MOMENTIVE GLOBAL INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. As discussed in the section titled "Forward-Looking Statements,", the following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Additionally, our unaudited results for the interim periods presented may not be indicative of the results to be expected for any full year period. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" under Part II, Item 1A in this Quarterly Report on Form 10-Q.
Overview
We were founded under the name "SurveyMonkey" in 1999 and are a leader in an agile experience management, providing SaaS solutions that help businesses shape what's next for their stakeholders. We offer artificial intelligence powered solutions that help our customers reshape their businesses across five major categories of use cases: 1) Market Insights; 2) Brand Insights; 3) Customer Experience; 4) Employee Experience; and 5) Product Experience. We deliver these solutions through three major product categories-Surveys, Customer Experience, and Market Research. More than 345,000 organizations rely on us to help deliver better customer and product experiences, increase employee engagement and retention, and unlock growth and innovation. We are transforming from our roots as a provider of digital survey tools sold through the Internet to an enterprise SaaS company that leverages both product-led and sales-led go-to-market motions. To help us engage more deeply with enterprise customers, we rebranded ourselves as "Momentive" inJune 2021 , and changed our legal name from "SVMK Inc. " to "Momentive Global Inc. " InFebruary 2022 , we announced plans to consolidate our product portfolio under two brands and web surfaces-Momentive andSurveyMonkey . The Momentive brand will represent our suite of upmarket solutions, whileSurveyMonkey will support our complementary products for value-oriented customers who prioritize speed and ease of use. We are executing on a two-part growth strategy. First, we are delivering new features and product tiers that capitalize on the virality of our platform and the scale of business to drive overall platform usage and increase the conversion of free users to paid subscribers in our self-serve channel. Second, we are investing further in product innovation and go-to-market initiatives to expand the percentage of our revenue generated through our sales-assisted channel. Specifically, our sales-assisted go-to-market motion focuses on converting existing self-serve subscribers to sales-assisted customers, selling directly to new customers, and expanding our relationships with existing customers. As we execute on this strategy and sell more of our products into enterprises directly, we believe we can accelerate our revenue growth profile and increase our customer retention rates over time. We believe our existing user base represents a significant opportunity to expand our business and increase our revenue. In the first quarter of 2022, approximately 35% of our total revenue was generated from customers who purchased software through our sales-assisted channel, up from 30% in the first quarter of 2021. Our survey platform is inherently viral, as existing users send surveys and share survey results that introduce potential new users and customers to our products. This virality, combined with the ease-of-use and price-disruptive nature of our products and the strength of our brands, has enabled us to build an efficient, online self-serve channel for selling versions of our survey products, which we are enhancing with our sales-assisted go-to-market motion. We have a broad and diverse customer base and no customer represented more than 10% of our revenue in any of the periods presented. We operate as a single operating segment. Our chief operating decision maker ("CODM") is our Chief Executive Officer, who reviews our operating results on a consolidated basis in order to make decisions about allocating resources and assessing performance for the entire company. Our CODM uses one measure of profitability and does not segment our business for internal reporting.
Termination of Proposed Merger with Zendesk
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OnOctober 28, 2021 , we entered into an Agreement and Plan of Merger (the "Merger Agreement"), by and among us, Zendesk, Inc. ("Zendesk") andMilky Way Acquisition Corp. , aDelaware corporation and a wholly owned subsidiary of Zendesk ("Merger Sub"). The Merger Agreement provided for the merger of Merger Sub into us (the "Merger"), with us surviving the merger as a wholly owned subsidiary of Zendesk. Under the terms of the Merger Agreement, the completion of the Merger was conditioned on the receipt of required approvals by the Company's and Zendesk's stockholders. OnFebruary 25, 2022 , at a special meeting of Zendesk's stockholders, a proposal to approve the issuance of Zendesk shares in connection with the Merger was not approved by Zendesk's stockholders. As a result, following the special meeting onFebruary 25, 2022 , Zendesk terminated the Merger Agreement effective immediately in accordance with its terms. None of the Company, Zendesk or Merger Sub are expected to have any further liability under the Merger Agreement, subject to its terms.
