Qualtrics (NASDAQ:XM) Posts Better-Than-Expected Sales In Q4 But Full Year Guidance Underwhelms

Radek Strnad /
2023/01/25 4:27 pm EST

Online survey software provider Qualtrics (NASDAQ:XM) announced better-than-expected results in the Q4 FY2022 quarter, with revenue up 23.1% year on year to $389 million. The company expects that next quarter's revenue would be around $393 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Qualtrics made a GAAP loss of $256.3 million, improving on its loss of $309.7 million, in the same quarter last year.

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Qualtrics (XM) Q4 FY2022 Highlights:

  • Revenue: $389 million vs analyst estimates of $381.1 million (2.08% beat)
  • EPS (non-GAAP): $0.03 vs analyst estimates of $0.02 (23.6% beat)
  • Revenue guidance for Q1 2023 is $393 million at the midpoint, roughly in line with what analysts were expecting
  • Management's revenue guidance for upcoming financial year 2023 is $1.66 billion at the midpoint, missing analyst estimates by 1.32% and predicting 14.1% growth (vs 36.4% in FY2022)
  • Free cash flow of $8.9 million, up from negative free cash flow of $39 million in previous quarter
  • Gross Margin (GAAP): 70.5%, in line with same quarter last year

"Qualtrics delivered solid results in Q4, capping off a very strong year of growth and significant operating margin expansion,” said Qualtrics CEO Zig Serafin.

Founded in 2002 by Utah-based entrepreneur Ryan Smith, along with his father and brother, Qualtrics (NASDAQ:XM) provides organizations with software to collect and analyze feedback from customers and employees.

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Sales Growth

As you can see below, Qualtrics's revenue growth has been very strong over the last two years, growing from quarterly revenue of $213.5 million in Q4 FY2020, to $389 million.

Qualtrics Total Revenue

This quarter, Qualtrics's quarterly revenue was once again up a very solid 23.1% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $11.5 million in Q4, compared to $21.1 million in Q3 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Qualtrics is expecting revenue to grow 17% year on year to $393 million, slowing down from the 40.6% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $1.66 billion at the midpoint, growing 14.1% compared to 35.6% increase in FY2022.

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What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Qualtrics's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 70.5% in Q4.

Qualtrics Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.70 left to spend on developing new products, marketing & sales and the general administrative overhead. This is around the lower average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market so it is important to track.

Key Takeaways from Qualtrics's Q4 Results

With a market capitalization of $6.71 billion Qualtrics is among smaller companies, but its more than $719.8 million in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.

It was good to see Qualtrics outperform Wall St’s revenue expectations this quarter. And we were also glad to see good revenue growth. On the other hand, it was unfortunate to see that Qualtrics's revenue guidance for the full year missed analysts' expectations and the revenue guidance for next year indicates quite a significant slowdown in growth. Overall, this quarter's results could have been better. The company is up 1.25% on the results and currently trades at $11.35 per share.

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The author has no position in any of the stocks mentioned.