The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K. 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. 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 I, Item 1A in this Annual Report on Form 10-K. 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 three product categories, Surveys, Customer Experience, and Insights Solutions, 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. In 2022, approximately 38% of our total revenue was generated from customers who purchased software through our sales-assisted channel, up from 32% in 2021. 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 chief operating decision maker ("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 the entire company. Our CODM uses one measure of profitability and does not segment our business for internal reporting.
Impact of COVID-19 and other Macroeconomic Factors on our Business
50 -------------------------------------------------------------------------------- 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, 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 three product categories - Surveys, Customer Experience, and Insights Solutions, 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.
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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 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.
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Customer Experience: Our Customer Experience solution 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. We differentiate our Customer Experience solution in the market based on our software's ease-of-implementation and use, time-to-value relative to alternative solutions, and rich integration across the Salesforce and Zendesk ecosystems. Our Customer Experience solution is sold through our sales-assisted channel. Revenue from Customer Experience is generated primarily on a subscription basis.
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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 51 -------------------------------------------------------------------------------- channel. Revenue from Insights Solutions is 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. We expect to expand this initiative throughout 2023.
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Professional Services: For customers who need assistance with implementing and 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, return-on-investment ("ROI") impact 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.
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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; 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.
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 ofDecember 31, 2022 and 2021, we had over 14 million and 17 million active users, respectively. As ofDecember 31, 2022 and 2021, we had approximately 887,400 and 879,600 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 ofDecember 31, 2022 and 2021, we had approximately 14,500 and 11,900 customers, respectively, who purchased our software through our sales-assisted channel. Our average revenue per paying user ("ARPU") was$544 and$522 for the years endedDecember 31, 2022 and 2021, 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. 52 -------------------------------------------------------------------------------- As ofDecember 31, 2022 , 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 ofDecember 31, 2022 , 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. 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 December 31, (in thousands) 2022 2021 2020
Remaining performance obligations ("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 consolidated financial statements. Unbilled contractual amounts are part of RPO and are not included in our 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 (including changes that we may see to customer contracts as a result of the COVID-19 pandemic).
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 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 53 -------------------------------------------------------------------------------- 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:
Year Ended December 31, (in thousands) 2022 2021 2020
Net cash provided by operating activities
(449 ) (735 ) (782 ) Capitalized internal-use software (8,205 ) (8,443 ) (9,220 ) Free cash flow$ 147 $ 48,589 $ 45,628 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 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 income from operations: Year Ended December 31, (in thousands) 2022 2021 2020 GAAP loss from operations$ (81,337 ) $ (112,572 ) $ (81,581 ) Stock-based compensation, net 98,692 98,564 79,167
Amortization of acquisition intangible assets 5,600 10,142
12,602
Acquisition-related transaction costs(1) 11,900 12,821
-
Restructuring(2) 3,352 -
-
Non-GAAP income from operations$ 38,207 $ 8,955
(1) Includes transaction expenses associated with the terminated merger with Zendesk. See Note 1 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information.
(2) For the year ended
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 54 -------------------------------------------------------------------------------- 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 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 Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Other Non-Operating (Income) Expense, Net
Other non-operating (income) expense, net consists primarily of interest income, net foreign currency exchange gains and losses, gain on sale of private company investments, and other gains and losses.
Provision for (Benefit from) Income Taxes
Provision for 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 not 55 -------------------------------------------------------------------------------- basis. For additional information regarding our income taxes, see Note 13 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. 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.
A comparison between the years endedDecember 31, 2021 and 2020 has been omitted from this Annual Report on Form 10-K, but may be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onFebruary 14, 2022 .