Impact of COVID-19
The ongoing COVID-19 pandemic continues to impactthe United States and the world. As a result, we modified certain aspects of our business, including transitioning to a hybrid work model where most of our employees will have the flexibility to determine the amount of time they work from home and in our offices, and transitioning our employee onboarding and training processes to remote or online programs, among other modifications. We continue to actively monitor and evaluate the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, partners, and stockholders. The effects of these operational modifications are unknown and may not be realized until further reporting periods. We continue to evaluate and refine our return to office strategy and real estate needs based on this hybrid work model. Although many jurisdictions have relaxed their guidelines and restrictions, in some cases, these have been, or may in the future be, reinstated. The full impact of the rapidly changing market and economic conditions due to the COVID-19 pandemic is uncertain as the businesses of our customers and partners have been, and in some cases continue to be, disrupted. We have experienced a more challenging sales-assisted environment, longer sales cycles, and an increase in attrition rates, particularly among customers in segments and industries more severely impacted by the ongoing effects of the COVID-19 pandemic, such as travel and hospitality. While we have not experienced significant disruptions from the COVID-19 pandemic thus far, we are unable to accurately predict the full impact that the COVID-19 pandemic will have due to numerous uncertainties, including the severity and spread of new or existing variants of the virus between regions, changes in infection and vaccination rates in each region, the duration of the pandemic globally and regionally, additional actions that may be taken by governmental authorities, the impact to the businesses of our customers and partners, individuals' and companies' risk tolerance regarding health matters going forward, and other factors identified in Part I, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q. The extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations is uncertain, and the effect of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods, even after the COVID-19 pandemic has subsided. We are continuously evaluating the nature and extent of the impact to our business, including our reopening plans, consolidated results of operations, and financial condition. Our Products Our products address business use cases across five major categories: 1) Market Insights; 2) Brand Insights; 3) Customer Experience; 4) Employee Experience; and 5) Product Experience. We generate revenue either on a subscription or transactional basis, depending on the product. We offer three experience management product categories-Surveys, Customer Experience, and Market Research.
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Surveys: Our leading survey software products enable our customers to listen and take action on stakeholder feedback. We have designed products that optimize the quality of stakeholder feedback and maximize response rates to help our customers improve customer experiences, develop a diverse and high performing workforce, and grow their business. We offer our basic survey plan to individuals at no charge. We also offer multiple tiers of subscriptions to individual paying users, with pricing based on functionality, including advanced survey logic; branding and customization tools; analysis features; and support options. We offerSurveyMonkey team plans for small teams and departments that need to collaborate on survey -------------------------------------------------------------------------------- projects. In addition to the features available in paid plans for individuals,SurveyMonkey team plans provide advanced collaboration features for survey creation and analysis, centralized team administration, and a team library for survey themes, templates, and brand assets. Team plans start at three users per team, billed annually on a subscription basis, and include flexible roles and pricing for survey creators and analysts. For organizations, we offer SurveyMonkey Enterprise, which extends our survey platform with enterprise-grade security and an enhanced set of capabilities (including managed user accounts, customized company branding, collaboration capabilities, and deep integrations with a broad set of leading software applications) that enable users to support multiple, advanced feedback use cases across the organization. Revenue from Surveys is generated primarily on a subscription basis.
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Customer Experience: Our Customer Experience offering enables companies to
leverage in-the-moment customer feedback to deliver exceptional experiences that
engage and retain their customers. Our Customer Experience offering simplifies
customer feedback collection and analysis through its integration with customer
relationship management ("CRM") data to help companies better understand key
customer segments, and its accessibility within the systems companies already
use to help them take action quickly in service of their customers. Our Customer
Experience offering captures a company's customer feedback from across key
digital channels and within offline or proprietary business systems, combines
this feedback with operational customer data to build a deeper understanding of
their customers and their preferences, and automates feedback-based actions
through integrations with that company's existing system of record and other key
business systems. We differentiate our Customer Experience offering in the
market based on our software's ease-of-implementation and use, time-to-value
relative to alternative solutions, and rich integration across the Salesforce
ecosystem. Our Customer Experience offering is sold through our sales-assisted
channel. Revenue from Customer Experience is generated primarily on a
subscription basis.
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Market Research: Our Market Research solutions are the underlying software products powering the Market Insights, Brand Insights, and Product Experience categories of solutions. Our market research offerings enable customers to quickly collect and analyze actionable insights from a targeted audience on a number of market research needs, including analyzing market opportunities, measuring brand and campaign effectiveness, and gaining insights on existing and future product lines. Our Market Research solutions are sold through our sales-assisted channel. Revenue from Market Research is generated primarily on a transactional basis, with our customers having the option to preload Market Research Credits that can be used to pay for projects, solutions, and services throughout a 12-month term.
