Q4 2022 Momentive Global Inc Earnings Call
Yeah.
Good afternoon, and thank you for attending today's momentum as Q4 2022 earnings call. My name is Jason and I'll be the moderator for today's call.
All lines have immediate during the presentation portion of the call with an opportunity for questions and answers at the end.
You'd like to ask a question. Please press star followed by one of your telephone keypad.
I would now like to pass the conference virtual host, Gary Fujis, Vice President of Investor Relations.
Thank you good afternoon, and welcome to momentum Global's fourth quarter and full year 2022 earnings call. Joining me on the call today are Priyanka car CFO Zander Lurie CEO enrich Sullivan CFO after management's prepared remarks, we'll take your questions.
Prior to this call we issued a press release with our Q4 and full year 2022 financial results, which can be found on our investor relations website at investor Dot momentum that AI.
During the course of this call management will make forward looking statements, which are subject to various risks and uncertainties, including statements relating to our strategy, including the restructuring plan, we just announced financial outlook investments revenue operating margin and free cash flow actual results may differ materially from the results predicted and reported results should not be considered an indication of future performance.
Reduction of the risks and uncertainties related to our business is contained in our filings with Securities and Exchange Commission in particular in the section entitled Risk factors in our quarterly and annual reports and we 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 already in isolation from our GAAP results. A reconciliation of GAAP 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 the Investor Relations website.
Please note that the growth rates cited in today's prepared remarks are on a year over year basis, unless otherwise noted with that I'll now turn the call over to Matt.
Thank you Gary and thank you all for joining us today I'm going to walk you through some of the important changes to the business, we announced today, including the decision to reduce the size of our workforce and our continued effort to drive profitable growth.
Dan will discuss our Q4 financial results and outlook.
Our momentum in 2022 was all about resilience, we began repositioning the company in late February and ran the business with more operating rigor in the face of a more challenging macroeconomic environment.
We delivered meaningful operating leverage during the year, culminating in Q4 results that included 19% non-GAAP operating margin.
Q4 on a $122 $4 million in revenue both metrics exceeded the high end of our guidance ranges.
As part of our repositioning we streamlined our sales organization in October to make our customer acquisition and expansion motion is more efficient we.
We believe this would be sufficient to help us both navigate a more challenging selling environment and achieve our long term goal of delivering more profitable growth. However, it has become abundantly clear that we need to take more strategic actions to succeed in 2023 and beyond.
After a thorough review of our business. We concluded that our best path forward is to one further lower our cost structure across the organization.
Focus our resources on the products that win retain and expand with customers most effectively.
And three standardize our most important offerings onto our core platform and one pricing model.
Our go forward plan includes the following.
Reducing our workforce by approximately 14%, which impacts all major functions of the organization.
Shifting our customer experience product focus away from guest feedback and making serving marquee enterprise, our CX solutions for new and expansion customers.
Transitioning our market research sales assistant products to a subscription model.
And prioritizing free user engagement and paid user growth in self serve by providing more features in our free offering and more affordable options and our paid plans.
These are significant changes and we do not undertake them lately, but these decisions are supported by data and customer feedback.
Since combining the CX and several months of enterprise sales teams in early 2022, we validated that survey monkey enterprise is a very competitive offering for <unk> use cases with consistently stronger overall win rates and renewal rates to get feedback.
Going forward several marquee enterprise will become our <unk> solution and we plan to build additional functionality into our core survey platform to better support CX customers.
<unk>, leveraging some will get feedback strength in analytics and Salesforce integrations.
We plan to maintain get feedback for existing customers as we make this transition.
Ultimately, we believe this move will enable us to drive more expansion opportunities with serving marquee enterprise customers, our largest sales assisted customer base.
And allow us to deliver more innovation and customer value through products run on a single core plus.
In market research with deliberate awesome products, and one blue chip logos, but we've sold these products primarily on a credit basis, which makes customer engagement more project oriented and Rev. Rec less SaaS like.
We began rolling out subscription based products with the successful launch of brand tracking in 2021.
