MOMENTIVE GLOBAL INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. As discussed in the section titled "Forward-Looking Statements,", the following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Additionally, our unaudited results for the interim periods presented may not be indicative of the results to be expected for any full year period. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" under Part II, Item 1A in this Quarterly Report on Form 10-Q.
Overview
We were founded under the name "SurveyMonkey" in 1999 and provide SaaS solutions that help businesses collect and analyze stakeholder sentiment at scale. We believe the business insights our solutions deliver enable more than 330,000 organizations worldwide to build market leadership, delight their customers, and engage their employees. Our solutions are powered by a platform that combines audience panels, artificial intelligence, and advanced analytics capabilities that help make our products easy-to-use, yet powerful, to deliver speed-to-insights for our customers.
We offer products that address three major business use cases: (i) building market leadership, (ii) delighting customers, and (iii) engaging employees.
We believe our products are competitively differentiated through their ease-of-use, speed to insight, price relative to alternatives, and ability to share insights across an organization through integrations with leading business intelligence, collaboration, and customer relationship management platforms. Our solutions are powered by a technology stack that simplifies the processes for creating surveys, collecting high quality data, and surfacing and sharing insights across an organization to drive action. We have transformed from our roots as a provider of digital survey tools sold through the Internet to an enterprise SaaS company that leverages both product-led and sales-led go-to-market motions. To help us engage more deeply with enterprise customers, we rebranded ourselves as "Momentive" inJune 2021 , and changed our legal name from "SVMK Inc. " to "Momentive Global Inc. " InFebruary 2022 , we announced plans to consolidate our product portfolio under the Momentive and SurveyMonkey brands and web surfaces. The Momentive brand represents our suite of upmarket solutions sold primarily through our sales force, while the SurveyMonkey brand represents our forms and survey products sold primarily through our website. We are executing on a two-part growth strategy. First, we are delivering new features and product tiers that capitalize on the virality of our core platform and the scale of business to drive overall platform usage and increase the conversion of free users to paid subscribers in our self-serve channel. Second, we are investing further in product innovation and go-to-market initiatives to expand the percentage of our revenue generated through our sales-assisted channel. Specifically, our sales-assisted go-to-market motion focuses on converting existing self-serve subscribers to sales-assisted customers, selling directly to new customers, and expanding our relationships with existing customers. As we execute on this strategy and sell more of our products into enterprises directly, we believe we can accelerate our revenue growth profile and increase our customer retention rates over time. We believe our existing user base represents a significant opportunity to expand our business and increase our revenue. During the first quarter of 2023, approximately 39% of our total revenue was generated from customers who purchased software through our sales-assisted channel, up from 35% in the first quarter of 2022. Our core survey platform is inherently viral, as existing users send surveys and share survey results that introduce potential new users and customers to our products. This virality, combined with the ease-of-use and price-disruptive nature of our products and the strength of our brands, has enabled us to build an efficient, online self-serve channel for selling versions of our survey products, which we are enhancing with our sales-assisted go-to-market motion. We have a broad and diverse customer base and no customer represented more than 10% of our revenue in any of the periods presented.
We operate as a single operating segment. Our CODM is our Chief Executive Officer, who reviews our operating results on a consolidated basis in order to make decisions about allocating resources and assessing performance for
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--------------------------------------------------------------------------------the entire company. Our CODM uses one measure of profitability and does not segment our business for internal reporting.
Pending Merger with an investor consortium led by STG
OnMarch 13, 2023 , we entered into the Merger Agreement with STG and Merger Sub. Pursuant to the Merger Agreement, and upon the terms and subject to the conditions therein, Merger Sub will merge with and into us, with our company surviving the merger as a wholly owned subsidiary of STG. Our board of directors and the board of directors of STG have each approved the Merger Agreement and the Merger. Under the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each issued and outstanding share of our common stock (except for certain shares of our common stock specified in the Merger Agreement) will be canceled and automatically converted into the right to receive cash in an amount equal to$9.46 per share, without interest.
The completion of the Merger is subject to customary closing conditions,
including the approval of our stockholders. For further information on the
Merger and the Merger Agreement, see Note 1 of the Notes to Consolidated
Financial Statements included elsewhere in this Quarterly Report on Form 10-Q,
as well as the definitive proxy statement filed by us on
Upon consummation of the Merger, we will cease to be a publicly traded company and our common stock will be delisted from the Nasdaq Global Select Market.