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Professional Services: For customers who need assistance with implementing and optimizing the use of our products, we offer the following categories of professional services, including:
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Survey: survey design, programming, language translation, and results analysis;
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Customer Experience: customer journey mapping, customer experience key metrics,
measurement and planning, return-on-investment ("ROI") impact of CSAT and NPS
programs, analytics and customer experience related workshops; and
o
Market Research: program methodology consulting, survey programming and language
translation, brand tracking program development and execution, product concept
testing, due diligence analysis, and custom reporting and analytics.
o
Revenue from professional services engagements is generated primarily on a transactional basis.
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Other Purpose-Built Solutions: In addition to our three major product categories, we offer other products such as:
o Customer Advocacy: TechValidate is our marketing content automation solution. TechValidate collects customer feedback at scale, automatically converting it into validated marketing content, including statistics, charts, testimonials, and case studies. -------------------------------------------------------------------------------- o
Grant Application Management: SurveyMonkey Apply is our application management solution that is primarily used by educational institutions and non-profits seeking to allocate scholarships and grants; and
o
Forms: Wufoo is our easy-to-use form builder that helps users create web and mobile forms, collect file uploads and receive online payments.
We offer certain tiers of our Survey and Market Research product categories on a self-serve basis through our website, and we offer a suite of enterprise-grade experience management solutions from all three primary product categories through our direct sales force. As ofDecember 31, 2021 , we had over 17 million active users. As ofMarch 31, 2022 and 2021, we had approximately 894,400 and 845,800 paying users, respectively, which we define as an individual customer of our survey platform or form-based application, a seat within a SurveyMonkey Enterprise deployment or a subscription to one of our purpose-built solutions. Of our paying users as ofMarch 31, 2022 and 2021, we had approximately 13,700 and 8,800 customers, respectively, who purchased our software through our sales-assisted channel. Our average revenue per paying user ("ARPU") was$535 and$498 for the three months endedMarch 31, 2022 and 2021, respectively. We calculate ARPU as revenue during a given period divided by the average number of paying users during that period. We calculate the average number of paying users by adding the number of paying users as of the end of the prior period to the number of paying users as of the end of the current period, and then dividing by two. For interim periods, we use annualized revenue which is calculated by dividing the revenue for the period by the number of days in that period and multiplying this value by 365 days.1 As ofMarch 31, 2022 , over 90% of our trailing 12-month bookings were from organizational domain-based customers, which are customers who register with us using an email account with an organizational domain name, such as @momentive.ai, but excludes customers with email addresses hosted on widely used domains such as @gmail, @outlook or @yahoo. As ofMarch 31, 2022 , our dollar-based net retention rate for organizational domain-based customers was over 100%. We calculate bookings as the sum of the monthly and annual contract values for contracts sold during a period for our monthly and annual customers, respectively. We calculate organizational dollar-based net retention rate as of a period end by starting with the trailing 12 months of bookings from the cohort of all domain-based customers as of the 12 months prior to such period end ("Prior Period Bookings"). We then calculate the trailing 12 months of bookings from these same customers as of the current period end ("Current Period Bookings"). Current Period Bookings includes any upsells and is net of contraction or attrition, but excludes bookings from new domain-based customers in the current period. We then divide the total Current Period Bookings by the total Prior Period Bookings to arrive at the organizational dollar-based net retention rate.
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1 In the third quarter of 2021, we refined our methodology to more accurately capture the number of paying users, and due to a calculation error, we overstated the number of paying users in the third and fourth quarters of 2021. The number of paying users for the third and fourth quarters of 2021 was originally reported as 883,100 and 888,700, respectively, but should have been reported as 877,100 and 879,600, respectively. As a result, we also understated ARPU in the third and fourth quarters of 2021. ARPU for the three and nine months endedSeptember 30, 2021 was originally reported as$522 and$512 , respectively, but should have been reported as$524 and$514 , respectively. ARPU for the year endedDecember 31, 2021 was originally reported as$519 , but should have been reported as$522 .
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Key Business Metrics
We review a number of operating and financial metrics, including the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate our business plan and make strategic decisions. As our business continues to evolve, we may choose to report new or additional metrics that are more closely tied to key business drivers or stop reporting metrics that are no longer relevant.