Demonstrating that the subscription model can work here.
In Q3, we began piloting broader subscription based selling and in Q4, we hit our stride.
We closed over two dozen subscription deals in the fourth quarter that would've been project based engagements under the prior model.
And we doubled the mix of subscription business in market research from approximately 20% in Q3 to more than 40% in Q4.
We believe we now have the right selling impacting formula to transitioning market research to subscriptions in 2023.
We believe this will result in higher quality more sustainable revenue from our market research solutions.
And in self serve our work in 2022 validates the getting back to the basics of product led growth is the way to fully reinvigorate that channel.
We made further progress in Q4, including driving sequential growth in free plan science.
Improving survey deployment rates and improving conversion rates from responsible pricing and packaging.
From here, we will work to improve our ability to engage more users and capture more value from those who are willing to pay for the value we deliver.
As we focus on these three priorities, we expect to expand margins further in 2023.
The changes to the cost structure, we announced today put us on a path to double non-GAAP operating margin in full year 2023 versus full year 2022.
I take full responsibility for the decisions that led to today's announcement and.
In short the investments we've made over the last few years are not delivering return sufficient to justify the cost.
We believe the changes we've announced today are the right strategic steps to manage the business through a tougher short term environment.
And position the company for more profitable growth over time.
2022 was a challenging year the board executive team and I are incredibly grateful for the dedication and hard work the momentum team delivers for our customers and their colleagues.
For those who are leaving US we will do our best to help them succeed in their next steps.
For those who are staying on we are committed to partnering with you to win as a team.
I will now turn the call over to rich so I want to formally welcome to our executive team.
And looking forward to getting to spend time with him and I am confident you will appreciate his strength as our new finance leader.
He is a great addition to our culture and he is already adding value to how we run the business risks.
Thanks, Andrew.
Joining me exceptional team here at momentum that Youre working with all of you I also look forward to working with people on the phone today and getting to know you.
Better.
As Andrew pointed out we are making some significant changes to the business and while there is a lot of work to do in the coming months.
I believe the steps we are taking today best positions momentum for sustainable long term success.
We continue to deliver valuable products that attract and retain a loyal customers as evidenced by our strong renewal rate I.
I believe we're making the necessary changes to these products and to our cost structure to come out of these challenging times, a stronger company with a commitment to deliver profitable growth.
As stated in today's press release, and 8-K, we announced plans to streamline our product offerings and simplify our go to market strategy and improve operating margins going forward.
Unfortunately, the plans involve the reduction of the company's talented workforce by approximately 200 individuals or 14%.
We estimate that we will incur approximately $7 million to $9 million in charges related to employee severance and employee benefit in connection with today's announcement.
We expect that the majority of these costs will be incurred and paid during the first quarter for a growth rate and the execution of the plan, including cash payments will be substantially complete by the end of the second quarter of this year.
Turning now to the full year in.
Q4, 2020 financial results.
Unless otherwise noted all comparisons are year over year.
For full year 2022 revenue increased 8% to $481 million on a constant currency basis revenue increased approximately 9%.
The sales assistant channel revenue increased 27% to 181 billion and self service revenue to $300 million in the year essentially flat.
In 2022, we generated seven nine non-GAAP operating margin, which exceeded the high end of our guidance range of 6% to 7%. The company initially provided in May of 2022.
Free cash flow was $1 2 million and reflects the impact of approximately 33 million of restructuring related cash outlays.
As Dan pointed out.
<unk> had a challenging year.
Both because of the failed sales deal.
And increasing and in an increasingly difficult macro environment.
Many of our customers haven't been part of cost cutting initiatives at their own company, especially in the tech sector budgets are more elimination and potential new customers are putting every deal on a greater scrutiny. It is clearly having an impact on our ability to grow new customer contracts.
Much of the investments, we made to aggressively scale and grow the topline to sales to new customers did not yield the desired return and has led to many of the changes to our cost structure, we announced earlier today.
In the fourth quarter as expected, we saw a continuation of the challenging selling environment, especially internationally.
Q4, total revenue increased 4%.
