way -- in the future, I believe that's going to be translated into speed. I don't need to do those things anymore, those physical things that took time in the pandemic that put you at risk, in the future, they just soak up your time.

So this is -- to me, digital disruption is the keyword right now and everybody's at it. Everybody's at it. And they're looking for ways and -- to navigate back to customers, to maintain and grow and expand exciting economic activity. You can see -- you can just -- it's actually palpable now in our key markets, and I gave the example of one of the hotel businesses. We actually did a deal yesterday with a hotel business that is seeing really quite significant uptick in demand. Do you think we're not going to do that anymore? Think we're not going to go to a rock concert anymore? I'm not going to go to a bar? I mean there are so many things. The pent-up demand, it has to be safe, it has to be checklisted and all the rest of it. And all of that's going to be enabled by connecting with customers through this technology. And when it goes wrong, you're going to -- it's going to be filmed, and you're going to hear about it on video, right? You're going to be using LivingLens to give your feedback in Technicolor, and we're going to able to analyze that and understand a massive scale, cohorts of customers what is really happening in that service space.

And that's what's exciting about this situation. We've really compressed the future, and that's how we're looking at it. And that's what I'm hearing from all of my customers. I think massive, big projects, they're challenged, right? So don't wait. So we're not waiting for the big deals to return, if that's what we were following in a campaign. We're certainly, as you heard, we're doing big deals. So we're not waiting for that, right? We -- our mantra is take a deal. There's something that the customer needs. They need video. They need ideas. They need basic survey. They need Medallia Experience Cloud. They need feedback. And so there's plenty that we can give them to create these connections. And now we built up some very powerful use cases to illustrate that with nice ROI, nice, sensible return on investment.

So I'm excited, frankly. And it's a really important time for the company and a very important time to invest in our people in the future. Big opportunities here.

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Thomas Michael Roderick, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [53]

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That's really helpful. And Roxanne, I gather this is a little bit in the weeds, but you mentioned that one customer didn't renew. And in the context of the second quarter guidance, I think the number was maybe a $1 million reserve. Again, I don't know if those 2 items are related. But as we think about the quarters past Q2, should -- would it just be sort of wise to model out $1 million reserve in perpetuity, assuming that, that customer does not come back on? Can you just sort of provide some clarity with matching those 2 items up?

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Roxanne M. Oulman, Medallia, Inc. - Executive VP & CFO [54]

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So those 2 items were 2 independent factors. In regards to the concessions -- and we've shared with you that we anticipate that the impact to revenue in Q2 will be about $1 million associated with concessions. Because this is a SaaS model, that is a safe assumption that you would anticipate that, that would continue through the end of the year on a quarterly basis.

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Operator [55]

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Your next question comes from Walter Pritchard with Citi.

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Walter Herbert Pritchard, Citigroup Inc, Research Division - MD & U.S. Software Analyst [56]

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Just one question here. On the cRPO, Roxanne, I'm wondering how we should think about that, especially as we look at next quarter. And looking at those trends year-over-year, it seems they're a bit weaker, but understanding what you're saying about some of the trends in the market. Just want to make sure anything is sort of onetime or any expectation to set around that in Q2.

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Roxanne M. Oulman, Medallia, Inc. - Executive VP & CFO [57]

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So Walter, that's a great question. Because last year, as we shared with you on the last call, nearly 50% of our customers that renewed, renewed for multiple years. And we don't see -- Q2 specifically last year, you'll see that we had a significant uptick in RPO because we had several customers that had multiyear renewals. I mean as we professionalized our organization, we were very focused on multiyear renewals. So we're very pleased with the large renewal that we've had this year, which is a multiyear renewal once again. But I think you will see some -- or some fluctuation in the growth rate in the RPO, specifically because of the impact of some of these large multiyear renewals have.

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Operator [58]

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So we have time for one more question, and that question comes from Richard Baldry with Roth Capital.

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Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [59]

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I'll keep mine pretty easy. Sort of curious, any change to your strategy around acquisitions, sort of pacing, valuation sensitivity, willingness to use cash or debt given the external environment? So I guess it's hard to do deep due diligence obviously on site. But any updates around that, kind of given your focus on sort of cross-selling new things to customers would be helpful?

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [60]

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I think it's a great question. And we think about it a lot. We closed the Voci acquisition virtually. But of course, we did get to know them in the first phases here. So there was a lot of interaction physically. But actually, you can do so much virtually. It's incredibly powerful. So I'm not worried about that aspect of doing deals.

Here's where my mind is really at. We have a great set of products and solutions to provide our customers with. The rest of this year is all about execution. It's all about it. Never say never, right? And private valuations have to be sensible. We did the deal with Voci because we got a sensible response when the pandemic hit. They were sensible people, to be totally candid with you.

Going forward, we need to see that people have a sensible view of the world before we pick them up and tuck them in. I don't see anything major or big. But never say never, right? You never say never in this case. We've got a great cash balance. Now is the time to execute. I don't know the way we'll think about that, but I see a lot of people running into converts and other things. And this is our fourth public quarter report. We're young as a public company, great cash balance. We're now looking at a decent bit of cash run through here, and we're looking at non-GAAP income positive ahead of schedule.

We also have latitude to invest, right? We have good latitude to invest in sales and marketing because we're not spending money on premises and on T&E. We want to spend that money in our people and invest in great sales and great products and so on.

So I feel for the rest of this year, let's focus on execution, right? If there's something absolutely brilliant that our customer points to and we think it's great and it's a nice, sensible tuck-in, we're going to have a go at it. All the time, keep that going. But right now, it's about execution through to the end of January, really nail this return to work, nail the new normal, nail the digital disruption that we just talked about. It's a phenomenal opportunity. There are salespeople here that are going to make their careers, and they're going to do pretty well. This is a great year. It's an inflection point for everybody, but it's a great year for the company. I'm very excited about what we have. We have a great set of products, right? So there's nothing that's glaring or troubling to me. And our build road map is as strong as it ever was.

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Operator [61]

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And there are no further questions at this time. I turn the call back to presenters for any closing remarks.

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Leslie J. Stretch, Medallia, Inc. - President, CEO & Director [62]

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Well, thanks very much for joining us. Stay safe and look after yourselves and look forward to talking to you all soon.

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Operator [63]

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This concludes today's conference call. You may now disconnect.