Q2 2022 Momentive Global Inc Earnings Call
Please press star one on your telephone keypad at any time. It is now my pleasure to hand, the conference over to our host Gary Futures Vice President of Investor Relations with moment of Global Gary. Please proceed. Thank you good afternoon and welcome to the momentum Global's second quarter 2022 earnings call. Joining me on today's call are Andrew.
Murray CEO Priyanka car, COO, and Justin Colombia, CFO after Xander adjustments prepared remarks, the team will take your questions. Prior to this call. We issued a press release with our Q2 2022 financial results as well as management's prepared remarks for today's call. These items are posted on our Investor Relations website at Investor Dot momentum Dot AI during the <unk>.
Of this call management will make forward looking statements, which are subject to various risks and uncertainties, including statements related to our strategy investments revenue operating margin Unlevered free cash flow margin and cash flow actual results may differ materially from the results predicted and reported results should not be considered an indication of future performance discussion of the risks and uncertainties related to our businesses.
As contained in our filings with Securities and Exchange Commission in particular in the section entitled Risk factors in our quarterly and annual reports and refer you to these filings.
Our discussion today will include non-GAAP financial measures unless otherwise stated.
These non-GAAP measures should be considered in addition to and not a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP results may be found in our earnings release, which was furnished with our 8-K filed today with the SEC and May also be found on our Investor Relations website.
Finally, today's call will reference rule 40 financial performance, which the company defines as a combination of year over year revenue growth in Unlevered free cash flow margin. The company will discuss target operating model and rule of 40 on its August 5th virtual Investor day for more information or to register for the event. Please visit our Investor Relations website with that I'll now turn the call over to Zander.
Thank you Gary and thank you all for joining us we're halfway through a year characterized by increasing macroeconomic headwinds high inflation and currency volatility and softer demand signals in late June .
We cannot control the macro environment and momentum we are pursuing several long term initiatives to expand our market opportunity increase our value proposition for customers and drive more operating leverage.
While transformations are more challenging in a recessionary environment I have a lot of confidence we are creating long term shareholder value.
Two revenue landed within our guidance range sales assistant customer growth was strong our new expansion motion had a record quarter and we hit the high end of our Q2 non-GAAP operating margin guidance range.
We intend to drive more operating leverage in the quarters to come.
Illustrated in our full year 2022 guidance, we expect to hit low to mid double digit operating margin in Q4.
Turning to our Investor Day Tomorrow, Youll hear us lay out a very achievable path to rule of 40 plus.
The answer performance characterized by durable growth in both of our go to market channels and significant operating leverage we have conviction in our plan as evidenced by $68 million and share repurchases from the end of February through June and we look forward to sharing more tomorrow about our product and go to market strategies that we believe will help us reach our financial targets.
Now a bit more on our Q2 results.
Q2 sales assisted revenue increased 30% year over year, our fifth consecutive quarter of 30% plus growth, surpassing $175 million and run rate revenue.
Bright spots in the quarter were traction of our expansion motion and the continued performance of our efficient high velocity motion, both driving more profitable growth.
We ended the quarter with approximately 15700 customers up 67% year over year.
We added approximately 2000, new customers quarter to quarter, including Jefferies secure I'd.
<unk> surpassed France, toughest medical and Volkswagen Group of America.
The high velocity team we established in early 2021 is driving strong overall logo growth. This is a highly efficient profitable sales motion with a focus on capturing new customer relationships early to facilitate account growth as we deliver value overtime.
With our sales assisted revenue base at scale, we are focused on growing customers within our existing base of 345000 plus organizations.
We ended the quarter with more than 2200 customers spending more than $25000 annually with us.
And we now have approximately 900 customers using more than one of our products.
Did we experience an impact in sales assistant bookings from macro headwinds, we did particularly in new sales and this became evident late in June .
Impact was largest in our insight solutions product line, what we previously called market research.
