Momentive Global Inc.

Good afternoon. Thank you for attending the Momentum Global Third Quarter Earnings Call. My name is Matt and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call for an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Gary Fugis, VP of IR. Gary, please go ahead.

Thank you. Good afternoon and welcome to the Momentum Global Third Quarter 2022 Earnings Call. Joining me on today's call is Xander Lurie, CEO and interim CFO. After Xander's prepared remarks, we'll take your question. Prior to this call, we issued a press release with our Q3 2022 financial results, as well as management prepared remarks for today's call. These items are posted on our investor relations website at investor.momentive.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, 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. A discussion of the risks and uncertainties related to our business is contained in our filings with the 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 or in isolation from our GAAP results. Reconciliation of GAAP to non-GAAP results may be found in our earnings release, which is furnished with our 8K filed today with the SEC and may also be found on our investor relations website. Finally, please note that the growth rates cited in today's prepared remarks are on a year-over-year basis unless otherwise stated. With that, I'll now turn the call over to Xander.

Thank you, Gary. In a year of challenges, the Momentum team is showing resilience. We're navigating an increasingly tougher macro environment where we are helping customers ask, listen, and act to grow their businesses. We're positioning the company to reach our long-term revenue growth and profitability targets. And in Q3, we continued to make progress in three key areas, reinvigorating the self-serve channel, expanding relationships within our existing customers, and improving non-gap operating. which rose to 7.6% in Q3 and exceeded the high end of our guidance range. The restructuring plan we executed in mid-October sets us up for a more efficient go-to-market motion and better operating leverage. We now expect to drive approximately 15% non-GAAP operating margin in Q4 at the midpoint of guidance, and we believe we can continue to drive operating leverage in full year 2023 as compared to 2022. We published a press release this afternoon that addresses our third quarter financial results in detail. Today, I'll hit the Q3 highlights, provide an update on our go-to-market and operating leverage initiatives, then share our updated outlook. Then we'll take your questions. For Q3, revenue of $121.4 million increased 6% year-over-year and was at the midpoint of our guidance range, as both our sales-assisted and self-serve go-to-market channels delivered revenue in line with our expectations. On a constant currency basis, revenue increased approximately 7.5%. Remaining performance obligations, or RPO, increased 10% to $244.5 million. Non-GAAP gross margin was 84% in Q3, up both year-over-year and sequentially. Our strong gross margin profile is foundational to driving long-term operating leverage. Non-GAAP operating margin of 7.6% exceeded the high end of our 5% to 7% guidance range, as we continue to generate leverage in sales and marketing and G&A. Free cash flow was $0.2 million, which includes the impact of more than $15 million of transaction and restructuring costs paid out in the quarter. Excluding these outlays, free cash flow would have been approximately $15.7 million for the quarter. And we ended the quarter with approximately $193 million in total cash and $8 million in net cash. which reflects the impact of 1.6 million shares repurchased in the quarter for approximately $15 million. Sales-assisted revenue of $46.7 million increased 24% year-over-year and is now at a $185 million run rate. We ended the quarter with 15,400 customers, up 46%. Customers in the quarter included Booth UK, Duracell, Humana, Mary Kay, TravelX, and Wanolo. It was a mixed quarter. In new sales, we saw macro-driven budget pressures and elongating sales cycles. At the same time, our nascent expansion motion continued to scale at a healthy clip. Our Insight Solutions product line, formerly known as Market Research, continued to take the brunt of the macro headlines, as this offering primarily targets buyers in macro-impacted areas like financial services and marketing leaders, and generates the majority of our $100,000-plus deals. There are strong signals that the sales assistant channel is benefiting from the secular market trends we discussed on our investor day. Our customers love 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 with more than 2,240 customers spending more than $25,000 annually with us, up 25%. And approximately 900 customers using more than one of our products. We continue to build the muscle to go deeper and broader with existing customers, like Big Bus Tours, a SurveyMonkey self-serve customer since 2018 that recently expanded to SurveyMonkey Enterprise to track and measure NPS on a weekly basis across more than two dozen cities. Or Duracell, who first purchased market research credits in 2020 to gain insights into device usage habits, and then more than doubled their spend with us to explore household battery use in multiple geographies. Expansion is one 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 they serve. In July, we began serving our low-end enterprise customers with our high-velocity sales team. Historically, that team had sold an 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, This change means starting in Q3, the sales assistant customer metric no longer includes new teams deals. However, as a result, our go-to-market motions became more efficient and our human touch selling is 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. The 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 SMB sales team, as their win rates and deal sizes are too small to justify their cost structure. With our streamlined market segmentation model, SMB deals will be transacted through our website or through our high velocity sales team. We're increasing the account executive team's 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 in 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. In self-serve, the channel revenue of $74.6 million was in line with our expectations. Conversion, average order value, and retention metrics continue to remain healthy. and in line with historical trends. In Q3 and into October, we saw clear signals that our efforts to reinvigorate the TAPA funnel are working. Our investments in search engine optimization, or SEO, search engine marketing, SEM, website and branding for SurveyMonkey, including the successful SurveyMonkey ad campaign launch, are generating growth in user signups for free plans, which is a key leading indicator for new paid revenue growth. In Q3, US signups 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 to $122 million. At the midpoint, this implies approximately 3% growth on a reported basis and approximately 6% on a constant currency basis. Guidance reflects the macroeconomic impact on new sales and project completions in the Insight Solutions business. Recall 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 to $481 million, which assumes sales-assisted channel revenue growth in the mid-20s and roughly 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 in full year 2023 as compared to 2022. We expect full year free cash flow in the range of negative $5 million to negative $10 million, 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 is healthy and resilient. We can endure through bumpy 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 you, and I'll now take your questions.