Medallia Reports Record Third Quarter Fiscal 2021 Revenue

Rhea-AI Summary

Medallia announced Q3 fiscal 2021 results with total revenue of $121.0 million, up 17% year-over-year, and subscription revenue of $96.9 million, a 22% increase. The company reported a net loss of $32.2 million or ($0.22) per share, improving from a loss of $39.6 million a year ago. Noteworthy achievements include adding multiple enterprise customers, acquiring Stella Connect and Sense360, and launching several integrations. For Q4, Medallia forecasts total revenue between $123.5 million and $125.5 million.

Positive

• Subscription revenue increased by 22% year-over-year.
• Total revenue rose by 17% compared to the previous year.
• Improved loss from operations: $29.5 million vs. $41.7 million last year.
• Non-GAAP income from operations of $2.1 million, compared to a loss last year.
• Strong cash position with $657.1 million in cash and equivalents.

Negative

• Net loss of $32.2 million, despite improvements.

SAN FRANCISCO--(BUSINESS WIRE)--Medallia, Inc. (NYSE: MDLA), the global leader in experience management, today announced financial results for the quarter ended October 31, 2020.

“I was very pleased with our execution in Q3. We added the most new customers in any quarter. Our wins included major enterprise brands across verticals and geographies. We added more than a dozen new go-to-market partners and hired more strong talent to support our growth. With two full virtual quarters behind us, we are confident in our future prospects for Q4 and for fiscal year 2022,” said Leslie Stretch, president and CEO of Medallia.

“IDC research shows that customer experience is critical. It’s actually an increasing priority for the C-Suite post-COVID - according to our research it is the second most important thing behind resilient business operations,” said Alan Webber, vice president for Digital Strategy and Customer Experience, IDC. “CEOs and CFOs recognize the importance of customer experience because they are paying attention to the numbers."

Financial Highlights for the Third Quarter of Fiscal 2021

• Subscription revenue was $96.9 million, an increase of 22% from the same period last year. Total revenue for the quarter was $121.0 million, an increase of 17% from the same period last year.
• Loss from operations for the quarter was $29.5 million, compared to loss from operations of $41.7 million in the same period last year. Non-GAAP income from operations for the third quarter was $2.1 million, compared to a loss of $2.0 million in the same period last year.
• Net loss for the quarter was $32.2 million, or ($0.22) per share, basic and diluted, compared to net loss of $39.6 million, or ($0.31) per share, basic and diluted, in the same period last year. Non-GAAP net income was $1.1 million, or $0.01 per share, diluted, compared to a non-GAAP net loss of $932,000, or ($0.01) per share, basic and diluted, in the same period last year.
• Cash and cash equivalents, current and noncurrent marketable securities were $657.1 million as of October 31, 2020.

For information regarding the non-GAAP financial measures discussed in this press release, please see the section titled “Non-GAAP Financial Measures.” Reconciliations between GAAP and non-GAAP financial measures are provided in the tables of this press release.

Recent Company Highlights

• Recent wins include: Agency for Clinical Innovation, BlueVine Capital, Canadian Tire, Chargify, Corrigo, ENSEK, FEMA, GSA, Innova Sport, Noodles & Company, PODS®, Radisson Hotel Group US, Sales Benchmark Index, TBK Bank, Uncle Julio’s, Validators, Woodside Homes and Zinklar.
• Acquired Stella Connect, a real-time feedback, coaching and quality management platform for customer service teams.
• Acquired Sense360, a behavioral consumer intelligence and benchmarking leader, to help brands understand where, how, and why buyers and non-buyers spend their time and money.
• Integrated Medallia LivingLens with Zoom Video Communications, enabling research and insights teams to capture powerful feedback from video sessions.
• Launched Medallia Closed Loop Service for Salesforce on Salesforce AppExchange, empowering customers to enhance their contact center by closing the loop on customer service interactions.
• Partnered with Tableau, bringing together Medallia’s best-in-class experience insights with Tableau’s advanced analytics and data visualization capabilities.
• Partnered with Five9, providing call center and customer experience leaders with rich insights.
• Announced a planned integration with Oracle CX Service.