As a reminder, our insight solutions target for primary buyers investors marketing professionals product leaders and researchers.
Financial services firms and marketing professionals began pulling back on spend in late June most exciting budget reductions as.
As we've discussed on prior calls insight solutions revenue recognition is still largely project.
So its impact on our topline is more immediate compared to our subscription based products.
But we are confident this is a macro related headwinds the value we deliver to our customers is evident in our numbers retention and renewal metrics remain healthy, particularly for customers with more PC products and our expansion motion is building momentum.
And our self serve channel year over year revenue growth of 1% was in line with our expectations about 36% of our total self serve revenue is outside the United States.
And our Q1 call we shared our diagnosis of the main issue itself, Sir a weaker top of funnel and we outlined the steps, we're taking to reinvigorate growth on the web specifically.
<unk> high quality user traffic through new content and search engine optimization strategy.
Focused brand initiatives and competitive search engine marketing investments to reinvigorate survey monkey traffic.
Secondly, calibrating, our packaging and adding new features like translation imports to maintain conversion and average order value or <unk>.
And thirdly, reducing customer friction by simplifying the buying and Onboarding process.
We are executing on all initiatives as planned we created and tested a renewed branding campaign, which will rollout fully in Q3 timed with the bounce back from our seasonal summer lull.
We published more than 70 pieces of new SCO content, which is already contributing to health in the channel.
We used competitive bidding and SCM to bring down our CPC, we operationalized several winning experiments that are supporting a healthy conversion.
And engagement metrics.
As noted these top of funnel initiatives will take time to impact revenue, but our leading indicators are showing early positive signals in North America, the geography with our strongest conversion rate.
While retention and conversion metrics remain in a healthy range.
At the same time, we are facing persistent and worsening macroeconomic headwinds outside of North America, which.
Which are challenging to the top of funnel symbol.
Similar to North America, our retention conversion metrics are also in a healthy range.
As we think through the second half of the year, we are adjusting our revenue outlook to reflect increasing macro and FX headwind, especially as it relates to new business across both go to market channels.
However, we are maintaining our 6% to 7% non-GAAP operating margin guidance for the year, which implies low to mid double digit margin in Q4.
And believe we can drive meaningful operating leverage to reach rule of 40 financial performance.
The market is there are products and teams are in place and we are at scale to drive more profitable growth.
Before I turn the call over to Justin I want to discuss the board of management changes, we also announced today.
First I would like to welcome former Godaddy, President and Microsoft alone Lauren Amphenol to our board of directors I am confident Lauren will add value out of the gate given her industry experience in product development background for.
Her expertise will be particularly valuable during this business model transformation.
I also want to thank Serena Williams who's been with US since 2017, the entire board and I. Appreciate your contributions over the past five years and wish her continued success in her many endeavors.
Secondly, we are making changes to our go to market leadership can you all who joined US as chief customer officer in December of 2020 will now oversee the entire sales assisted go to market strategy from new sales to renewals support and expansion.
Given our increased focus on growth through expansion with our existing base. We think the time is right to consolidate our sales assisted motions under one leader.
John Schoen sign who joined US in 2017 to lead our sales organization is stepping down.
Thank John for helping us move upmarket over the last five years. He will stay on through the end of the quarter to ensure a smooth transition.
Third we announced adjusted Colombia will be moving on effective September 30.
Adjusted leaves us after having put the finance machinery in place to support our future success.
<unk> strengthened the finance organization hired a strong chief accounting officer, and part with the board and executive team to build and process that tied to the operating model targets will share with you tomorrow.
We're putting our CFO search on the fast track, while Justin remains in his role through the end of Q3, and the board and I wish and future success.
As we will discuss some of the pace of change continues to accelerate and there is a clear need for our powerful accessible solutions that help business decision makers succeed when the stakes are high.
We believe we are on a path to rule of 40 financial performance through more profitable growth driven by expansion within our existing customer base of 345000 plus organization.