Remaining Performance Obligations
As of March 31,
(in thousands) 2022 2021
Remaining performance obligations ("RPO")
We define RPO as the amount of consideration allocated to unsatisfied performance obligations related to non-cancelable contracts, which include both the deferred revenue balance and amounts that will be invoiced and recognized as revenue in future periods, as of the end of the reporting period. For subscription products, we provide customers with the option of monthly, annual or multi-year contractual terms. In general, our customers elect annual contractual terms and we generally invoice 1 year in advance. Our contracts are generally non-cancelable and without refund rights. Billed contractual amounts are reported as deferred revenue in our condensed consolidated financial statements. Unbilled contractual amounts are part of RPO and are not included in our condensed consolidated financial statements. RPO is intended to provide visibility into future revenue streams. Several factors may contribute to the fluctuation of RPO including timing and frequency of invoicing, number of multi-year non-cancelable contracts, and dollar amount of customer contracts (including changes that we may see to customer contracts as a result of the COVID-19 pandemic).
Non-GAAP Financial Measure
We believe that, in addition to our results determined in accordance with GAAP, free cash flow, a non-GAAP financial measure, is useful in evaluating our business, results of operations and financial condition.
Free cash flow
We define free cash flow as GAAP net cash provided by operating activities less purchases of property and equipment, and capitalized internal-use software. We consider free cash flow to be an important measure because it measures our liquidity after deducting capital expenditures for purchases of property and equipment and capitalized software development costs, which we believe provides a more accurate view of our cash generation and cash available to grow our business. We expect to generate positive free cash flow over the long term. Free cash flow has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash provided by operating activities. Some of the limitations of free cash flow are that free cash flow does not reflect our future contractual commitments and may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure.
The following is a reconciliation of free cash flow to the most comparable GAAP measure, net cash provided by operating activities:
Three Months Ended March 31,
(in thousands) 2022 2021
Net cash provided by (used in) operating activities
(441 ) -
Capitalized internal-use software (2,565 ) (2,268 )
Free cash flow $ (7,906 ) $ 15,050 -------------------------------------------------------------------------------- Free cash flow is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP.
Components of Results of Operations
Revenue
We derive a substantial majority of our revenue from sales of subscriptions to our software products in the survey and customer experience categories. We also generate a small portion of revenue from sales of market research solutions. We recognize subscription revenue ratably over the subscription term, generally ranging from one month to one year, as long as all other revenue recognition criteria have been met. Our contracts are generally non-cancellable and do not contain refund provisions. Subscription fees are collected primarily from credit cards through our website at the beginning of the subscription period.
Cost of Revenue and Operating Expenses
We allocate shared costs, such as depreciation on equipment shared by all departments, facilities (including rent and utilities), employee benefit costs and information technology costs to all departments based on headcount. As such, allocated shared costs are reflected in each cost of revenue and operating expense category, other than restructuring. Cost of Revenue. Our cost of revenue consists primarily of expenses associated with the delivery and distribution of our products to our users. These expenses generally consist of infrastructure costs, personnel costs and other related costs. Infrastructure costs generally include expenses related to website hosting costs, amortization of capitalized software, payment processing fees, external sample costs and charitable donations associated withSurveyMonkey Audience, our market research panel solution. Personnel costs include salaries, bonuses, stock-based compensation, other employee benefits and travel-related expenses for employees whose primary responsibilities relate to supporting our infrastructure and delivering user support. Other related costs include amortization of acquired developed technology intangible assets and allocated overhead. We plan to continue investing in additional resources to enhance the capability and reliability of our infrastructure to support user growth and increased use of our products. We expect that cost of revenue will increase in absolute dollars in future periods and vary from period to period as a percentage of revenue in the near term. We expect that cost of revenue will decrease as a percentage of revenue in the long term. Research and Development. Research and development expenses primarily include personnel costs, costs for third-party consultants, depreciation of equipment used in research and development activities and allocated overhead. Personnel costs for our research and development organization include salaries, bonuses, stock-based compensation, other employee benefits and travel-related expenses. Our research and development efforts focus on maintaining and enhancing existing