Financial Outlook

Medallia is providing the following guidance for the fourth quarter ending January 31, 2021.

• Subscription revenue in the range of $100.5 million to $101.5 million.
• Total revenue in the range of $123.5 million to $125.5 million.
• GAAP loss from operations in the range of $38.7 million to $31.7 million.
• Non-GAAP income from operations in the range of $200,000 to $700,000.

Conference Call

Medallia will host a conference call at 1:30 p.m. PT (4:30 p.m. ET) today to discuss the third quarter of fiscal 2021 and our outlook for the fourth quarter of fiscal 2021. The conference call will be available via live webcast and replay at the Investor Relations section of Medallia’s website: https://investor.medallia.com/events-and-presentations/default.aspx.

About Medallia

Medallia (NYSE: MDLA) is the pioneer and market leader in Experience Management. Medallia’s award-winning SaaS platform, the Medallia Experience Cloud, leads the market in the understanding and management of experience for customers, employees and citizens. Medallia captures experience signals created on daily journeys in person, on calls and digital channels, over video and social media and IoT interactions and applies proprietary AI technology to reveal personalized and predictive insights that can drive action with tremendous business results. Using Medallia Experience Cloud, customers can reduce churn, turn detractors into promoters and buyers, create in-the-moment cross-sell and up-sell opportunities and drive revenue-impacting business decisions, providing clear and potent returns on investment.

Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), this press release and the accompanying tables contain, and the conference call will contain, non-GAAP financial measures, including non-GAAP gross profit and gross margin, non-GAAP subscription revenue gross profit and gross margin, non-GAAP operating expenses, non-GAAP income (loss) from operations, non-GAAP net income (loss) and weighted average basic and diluted shares. Our management uses these non-GAAP financial measures internally in analyzing our financial results and believes they are useful to investors, as a supplement to the corresponding GAAP financial measures, in evaluating our ongoing operational performance and trends and in comparing our financial measures with other companies in the same industry, many of which present similar non-GAAP financial measures to help investors understand the operational performance of their businesses. However, it is important to note that the particular items we exclude from, or include in, our non-GAAP financial measures may differ from the items excluded from, or included in, similar non-GAAP financial measures used by other companies in the same industry. In addition, other companies may utilize metrics that are not similar to ours.

The non-GAAP financial information is presented for supplemental informational purposes only and is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. There are material limitations associated with the use of non-GAAP financial measures since they exclude significant expenses and income that are required by GAAP to be recorded in our financial statements. Please see the reconciliation tables at the end of this release for the reconciliation of GAAP and non-GAAP results. Management encourages investors and others to review Medallia’s financial information in its entirety and not rely on a single financial measure.

We adjust the following items from one or more of our non-GAAP financial measures:

Stock-based compensation. We exclude stock-based compensation expense, which is a non-cash expense, from certain of our non-GAAP financial measures because we believe that excluding this item provides meaningful supplemental information regarding operational performance. In particular, companies calculate stock-based compensation expense using a variety of valuation methodologies and subjective assumptions.

Employer payroll tax expense related to stock-based compensation. We exclude cash expenses for employer payroll taxes related to stock-based compensation, from certain of our non-GAAP financial measures because we believe that excluding this item provides meaningful supplemental information regarding operational performance. In particular, this expense is tied to the exercise or vesting of underlying equity awards and the price of our common stock at the time of exercise or vesting, which may vary from period to period independent of the operating performance of our business.

Amortization of acquired intangible assets. We exclude amortization of acquired intangible assets, which is a non-cash expense, from certain of our non-GAAP financial measures. Our expenses for amortization of intangible assets are inconsistent in amount and frequency because they are significantly affected by the timing, size of acquisitions and the inherent subjective nature of purchase price allocations. We exclude these amortization expenses because we do not believe these expenses have a direct correlation to the operation of our business.

Acquisition-related costs. We exclude costs related to acquisitions from our non-GAAP financial measures. These costs include legal and transactional costs associated with acquisition activities.

