UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021
or
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission File Number: 001-38664
Momentive Global Inc.
(Exact name of registrant as specified in its charter)
|
Delaware |
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80-0765058 |
|
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
One Curiosity Way
San Mateo, California, 94403
(650) 543-8400
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
|
Common Stock, par value
|
MNTV |
The Nasdaq Stock Market LLC (The Nasdaq Global Select Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☒ |
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Accelerated filer ☐ |
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Non-accelerated filer ☐ |
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Smaller reporting company ☐ |
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|
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Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of registrant’s common stock outstanding as of July 30, 2021 was: 147,513,041.
Momentive Global Inc.
Quarterly Report on Form 10-Q
For the quarterly period ended June 30, 2021
TABLE OF CONTENTS
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Item 1. |
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4 |
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9 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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22 |
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Item 3. |
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36 |
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Item 4. |
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37 |
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Item 1. |
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38 |
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Item 1A. |
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38 |
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Item 2. |
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70 |
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Item 6. |
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71 |
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1
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “would,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
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our ability to attract new users or convert registered users to paying users; |
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our ability to retain paying users; |
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our ability to convert organizations to enterprise customers; |
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our ability to maintain and improve our products, including our enterprise-grade product offerings; |
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our ability to upsell and cross-sell within our existing customer and user base; |
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our future financial performance, including trends in revenue, costs of revenue, gross profit or gross margin, operating expenses, capital expenditures and paying users; |
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possible harm caused by significant disruption of service or loss or unauthorized access to users’ data; |
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our expectations regarding the potential impacts on our business of the COVID-19 pandemic and related public health measures; |
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our ability to prevent serious errors or defects in our products; |
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our ability to respond to rapid technological changes; |
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our ability to compete successfully; |
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our ability to protect our brand and risks related to our rebranding; |
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the demand for our survey platform or for survey software solutions in general; |
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our expectations and management of future growth; |
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our ability to accelerate growth with the introduction and scaling of a significant outbound salesforce; |
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our ability to attract large organizations as users; |
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our ability to attract and retain key personnel and highly qualified personnel; |
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our ability to manage our international expansion; |
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our ability to obtain adequate commercial space as our workforce grows; |
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our ability to maintain, protect and enhance our intellectual property; |
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our ability to effectively integrate our products and solutions with others; |
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our ability to achieve or maintain profitability; |
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our ability to manage our outstanding indebtedness; |
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our ability to successfully identify, acquire and integrate companies and assets; and |
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our ability to offer high-quality customer support. |
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
2
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
3
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOMENTIVE GLOBAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
|
(in thousands, except par value) |
|
June 30, 2021 |
|
December 31, 2020 |
|
||
|
Assets |
|
|
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|
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Current assets: |
|
|
|
|
|
|
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Cash and cash equivalents |
|
$ |
283,199 |
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$ |
224,390 |
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Accounts receivable, net of allowance of $730 and $519 |
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|
22,484 |
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24,177 |
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Deferred commissions, current |
|
|
6,781 |
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|
5,429 |
|
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Prepaid expenses and other current assets |
|
|
12,142 |
|
|
10,520 |
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Total current assets |
|
|
324,606 |
|
|
264,516 |
|
|
Property and equipment, net |
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|
12,016 |
|
|
18,924 |
|
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Operating lease right-of-use assets |
|
|
56,101 |
|
|
56,986 |
|
|
Capitalized internal-use software, net |
|
|
29,151 |
|
|
29,462 |
|
|
Acquisition intangible assets, net |
|
|
15,818 |
|
|
21,207 |
|
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Goodwill |
|
|
466,728 |
|
|
468,764 |
|
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Deferred commissions, non-current |
|
|
11,988 |
|
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10,018 |
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Other assets |
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|
8,187 |
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|
7,940 |
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Total assets |
|
$ |
924,595 |
|
$ |
877,817 |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable |
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$ |
11,450 |
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$ |
3,348 |
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Accrued expenses and other current liabilities |
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19,653 |
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15,198 |
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Accrued compensation |
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30,807 |
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32,149 |
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Deferred revenue, current |
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196,656 |
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169,872 |
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Operating lease liabilities, current |
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9,380 |