products and adding new products. Except for costs associated with the application development phase of internal-use software, research and development costs are expensed as incurred. We expect that research and development expenses will increase in absolute dollars in future periods and vary from period to period as a percentage of revenue in the near term. We expect that research and development expenses will remain relatively constant as a percentage of revenue in the long term. Sales and Marketing. Sales and marketing expenses primarily include personnel costs, costs related to brand campaigns, paid marketing, amortization of acquired trade name and customer relationship intangible assets and allocated overhead. Personnel costs for our sales and marketing organization include salaries, bonuses, sales commissions, stock-based compensation, other employee benefits and travel-related expenses. Sales commissions earned by our sales personnel, including any related payroll taxes, that are considered to be incremental and recoverable costs of obtaining a customer contract are deferred and amortized over an estimated period of benefit of generally four years. We expect that sales and marketing expenses will increase in absolute dollars in future periods and increase as a percentage of revenue in the near term. We expect that sales and marketing expenses will vary from period to period in the long term. -------------------------------------------------------------------------------- General and Administrative. General and administrative expenses primarily include personnel costs for legal, finance, human resources and other administrative functions, as well as certain executives. Personnel costs for our general and administrative staff include salaries, bonuses, stock-based compensation, other employee benefits and travel-related expenses. In addition, general and administrative expenses include outside legal, accounting and other professional fees, non-income-based taxes and allocated overhead. We expect that general and administrative expenses will increase in absolute dollars in future periods and vary from period to period as a percentage of revenue in the near term. We expect that general and administrative expenses will decrease as a percentage of revenue in the long term. Restructuring. Restructuring expenses primarily include personnel costs, other contract termination costs, and impairment of certain assets. Personnel costs include severance payments, stock-based compensation and other benefits. Other contract termination expenses related to the restructuring include amortization of intangibles without future economic benefit and infrastructure write-offs associated with vacated facilities.
Interest Expense
Interest expense consists of interest on our credit facilities. For additional information regarding our credit facilities, see Note 12 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
Other Non-Operating (Income) Expense, Net
Other non-operating (income) expense, net consists primarily of interest income, net foreign currency exchange gains and losses, and other gains and losses.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes consists ofU.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. We maintain a valuation allowance against deferred tax assets inthe United States and certain foreign jurisdictions that we have determined are not realizable on a more likely than not basis. For additional information regarding our income taxes, see Note 13 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
Results of Operations The following tables set forth our results of operations for the periods presented and as a percentage of our revenue for those periods. Percentages presented in the following tables may not sum due to rounding.
Three Months Ended March 31,
(in thousands) 2022 % of Revenue 2021 % of Revenue
Revenue $ 116,986 100 % $ 102,298 100 %
Cost of revenue(1)(2)(3) 22,903 20 % 20,772 20 %
Gross profit 94,083 80 % 81,526 80 %
Operating expenses:
Research and
development(1)(3) 36,716 31 % 32,983 32 %
Sales and
marketing (1)(2)(3) 59,636 51 % 52,036 51 %
General and
administrative(1)(3) 27,917 24 % 23,322 23 %
Restructuring(1)(2) 4,883 4 % - - %
Total operating expenses 129,152 110 % 108,341 106 %
Loss from operations (35,069 ) (30 )% (26,815 ) (26 )%
Interest expense 2,226 2 % 2,299 2 %
Other non-operating (income)
expense, net (134 ) - % 315 - %
Loss before income taxes (37,161 ) (32 )% (29,429 ) (29 )%
Provision for income taxes 216 - % 218 - %
Net loss $ (37,377 ) (32 )% $ (29,647 ) (29 )%
(1) Includes stock-based compensation, net of amounts capitalized as follows:
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Three Months Ended March 31,
(in thousands) 2022 % of Revenue 2021 % of Revenue
Cost of revenue $ 1,409 1 % $ 1,482 1 %
Research and development 8,644 7 % 9,497 9 %
Sales and marketing 6,065 5 % 5,778 6 %
General and administrative 7,375 6 % 6,842 7 %
Restructuring 2,761 2 % - - %
Stock-based compensation, net
of amounts capitalized $ 26,254 22 % $ 23,599 23 %
(2) Includes amortization of acquisition intangible assets as follows:
Three Months Ended March 31,
(in thousands) 2022 % of Revenue 2021 % of Revenue
Cost of revenue $ 1,414 1 % $ 1,490 1 %
Sales and marketing 1,452 1 % 1,133 1 %
Restructuring 45 - % - - %
Amortization of acquisition
intangible assets $ 2,911 2 % $ 2,623 3 %
(3) Includes transaction expenses associated with the terminated merger with
Zendesk. See Note 1 of the Notes to Condensed Consolidated Financial Statements
included elsewhere in this Quarterly Report on Form 10-Q for additional
information.