Restructuring and other. We exclude restructuring and other from certain of our non-GAAP financial measures. Restructuring and other primarily consists of lease exit costs related to our office facilities.

Amortization of debt discount and issuance costs. We exclude costs related to the amortization of debt discount together with the issuance costs of the debt from certain of our non-GAAP financial measures. Under GAAP, we are required to separately account for liability (debt) and equity (conversion option) components of the convertible senior notes that were issued in a private placement in September 2020 and recognize the effective interest expense on our convertible senior notes and amortize the issuance costs over the term of these notes. The expense for the amortization of debt discount and debt issuance costs is a non-cash item, and we believe the exclusion of this interest expense will provide for a more useful comparison of our operational performance in different periods.

Income tax benefits. We exclude tax benefits related to acquisitions from our non-GAAP financial measures. These tax benefits realized consist of the change in the valuation allowance resulting from acquisitions. In addition, we exclude tax benefits related to our stock option exercise deductions.

Non-GAAP Supplemental Financial Information

Subscription billings: We define subscription billings, a non-GAAP financial measure, as total subscription revenue plus the change in subscription deferred revenue and contract assets, excluding acquired contract assets.

Note on Forward-Looking Statements

The forward-looking statements included in this press release and in the accompanying conference call, including for example, the quotations of management, the statements under the heading “Financial Outlook” above, the information provided in the “Financial Outlook” section of the tables below, strategies, discussion of our commercial prospects, partnerships, estimates of future revenues, operating income/loss and expenses, stock-based compensation expense and related employer payroll tax expense, amortization of acquired intangible assets, acquisitions and acquisition-related costs, restructuring and other expenses, amortization of debt discount and issuance costs and income tax benefits, reflect management’s best judgment based on factors currently known and involve risks and uncertainties. These risks and uncertainties include, but are not limited to, potential disruption of customer purchase decisions resulting from global economic conditions including from an economic downturn or recession in the United States or in other countries around the world, timing and size of orders, relative growth of our recurring revenue, potential decreases in customer spending, including as a result of the COVID-19 pandemic and related public health measures, uncertainty regarding purchasing trends in the cloud software market, customer cancellations or non-renewal of maintenance contracts or on-demand services, developments in and the duration of the COVID-19 pandemic and the resulting impact on our business and operations, and the business of our customers and partners, including the economic impact of safety measures to mitigate the impacts of COVID-19, our potential inability to manage effectively any growth we experience, our ability to develop new products and services, increased competition or new entrants in the marketplace, potential impact of acquisitions and investments, changes in staffing levels, and other risks detailed in registration statements and periodic reports we filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed with the SEC on March 19, 2020 and our Quarterly Report on Form 10-Q filed with the SEC on September 9, 2020, which may be obtained on the Investor Relations section of Medallia’s website (https://investor.medallia.com/financials/sec-filings/default.aspx). Additionally, these forward-looking statements involve risk, uncertainties, and assumptions, including those related to the impacts of COVID-19 on our business and global economic conditions. Many of these assumptions relate to matters that are beyond our control and are changing rapidly, including, but not limited to, the timeframes for and severity of social distancing and other mitigation requirements, the impact of COVID-19 on our customers’ purchasing decisions and the length of our sales cycles, particularly for customers in certain industries highly affected by COVID-19. Significant variation from the assumptions underlying our forward-looking statements could cause our actual results to vary, and the impact could be significant. All forward-looking statements in this press release are based on information available to us as of the date hereof. We undertake no obligation, and do not intend, to update the information contained in this press release or the accompanying conference call, except as required by law.

© 2020 Medallia, Inc. All rights reserved. Medallia®, the Medallia logo, and the names and marks associated with Medallia’s products are trademarks of Medallia. All other trademarks are the property of their respective owners.