$22 4 million, putting us at about the high end of our guidance range.
On a constant currency basis revenue increased approximately 7%.
U S revenue increased 8% to $81 million.
And now accounts for approximately two thirds of total revenue.
Rest of World declined, 2%, primarily due to foreign exchange and additional challenging macro environment headwinds.
Service revenue declined 6% to $73 1 million as Andrew mentioned, we continue to make progress in reinvigorating. This channel in Q4 as evidenced by sequential growth in free plan, improving survey deployment and improve free to paid conversion rate.
While revenue for our sales assisted channel increased 27.
While revenue breakdown Fitzgerald, Please 23 49.
23% to $49 3 million, we saw continuation of the challenging challenging selling environment.
Existing customers, while not immune to economic issues continue to be resilient as renewal rate in expansion success for our subscription products increased year over year. We ended the quarter with approximately 14500 sales assisted customers up 23%.
Excluding team customers average revenue per SR customer was up 13% year over year.
And more than 202200 customers are spending 25000 or more with us annually up 16%.
Deferred revenue increased 3% to approximately $207 million remaining performance obligations or Rps, which is the sum of deferred revenue and backlog growth, 5% to $239 million, partially driven by continued traction in winning multiyear customer commitments.
Turning to profitability.
non-GAAP gross margin was 85% a record level a record level at 130 basis points increase from a year ago today.
non-GAAP operating margin of 18, eight exceeded the high end of our 14% to 16% guidance range due to the previously mentioned gross margin Frank continued operating rigor and the measures. We began taking in October to lower sales and marketing expense and streamline our go to market motion.
All operating expenses improved sequentially and year over year on both a dollar basis and as a percentage of revenue.
Q4 operating margin benefited from bonus accrual reversal.
Note that the full impact of the reversal was expected and included in our Q4 guidance range. The company provided on our last call, but it's important to keep in mind when comparing sequentially to Q1 2023 margin.
Nast net cash provided operating activities.
Net cash provided by operating activities was $8 2 million in free cash flow was $6 6 million.
With a free cash flow margin of five 4%.
Excluding the impact of.
For three of restructuring related expenses Q4 free cash flow would have been approximately $11 million.
We ended the year with $18 million in net cash and cash equivalents, which reflects the impact of $83 5 billion of share repurchases during the year.
Our outstanding authorization of our share repurchase program was $116 5 million as of December 31, 2022.
Turning to our outlook for the first quarter of 2023, we expect total year over year revenue growth to be between zero and 2%.
In Q1, we expect to continue to continue to see the impact of the steps. We took in 2022 to reduce spend resulting in a Q1 non-GAAP operating margin guidance of 6% to 8% note that Q1 operating expenses are seasonally higher than Q4 due to the timing of employee related accruals and taxes as well as marketing.
<unk>, which is typically higher in the first half of the year.
Based on the visibility due to these challenging macro environment as well as potential short short term impact of the strategic changes. We made today, we will not be providing full year guidance.
However, improving operating margin will remain a top priority in 2023 and the changes to the cost structure, we announced today.
On a path to double non-GAAP operating margin on a full year basis. Despite the uncertainty and macro headwinds. We are committed to continued cost discipline and controlling spending to deliver strong full year margin improvements, while still investing in the areas of the business that will drive profitable growth with that I'll now turn it back to Dan.
Thanks, Rich I'll turn it to the operator and happy to take questions.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
Is there any reason you'd like to remove that question. Please press star followed by two again to ask a question. It is star one.
Our first question is from Ryan Macdonald with Needham. Your line is now open.
Hi, Thanks for taking my questions and welcome rich great to have you on.
Maybe just starting out as we think about the outlook for 2023, I understand you're not providing guidance for the full year, but maybe just in the context of first quarter can you give us a sense of sort of what those expectations are in terms of the trajectory on both sales assisted versus self serve and then.
In that context, what maybe as a part of this transition is creating enough variability, where you don't have that sort of visibility from a full year perspective.