We look forward to sharing more with you on that Tomorrow I will now turn the call over to Justin who will review, our Q2 financial results and outlook.
Thanks, Andrew before I review, our financial performance I'd like to thank the momentous team board and Investor community and I'd like to think Zander for his partnership and leadership the past three years. The moment. This had been an exceptional experience and deciding to move on does not an easy decision I believe we have the asset business model and leadership team.
In place to drive profitable growth and reach rule of 40, plus I look forward to partnering with her leadership team through the end of Q3 to ensure a seamless transition.
I will now review our Q2 results and then discuss our outlook unless otherwise noted all comparisons are year over year.
In Q2 total revenue was $122 million, an increase of 10% and within our previously issued guidance range headwinds from foreign exchange rates were approximately 1%.
Revenue from our sales assisted channel increased 30%, surpassing $175 million run rate revenue and accounted for 37% total revenue compared to 31% a year ago period, we added approximately 2000 customers and now have 15700 customers with the sales assistant relationship.
New sales were strong in April and May before running into macro challenges in June .
<unk> expansion continued building on the momentum we saw in Q1 productivity.
Productivity per rent sales rep continued to improve year over year.
Further approximately 75% of last 12 months bookings were from customers with at least one multi seat product such as teams or sales assistant package. The dollar based net retention rate of this customer cohort was 110% in Q2.
The investment we've made to pursue expansion within our massive 345000, plus organizational domain customer base is working and will provide additional detail on our path forward Tomorrow's Investor day.
Revenue from our self serve channel grew 1% in Q2 revenue growth reflects the dynamics described previously.
Deferred revenue increased 11% to approximately $219 million and remaining performance obligations or our Po, which is the sum of deferred revenue and backlog rose, 13% to $250 million, partially driven by continued traction winning larger multiyear customer commitments.
We've shared in the past, we signed our largest customer to a multi year deal in Q2 of 2021 now that we've lapped. This milestone we anticipate <unk> growth will track closer to deferred revenue growth overtime.
Turning to profitability non-GAAP gross margin was 83% improving by approximately 30 basis points from the year ago period, non-GAAP operating margin expanded to two 8% compared to one 3% in Q2 2021, driven by rigorous expense management, specifically with respect to hiring.
On a percentage of revenue basis, all functional operating expense lines improved year over year, demonstrating the leverage of our business model in Q2, we recognized $3 3 million in one time restructuring benefit.
Which represents the net effect of exiting a portion of our San Mateo, California office space and continuing to realign our organizational structure to align with our strategy.
Net cash provided by operating activities was $3 7 million and free cash flow was $1 3 million as part of our previously announced $200 million share repurchase program in Q2, we repurchased $32 million of momentous stock representing approximately $2 6 million shares at an average price of $12 51.
<unk> per share we ended the quarter with $209 million in cash and equivalents on the balance sheet.
Turning to our outlook today, we are providing full year and Q3 2022 guidance for Q3, we expect revenue to be in the range of approximately $119 five to $122 5 million, we expect non-GAAP operating margin to be in the range of approximately 5% to 7% as we begin to demonstrate further operating.
Leverage for.
For the full year 2022, we expect revenue in the range of approximately $479 million to $485 million, which reflects the impact of demand environment changes, we began to see in late June and increasingly unfavorable foreign exchange rate headwinds.
As we've noted in the past revenue from our insight solutions, formerly known as market research is recognized on a consumption basis as projects are completed impacting quarter to quarter revenue growth trend as Andy referenced we're seeing transitory softness in new insight solution deals.
Well of the buyers we target are heavily impacted by the current macroeconomic headwinds.
And we're seeing usage of existing insight solutions credits slowdown as projects are delayed both dynamics will impact revenue significantly in Q3, and Q4 and are reflected in our outlook.