Medallia, Inc.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
		October 31, 2020				January 31, 2020
Assets
Current assets:
Cash and cash equivalents		$	497,688			$	226,866
Marketable securities		156,337				116,833
Trade and other receivables, net of allowance for doubtful accounts of $4,002 and $982 as of October 31, 2020 and January 31, 2020, respectively		97,666				150,661
Deferred commissions, current		27,460				22,455
Prepaid expenses and other current assets		23,533				22,492
Total current assets		802,684				539,307
Property and equipment, net		44,520				34,879
Deferred commissions, noncurrent		60,179				51,540
Intangible assets, net		64,159				21,306
Goodwill		260,562				79,324
Other noncurrent assets		13,571				5,293
Total assets		$	1,245,675			$	731,649
Liabilities and stockholders' equity
Current liabilities:
Accounts payable		$	13,546			$	3,608
Accrued expenses and other current liabilities		31,118				20,268
Accrued compensation		29,425				37,160
Deferred revenue, current		193,979				263,115
Total current liabilities		268,068				324,151
Convertible senior notes, net		442,085				—
Deferred revenue, noncurrent		4,062				1,407
Deferred rent, noncurrent		5,617				2,799
Other liabilities		15,357				5,496
Total liabilities		735,189				333,853
Stockholders' equity:
Common stock		145				132
Additional paid-in capital		1,092,357				878,843
Accumulated other comprehensive loss		(1,157)				(206)
Accumulated deficit		(580,859)				(480,973)
Total stockholders' equity		510,486				397,796
Total liabilities and stockholders' equity		$	1,245,675			$	731,649

Medallia, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
		Three Months Ended October 31,								Nine Months Ended October 31,
		2020				2019				2020				2019
Revenue:
Subscription		$	96,936			$	79,749			$	278,759			$	226,008
Professional services		24,022				23,325				70,415				66,355
Total revenue		120,958				103,074				349,174				292,363
Cost of revenue:
Subscription		21,065				16,296				57,539				44,456
Professional services		22,783				22,299				67,044				61,617
Total cost of revenue		43,848				38,595				124,583				106,073
Gross profit		77,110				64,479				224,591				186,290
Operating expenses:
Research and development		28,034				26,321				88,203				68,630
Sales and marketing		58,333				47,067				162,290				127,152
General and administrative		20,288				32,758				70,923				72,672
Total operating expenses		106,655				106,146				321,416				268,454
Loss from operations		(29,545)				(41,667)				(96,825)				(82,164)
Interest income and other income (expense), net		(3,247)				2,001				(3,520)				2,574
Loss before provision for (benefits from) income taxes		(32,792)				(39,666)				(100,345)				(79,590)
Provision for (benefits from) income taxes		(633)				(46)				(459)				873
Net loss		$	(32,159)			$	(39,620)			$	(99,886)			$	(80,463)
Net loss per share attributable to common stockholders, basic and diluted		$	(0.22)			$	(0.31)			$	(0.70)			$	(1.19)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted		147,930				127,715				142,179				67,735

GAAP to Non-GAAP Reconciliations

GAAP to Non-GAAP adjustments include stock-based compensation expense and related employer payroll tax expense, amortization of acquired intangible assets, acquisition-related costs, restructuring and other, amortization of debt discount and issuance costs and income tax benefits as follows:

		Three Months Ended October 31,								Nine Months Ended October 31,
		2020				2019				2020				2019
Cost of revenue:
Subscription		$	2,746			$	1,578			$	7,118			$	3,099
Professional services		2,638				2,820				8,344				6,067
Operating expenses:
Research and development		5,154				6,292				22,566				11,533
Sales and marketing		11,986				9,099				32,524				19,076
General and administrative		9,096				19,858				34,362				40,003
Interest income and other income (expense), net		2,762				—				2,762				—
Provision for (benefits from) income taxes		(1,087)				(959)				(2,558)				(1,375)
Total		$	33,295			$	38,688			$	105,118			$	78,403