Comparison of the Year Ended
Year Ended December 31, (in thousands) 2022 % of Revenue 2021 % of Revenue Revenue$ 480,917 100 %$ 443,786 100 % Cost of revenue(1)(2)(3) 86,251 18 % 86,421 19 % Gross profit 394,666 82 % 357,365 81 % Operating expenses: Research and development(1)(3) 138,091 29 % 139,262 31 % Sales and marketing (1)(2)(3) 223,827 47 % 224,008 50 % General and administrative(1)(3) 107,522 22 % 106,667 24 % Restructuring (1)(2) 6,563 1 % - - Total operating expenses 476,003 99 % 469,937 106 % Loss from operations (81,337 ) (17 )% (112,572 ) (25 )% Interest expense 11,476 2 % 9,261 2 % Other non-operating (income) expense, net (4,513 ) (1 )% 934 - Loss before income taxes (88,300 ) (18 )% (122,767 ) (28 )% Provision for income taxes 1,591 - 482 - Net loss$ (89,891 ) (19 )%$ (123,249 ) (28 )% (1) Includes stock-based compensation, net of amounts capitalized as follows: Year Ended December 31, (in thousands) 2022 % of Revenue 2021 % of Revenue Cost of revenue$ 6,164 1 %$ 5,862 1 % Research and development 34,711 7 % 40,821 9 % Sales and marketing 22,860 5 % 23,585 5 % General and administrative 32,196 7 % 28,296 6 % Restructuring 2,761 1 % - 0 % Stock-based compensation, net of amounts capitalized$ 98,692 21 %$ 98,564 22 %
(2) Includes amortization of acquisition intangible assets as follows:
Year Ended December 31, (in thousands) 2022 % of Revenue 2021 % of Revenue Cost of revenue$ 2,234 0 %$ 5,868 1 % Sales and marketing 2,916 1 % 4,274 1 % Restructuring 450 0 % - 0 % Amortization of acquisition intangible assets$ 5,600 1 %$ 10,142 2 % (3) Includes transaction expenses associated with the terminated merger with Zendesk. See Note 1 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information. 56 --------------------------------------------------------------------------------
Revenue and cost of revenue
Year Ended December 31, (dollars in thousands) 2022 $ Change % Change 2021 Revenue$ 480,917 $ 37,131 8 %$ 443,786 Cost of revenue 86,251 (170 ) (0 )% 86,421 Gross profit$ 394,666 $ 37,301 10 %$ 357,365 Gross margin 82 % 81 % Revenue increased for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 . Our number of paying users increased 1% from approximately 879,600 as ofDecember 31, 2021 to approximately 887,400 as ofDecember 31, 2022 and ARPU increased 4% from$522 for the year endedDecember 31, 2021 to$544 for the year endedDecember 31, 2022 . Revenue growth was driven by an increase of$38.6 million , or 27%, 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$1.5 million , or (0.5%), in our self-serve channel. Revenue from our sales-assisted channel accounted for 38% and 32% of revenue for the years endedDecember 31, 2022 and 2021, respectively. Cost of revenue slightly decreased for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 , primarily due to a$3.6 million decrease in amortization of acquired developed technology intangible assets related to our prior acquisitions and a$2.5 million decrease in capitalized software amortization, partially offset by a$2.5 million increase in website hosting costs, a$2.3 million increase in personnel costs, and a$1.3 million increase in external sample costs and charitable donations associated with our SurveyMonkey Audience, our market research panel solution. The increase in personnel costs was primarily due to a$2.0 million increase in employee-related expenses due to an increase in average headcount for the year and$0.3 million of employee retention bonuses related to the terminated merger with Zendesk.
Our gross margin increased for the years ended
Research and development Year EndedDecember 31 ,
(dollars in thousands) 2022 $ Change % Change 2021
Research and development
Research and development expenses decreased for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 , primarily due to a$2.2 million decrease in personnel costs, partially offset by a$1.3 million increase in IT costs. The decrease in personnel costs includes a$5.9 million decrease in stock-based compensation primarily due to executive terminations, offset by a$2.1 million increase in employee retention bonuses related to the terminated merger with Zendesk and a$1.6 million increase in employee-related expenses due to an increase in average headcount for the year. Sales and marketing Year Ended December 31, (dollars in thousands) 2022 $ Change % Change 2021 Sales and marketing$ 223,827 $ (181 ) (0 )%$ 224,008 Sales and marketing expenses slightly decreased for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 , primarily due to a$5.4 million decrease in facilities and depreciation costs and a$1.4 million decrease in amortization of acquired trade name and customer relationship intangible assets related to our prior acquisitions, which were partially offset by a$4.7 million increase in personnel costs and a$1.9 million increase in brand campaigns and paid marketing. The increase in personnel costs is due to a$2.5 million increase in employee-related expenses due to an increase in average headcount for the year and a$1.9 million increase in retention bonuses related to the terminated merger with Zendesk. General and administrative Year Ended December 31, (dollars in thousands) 2022 $ Change % Change 2021 General and administrative$ 107,522 $ 855 1 %$ 106,667 57