Further we're seeing the same foreign exchange pressure that other companies have noted recently, we updated our foreign exchange assumptions for the year, which generates a headwind in the low single digit million dollar range and full year 2022 revenue compared to our prior guidance.
We expect the sales assisted channels year over year revenue growth rate will be in the high <unk> for 2022.
Self serve channel revenue will be roughly flat year over year.
We continue to expect full year 2022, non-GAAP operating margin of six 7%, which assumes a consistent gross margin profile and operating leverage acceleration in Q3 and Q4, we expect to exit 'twenty two with operating margin in the low to mid double digits.
And while we are not providing full 2023 guidance today, we are sharing that we expect to drive at least five points of non-GAAP operating margin leverage in 2023 versus our operating margin guidance for 2022.
We expect full year 2022 free cash flow in the range of 1% to $7 million, which reflects the top line bookings headwinds noted above as a reminder, our free cash flow includes the impact of approximately $20 9 million in one time transaction related and restructuring expenses, a portion of which were accrued as expenses in 2021.
But will result in cash outflows in 2022.
Excluding the $29 million in one time transaction related and restructuring expenses, we would expect full year 2022 free cash flow in the range of $30 million to $36 million.
Wrapping things up we are proud of the progress we made in Q2. The remainder of 2022 will build on the same operating discipline and laid the foundation for durable and profitable growth coupled with expanding margins.
As always we remain focused on and committed to driving value for shareholders. We look forward to updating you further in Tomorrow's Investor day, where we will outline our operating model targets, including our path to low to mid <unk> non-GAAP operating margins.
High to mid Twenty's, Unlevered free cash flow margins and rule of 40, plus thank you we will now take your questions.
Okay.
Thank you we will now begin the Q&A session.
I would like to ask a question. Please press star followed by one on your telephone keypad.
The reason you would like to remove that question. Please press star followed by two again to submit for a question Thats Star one.
A reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
I'll pause here briefly ask questions are registered.
Our first question comes from.
Parker Lane with.
Stifel Parker Your line is now open.
Hi, This is Matthew kicker for Parker, Thanks, a lot for taking my questions.
And Justin I want to wish you all the best going forward.
First off I'm curious, how you would expect retention rates to trend in a potential recessionary environment going forward and how those compare for sales assisted channels versus your self service channels.
Yeah.
Hey, Matthew Thanks for the question. This is an area we've.
<unk>.
Evaluated over the last couple of years, starting with Covid when folks saw weakness in certain channels on the self serve channel we have not seen any degradation in our renewal rates and so we're quite pleased with the value that our product is delivering existing customers 901000, plus individual customers and teams that are seeing value in that.
Product and we're not seeing any degradation amidst the macroeconomic headwinds on new business.
On sales, we're always monitoring very closely.
Itis shining light at momentum right now is in our expansion in customer success arena. So we're seeing healthy rates of renewals, we're seeing healthy rates of expansion and while we have some challenges on certain new parts as Justin mentioned there is weakness in the <unk> community. We also believe.
We are a viable challenge or two higher priced often slower moving services. So while some of our business may soften if a macroeconomic headwinds persist. We're also going to be well positioned to challenge for other business that turns out of more expensive providers.
Okay. Thanks for the color there and then secondly.
On the past calls you've talked a lot about focusing on margin expansion and rule of 40 targets, but also growing your sales assisted channel quickly. So how are you thinking about balancing both of those goals at the same time.
That's the job that we are in fact, driving operating leverage quite successfully so you can see implied in our Q4 guidance low to mid teens.
Operating leverage there and that will increase at least five points in 2023, we're not giving guidance for full 2023, but we are driving operating leverage in the business everyday. Meanwhile, we continued to invest and grow that sales assisted business and so for the first few years. Obviously this was an area of what that was.
Not generating cash we are going to be continuing to focus to make that channel more profitable I want to thank John showing signs. It's been five years here that business grew from nothing to a $175 million run rate today, and you can see that a lot of the incremental leverage in our businesses in fact coming through that sales assisted channel. So.