Impact of COVID-19 and other Macroeconomic Factors on our Business
The COVID-19 pandemic has caused economic instability and global uncertainty. As a result of the COVID-19 pandemic, we transitioned to a hybrid work model where most of our employees have the flexibility to determine the amount of time they work from home and in our offices. We continue to actively monitor and evaluate the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, partners, and stockholders. The effects of these operational modifications are unknown and may not be realized until further reporting periods as we continue to evaluate and refine our hybrid work model and real estate needs. In addition, our overall performance depends in part on worldwide economic and geopolitical conditions and their impact on consumer and customer behavior. Worsening economic conditions, including inflation, higher interest rates, volatility in the global financial markets, slower growth, the stronger dollar versus foreign currencies, particularly the Euro, the British Pound Sterling, the Australian dollar, and the Canadian dollar, and other changes in economic conditions, may adversely affect our results of operations and financial performance.
Our Products
We offer products that address three major business use cases, (i) building market leadership, (ii) delighting customers, and (iii) engaging employees. We generate revenue either on a subscription or transactional basis, depending on the product.
•
Surveys: Our leading survey software products enable a wide range of customers to collect, analyze and act on stakeholder sentiments across a broad number of business use cases. We have designed products that optimize the quality of feedback and maximize response rates to help our customers improve customer experiences, develop and retain a diverse and high-performing workforce, and grow their business. We offer our basic survey plan to individuals at no charge. We also offer multiple tiers of subscriptions to individual paying users, with pricing based on volume of data collected and functionality, including advanced survey logic; branding and customization tools; analysis features; and support options. We offerSurveyMonkey team plans for small teams and departments that need to collaborate on survey projects. In addition to the features available in paid plans for individuals,SurveyMonkey team plans provide advanced collaboration features for survey creation and analysis, centralized team administration, and a team library for survey themes, templates, and brand assets. Team plans start at three users per team, billed annually on a subscription basis, and include flexible roles and pricing for survey creators and analysts. For organizations, we offer SurveyMonkey Enterprise, an AI powered enterprise feedback management platform that extendsSurveyMonkey with enterprise-grade security and an enhanced set of capabilities (including managed user accounts, customized company branding, collaboration capabilities, and deep 23 --------------------------------------------------------------------------------
integrations with a broad set of leading enterprise software applications) that enable users to support multiple, advanced feedback use cases across the organization. Revenue from Surveys is generated primarily on a subscription basis.
•
Customer Experience: Our purpose-built Customer Experience solution is sold
under the GetFeedback brand and enables companies to leverage in-the-moment
customer feedback to deliver experiences that engage and retain their customers.
Our Customer Experience solution simplifies customer feedback collection and
analysis through its integration with customer relationship management ("CRM")
and customer support data to help companies better understand key customer
segments, and its accessibility within the systems companies already use to help
them take action quickly in service of their customers. Our Customer Experience
solution captures a company's customer feedback from across key digital channels
and within offline or proprietary business systems, combines this feedback with
operational customer data to build a deeper understanding of their customers and
their preferences, and automates feedback-based actions through integrations
with that company's existing system of record and other key business systems.
Our Customer Experience solution is sold through our sales-assisted channel.
Revenue from Customer Experience is generated primarily on a subscription basis.
Beginning in 2023, we shifted the focus of our Customer Experience product
strategy to make SurveyMonkey Enterprise our core Customer Experience offering.
This will enable us to innovate on one core platform and improve our ability to
expand with existing SurveyMonkey Enterprise customers. GetFeedback, which is
built on a separate technology stack, will be moved into maintenance mode. We
will no longer develop new features for GetFeedback or market GetFeedback to new
customers.
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Insights Solutions: Formerly known as Market Research, our Insights Solutions products enable customers to quickly collect and analyze actionable insights from a targeted audience on a number of market research needs, including analyzing market opportunities, measuring brand and campaign effectiveness, and gaining insights on existing and future product lines. Our Insights Solutions is sold through our sales-assisted channel. Revenue from Insights Solutions has historically been generated primarily on a transactional basis, with our customers having the option to preload credits that can be used to pay for projects, solutions, and services throughout a 12-month term. In the third quarter of 2022, we launched a program to price certain Insights Solutions on a subscription basis for new customers.
•
Professional Services: For customers who need assistance with optimizing the use of our products, we offer the following categories of professional services, including: o
Survey: survey design, programming, language translation, and results analysis;
o
Customer Experience: customer journey mapping, customer experience key metrics, measurement and planning of CSAT and NPS programs, analytics and customer experience related workshops; and
o
Insights Solutions: program methodology consulting, survey programming and language translation, brand tracking program development and execution, product concept testing, due diligence analysis, and custom reporting and analytics.
Revenue from professional services engagements is generated primarily on a transactional basis.