-------------------------------------------------------------------------------- General and administrative expenses increased for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 , primarily due to a$8.0 million increase in personnel related costs, which were partially offset by a$2.6 million decrease in professional services and a$1.8 million decrease in depreciation expense due to the impairment of leasehold costs in theSan Mateo, CA headquarters. In addition, there were decreases in office expenses. The increase in personnel costs is due to a$5.8 million increase in employee-related expenses due to an increase in average headcount for the year and a$2.2 million increase in retention bonuses related to the terminated merger with Zendesk. Restructuring Year Ended December 31, (dollars in thousands) 2022 $ Change % Change 2021 Restructuring$ 6,563 $ 6,563 100 % $ - Restructuring expenses recorded for the year endedDecember 31, 2022 included employee severance, stock-based compensation, contract termination expenses, and lease modifications in connection with restructuring plans implemented in 2022. For additional information regarding our restructuring activities, see Note 15 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. Interest expense Year Ended December 31, (dollars in thousands) 2022 $ Change % Change 2021 Interest expense$ 11,476 $ 2,215 24 %$ 9,261 Interest expense increased for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 primarily due to higher average interest rates 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 Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Other non-operating (income) expense, net
Year Ended December
31,
(dollars in thousands) 2022 $ Change %
Change 2021
Other non-operating (income) expense, net
Other non-operating income, net for the year endedDecember 31, 2022 increased compared to the year endedDecember 31, 2021 (where the amounts resulted in non-operating expense), primarily due to a$3.2 million gain on sale of a private company investment and an increase of$2.7 million in interest income due to higher average interest rates, which were partially offset by fluctuations in foreign currency exchange rates.
Provision for (benefit from) income taxes
Year Ended December 31, (dollars in thousands) 2022 $ Change % Change 2021 Provision for income taxes$ 1,591 $ 1,109 230 %$ 482 Effective tax rate (2 )% * * less than 1% The provision for income taxes increased for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 , primarily due to a change in the state taxes related to the amortization of intangible assets and fewer tax credits recorded in the current year.
Liquidity and Capital Resources
As ofDecember 31, 2022 and 2021, our principal sources of liquidity were cash and cash equivalents totaling$202.8 million and$305.5 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 58 -------------------------------------------------------------------------------- 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. During the year endedDecember 31, 2022 , the Company repurchased approximately 6.6 million shares of common stock for approximately$83.5 million .
On
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 ofDecember 31, 2022 and 2021, we had deferred revenue of$207.4 million and$201.8 million , respectively, a substantial majority of which we expect to record as revenue in the next 12 months, provided all other revenue recognition criteria have been met. Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year Ended December 31, (in thousands) 2022 2021 2020
Net cash provided by operating activities
(8,654 ) (9,008 ) (8,907 ) Net cash provided by (used in) financing activities (102,271 ) 33,206
46,669
Effects of exchange rate changes on cash (739 ) (458 ) (461 ) Net increase (decrease) in cash, cash equivalents and restricted cash$ (102,863 ) $ 81,507
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 year endedDecember 31, 2022 , cash provided by operating activities was$8.8 million , primarily due to our net loss of$89.9 million , adjusted for non-cash charges of$134.2 million and net cash outflows of$35.5 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, gain on lease modification, impairment of long-lived assets, bad debt expense, deferred income taxes, gain on sale of a private company investment, and net unrealized foreign currency (gains) losses. The primary drivers of the changes in operating assets and liabilities related to cash were provided by a$5.6 million increase in deferred revenue and a$1.8 million increase in accounts payable and accrued liabilities, offset by a$13.7 million decrease in accrued compensation, a$13.0 million decrease 59 --------------------------------------------------------------------------------
in operating lease liabilities, a
During the year endedDecember 31, 2021 , cash provided by operating activities was$57.8 million , primarily due to our net loss of$123.2 million , adjusted for non-cash charges of$157.3 million and net cash inflows of$23.7 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, impairment of long-lived assets, bad debt expense, deferred income taxes and net unrealized foreign currency (gains) losses. The primary drivers of the changes in operating assets and liabilities related to cash were provided by a$31.2 million increase in deferred revenue, a$17.5 million increase in accounts payable and accrued liabilities, and a$14.0 million increase in accrued compensation, partially offset by cash used for prepaid expenses and other assets of$14.2 million and operating lease liabilities of$15.0 million , and an increase in accounts receivable of$9.8 million . During the year endedDecember 31, 2020 , cash provided by operating activities was$55.6 million , primarily due to our net loss of$91.6 million , adjusted for non-cash charges of$142.8 million and net cash inflows of$4.4 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 related to cash were provided by a$29.7 million increase in deferred revenue, a$1.1 million increase in accounts payable and accrued liabilities, and a$7.9 million increase in accrued compensation, partially offset by cash used for prepaid expenses and other assets of$12.1 million and operating lease liabilities of$14.6 million , and an increase in accounts receivable of$7.6 million .