Well I think I am inspired by the product market fit and the satisfaction enjoy our customers get from our products and so you can see the gross renewal rates both in the web channel as well as in our sales assisted channel are healthy clearly the new environment for demand.
On the web and in sales has deteriorated over the last year and so I don't have bright.
Bright visibility on when those new cohorts of customers will come back and stronger numbers I'll.
I will say were inspired by the expansion efforts that our sales team has employed and thats, primarily selling market research and additional survey monkey enterprise to existing customers and so we're seeing really good uptake there.
And on the web we continue to experiment.
With pricing packaging as I mentioned on the call.
Unveiling some new more affordable annual plans and really just getting more users to try our products and see the full value of our features before asking them to pay so we're employing a whole bunch of different.
Tests that we're excited about I think you will continue to see really healthy renewal rates, but look the current environment and macroeconomic environment, where you see layoffs and drones every day, particularly in sectors, where we have some customer concentration do present headwinds and frankly, it's just not the best use of our time too.
Divide visibility into Q3, and Q4 numbers right now we know what we need to do to to win and then we'll come back each quarter and tell you how we did.
Okay, and then as you're sort of shifting focus in sort of deemphasizing some offerings, emphasizing others shifting to new pricing strategy.
How is that being sort of.
Related to customers and whats the risk here that would kind of go through some churn as you sort of shift to new pricing models and to new branding models on some of these products here.
Yes, I mean, there's always the risk of churn when you when you have either product changes business model changes pricing changes. The goal here is that <unk> has always been a primary use case of survey monkey on the web and survey monkey enterprise and in acquiring get feedback and building out a new product offering.
We were able to attract a new cohort of customers with a product that had particular strength and I'm proud of the work that team did but in a world where we need to rationalize resources drive incremental profitability. We recognize there is quite a bit of overlap in terms of what those products offer and so what youll see US do is just dialed down invest.
<unk> in that arena.
Renew those customers best we can while trying to track them over to our flagship survey monkey enterprise CX offering.
And then on the web of course, we're constantly iterating, we've got a terrific growth team that is data science driven.
And making sure the new features we offer new plans pricing maximize both customer value, but also.
Bookings and revenue for us So I've got a lot of confidence in this team as we both transition products and.
And also pricing plans that we will be both business model focus as well as NPS focus.
Alright, thanks for the color I'll hop back in the queue.
Thanks Ryan.
And our next question comes from Robert <unk> with Wells Fargo. Your line is now open.
Great. Thank you for taking the question.
To ask a little bit more about the decision to move away from get feedback for <unk>.
Some more context on how large the guest feedback businesses today. Besides the book of business, maybe how that's been growing.
And if you could give us.
On that date on a functional differences that remained in the products going to enterprise versus get feedback and I guess just following on the last question here.
Maybe just give us a sense of your confidence in your ability to continue to serve.
Those customer needs.
Sorry, my enterprise going forward. Thanks.
Yes.
Sure. Thanks, Robert I'll kick it off and then ill hand, it over to <unk>.
Yes, I think we said in the past that the Standalone <unk> represents less than 10% of our total book of business as I mentioned before certainly marquee enterprise has a robust set of features for <unk> and also a robust customer base and so I am confident that the folks who love get feedback, we'll continue to renew get feedback while we build that bridge.
<unk> and.
And maintain that bridge forget feedback customers to walk over to several marquee enterprise. So the team is hard at work on analytics capabilities that salesforce integrations. So that we can deliver that customer delight across both product suites, and ultimately steer our investments into server monkey enterprise.
What do you want to add to that.
No I completely agree with that and I would just add that we are transitioning the GSP get feedback product, but not stepping away from the access and our mentions.
Tom.
Close to I talked mid case on several marquee enterprise in that core platform. We have customer is currently using it heavily towards <unk>.
We have very very strong overlap on the capability would get feedback direct so we're confident that we can service those customers.
SME platform product innovation roadmap going forward is really focused on strengthening <unk> put.