•
Other Purpose-Built Solutions: In addition to our three major product categories, we offer other products such as:
o Customer Advocacy: TechValidate is our customer advocacy automation solution. TechValidate collects customer feedback at scale, automatically converting it into validated marketing content, including statistics, charts, testimonials, and case studies. In 2023, we stopped developing new features for TechValidate and marketing TechValidate to new customers. o
Grant Application Management: SurveyMonkey Apply is our application management solution that is primarily used by educational institutions and non-profits seeking to allocate scholarships and grants; and
o
Forms: Wufoo is our easy-to-use form builder that helps users create web and mobile forms, collect file uploads and receive online payments.
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We offer certain tiers of our Survey and Insights Solutions product categories
on a self-serve basis through our website, and we offer a suite of
enterprise-grade experience management solutions from all three primary product
categories through our direct sales force.
As of December 31, 2022 , we had over 14 million active users. As of March 31,
2023 and 2022, we had approximately 878,600 and 894,400 paying users,
respectively, which we define as an individual customer of our survey platform
or form-based application, a seat within a SurveyMonkey Enterprise deployment or
a subscription to one of our purpose-built solutions. Of our paying users as of
March 31, 2023 and 2022, we had approximately 13,200 and 13,700 customers,
respectively, who purchased our software through our sales-assisted channel. Our
average revenue per paying user ("ARPU") was $546 and $535 for the three months
ended March 31, 2023 and 2022, respectively. We calculate ARPU as revenue during
a given period divided by the average number of paying users during that period.
We calculate the average number of paying users by adding the number of paying
users as of the end of the prior period to the number of paying users as of the
end of the current period, and then dividing by two. For interim periods, we use
annualized revenue which is calculated by dividing the revenue for the period by
the number of days in that period and multiplying this value by 365 days.
As of March 31, 2023 , over 90% of our trailing 12-month bookings were from
organizational domain-based customers, which are customers who register with us
using an email account with an organizational domain name, such as
@momentive.ai, but excludes customers with email addresses hosted on widely used
domains such as @gmail, @outlook or @yahoo. As of March 31, 2023 , our
dollar-based net retention rate for organizational domain-based customers was
over 90%. We calculate bookings as the sum of the monthly and annual contract
values for contracts sold during a period for our monthly and annual customers,
respectively. We calculate organizational dollar-based net retention rate as of
a period end by starting with the trailing 12 months of bookings from the cohort
of all domain-based customers as of the 12 months prior to such period end
("Prior Period Bookings"). We then calculate the trailing 12 months of bookings
from these same customers as of the current period end ("Current Period
Bookings"). Current Period Bookings includes any upsells and is net of
contraction or attrition, but excludes bookings from new domain-based customers
in the current period. We then divide the total Current Period Bookings by the
total Prior Period Bookings to arrive at the organizational dollar-based net
retention rate.
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Key Business Metrics
We review a number of operating and financial metrics, including the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate our business plan and make strategic decisions. As our business continues to evolve, we may choose to report new or additional metrics that are more closely tied to key business drivers or stop reporting metrics that are no longer relevant.
Remaining Performance Obligation
As of March 31,
(in thousands) 2023 2022
Remaining performance obligation ("RPO")
RPO is the amount of consideration allocated to unsatisfied performance obligations related to non-cancelable contracts, which include both the deferred revenue balance and amounts that will be invoiced and recognized as revenue in future periods, as of the end of the reporting period. For subscription products, we provide customers with the option of monthly, annual or multi-year contractual terms. In general, our customers elect annual contractual terms and we generally invoice 1 year in advance. Our contracts are generally non-cancelable and without refund rights. Billed contractual amounts are reported as deferred revenue in our condensed consolidated financial statements. Unbilled contractual amounts are part of RPO and are not included in our condensed consolidated financial statements. RPO is intended to provide visibility into future revenue streams. Several factors may contribute to the fluctuation of RPO including timing and frequency of invoicing, number of multi-year non-cancelable contracts, and dollar amount of customer contracts. Non-GAAP Financial Measures We believe that, in addition to our results determined in accordance with GAAP, non-GAAP measures, specifically free cash flow and non-GAAP (loss) income from operations, are useful in evaluating our business, results of operations and financial condition. We use these non-GAAP measures to compare and evaluate our operating results across periods in order to manage our business, for purposes of determining executive and senior management incentive compensation, and for budgeting and developing our strategic operating plans. We believe that these non-GAAP measures provide useful information about our operating results, enhance the overall understanding of our past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by our management in evaluating our financial performance and for operational decision making, but they are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our condensed consolidated financial statements prepared in accordance with GAAP. Our definitions for free cash flow and non-GAAP (loss) income from operations used are provided below; however, a limitation of non-GAAP financial measures is that they do not have uniform definitions. Accordingly, our definitions below will likely differ from similarly titled non-GAAP measures used by other companies thereby limiting comparability.