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 used in investing activities during the year ended
Net cash used in investing activities during the year endedDecember 31, 2021 of$9.0 million was primarily attributable to cash used for the development of internal-use software of$8.4 million that is capitalized and purchases of property and equipment of$0.7 million , partially offset by proceeds from the sale of property and equipment of$0.2 million . Net cash used in investing activities during the year endedDecember 31, 2020 of$8.9 million was primarily attributable to cash used for the development of internal-use software of$9.2 million that is capitalized and purchases of property and equipment of$0.8 million , partially offset by proceeds from the sale of investment in privately-held company and other property of$1.1 million .
Cash Flows from Financing Activities
Net cash used in financing activities during the year endedDecember 31, 2022 of$102.3 million was primarily attributable to payments for share repurchases of$83.5 million and principal payments on our credit facilities of$27.2 million , partially offset by shares purchased under our employee stock purchase plan of$5.6 million and proceeds from the exercise of stock options of$2.8 million . Net cash provided by financing activities during the year endedDecember 31, 2021 of$33.2 million was primarily attributable to proceeds from the exercise of stock options of$27.9 million and shares purchased under our employee stock purchase plan of$7.5 million , partially offset by the principal payments on our credit facilities of$2.2 million . Net cash provided by financing activities during the year endedDecember 31, 2020 of$46.7 million was primarily attributable to proceeds from the exercise of stock options of$42.2 million and shares purchased under our employee stock purchase plan of$6.7 million , partially offset by the principal payments on our credit facilities of$2.2 million . 60 --------------------------------------------------------------------------------
Contractual Obligations
Our material cash requirements and principal commitments consist of obligations under our credit facilities and leases for office space. As ofDecember 31, 2022 , the future non-cancelable minimum payments under these commitments were as follows: Payments Due by Period (in thousands) Total 2023 2024 2025 2026 2027 Thereafter Credit facilities(1)$ 185,650 $ 2,200 $ 2,200 $ 181,250 $ - $ - $ - Interest payments on credit facilities(1) 41,968 15,212 15,196 11,560 - - - Operating leases(2) 58,650 11,143 9,599 9,243 9,515 9,787 9,363 Purchase commitments(3) 27,610 18,748 7,289 1,521 49 3 -
Total contractual obligations
(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 ofDecember 31, 2022 and are subject to change in future periods. For additional information regarding our credit facilities, see Note 12 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
(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$2.2 million . For additional information regarding our operating lease obligations, see Note 10 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
(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 ofDecember 31, 2022 , 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 We prepare our consolidated financial statements in accordance with GAAP. In the preparation of these 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. While our significant accounting policies are more fully described in Note 1 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, we believe that the accounting policies described below involve a greater degree of judgment and estimation uncertainty.
Revenue Recognition
We generate a majority of our revenue from the sale of subscriptions to our software products for survey feedback and customer experience. We also generate revenue from our transactional insight/market research solutions services. We normally sell each of these products in separate contracts to our customers and each product is distinct. The most critical judgments required in applying Topic 606 and our revenue recognition policy relate to the determination of distinct performance obligations. Our policy is to exclude sales and other indirect taxes when measuring the transaction price of our subscription agreements. We account for revenue contracts with customers through the following steps:
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identification of the contract, or contracts, with a customer;
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identification of the performance obligations in the contract;
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determination of the transaction price;
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allocation of the transaction price to the performance obligations in the contract; and
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recognition of revenue when, or as, we satisfy a performance obligation.
For subscription products, we provide customers the option of monthly, annual or multi-year contractual terms. In general, our customers elect contractual terms of one year or less. Subscription revenue is recognized on a straight-line basis over the related subscription term beginning on the date we provide access. Access to our subscription product is an obligation representing a series of distinct services (and which comprise a single performance obligation) that we provide to our end customer over the contractual term. We recognize our subscription revenue on a straight-line basis because the customer benefits from access to our products throughout the contractual term.
The transactional insight/market research solution services are generally billed in advance and revenue is recognized after the services have been delivered.