As our renewal business strengthened as that cross sell and upsell business grows those are obviously higher incremental profitability deals.
Deals and we are both investing in that sales assisted channel and driving operating leverage throughout the company.
Okay. Thank you.
Yep.
Thank you.
As a reminder, if you would like to submit a question Thats star one on your telephone keypad.
Our next question comes from.
Nick <unk> with Craig Hallum, Nick Your line is now open.
Hi, This is Nick on for Chad Bennett, Thanks for taking our questions.
What the sales assisted new logos growing materially in the past 12 months, how should we think about how much of that is coming from conversion of self service customers Bill.
We've in the past you've talked about kind of like a forex uplift of these converted customers just kind of where is your confidence that you can sustain this level of uplift going forward.
Yes. Thanks for the question. Nick This is been a tried and true model since we went public in 2018.
When we went public we talked about the Forex revenue uplift, we get from converting a basket or.
Footprint of self serve paid subs into a sales assistant motion that.
Statistic remains true today in fact, the LTV of sales assisted customers that come from self serve is over to X. So we've converted thousands of self serve customers.
Would that come from an organization into sales assisted customers.
And while doing that we are also expanding existing self serve our sales assisted customers. So as we mentioned on the call today, we have over 200 customers that are 25, K and up.
And our overall footprint of 16000 sales assisted customers was up some 60 plus percent year over year. So we continue to see health in new sales specifically in converting self serve.
And customers into sales assisted customers continue to see health in converting single product sales customers into multi product. That's out now over 900 customers continue to see health in driving that 25, Canup metric, which is critical to us and.
And overall that net nets out to 110% net revenue retention for our multi seat customers, which is over 75% of our bookings. So there continues to be good health. There are pockets of weakness and knew for sure. There are functions and industries in geos that are experiencing more pressure and it's our job just to make sure that we are.
Kate our sales teams and marketing.
<unk> after going after the healthier sectors that are competing today.
Got it and then just following up on the comments about healthy retention rates in the self service business I believe the guidance implies.
<unk> serve revenues will be down in the second half both year over year and from the first half can you just help me reconcile the comments with kind of the <unk>.
Down.
It's also ROE now.
So it's critical to remember how we generate revenue in our self serve channel we attract users to our website via direct traffic via SCO via search engine marketing off of our end page.
The vast majority of folks who come to survey Monkey Center survey try the product and then we will convert into paying customers. When we do a great job for them.
After they convert into paying customers, it's our job to renew them or to upsell them onto a team package. Our renewal motion is healthy and when you sit in my chair and you have over 900000 paying subscribers our number one job and I'm speaking to all of our employees today is to hug your customers and make sure. They are getting great value from our products, we are doing that.
Where we have weakness is on top of funnel, we diagnosed that we talked about it on our Q1 call and we deployed a handful of initiatives.
Priyanka cars spoke about.
In prior comments and is leading the charge and we are seeing health in certain leading indicators, particularly in North America, and Canada E. K that tend to be our highest <unk> markets, we have not yet seen meaningful conversion into bookings and revenue that is our obviously our top effort right now is to reinvigorate health at serving them.
Dot com for new business, but our renewal business is healthy our products have product market fit and are delivering value to our customers every day.
Thanks for taking the questions.
Thank you.
Our next question comes from.
Robert Cole birth with Wells Fargo. Robert Your line is now open.
Great. Thank you for taking my question, sorry, but hovering around a little bit today, but on.
On the self serve just wondering maybe you have already provided but any update on the product and packaging.
On the self serve side.
Then with respect to the insights weakness that you that you referenced on the sales assistant side in the letter I believe.
Just wondering if you could talk about you know the pressure on budget and how that maybe creates a competitive opportunity do you place more investment against sort of.
Competitive displacement against offline market research products in this environment or is there any general comments on that sort of opportunity given given the pressure on budgets and youre referencing here.
