Q3 2022 Momentive Global Inc Earnings Call

One of our products our renewal rates are improving even in challenging market conditions, we had a record level of expansion bookings in Q3, which helped us at the end of the quarter and was more than 2240 customers spending more than $25000 annually with us up 25%.

And approximately 900 customers using more than one of our products.

We continued to build the muscle to go deeper and broader with existing customers like Big bus tours, a survey monkey self serve customer since 2018 that recently expanded to serving marquee enterprise to track and measure NPS on a weekly basis across more than two dozen cities.

So the first purchase market research credits in 2020 to gain insight into device usage habits, and then more than doubled their spend with us to explore household battery use in multiple geographies.

Expansion is one of them part of our larger strategy to deliver more profitable growth. We also took action to match our go to market motions to the value of the customers base or <unk>.

Ally, we began serving our low end enterprise customers with our high velocity sales team.

Historically that team is sold and even lower average order value product teams well served by our digital channel.

The team shifted over the course of a quarter to handle SMB deals the.

This change means starting in Q3, the sales assistant customer metric no longer includes new teams deals. However.

However, as a result, our go to market motions became more efficient and our human touch selling its focused on customers with a clear path to expansion.

Further in our efforts to streamline our go to market motions and drive efficiency across the entire company, we put in place a restructuring plan to drive even more efficient new customer acquisition.

Greater scale and customer expansion and improved overall profitability. This strategy includes three key components.

First we are implementing a plan to reduce the size of the team dedicated to outbound lead generation and eliminate the F&B sales team at their win rates and deal sizes are too small to justify their cost structure.

With our streamline market segmentation model F&B deals will be transacted through our website or through our high velocity sales team.

Second we're increasingly account executive teams focus on new deals, where we can land bigger customer relationships and expand with them over time.

In a challenging macro environment, we believe six figure customers with our more expensive competitors will be looking for alternative providers that offer more value that's us.

Third we're dedicating a portion of the sales team to drive more expansion within the existing sales assisted customer base, we have the scale and the revenue base and the product market fit expansion drives larger initial deals and longer customer lifetimes with a more efficient cost structure. This plan builds upon the go to market changes, we enacted about a year ago.

We believe these additional actions will result in greater efficiencies more profitable growth and an accelerated path towards our long term profitability targets.

Self serve channel revenue of $74 6 million was in line with our expectations conversion average order value and retention metrics continued to remain healthy and in line with historical trends.

In Q3 and into October we saw clear signals that our efforts to reinvigorate the top of funnel are working.

Our investments in search engine optimization, Seo search engine marketing ICM website and branding for survey monkey, including successful survey Monkey AD campaign launch are generating growth and user sign ups for free plans, which is a key leading indicator for new paid revenue growth.

In Q3 U S sign ups experienced its best year over year growth in six quarters.

We are by no means declaring victory, but the leading indicators are encouraging and we know what we need to do to fully reinvigorate the self serve channel.

With continued execution and momentum from the top of the funnel. We believe we can begin improving the trajectory of self serve bookings starting in 2023.

Before we take your questions I'd like to review, our Q4 and full year 2022 guidance and provide some early commentary on 2023.

For Q4, we expect revenue to be in the range of approximately $120 million to $122 million at the midpoint. This implies approximately 3% growth on a reported basis and approximately 6% on a constant currency basis.

Guidance reflect the macroeconomic impact on new sales.

And project completions and the insight solutions business.

Call that insight solutions revenue is recognized primarily on a project basis versus the pure SaaS subscription model of our other major products.

We expect Q4, non-GAAP operating margin to be in the range of approximately 14% to 16%.

Which reflects the combined impact of the increased operating rigor we established at the start of this year and the early contributions of the restructuring plan.

Based on year to date actual performance and our Q4 guidance. Our updated full year 2022 guidance is as follows we expect full year 2022 total revenue in the range of approximately $479 million to $481 million, which assumes sales assisted channel revenue growth in the mid 2000 and Russ.