Our contracts are generally non-cancellable and do not contain refund-type provisions and are billed in advance. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether transfer of control to customers has occurred. We record contract liabilities to deferred revenue when cash payments are received or due. Deferred revenue consists of the unearned portion of customer billings.
Stock-Based Compensation
We recognize stock-based compensation expense for all share-based payments to employees, including restricted stock units, stock options, restricted stock awards, and shares issuable under our employee stock purchase plan (the "ESPP"), based on the grant-date fair value of our common stock estimated in accordance with the provisions of ASC 718, Compensation-Stock Compensation. For time-based equity awards, stock-based compensation expense is recognized on a straight-line basis over the award's requisite service period, which is generally four years for new hires and generally three years for subsequent grants to existing employees. For shares issuable under the ESPP, stock-based compensation expense is recognized on a straight-line basis over the award's requisite service period, which is an offering period. For performance-based stock awards, stock-based compensation expense is recognized using the accelerated attribution method over the requisite service period. We recognize excess tax benefits from stock-based compensation expense in earnings, which are substantially offset by a valuation allowance. We also made a policy election to account for forfeitures as they occur. We estimate the fair values of time-based restricted stock units and restricted stock awards based on the fair value of our common stock on the grant date. We estimate the fair values of our time-based stock options and shares issuable under the ESPP using the Black-Scholes-Merton option-pricing model. We use the Monte Carlo simulation model to determine the fair value of our performance-based stock awards. Determining the grant date fair value of share-based payments to employees requires management to make assumptions and judgments. If any of the assumptions used in the valuation models change significantly, stock-based compensation expense for future awards may differ materially compared with the awards granted previously. The assumptions and estimates are as follows:
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Expected Term: As we do not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, we determine the expected term based on the average period the stock options or ESPP are expected to remain outstanding. For stock options, expected term is calculated as the midpoint of the stock options vesting term and contractual expiration period.
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Expected Volatility: As we do not have sufficient trading history of our common stock, stock price volatility is estimated at the applicable grant date by taking the weighted-average historical volatility of a group of comparable publicly-traded companies over a period equal to the expected life of the options or ESPP.
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Expected Dividend Rate: We have not paid and do not anticipate paying cash dividends on our shares of common stock in the foreseeable future; therefore, the expected dividend yield is assumed to be zero.
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Risk-Free Interest Rate: We determined the risk-free interest rate by using a weighted average assumption equivalent to the expected term based on theU.S. Treasury constant maturity rate as of the date of grant. Our board of directors determines the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the date of the grant, for which there are no estimates or judgements. 62 --------------------------------------------------------------------------------
Changes in the input assumptions outlined above can affect the fair value estimates used to measure stock-based compensation expense to be recognized.
Business Combinations
When we acquire a business, the purchase consideration is allocated to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated respective fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require us to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired users including related attrition rates, acquired developed technology including the estimated obsolescence of the technology, and trade names from a market participant perspective, future expected cash flows for operating expenses, useful lives and discount rates. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to non-operating (income) expense in the consolidated statements of operations.
Impairment of
Goodwill is not amortized but rather tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that goodwill may be impaired.Goodwill impairment is recognized when the carrying value of goodwill exceeds our implied fair value.Goodwill is evaluated for impairment annually onOctober 1 , and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Acquisition intangible assets consist primarily of technology, customer relationships and trade names. Purchased intangible assets are recorded at fair value on the date of acquisition and amortized over their estimated useful lives following the pattern in which the economic benefits of the assets will be consumed, generally straight-line. We continually evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of amortizable long-lived assets may warrant revision or that the remaining balance may not be recoverable. When factors indicate that acquisition intangible assets should be evaluated for possible impairment, we use an estimate of the related undiscounted future cash flows over the remaining life of the amortizable long-lived assets in measuring whether they are recoverable. If the estimated undiscounted future cash flows do not exceed the carrying value of the asset, a loss is recorded as the excess of the asset's carrying value over its fair value. Determining if an impairment triggering event has occurred (which may include, but is not limited to, a significant adverse change in customer demand or business climate or a significant decrease in expected cash flows) requires significant management judgement. We did not recognize any impairment of goodwill or intangible assets during each of the years endedDecember 31, 2021 and 2020. During the year endedDecember 31, 2022 , we accelerated the amortization of an acquired trade name from a prior acquisition in connection with the restructuring plan we implemented inMarch 2022 . See Note 15 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional information.
Recent Accounting Pronouncements
See Note 2 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for discussion of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this Annual Report on Form 10-K.
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