Sure Robert I'll take the sales question first and then I'll hand, it over to Priyanka to address some of the self serve initiatives we are deploying.
On the sales assistant side as you mentioned now we have critical mass with over 16000 customers. We are also looking at our base of self serve users where we have over 345000 that is the primary pond.
Where we are fishing in for new customers and so our marketing teams. Our data teams, we're synthesizing a whole bunch of signals and using machine learning and AI and.
The feedback, we get and our products to be targeting future sales customers in that base.
Research in particular is an awesome product that this company, we have incredible conversion when our teams get in front of customers. They love the product I just heard about a big retailer in Europe today, who is opting for our package here over very well known higher end price points and so we do look at that as a.
Additive opportunity to displace some of the services companies <unk> and others that have higher price points and offering much slower to deliver value. So speed and price are competitive differentiators for our market research suite and really as I mentioned before we just need to make sure that we we.
<unk>, our resources and marketing dollars and time of our account executives against the healthiest industries, because they're our industry than there are <unk> that are facing big macro headwinds and may convert into budget constraints.
Turn it over to <unk> to talk a little bit about what we're doing on the brand Etsy MSC upfront yeah. Thanks for the question on self serve and so I'd like to thank the.
Self service.
Multiple parts of the funnel as we've talked about.
The top of the funnel, which is how we attract more customers to come to our website to learn about our product that is our primary focus area. At this point in time. It doesn't mean, we're banding efforts further down in the funnel, which is that pricing and conversion when youll see activity around that but our focus really is on durable user graph.
We've mentioned in prior calls and we're doing the durable user graph.
As we've discussed to multiple networks, having a brand that is relevant to you and available. When you are considering making a purchase and comes right at the top of your mind, they've been testing brand campaign and be able to launch them fully in Q3 to really drive that top of funnel brand awareness.
<unk> is our organic sources of traffic coming back to our website. Neither SCO related we slowed down on our content production last year picked up tremendously on our content production in the last quarter publishing over astounding pieces of content and we already see the impact of that especially in North America, where a lot of that content.
<unk> is on the SCM side. This is our clicks that we pay for against our competitors who've been on the same keywords, we've been bidding farmer competitively driving down our CTC is different from those that we have seen and getting our mind share back all of these initiatives will take time, we have a conversion wind down it takes time for someone to learn about us and then event.
<unk>, becoming they come and pay you there and it takes time for these initiatives to be the leading indicators in the market that we've been focused on have been growing positively consistently in the last several months as we've been taking demand.
Our strategy to take on as we get more Gary ammonia into our system and attack them with healthy conversion in <unk>.
We've already established.
Got it thank you very much.
Thank you.
As a reminder, if you would like to submit for a question Thats Star one on your telephone keypad.
As there are no further questions in queue I will now pass the conference over to Zander Lurie CEO of moments of global.
Thank you Amber thanks for your questions and thanks for tuning in somewhat of a challenging quarter, but I see some real bright spots. We will continue to focus on expansion and delivering more value to our growing existing customer base that sales motion that renewal motion and upsell motion is a huge growth driver in our path towards the role of <unk>.
On the self serve business pre talked a bit about the top of funnel needs for us to continue to grow traffic grow our user base, where we have healthy conversion and renewals and then we're going to do as much more profitably you can see in our Q3 guide as well as our.
Q4 guidance on profitability, that's going to translate into double digit margins in 2023, So I encourage everybody to tune into our virtual Investor Day Tomorrow, you will hear more from pre as well as from our Chief customer Officer, Ken <unk>, and Justin and I will discuss how that product strategy and our go to market motions will help us achieve rule of 40 over the next few years.
I want to wish everybody good health have a good evening, we'll see tomorrow.
That concludes todays momentum Global's second quarter 2022 earnings call. Thank you for your participation you may now disconnect your lines Goodbye.