Comparison of the Three Months Ended
Revenue and cost of revenue
Three Months Ended March 31,
(dollars in thousands) 2022 2021 $ Change % Change
Revenue $ 116,986 $ 102,298 $ 14,688 14 %
Cost of revenue 22,903 20,772 2,131 10 %
Gross profit $ 94,083 $ 81,526 $ 12,557 15 %
Gross margin 80 % 80 %
Revenue increased for the three months ended March 31, 2022 compared to the
three months ended March 31, 2021 . Paying users increased 6% from approximately
845,800 as of March 31, 2021 to approximately 894,400 as of March 31, 2022 and
ARPU increased 7% from $498 for the three months ended March 31, 2021 to $535
for the three months ended March 31, 2022 .
Revenue growth was driven by an increase of $4.7 million , or 7%, in our
self-serve channel, as well as an increase of $10.0 million , or 32%, in our
sales-assisted channel, driven by a combination of demand arising from use cases
related to the COVID-19 pandemic as well as ongoing refinement of our pricing
and packaging that has driven an increase in customers upgrading to paid plans.
Revenue from our sales-assisted channel accounted for 35% and 30% of revenue for
the three months ended March 31, 2022 and 2021, respectively.
Cost of revenue increased for the three months ended March 31, 2022 compared to
the three months ended March 31, 2021 , primarily due to a $1.0 million increase
in personnel costs, a $0.8 million increase in external sample costs and
charitable donations associated with SurveyMonkey Audience, our market research
panel solution, a $0.7 million increase in web hosting costs and payment
processing fees, partially offset by decreases in capitalized software
amortization and amortization of intangible assets related to our prior
acquisitions. The increase in personnel costs was primarily due to $0.7 million
increase in employee-related expenses due to headcount growth and $0.3 million
of employee retention bonuses related to the Merger.
Our gross margin increased minimally for the three months ended
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Research and development
Three Months Ended March 31,
(dollars in thousands) 2022 2021 $ Change % Change
Research and development $ 36,716 $ 32,983 $ 3,733 11 %
Research and development expenses increased for the three months ended March 31,
2022 compared to the three months ended March 31, 2021 , primarily due to a $3.3
million increase in personnel related costs, including $1.5 million increase in
employee-related expenses due to headcount growth and $1.8 million of employee
retention bonuses related to the Merger. In addition, there were increases in
professional services and IT costs. In addition, there were increases in
professional services and IT costs.
Sales and marketing
Three Months Ended March 31,
(dollars in thousands) 2022 2021 $ Change % Change
Sales and marketing $ 59,636 $ 52,036 $ 7,600 15 %
Sales and marketing expenses increased for the three months ended March 31, 2022
compared to the three months ended March 31, 2021 , primarily due to a $6.7
million increase in personnel related costs and an increase of $1.2 million in
costs related to brand campaigns and paid marketing. The increase in personnel
costs was primarily due to a $5.0 million increase in employee-related expenses
due to headcount growth and $1.7 million of employee retention bonuses related
to the Merger. In addition, there were increases in professional services and IT
costs.
General and administrative
Three Months Ended March 31,
(dollars in thousands) 2022 2021 $ Change
% Change
General and administrative
20 %
General and administrative expenses increased for the three months ended March
31, 2022 compared to the three months ended March 31, 2021 , primarily due to a
$3.1 million increase in personnel related costs and a $1.1 million increase in
outside legal, investor relationship and other professional fees related to
merger transaction costs. The increase in personnel costs was primarily due to a
$1.5 million increase in employee-related expenses due to headcount growth and
$1.6 million of employee retention bonuses related to the Merger.