Free cash flow
We define free cash flow as GAAP net cash provided by operating activities less purchases of property and equipment, and capitalized internal-use software. We consider free cash flow to be an important measure because it measures our liquidity after deducting capital expenditures for purchases of property and equipment and capitalized software development costs, which we believe provides a more accurate view of our cash generation and cash available to grow our business. We expect to generate positive free cash flow over the long term. Free cash flow has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash provided by or used in operating activities. Some of the limitations of free cash flow are that free cash flow does not reflect our future contractual commitments and may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure.
The following is a reconciliation of free cash flow to the most comparable GAAP measure, net cash provided by or used in operating activities:
26
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Three Months Ended March 31,
(in thousands) 2023 2022
Net cash used in operating activities $ (7,927 )
(15 ) (441 )
Capitalized internal-use software (2,079 ) (2,565 )
Free cash flow $ (10,021 ) $ (7,906 )
Free cash flow is presented for supplemental informational purposes only and
should not be considered a substitute for financial information presented in
accordance with GAAP.
Non-GAAP (loss) income from operations
We define non-GAAP (loss) income from operations as GAAP loss from operations excluding stock-based compensation, net, amortization of acquisition intangible assets, acquisition-related transaction costs, and restructuring.
The following is a reconciliation of our GAAP loss from operations to non-GAAP (loss) income from operations:
Three Months Ended March 31,
(in thousands) 2023 2022
GAAP loss from operations $ (21,254 ) $ (35,069 )
Stock-based compensation, net 20,402 26,254
Acquisition-related transaction costs(1) 7,461
6,500
Restructuring(2) 7,197
2,077
Amortization of acquisition intangible assets 371
2,911
Non-GAAP income from operations$ 14,177 $
2,673
(1) Includes transaction expenses associated with the pending merger with an investor consortium led by STG during the three months endedMarch 31, 2023 . See Note 1 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for additional information. Also includes transaction expenses associated with the terminated merger with Zendesk during the three months endedMarch 31, 2022 . (2) For the three months endedMarch 31, 2022 , restructuring-related charges for stock-based compensation expense of$2.8 million and amortization of acquisition intangibles of$45,000 were included in the respective line items.
Components of Results of Operations
Revenue
We derive a majority of our revenue from sales of subscriptions to our software products in the survey and customer experience categories. We also generate a small portion of our revenue from sales of insight/market research solutions. We recognize subscription revenue ratably over the subscription term, generally one year, as long as all other revenue recognition criteria have been met. Our contracts are generally non-cancellable and do not contain refund provisions. Subscriptions sold through our self-serve channel are collected primarily from credit cards through our website at the beginning of the subscription period. Subscriptions sold through our sales-assisted channel are generally billed annually in advance.
Cost of Revenue and Operating Expenses
We allocate shared costs, such as depreciation on equipment shared by all departments, facilities (including rent and utilities), employee benefit costs and information technology costs to all departments based on headcount. As such, allocated shared costs are reflected in each cost of revenue and operating expense category, other than restructuring. Cost of Revenue. Our cost of revenue consists primarily of expenses associated with the delivery and distribution of our products to our users. These expenses generally consist of infrastructure costs, personnel costs and other related costs. Infrastructure costs generally include expenses related to website hosting costs, amortization of capitalized software, payment processing fees, external sample costs and charitable donations associated withSurveyMonkey 27 -------------------------------------------------------------------------------- Audience, our market research panel solution. Personnel costs include salaries, bonuses, stock-based compensation, other employee benefits and travel-related expenses for employees whose primary responsibilities relate to supporting our infrastructure and delivering user support. Other related costs include amortization of acquired developed technology intangible assets and allocated overhead. We plan to continue investing in additional resources to enhance the capability and reliability of our infrastructure to support user growth and increased use of our products. We expect that cost of revenue will increase in absolute dollars in future periods and vary from period to period as a percentage of revenue in the near term. We expect that cost of revenue will decrease as a percentage of revenue in the long term. Research and Development. Research and development expenses primarily include personnel costs, costs for third-party consultants, depreciation of equipment used in research and development activities and allocated overhead. Personnel costs for our research and development organization include salaries, bonuses, stock-based compensation, other employee benefits and travel-related expenses. Our research and development efforts focus on maintaining and