Medallia, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
		Nine Months Ended October 31,
		2020				2019
Operating activities
Net loss		$	(99,886)			$	(80,463)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		19,776				10,812
Amortization of deferred commissions		19,167				13,616
Stock-based compensation expense		81,453				80,296
Gain on property and equipment, and lease termination		—				(13,783)
Lease exit costs		7,828				—
Amortization of debt discount and issuance costs		2,762				—
Other		2,864				(1,463)
Changes in assets and liabilities:
Trade and other receivables		52,783				36,627
Deferred commissions		(32,811)				(24,108)
Prepaid expenses and other current assets		(220)				(5,849)
Other noncurrent assets		(3,421)				92
Accounts payable		6,676				2,655
Deferred revenue		(71,387)				(49,921)
Accrued expenses and other current liabilities		(3,088)				10,410
Other noncurrent liabilities		6,308				17
Net cash used in operating activities		(11,196)				(21,062)
Investing activities
Purchases of property, equipment and other		(14,829)				(14,250)
Purchase of marketable securities		(294,220)				(76,122)
Maturities of marketable securities		250,733				53,604
Proceeds from sale of marketable securities		1,100				511
Acquisitions, net of cash acquired		(223,647)				(75,238)
Other		—				(1,500)
Net cash used in investing activities		(280,863)				(112,995)
Financing activities
Proceeds from issuance of convertible senior notes, net of issuance costs		558,998				—
Purchase of capped calls related to convertible senior notes		(61,870)				—
Proceeds from initial public offering net of issuance costs, underwriters discounts and commissions, and concurrent private placement		—				319,972
Proceeds from Series F convertible preferred stock, net of issuance costs		—				69,848
Proceeds from revolving line of credit		43,000				—
Repayment of revolving line of credit		(43,000)				—
Proceeds from exercise of stock options		57,724				16,451
Payments for employee taxes withheld upon vesting of restricted stock units		—				(15,592)
Proceeds from share purchase plan		17,828				—
Principal payments on capital leases		(3,405)				(2,505)
Repayment of debt assumed in acquisitions and other		(6,445)				(2,297)
Net cash provided by financing activities		562,830				385,877
Effect of exchange rate changes on cash and cash equivalents		51				(45)
Net increase in cash and cash equivalents		270,822				251,775
Cash and cash equivalents at beginning of period		226,866				44,876
Cash and cash equivalents at end of period		$	497,688			$	296,651

Medallia, Inc.
GAAP to Non-GAAP Reconciliations
(in thousands, except percentages)
(unaudited)
		Three Months Ended October 31,								Nine Months Ended October 31,
		2020				2019				2020				2019
Non-GAAP gross profit reconciliation:
GAAP gross profit		$	77,110			$	64,479			$	224,591			$	186,290
GAAP gross margin			64	%			63	%			64	%			64	%
Add:
Stock-based compensation			3,422				3,656				10,679				8,059
Employer payroll tax expense related to stock-based compensation			136				112				557				112
Amortization of acquired intangible assets			1,826				630				4,226				995
Non-GAAP gross profit		$	82,494			$	68,877			$	240,053			$	195,456
Non-GAAP gross margin			68	%			67	%			69	%			67	%

		Three Months Ended October 31,								Nine Months Ended October 31,
		2020				2019				2020				2019
Non-GAAP subscription revenue gross profit reconciliation:
GAAP subscription revenue gross profit		$	75,871			$	63,453			$	221,220			$	181,552
GAAP subscription revenue gross margin			78	%			80	%			79	%			80	%
Add:
Stock-based compensation			870				948				2,725				2,104
Employer payroll tax expense related to stock-based compensation			50				—				167				—
Amortization of acquired intangible assets			1,826				630				4,226				995
Non-GAAP subscription revenue gross profit		$	78,617			$	65,031			$	228,338			$	184,651
Non-GAAP subscription revenue gross margin			81	%			82	%			82	%			82	%

Medallia, Inc.
GAAP to Non-GAAP Reconciliations
(in thousands, except percentages)
(unaudited)
		Three Months Ended October 31,								Nine Months Ended October 31,
		2020				2019				2020				2019
Non-GAAP operating expenses reconciliation:
GAAP operating expenses		$	106,655			$	106,146			$	321,416			$	268,454
GAAP operating expenses, as a % of total revenue			88	%			103	%			92	%			92	%
Add (subtract):
Stock-based compensation			(21,593	)			(33,499	)			(70,774	)			(72,237	)
Employer payroll tax expense related to stock-based compensation			(1,464	)			(547	)			(5,028	)			(547	)
Amortization of acquired intangible assets			(1,378	)			(113	)			(2,485	)			(115	)
Acquisition-related costs			(1,396	)			(1,090	)			(3,044	)			(1,766	)
Restructuring and other			(405	)			—				(8,121	)			4,053
Non-GAAP operating expenses		$	80,419			$	70,897			$	231,964			$	197,842
Non-GAAP operating expenses, as a % of total revenue			66	%			69	%			66	%			68	%