<unk> flat self serve channel revenue growth.

We anticipate a non-GAAP operating margin in the range of 7%.

And while we are not providing formal guidance for next year. We believe we can continue to drive operating leverage and full year 2023 as compared to 2022.

We expect full year free cash flow in the range of negative 5 million to negative $2 nine which includes the impact of approximately $33 million in one time transaction related and restructuring expenses, a portion of which were accrued as expenses in 2021, but result in cash outflows in 2022.

Excluding this amount free cash flow would be in the range of 23% to $28 million.

2022 has had its challenges, but the momentum business, it's healthy and resilient, we can endure through bumping macro conditions, our customer base is approaching 1 million paying users and they love how our products help them listen analyze and act to grow their businesses.

We're positioning the business for more profitable growth and we will continue to support our customers Act with integrity and redouble, our commitment to deliver for shareholders. Thank.

Thank you and I will now take your questions.

If you would like to ask a question. Please know star followed by one on your telephone keypad.

If for any reason you license grants for engineering fees that.

Followed by <unk>.

Again to ask a question press Star one as a reminder, if youre using a speakerphone. Please remember to pick up your handset before asking a question, we'll pause briefly as questions or industry.

The first question is from the line of.

Chad Bennett with Craig Hallum. Your line is now open.

Great. Thanks for taking my questions.

Nice job Zander on and obviously, the macro is getting tougher and tougher and we're hearing it from everybody.

Executing in the quarter and the operating leverage was great in the guide for that is great also.

Just on that topic, so I know in the Investor day, and I think on the Q3 call.

For next year for fiscal year 'twenty, three you were pretty specific that.

You'd see kind of five points or 500 bps of deleverage.

Next year in 'twenty three relative to 'twenty two is that still kind of in the realm of thinking I know you said you have.

To improve you're still kind of thinking in that range.

Hey, Chad Thanks for the good words im not going to give any 2023 guidance now I will reaffirm that that at least 500 basis points.

Our goal on the profit initiatives, what I will say in terms of the.

The expense envelope.

Never have we gone into a year thinking that head count will remain constant year over year and that's the mode. We're in right now is absolutely buckled down operational rigor and so with our expense envelope in Q4 kind of flowing into full year 2023. It provides a lot of opportunity for margin expansion, if we hit on our books.

<unk> initiatives. So that's what we're all focused on.

So then.

So maybe a different topic on the self serve side of the business I think you talked about.

Effectively it strengthening throughout the quarter and into October so and I think record sign ups or sign ups six quarter best year over year growth, what is the kind of cycle or the lag from sign up growth that youre seeing or acceleration to paid conversions.

At three months six months, what has that been historically.

Yes, it's.

Good question, we have 20 years of cohort data here.

And with 900000 paying subscribers around the world, we have the ability to kind of really understand what drives. It. So this year, it's been all hands on deck to deliver better content, which drives search engine optimization crisp.

CRISPR search engine marketing against our competitors and really buying up and down.

Head and tail and towards some of our key words.

And then a really sharp AD campaign that we delivered with gene Carlos So as you heard to say best delivery year over year, Samsung six quarters October was strong the conversion to paid subs is of course, the money question because free sign ups don't deliver.

Traditionally in the 30 to 90 day range it varies by cohort.

The intent or the high intent of the sign ups can be stronger when they come via SCO SCM. Those are folks who are looking for our product looking for.

HR type surveys et cetera.

Some sign ups come via less high intent.

And tend to have lower conversion or longer lag conversion they need to try the product more so.

Prior cohort data should be dispositive here, but these are different conditions and more challenging conditions. So 30 to 90 days is what we've seen traditionally and will report back as we see those free subs.

Yeah.

Got it and then maybe one last one real quick for me. So just on the sale with respect to the sales assisted side of the business. It looks like enterprise customers or sales assisted customers went down sequentially and I am not sure how much of that was where the changes you made on the high velocity team in SMB and <unk>.

<unk> and whatnot.