On our core platform. So that includes more analytic capabilities strengthening our integrations, making a more native and the team that built us all up that's great feedback capability is a team that will be supporting that work going forward. So I have high confidence that the starting with the enterprise product will serve the <unk> case incredibly.
Well <unk> already done so today.
The investments, we're making in streamlining our core platform.
Until that for even more value to those customers.
Great. Thank you.
Okay.
Our next question comes from Chad Bennett with Craig Hallum. Your line is now open.
Hey, Chad.
Hey, Hey, Andrew Thanks for taking my questions. So just wanted to dig in a little bit on the self serve side you talked about.
Seeing seeing.
Green shoots there in terms of free free plan sign ups, increasing sequentially and I think you're indicating increases in conversion rates.
We also signed a card and I just want you to confirm this that.
On the advantage plan.
Implemented a pretty decent price increase on that plan in the quarter, just trying to get a sense for.
Obviously that business.
Accelerated downward on a year over year basis in the fourth quarter do you have enough data or do you have enough confidence where the rate of decline improves.
Throughout the year or how should we think about that thanks.
Yes, I mean, we are we are busy making a lot of changes to stabilize that business and I am confident that we have arrested. The fall clearly we did not see the kind of uptick in Q3, and Q4 that we had modeled in and hoped and so we're taking appropriate actions and whether they be our own.
Business model decisions from macroeconomic doesn't much matter I think the team has got.
Beef on what we need to do.
We've deployed some of those initiatives as I mentioned this doesn't happen overnight a lot of the work we do whether it's in <unk>.
Or in product or in pricing and packaging. There is a funnel from a user coming to server monkey dot com the first time.
That day when she ultimately pays for a plan so.
We tried some things last year that didn't deliver the kind of success. We had hoped I think we've made a lot of progress and we will do our best to deliver results. This year that show Q4 was the low Mark for you anything you want to add.
Yes, Alex.
Tiffany on that Youre correct, we did a price increase on our box customers.
Our existing ones and that relevant positive impact.
On the renewal basis, they renewed this year.
The green shoots that give us confidence the ones I mentioned earlier, our fleet plans lineup going positive.
In the U S.
Deployment rates so that's key.
Your question Survey is also strong.
This indicator.
Upcoming conversion.
Yes.
Second option to optimize conversion rates.
Well on that business.
A lot of positive indicators that give us confidence that we have a good trajectory forward.
And also most importantly continued customer optimization and the challenging macroeconomic environment to make sure our pricing affordability two five year when getting access to those customers.
So you haven't seen any any kind of incremental or outsized negative gross churn impact from the price increase on the advantage planets, what I'm what I'm getting is that is that the correct take.
You do see some churn of <unk> okay.
Gotcha.
The thing that.
We always optimistic on price increase what the churn impact women and so any pricing does impact to some extent to a subset.
Subset of our customers and the net impact after that testing is net positive okay.
Perfect. Okay got it and then maybe one clarification for me at least.
Could be for rich or Zander, just on the sales assisted customer counts.
To make sure I heard it right is at 14500.
That's correct yes.
Okay.
That's comparable to 15400 last quarter or not.
That's correct Sir.
Okay Alright.
And then just real quick maybe last one for me.
Net sales this year, sorry, yes, the sales assistant side of the business.
I guess.
Did you did you notice anything in the quarter from a bookings or billings standpoint, I think you hinted towards international being being tougher but.
Were did you actually say.
Sorry, more scrutiny or push outs or elongation of sales cycles in the fourth quarter on that side of the business.
Oh for sure, yes, I mean part of the quarter all around I think you see some of the customer churn on the sale of the systems side of the house is obviously at the lower end lower price points, because you saw that our overall.
Kind of average revenue per customer was up nicely year over year, but the most sensitive enterprise customers had higher churn in the quarter and sales cycles on new customers or just more challenging you have folks that have more scrutiny on your budgets you have buyers that were laid off.
Just a more difficult selling environment and new.
Got it thanks for taking my questions.
Thanks, Jeff.
Our last question comes from Parker Lane with Stifel. Your line is now open.
Okay.