enhancing existing products and adding new products. Except for costs associated with the application development phase of internal-use software, research and development costs are expensed as incurred. We expect that research and development expenses will increase in absolute dollars in future periods and vary from period to period as a percentage of revenue in the near term. We expect that research and development expenses will remain relatively constant as a percentage of revenue in the long term. Sales and Marketing. Sales and marketing expenses primarily include personnel costs, costs related to brand campaigns, paid marketing, amortization of acquired trade name and customer relationship intangible assets and allocated overhead. Personnel costs for our sales and marketing organization include salaries, bonuses, sales commissions, stock-based compensation, other employee benefits and travel-related expenses. Sales commissions earned by our sales personnel, including any related payroll taxes, that are considered to be incremental and recoverable costs of obtaining a customer contract are deferred and amortized over an estimated period of benefit of generally four years. We expect that sales and marketing expenses will increase in absolute dollars in future periods and increase as a percentage of revenue in the near term. We expect that sales and marketing expenses will vary from period to period in the long term. General and Administrative. General and administrative expenses primarily include personnel costs for legal, finance, human resources and other administrative functions, as well as certain executives. Personnel costs for our general and administrative staff include salaries, bonuses, stock-based compensation, other employee benefits and travel-related expenses. In addition, general and administrative expenses include outside legal, accounting and other professional fees, non-income-based taxes and allocated overhead. We expect that general and administrative expenses will increase in absolute dollars in future periods and vary from period to period as a percentage of revenue in the near term. We expect that general and administrative expenses will decrease as a percentage of revenue in the long term. Restructuring. Restructuring expenses primarily include personnel costs, other contract termination costs, and impairment of certain assets. Personnel costs include severance payments, stock-based compensation and other benefits. Other contract termination expenses related to restructuring include amortization of intangibles without future economic benefit, infrastructure write-offs and lease modifications associated with vacated facilities.
Interest Expense
Interest expense consists of interest on our credit facilities. For additional information regarding our credit facilities, see Note 12 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
Other Non-Operating (Income) Expense, Net
Other non-operating (income) expense, net consists primarily of interest income, net foreign currency exchange gains and losses, net realized gains and losses related to investments, and other (income) expense.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes consists ofU.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. We maintain a valuation allowance against deferred tax assets inthe United States and certain foreign jurisdictions that we have determined are not realizable on a more likely than 28 -------------------------------------------------------------------------------- not basis. For additional information regarding our income taxes, see Note 13 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
Results of Operations The following tables set forth our results of operations for the periods presented and as a percentage of our revenue for those periods. Percentages presented in the following tables may not sum due to rounding.
Three Months Ended March 31,
(in thousands) 2023 % of Revenue 2022 % of Revenue
Revenue $ 118,821 100 % $ 116,986 100 %
Cost of revenue(1)(2)(3) 20,557 17 % 22,903 20 %
Gross profit 98,264 83 % 94,083 80 %
Operating expenses:
Research and development(1)(3) 32,665 27 % 36,716 31 %
Sales and marketing (1)(2)(3) 47,919 40 % 59,636 51 %
General and administrative(1)(3) 31,737 27 % 27,917 24 %
Restructuring(1)(2) 7,197 6 % 4,883 4 %
Total operating expenses 119,518 101 % 129,152 110 %
Loss from operations (21,254 ) (18 )% (35,069 ) (30 )%
Interest expense 4,148 3 % 2,226 2 %
Other non-operating income, net (2,038 ) (2 )% (134 ) - %
Loss before income taxes (23,364 ) (20 )% (37,161 ) (32 )%
Provision for income taxes 451 - % 216 - %
Net loss $ (23,815 ) (20 )% $ (37,377 ) (32 )%
(1) Includes stock-based compensation, net of amounts capitalized as follows:
Three Months Ended March 31,
(in thousands) 2023 % of Revenue 2022 % of Revenue
Cost of revenue $ 1,241 1 % $ 1,409 1 %
Research and development 7,734 7 % 8,644 7 %
Sales and marketing 4,075 3 % 6,065 5 %
General and administrative 7,352 6 % 7,375 6 %
Restructuring - - % 2,761 2 %
Stock-based compensation, net
of amounts capitalized $ 20,402 17 % $ 26,254 22 %
(2) Includes amortization of acquisition intangible assets as follows:
Three Months Ended March 31,
(in thousands) 2023 % of Revenue 2022 % of Revenue
Cost of revenue $ - - % $ 1,414 1 %
Sales and marketing 371 - % 1,452 1 %
Restructuring - - % 45 - %
Amortization of acquisition
intangible assets $ 371 - % $ 2,911 2 %
(3) Includes transaction expenses associated with the pending merger with an
investor consortium led by STG during the three months ended March 31, 2023 and
with the terminated merger with Zendesk during the three months ended March 31,
2022 :
Three Months Ended March 31,