But it seems like at least in your commentary.

Just churn there was actually stable to better and net expansion, which might not show up.

In a customer number was very strong so can you just kind of.

Take us through kind of the sales assisted customers sequential and then I'll hop off thanks.

Yes, Thanks, Scott, Let me say first in the positive category really really good job by our customer success team an expansion team that is the motion that we're most dedicated with 15400 sales assisted customers, who are buying and loving our products that <unk> sells and bofa in humana's of the world.

Never land with site wide deals and so it's always about getting in with surveys and then that upsell and cross sell motion into some of our insights product and so to see gross revenue retention and net revenue retention up quarter over quarter year over year Super strong, we can really grow and thrive in 2023 by focusing on that expansion motion our new chief.

From Officer, who now is responsible for sales can you will and his team are really architected.

Really smart go to market in terms of demand Gen.

Cross selling motions incentives et cetera to be successful there.

Secondly on your question around number of customers, we moved that low kind.

Kind of SMB sub $7 deal outside of our high velocity team. So we want them moving upmarket and then moving the low skus back to the web and that digital channel has always been a great channel for US I think in our further to grow grow grow.

Let them expand into selling teams and all that was successful in helping drive logos. It wasn't the kind of ROI, we expect and so the lower Skus will be sold via digital and then that high velocity team will move up in terms of there.

Their quota attainment, and so new was challenging for us like others. This quarter, obviously, it just the overall macro environment and employee risks.

More cost conscious folks.

It's more challenging for new but it just gets me all the more focused on our expansion initiatives.

Got it thanks, so much.

Thanks Scott.

Thank you for your question.

The next question is from the line of Ryan Macdonald with Needham. Your line is now open.

Thanks for taking my questions. My first one on the restructuring plan.

<unk> quantified.

$4 million to $5 million of expense that will hit in the fourth quarter. As a result of that but can you talk about what your expectations are in terms of annualized cost savings that will be generated out of this and then should we consider the the restructuring plan to be incremental to sort of the the opera.

Rating margin trajectory you outlined at the Investor day or was this always sort of a part of that that operating plan that you've talked about thanks.

Hey, Ryan I think the $4 million to $5 million, if you extrapolate multiply that times four you're in the right ballpark.

And then as far as our August Investor Relations day, I think the macro environment deteriorated a bit over the last couple of months, but we also contemplated getting more rigorous on expense control and total company head count while preparing those materials and so I wouldn't say, it's totally incremental but.

As I said to Chad.

In the prior question I.

I do believe we are moving into 2023 with a very firm handle on our expense envelope and it looks a lot like our Q4 expense envelope and Thats, just a very different level of operational rigor than we've had in the past when we move into.

Our new fiscal year with.

Our cost envelope, that's expanding by 20%, 25%. So it is going to be all eyes on the bookings and revenue number and that will have a lot of impact on that margin number, but we're moving into this mode.

With the ability and opportunity to really drive drive margin expansion, if we deliver on the top line.

Super helpful color. Thanks, and then maybe as a follow up so obviously, a big focus on customer expansion motion as you kind of try to reaccelerate the growth here in the business.

It sounded like that one of the key components of that is really cross selling surveys with insights our market research.

And I think as a part of that you were planning on trying to pilot out a subscription based offering for insights.

Just curious how that progress is going on the pilot and when should we expect that to be sort of fully rolled out generally available to customers.

Yes, it's a great question.

<unk> R&D team did a great job over the last few years of developing new solutions for marketing leaders.

We're winning some of the most discerning and demanding marketing buyers in the world, but it has been delivered more on a project basis or on an annual basis and so our gross renewal rates are not as good a traditional SaaS. So we've just launched a pilot program with some customers over the last few weeks. So I don't have any update on how that's rolling out but are <unk>.

<unk> and account executives will have feedback in terms of how well that's being received it would be a huge win for us if we can develop more predictability and higher <unk>.