Restructuring
Three Months Ended March 31,
(dollars in thousands) 2022 2021 $ Change % Change
Restructuring $ 4,883 $ - $ 4,883 100 %
Restructuring expenses increased for the three months ended
Interest expense
Three Months Ended March 31,
(dollars in thousands) 2022 2021 $ Change % Change
Interest expense $ 2,226 $ 2,299 $ (73 ) (3 )%
-------------------------------------------------------------------------------- Interest expense decreased for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 primarily due to lower average debt balances from our repayment of principal under the Term Loan. For additional information regarding our credit facilities, see Note 12 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
Other non-operating (income) expense, net
Three Months Ended March 31,
(dollars in thousands) 2022 2021 $ Change % Change
Other non-operating (income)
expense, net $ (134 ) $ 315 $ (449 ) (143 )%
Other non-operating income, net for the three months ended
Provision for income taxes
Three Months Ended March 31,
(dollars in thousands) 2022 2021 $ Change % Change
Provision for income taxes $ 216 $ 218 $ (2 ) (1 )%
Effective tax rate (1 )% (1 )%
The provision for income taxes decreased minimally for the three months ended
March 31, 2022 compared to the three months ended March 31, 2021 , primarily due
to an increase in foreign research tax credits partially offset by increased
state expenses.
Liquidity and Capital Resources
As ofMarch 31, 2022 andDecember 31, 2021 , our principal sources of liquidity were cash and cash equivalents totaling$238.0 million and$305.5 million , respectively, all of which were bank deposits as well as cash to be received from customers and cash available under our credit facilities. Since our inception, we have financed our operations primarily through payments received from our customers, borrowings under credit facilities and lines of credit, and our initial public offering in 2018. OnFebruary 26, 2022 , our board of directors authorized a stock repurchase program to repurchase up to$200.0 million of our common stock in the open market or in privately negotiated transactions (through 10b5-1 trading plans or otherwise). The stock repurchase program does not obligate us to acquire any particular amount of common stock and may be suspended at any time at our discretion, and the repurchase program does not have an expiration date. The actual timing, number and value of shares repurchased will be determined by our management at its discretion and will depend on a number of factors, including the market price of our stock, general business and market conditions, and other investment opportunities. During the three months endedMarch 31, 2022 , we repurchased approximately 2.4 million shares of common stock for approximately$36.4 million . As ofMarch 31, 2022 , our remaining share repurchase authorization was approximately$163.6 million .
On
We believe our existing cash and cash equivalents, our credit facilities and cash provided by sales of our products will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements will depend on many factors, including the timing and amount of cash received from customers, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product offerings and the continuing market adoption of our products. We may in the future enter into arrangements to acquire or invest in complementary -------------------------------------------------------------------------------- businesses, services and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce our ability to compete successfully and harm our results of operations. Additionally, we believe that our financial resources will allow us to manage the potential impacts of COVID-19 on our business operations for the foreseeable future, which could include reductions in revenue and delays in payments from customers and partners. We will continue to assess our liquidity needs as the impact of the COVID-19 pandemic on the economy and our operations continues to evolve. Ongoing worldwide business and economic disruptions could materially affect our future access to our sources of liquidity, particularly our cash flows from operations, financial condition, capitalization, and capital investments. In the event of a sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions. A significant majority of our customers pay in advance for annual subscriptions, which is a substantial source of cash. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which we recognized as revenue in accordance with our revenue recognition policy. As ofMarch 31, 2022 andDecember 31, 2021 , we had deferred revenue of$216.2 million and$201.8 million , respectively, a substantial majority of which we expect to record as revenue in the next 12 months, provided all other revenue recognition criteria have been met. Cash Flows
The following table summarizes our cash flows for the periods indicated:
Three Months Ended March 31 ,
(in thousands) 2022 2021
Net cash provided by (used in) operating activities $ (4,900 ) $
17,318
Net cash used in investing activities (3,006 ) (2,268 ) Net cash provided by (used in) financing activities (59,653 )
9,003
Effects of exchange rate changes on cash 393 (309 ) Net increase (decrease) in cash, cash equivalents and restricted cash$ (67,166 ) $ 23,744
Cash Flows from Operating Activities
Our largest source of operating cash is cash collections from our customers for subscriptions to our products. Our primary uses of cash in operating activities are for employee-related expenditures, marketing expenses and third-party hosting costs. Historically, we have generated positive cash flows from operating activities. Net cash provided by operating activities is impacted by our net loss adjusted for certain non-cash items, including depreciation and amortization expenses, stock-based compensation, non-cash lease expense, bad debt expense and deferred income taxes, as well as the effect of changes in operating assets and liabilities. During the three months endedMarch 31, 2022 , cash used in operating activities was$4.9 million , primarily due to our net loss of$37.4 million , adjusted for non-cash charges of$40.4 million and net cash outflows of$7.9 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of depreciation and amortization, stock-based compensation, non-cash lease expense, bad debt expense and deferred income taxes. The primary drivers of the changes in operating assets and liabilities related to cash provided by a$14.3 million increase in deferred revenue, partially offset by an increase in prepaid expenses and other assets of$8.2 million , a$6.9 million decrease in accrued compensation, a$2.3 million decrease in accounts payable and accrued liabilities, a$1.0 million decrease in accounts receivable, and cash used for operating lease liabilities of$3.8 million . During the three months endedMarch 31, 2021 , cash provided by operating activities was$17.3 million , primarily due to our net loss of$29.6 million , adjusted for non-cash charges of$38.5 million and net cash inflows of$8.4 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of depreciation and amortization, stock-based compensation, non-cash lease expense, bad debt expense and deferred income taxes. The primary drivers of the changes in operating assets and liabilities related to cash provided by an$17.0 million increase in deferred revenue, a$9.2 million increase in accounts payable and accrued liabilities, -------------------------------------------------------------------------------- partially offset by a decrease in accrued compensation of$9.3 million , and cash used for prepaid expenses and other assets of$4.7 million and operating lease liabilities of$3.8 million .