(in thousands) 2023 % of Revenue 2022 % of Revenue
Cost of revenue $ 10 - % $ 318 - %
Research and development 47 - % 1,770 2 %
Sales and marketing 23 - % 1,679 1 %
General and administrative 7,381 6 % 2,733 2 %
Acquisition-related
transaction costs $ 7,461 6 % $ 6,500 6 %
Comparison of the Three Months Ended
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--------------------------------------------------------------------------------Revenue and cost of revenue
Three Months Ended March 31,
(dollars in thousands) 2023 2022 $ Change % Change
Revenue $ 118,821 $ 116,986 $ 1,835 2 %
Cost of revenue 20,557 22,903 (2,346 ) (10 )%
Gross profit $ 98,264 $ 94,083 $ 4,181 4 %
Gross margin 83 % 80 %
Revenue increased for the three months ended March 31, 2023 compared to the
three months ended March 31, 2022 . Our ARPU increased 2% from $535 for the three
months ended March 31, 2022 to $546 for the three months ended March 31, 2023 ,
while our number of paying users slightly decreased 2% from approximately
894,400 as of March 31, 2022 to approximately 878,600 as of March 31, 2023 .
Revenue growth was driven by an increase of $5.5 million , or 13%, in our
sales-assisted channel, as a result of the ongoing refinement of our pricing and
packaging that has driven an increase in customer upgrades and expansion, which
was slightly offset by a decrease of $3.7 million , or (5%), in our self-serve
channel. Revenue from our sales-assisted channel accounted for 39% and 35% of
revenue for the three months ended March 31, 2023 and 2022, respectively.
Cost of revenue decreased for the three months ended March 31, 2023 compared to
the three months ended March 31, 2022 , primarily due to a $2.1 million decrease
in the amortization of capitalized software and intangible assets related to our
prior acquisitions, and a $0.9 million decrease in personnel costs due to
headcount reduction from our restructuring activities, offset by a $0.7 million
increase in web hosting costs and payment processing fees.
Our gross margin increased for the three months ended March 31, 2023 as compared
to the three months ended March 31, 2022 , due to the slight increase in revenue,
combined with the decrease in our cost of revenue.
Research and development
Three Months Ended March 31,
(dollars in thousands) 2023 2022 $ Change % Change
Research and development $ 32,665 $ 36,716 $ (4,051 ) (11 )%
Research and development expenses decreased for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 , primarily due to a$4.7 million decrease in personnel related costs due to headcount reduction from our restructuring activities, offset by a decrease in software development costs that qualified for capitalization. Sales and marketing Three Months Ended March 31, (dollars in thousands) 2023 2022 $ Change % Change Sales and marketing$ 47,919 $ 59,636 $ (11,717 ) (20 )% Sales and marketing expenses decreased for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 , primarily due to a$9.2 million decrease in personnel related costs due to headcount reduction from our restructuring activities, as well as a decrease of$1.1 million in amortization of intangible assets related to our prior acquisitions. General and administrative Three Months Ended March 31, (dollars in thousands) 2023 2022 $ Change % Change General and administrative$ 31,737 $ 27,917 $ 3,820 14 % 30
-------------------------------------------------------------------------------- General and administrative expenses increased for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 , primarily due to a$4.6 million increase in transaction costs associated with the pending merger with STG compared to the terminated merger in the prior period, offset by a decrease in personnel related costs due to headcount reduction from our restructuring activities. Restructuring Three Months Ended March 31, (dollars in thousands) 2023 2022 $ Change % Change Restructuring $ 7,197 $ 4,883$ 2,314 47 % Restructuring expenses recorded for the three months endedMarch 31, 2023 were primarily due to employee severance, employee benefits, and related facilitation costs as a result of ourFebruary 2023 restructuring plan. Restructuring expenses recorded for the three months endedMarch 31, 2022 were primarily due to employee severance, stock-based compensation expense, and contract termination costs as a result of ourMarch 2022 restructuring plan. For additional information regarding our restructuring activities, see Note 15 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. Interest expense Three Months Ended March 31, (dollars in thousands) 2023 2022 $ Change % Change Interest expense $ 4,148 $ 2,226$ 1,922 86 % Interest expense increased for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 , primarily due to a significantly higher average interest rate offset by a decrease in average debt balances as a result of our repayment of principal under the Term Loan. For additional information regarding our credit facilities, see Note 12 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
Other non-operating income, net
Three Months Ended March 31,
(dollars in thousands) 2023 2022
$ Change % Change
Other non-operating income, net $ (2,038 )
Other non-operating income, net for the three months ended
Provision for income taxes
Three Months Ended March 31,
(dollars in thousands) 2023 2022 $ Change % Change
Provision for income taxes $ 451 $ 216 $ 235 109 %
Effective tax rate (2 )% (1 )%
The provision for income taxes increased for the three months ended March 31,
2023 compared to the three months ended March 31, 2022 , primarily due to an
estimated increase in U.S. state income taxes resulting from capitalization of
certain expenses under Section 174.