		Three Months Ended October 31,								Nine Months Ended October 31,
		2020				2019				2020				2019
Non-GAAP income (loss) from operations reconciliation:
GAAP loss from operations		$	(29,545	)		$	(41,667	)		$	(96,825	)		$	(82,164	)
GAAP loss from operations, as a % of total revenue			(24	)%			(40	)%			(28	)%			(28	)%
Add (subtract):
Stock-based compensation			25,015				37,155				81,453				80,296
Employer payroll tax expense related to stock-based compensation			1,600				659				5,585				659
Amortization of acquired intangible assets			3,204				743				6,711				1,110
Acquisition-related costs			1,396				1,090				3,044				1,766
Restructuring and other			405				—				8,121				(4,053	)
Non-GAAP income (loss) from operations		$	2,075			$	(2,020	)		$	8,089			$	(2,386	)
Non-GAAP income (loss) from operations, as a % of total revenue			2	%			(2	)%			2	%			(1	)%

Medallia, Inc.
GAAP to Non-GAAP Reconciliations
(in thousands, except percentages)
(unaudited)
		Three Months Ended October 31,								Nine Months Ended October 31,
		2020				2019				2020				2019
Non-GAAP net loss reconciliation:
GAAP net loss		$	(32,159	)		$	(39,620	)		$	(99,886	)		$	(80,463	)
GAAP net loss as a % of total revenue			(27	)%			(38	)%			(29	)%			(28	)%
Add (subtract):
Stock-based compensation			25,015				37,155				81,453				80,296
Employer payroll tax expense related to stock-based compensation			1,600				659				5,585				659
Amortization of acquired intangible assets			3,204				743				6,711				1,110
Acquisition-related costs			1,396				1,090				3,044				1,766
Restructuring and other			405				—				8,121				(4,053	)
Amortization of debt discount and issuance costs			2,762				—				2,762				—
Income tax benefits			(1,087	)			(959	)			(2,558	)			(1,375	)
Non-GAAP net income (loss)		$	1,136			$	(932	)		$	5,232			$	(2,060	)
Non-GAAP net income (loss) as a % of total revenue			1	%			(1	)%			1	%			(1	)%
Weighted average shares - basic			147,930				127,715				142,179				67,735
Weighted average shares - diluted			176,676				127,715				173,549				67,735

Medallia, Inc.
Non-GAAP Supplemental Financial Information
(in thousands, except percentages)
(unaudited)
		Trailing Twelve Months Ended October 31,
		2020				2019
Subscription billings:
Subscription revenue		$	364,918			$	293,882
Increase in subscription deferred revenue			30,205				35,448
Decrease in contract assets			119				1,370
Subscription billings		$	395,242			$	330,700
Subscription billings growth rate			20	%			24	%

Medallia, Inc.
Financial Outlook
(in thousands, except percentages)
(unaudited)

The guidance figures provided below and elsewhere in this press release are forward-looking statements, reflect a number of estimates, assumptions and other uncertainties, and are approximate in nature because our future performance is difficult to predict. Such guidance is based on information available on the date of this press release, and we assume no obligation to update.

Reconciliation of GAAP to Non-GAAP Forward Looking Guidance Measures
		Three Months Ended January 31, 2021
		Low				High
GAAP loss from operations		$	(38,700)			$	(31,700)
Stock-based compensation		26,000				24,000
Employer payroll tax expense related to stock-based compensation		3,000				1,500
Amortization of acquired intangible assets		4,400				3,900
Acquisition-related costs		500				—
Restructuring and other		5,000				3,000
Non-GAAP income from operations		$	200			$	700