Cash Flows from Investing Activities
Our primary investing activities have consisted of capital expenditures to purchase equipment necessary to support our network and other operations and capitalization of internal-use software necessary to deliver significant new features and functionality in our survey platform which provides value to our customers. As our business grows, we expect our capital expenditures to continue to increase. Net cash used in investing activities during the three months endedMarch 31, 2022 of$3.0 million was primarily attributable to cash used for the development of internal-use software of$2.6 million that is capitalized and purchases of property and equipment of$0.4 million . Net cash used in investing activities during the three months endedMarch 31, 2021 of$2.3 million was primarily attributable to cash used for the development of internal-use software.
Cash Flows from Financing Activities
Cash used in financing activities during the three months endedMarch 31, 2022 of$59.7 million was primarily attributable to payments for share repurchases of$36.4 million and principal payments on our credit facilities of$25.6 million , partially offset by proceeds from the exercise of stock options of$2.3 million . Cash provided by financing activities during the three months endedMarch 31, 2021 of$9.0 million was primarily attributable to proceeds from the exercise of stock options of$9.5 million , partially offset by the principal payments on our credit facilities of$0.5 million .
Contractual Obligations
Our principal commitments consist of obligations under our credit facilities and leases for office space. As ofMarch 31, 2022 , the future non-cancelable minimum payments under these commitments were as follows: Payments Due by Period Remainder of (in thousands) Total 2022 2023 2024 2025 2026 Thereafter Credit facilities(1)$ 187,300 $ 1,650 $ 2,200 $ 2,200 $ 181,250 $ - $ - Interest payments on credit facilities(1) 27,690 6,006 7,889 7,816 5,979 - - Operating leases(2) 95,170 11,177 14,341 13,778 13,546 13,952 28,376 Purchase commitments(3) 29,295 10,635 14,366 4,294 - - - Total contractual obligations$ 339,455 $ 29,468 $ 38,796 $ 28,088 $ 200,775 $ 13,952 $ 28,376 (1) Represents the principal balances and related interest payments to be paid in connection with our 2018 Credit Facility. Interest payments on our 2018 Credit Facility are based upon the applicable interest rates as ofMarch 31, 2022 and are subject to change in future periods. For additional information regarding our credit facilities, see Note 12 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
(2)
Primarily consists of future non-cancelable minimum rental payments under operating leases for our corporate headquarters and our other facilities. The amounts above exclude expected sublease payments to be received of approximately$3.3 million . For additional information regarding our operating lease obligations, see Note 10 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.
(3)
Primarily consists of open non-cancellable purchase orders for data center hosting services and the procurement of goods and services in the ordinary course of business.
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Off-Balance Sheet Arrangements
As ofMarch 31, 2022 , we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in accordance with GAAP. In the preparation of these condensed consolidated financial statements, we are required to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. To the extent that there are material differences between these judgements, estimates and actual results, our financial condition or results of operations would be affected. We base our judgements and estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting judgements and estimates of this type as critical accounting policies and estimates, which we discuss below. There have been no material changes to our critical accounting policies and estimates for the three months endedMarch 31, 2022 , as compared to those disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Recent Accounting Pronouncements
See Note 2 of the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for discussion of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.
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