31
--------------------------------------------------------------------------------Liquidity and Capital Resources
As ofMarch 31, 2023 andDecember 31, 2022 , our principal sources of liquidity were cash and cash equivalents totaling$199.1 million and$202.8 million , respectively, all of which were bank deposits as well as cash to be received from customers and cash available under our credit facilities.
We have historically financed our operations primarily through payments received from our customers and borrowings under credit facilities and lines of credit.
OnFebruary 26, 2022 , our board of directors authorized a share repurchase program to repurchase up to$200.0 million of our common stock in the open market or in privately negotiated transactions (through 10b5-1 trading plans or otherwise). The share repurchase program does not obligate us to acquire any particular amount of common stock and may be suspended at any time at our discretion, and the repurchase program does not have an expiration date. The actual timing, number and value of shares repurchased is determined by our management at its discretion and depends on a number of factors, including the market price of our stock, general business and market conditions, and other investment opportunities. There were no share repurchases for the three months endedMarch 31, 2023 . During the three months endedMarch 31, 2022 , we repurchased approximately 2.4 million shares of common stock for approximately$36.4 million . As ofMarch 31, 2023 , our remaining share repurchase authorization was approximately$116.5 million . We believe our existing cash and cash equivalents, our credit facilities and cash provided by sales of our products will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our long-term future capital requirements will depend on many factors, including the timing and amount of cash received from customers, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product offerings and the continuing market adoption of our products. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce our ability to compete successfully and harm our results of operations. Ongoing worldwide business and economic disruptions could materially affect our future access to our sources of liquidity, particularly our cash flows from operations, financial condition, capitalization, and capital investments. In the event of a sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions. A significant majority of our customers pay in advance for annual subscriptions, which is a substantial source of cash. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which we recognized as revenue in accordance with our revenue recognition policy. As ofMarch 31, 2023 andDecember 31, 2022 , we had deferred revenue of$216.5 million and$207.4 million , respectively, a substantial majority of which we expect to record as revenue in the next 12 months, provided all other revenue recognition criteria have been met. Under the terms of the Merger Agreement, we have agreed to various covenants and agreements, including, among others, agreements to conduct our business in the ordinary course during the period between the execution of the Merger Agreement and the Effective Time of the Merger or the valid termination of the Merger Agreement pursuant to its terms. Outside of certain limited exceptions, we may not take or agree to take certain actions without STG's consent, including: acquiring businesses, entering into certain specified contracts, making capital expenditures in excess of those as set forth in a capital budget provided to STG in connection with the execution of the Merger Agreement or in excess of certain specified amounts, issuing additional capital stock or securities convertible into capital stock, or incurring additional indebtedness. We do not believe these restrictions will prevent us from meeting our ongoing operating expenses, working capital needs, or capital expenditure requirements. 32 --------------------------------------------------------------------------------
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Three Months Ended March 31 ,
(in thousands) 2023 2022
Net cash used in operating activities$ (7,927 ) $ (4,900 ) Net cash provided by (used in) investing activities 4,659 (3,006 ) Net cash used in financing activities (550 ) (59,653 ) Effects of exchange rate changes on cash 213
393
Net decrease in cash, cash equivalents and restricted cash$ (3,605 ) $ (67,166 )
Cash Flows from Operating Activities
Our largest source of operating cash is cash collections from our customers for subscriptions to our products. Our primary uses of cash in operating activities are for employee-related expenditures, marketing expenses and third-party hosting costs. Historically, we have generated positive cash flows from operating activities. Net cash provided by operating activities is impacted by our net loss adjusted for certain non-cash items, including depreciation and amortization expenses, stock-based compensation, non-cash lease expense, bad debt expense, deferred income taxes and other non-cash adjustments, as well as the effect of changes in operating assets and liabilities. During the three months endedMarch 31, 2023 , cash used in operating activities was$7.9 million , primarily due to our net loss of$23.8 million , adjusted for non-cash charges of$28.9 million and net cash outflows of$13.0 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of depreciation and amortization, stock-based compensation, non-cash lease expense, bad debt expense, deferred income taxes and net unrealized foreign currency (gains) losses. The primary drivers of the changes in operating assets and liabilities are a$7.1 million increase in prepaid expenses and other assets, a$5.0 million decrease in accounts payable and accrued liabilities, a$8.3 million decrease in accrued compensation, and cash used for operating lease liabilities of$2.9 million , offset by cash inflows from a$9.0 million increase in deferred revenue and a$1.3 million decrease in accounts receivable. During the three months endedMarch 31, 2022 , cash used in operating activities was$4.9 million , primarily due to our net loss of$37.4 million , adjusted for non-cash charges of$40.4 million and net cash outflows of$7.9 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of depreciation and amortization, stock-based compensation, non-cash lease expense, bad debt expense and deferred income taxes. The primary drivers of the changes in operating assets and liabilities are an increase in prepaid expenses and other assets of$8.2 million , a$6.9 million decrease in accrued compensation, a$2.3 million decrease in accounts payable and accrued liabilities, a$1.0 million increase in accounts receivable, and cash used for operating lease liabilities of$3.8 million , offset by cash inflows from a$14.3 million increase in deferred revenue.