For those customers, we know the products are fantastic and well received and Super valuable in a market where folks are getting more cost conscious theyre going to be coming to us. So it'd be great to get them on a subscription plan, but I don't have an update for you yet.

Alright, Thanks, we'll stay tuned.

Take care.

Thank you for your question.

The next question is from the line of Parker Lane with Stifel. Your line is now open.

Hi, Andrew this is Matthew kicker for Parker.

First question is the last one you talked about a new.

New brand campaigns and I'm curious what the initial traction has been for those campaigns and if it's helping to accelerated self service rebound at all.

Yes. Thank you Matthew that gene Carlo Esposito campaign won a lot of nice accolades, but more importantly, it drove a whole bunch of traffic to survey monkey around the idea of how can I ask listen and act for my stakeholders and so we've seen this really sharp rebound in terms of sign ups.

Survey Monkey as I mentioned before the best new growth in six quarters in October was strong.

But as I also said you just can't take any victory lap for free sign ups and so it's now on us to make sure. It does.

Users getting opportunity to try the product see the value of our.

Templates and how that data can help them.

Interpreted and make smart decisions on behalf of their customers or employees or students et cetera. So we guided to what we thought was an appropriate projection of that conversion rate.

It takes 30 to 90 days and we'll report back as we.

New updates, but I think most importantly, this category is strong our brand is super healthy.

For reasons that I outlined earlier in the year, we our resources and attention got diluted into some other areas, but its all eyes on the ball right now and.

<unk> is the number one correlated.

Driver an indicator into our future bookings.

Got it Thats great to hear and then secondly could you speak to increase the number of customers that are using multiple products. What are some of the factors. The customers are considering when theyre looking at noncore products and then if the customer decides not to add that noncore solution.

There is going with a competitor or are they just decided to not buy any new solutions at all.

Yes, so the market that we approach we go to market with products that are core so I would characterize our series products are insights product CX products.

Alex that we're super focused on today, we have 15400 sales as customers the number of customers spending more than $25000 with us annually with up to 25% year over year that number is approaching 2300.

And the number of customers who are buying multiple products is now 900 that was also up significantly year over year, we almost always land with our survey is enterprise products are among the enterprise.

That provides us an opportunity to move into New York now that we have an account relationship with the customer now that we have a MSA in place at the legal team and as we are delivering value we have the opportunity to either upsell or cross sell those market research products and so.

The sales team is familiar with me, saying like if this company is big enough to be buying our survey monkey enterprise.

They are also a big enough to be doing market research product research understanding the different cohorts of how their customers are responding and then of course vice versa. If a company lands with our market research product they need the kind of enterprise oriented service solution. That's integrated with their business systems that we can offer and survey monkey enterprises, so almost all of our.

15400 customers are great candidates to be cross sell.

And that's what we're focused on in that expansion motion with some really good success.

If they don't come to US look we do have competitors quadrex as a strong competitor in the market we beat <unk>.

Heads up in an RFP as often and I am sure they beat us.

As well, but look I think both companies are going to thrive, we have medallion and theres. Some other providers need to name and there are also a whole lot of offline services companies the market research or insights.

Category is $80 billion category.

The vast majority of it is offline trapped in more expensive longer sales cycles.

Services firms professional services firms that are going to be under a lot of rigor and scrutiny.

A challenging macro environment.

Okay.

Okay. That's great insight. Thank you very much for taking my questions.

Thank you Matthew.

Thank you for your question. There are currently no further questions registered so as a reminder, it is star one on your telephone keypad.

Alright, well, let me just sign off here and thank you all for joining and for your questions and your support obviously a challenging macroeconomic.

Environment, but I believe that we are positioning this company for.

Future acceleration of revenue by our focus on our self serve channel by our focus on expansion in our sales channel and then a whole lot of focus and operational rigor to drive margin and we look forward to reporting back in a few months in the interim we look forward to seeing you at the credit Suisse and Wells Fargo Securities conferences. This quarter wishing you all a great evening take care.

That concludes the conference call. Thank you for your participation you may now disconnect your lines.