Hi, This is Matthew kicker Entre partners. Thanks, a lot for taking my questions first off had on operating leverage for fiscal 'twenty through as Youre looking to gain leverage there are there any other areas that youre looking to cut costs. This year outside of the restructuring.
Plan that you announced today.
I appreciate the question.
I think the.
We have the we.
We have multiple paths here to get to that operating margin for 2023.
As David pointed out, it's a challenging macro environment to predict but what we do control is cost and so we have I believe we have many levers to pull to make sure that we can remain on the path to double that operating margin in 2023.
We will continue to monitor the market and adjust accordingly, but on the cost side driven by a lot of the changes we made today offer onto path have double margin year over year.
Okay.
And then as you're transitioning focusing more on the enterprises and the sales motions there what like high level of investments are you still making them self service channel.
Okay.
Pretty much yes.
Yes.
Service Channel, we continue to invest and features.
Our product capabilities, there that really improve the ability of the product covering a few use cases that are common for our sponsor smaller customers or smaller team.
And that capability a lot of work.
Well as we've alluded to before is really optimizing the value we deliver to customers.
Equally we can they can access that.
And the pricing.
Along with that.
We had a great.
<unk> team of data science team that are constantly optimizing that with a change in macroeconomic environment you should expect to see a lot of changes on that throughout the course of the year.
We keep them.
Also building capabilities into the product that make it easier.
AI for users to get to the Belgian market.
Being able to send a survey and receive responses and get any types of those.
Most capability to extend both to ourselves our product.
Enterprise capabilities.
Our enterprise products as well.
<unk> investment in this area, especially.
Importantly.
Our sales associate enterprise businesses.
Secondly linked to the products that we sell.
On the sales line.
Yes.
Okay.
Okay fantastic. Thank you.
Thanks Matthew.
And our final question is from Robert <unk> with Wells Fargo.
Line is now open.
Thank you I just wanted to ask a couple of quick follow ups first of all on the sales assisted customer accounts can you remind us the impact on the F&B.
F&B salesforce for asset rationalization, and sort of a definitional change versus organic trends. There and then wanted to ask I think last quarter you pointed out.
In terms of new business, maybe a little focus upmarket.
Thank you Matt.
Macro might drive some some increased churn among some of your larger competitors customers. Just wondering if you could give us a sense of anything youre seeing in the market. There if that thesis is playing out so far so those two thank you so much.
Yes, so on the San Francisco side of our customer count was down about 900 customers Q4 over Q3 and that as I mentioned was mostly concentrated in the SMB area. So lower spending customers and then on the new selling environment as I mentioned I would say that the vast majority of our investment tying people energy <unk>.
<unk> demand for the last several years with focus on winning new business and that has swung dramatically tore.
<unk> renewing and Upselling existing customers 14500 customers, where we have a relationship we have a contract with delivering value. They are seeing the benefit.
Of our deployment. So for every single one of those customers. There is more business to win in more value to deliver and the ROI is just a lot better there than in the new area. We are competing for customers who are churning out some of our more expensive competitors. We are winning there now the numbers won't overcompensate for losing some of the smaller SMB.
Customers, we have so it will be difficult to.
Derive those those wins, there, but where we're seeing folks roll off of some of our more expensive competitors, who are looking for an offering.
And we deliver great value there, it's on us to make sure that our marketing and selling teams get in front of those opportunities. So we'll keep you posted on progress we have delivery product market fit upsell you saw that our 25000, our customers was about flat to down maybe 2000.
The $2 to 2200.
In Q4, and obviously those are the customers that are.
Buying bigger deployments by multiple products and ones that are getting a disproportionate share of our attention.
Great. Thanks again.
Well, we thank everybody for joining us today.
I believe we're taking the right steps to navigate what is a pretty choppy short term environment and position the company for more profitable growth over time and once again I just want to send my heartfelt appreciation to the momentum team for all their dedication folks who are staying with us and folks who are the party as well I want to wish you all a happy and healthy evening and we look forward to January .
Okay.
That concludes the conference call. Thank you for your participation you may now disconnect your lines.