Cash Flows from Investing Activities
Our primary investing activities have consisted of capital expenditures to purchase equipment necessary to support our network and other operations and capitalization of internal-use software necessary to deliver significant new features and functionality in our survey platform which provides value to our customers. As our business expands, we expect our capital expenditures to continue to increase. Net cash provided by investing activities during the three months endedMarch 31, 2023 of$4.7 million was primarily attributable to cash received from the sale of a private company investment of$6.8 million , offset by cash used for the development of internal-use software of$2.1 million that is capitalized. Net cash used in investing activities during the three months endedMarch 31, 2022 of$3.0 million was primarily attributable to cash used for the development of internal-use software of$2.6 million that is capitalized and purchases of property and equipment of$0.4 million .
Cash Flows from Financing Activities
Net cash used in financing activities during the three months ended
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Net cash provided by financing activities during the three months ended March
31, 2022 of $59.7 million was primarily attributable to payments for share
repurchases of $36.4 million and principal payments made on our credit
facilities of $25.6 million , partially offset by proceeds from the exercise of
stock options of $2.3 million .
Contractual Obligations
Our material cash requirements and principal commitments consist of obligations under our credit facilities and leases for office space. As ofMarch 31, 2023 , the future non-cancelable minimum payments under these commitments were as follows: Payments Due by Period Remainder of (in thousands) Total 2023 2024 2025 2026 2027 Thereafter
Credit facilities(1)$ 185,100 $ 1,650 $ 2,200 $ 181,250 $ - $ - $ - Interest payments on credit facilities(1) 40,639 12,136 16,188 12,315 - - - Operating leases(2) 56,127 8,400 9,753 9,307 9,516 9,788 9,363 Purchase commitments(3) 22,609 12,531 8,082 1,946 49 1 - Total contractual obligations$ 304,475 $ 34,717 $ 36,223 $ 204,818 $ 9,565 $ 9,789 $ 9,363 (1) Represents the principal balances and related interest payments to be paid in connection with our 2018 Credit Facility. Interest payments on our 2018 Credit Facility are based upon the applicable interest rates as ofMarch 31, 2023 and are subject to change in future periods. For additional information regarding our credit facilities, see Note 12 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
(2)
Primarily consists of future non-cancelable minimum rental payments under operating leases for our corporate headquarters and our other facilities. The amounts above exclude expected sublease payments to be received of approximately$1.7 million . For additional information regarding our operating lease obligations, see Note 10 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
(3)
Primarily consists of open non-cancellable purchase orders for data center hosting services and the procurement of goods and services in the ordinary course of business.
Off-Balance Sheet Arrangements
As ofMarch 31, 2023 , we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in accordance with GAAP. In the preparation of these condensed consolidated financial statements, we are required to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. To the extent that there are material differences between these judgements, estimates and actual results, our financial condition or results of operations would be affected. We base our judgements and estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting judgements and estimates of this type as critical accounting policies and estimates. There have been no material changes to our critical accounting policies and estimates for the three months endedMarch 31, 2023 , as compared to those disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2022 .
Recent Accounting Pronouncements
See Note 2 of the Notes to Condensed Consolidated Financial Statements included
elsewhere in this Quarterly Report on Form 10-Q for discussion of recently
adopted accounting pronouncements and recently issued accounting pronouncements
not yet adopted.
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