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8,318 |
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Debt, current |
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1,900 |
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1,900 |
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Total current liabilities |
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269,846 |
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230,785 |
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Deferred revenue, non-current |
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681 |
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760 |
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Deferred tax liabilities |
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5,341 |
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5,153 |
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Debt, non-current |
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210,766 |
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211,716 |
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Operating lease liabilities, non-current |
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71,654 |
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74,487 |
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Other non-current liabilities |
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8,758 |
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8,560 |
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Total liabilities |
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567,046 |
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531,461 |
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Commitments and contingencies (Note 11) |
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Stockholders’ equity: |
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Preferred stock ($0.00001 par value; 100,000 shares authorized; no shares issued and outstanding) |
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— |
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— |
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Common stock ($0.00001 par value; 800,000 shares authorized; 147,498 and 143,820 shares issued and outstanding) |
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1 |
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1 |
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Additional paid-in capital |
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907,383 |
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835,444 |
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Accumulated other comprehensive income |
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|
3,346 |
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5,208 |
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Accumulated deficit |
|
|
(553,181 |
) |
|
(494,297 |
) |
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Total stockholders’ equity |
|
|
357,549 |
|
|
346,356 |
|
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Total liabilities and stockholders’ equity |
|
$ |
924,595 |
|
$ |
877,817 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
4
MOMENTIVE GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
|
|
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Three Months Ended June 30, |
|
Six Months Ended June 30, |
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||||||||
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(in thousands, except per share amounts) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
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||||
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Revenue |
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$ |
109,392 |
|
$ |
90,941 |
|
$ |
211,690 |
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$ |
179,206 |
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Cost of revenue(1)(2) |
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|
21,688 |
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21,009 |
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42,460 |
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40,953 |
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Gross profit |
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87,704 |
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69,932 |
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169,230 |
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|
138,253 |
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Operating expenses: |
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Research and development(1) |
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34,225 |
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26,571 |
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67,208 |
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53,128 |
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Sales and marketing (1)(2) |
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56,025 |
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42,578 |
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108,061 |
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84,669 |
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General and administrative(1) |
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24,170 |
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21,339 |
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47,492 |
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|
43,271 |
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Total operating expenses |
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|
114,420 |
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|
90,488 |
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|
222,761 |
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|
181,068 |
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Loss from operations |
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|
(26,716 |
) |
|
(20,556 |
) |
|
(53,531 |
) |
|
(42,815 |
) |
|
Interest expense |
|
|
2,304 |
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|
2,422 |
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|
4,603 |
|
|
5,508 |
|
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Other non-operating (income) expense, net |
|
|
(119 |
) |
|
102 |
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|
196 |
|
|
(1,134 |
) |
|
Loss before income taxes |
|
|
(28,901 |
) |
|
(23,080 |
) |
|
(58,330 |
) |
|
(47,189 |
) |
|
Provision for (benefit from) income taxes |
|
|
336 |
|
|
(156 |
) |
|
554 |
|
|
(15 |
) |
|
Net loss |
|
$ |
(29,237 |
) |
$ |
(22,924 |
) |
$ |
(58,884 |
) |
$ |
(47,174 |
) |
|
Net loss per share, basic and diluted |
|
$ |
(0.20 |
) |
$ |
(0.17 |
) |
$ |
(0.40 |
) |
$ |
(0.34 |
) |
|
Weighted-average shares used in computing basic and diluted net loss per share |
|
|
146,242 |
|
|
138,777 |
|
|
145,467 |
|
|
137,844 |
|
(1) Includes stock-based compensation, net of amounts capitalized as follows:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
(in thousands) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
||||
|
Cost of revenue |
|
$ |
1,580 |
|
$ |
1,047 |
|
$ |
3,062 |
|
$ |
2,007 |
|
|
Research and development |
|
|
10,313 |
|
|
7,496 |
|
|
19,810 |
|
|
13,953 |
|
|
Sales and marketing |
|
|
6,414 |
|
|
4,841 |
|
|
12,192 |
|
|
9,184 |
|
|
General and administrative |
|
|
7,266 |
|
|
6,087 |
|
|
14,108 |
|
|
11,829 |
|
|
Stock-based compensation, net of amounts capitalized |
|
$ |
25,573 |
|
$ |
19,471 |
|
$ |
49,172 |
|
$ |
36,973 |
|
(2) Includes amortization of acquisition intangible assets as follows:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
(in thousands) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
||||
|
Cost of revenue |
|
$ |
1,477 |
|
$ |
2,003 |
|
$ |
2,967 |
|
$ |
4,013 |
|
|
Sales and marketing |
|
|
1,117 |
|
|
1,355 |
|
|
2,250 |
|
|
2,713 |
|
|
Amortization of acquisition intangible assets |
|
$ |
2,594 |
|
$ |
3,358 |
|
$ |
5,217 |
|
$ |
6,726 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
5
MOMENTIVE GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
(in thousands) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
||||
|
Net loss |
|
$ |
(29,237 |
) |
$ |
(22,924 |
) |
$ |
(58,884 |
) |
$ |
(47,174 |
) |
|
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gains (losses)(1) |
|
|
1,091 |
|
|
1,547 |
|
|
(1,862 |
) |
|
(889 |
) |
|
Total other comprehensive income (loss)(1) |
|
|
1,091 |
|
|
1,547 |
|
|
(1,862 |
) |
|
(889 |
) |
|
Total comprehensive loss |
|
$ |
(28,146 |
) |
$ |
(21,377 |
) |
$ |
(60,746 |
) |
$ |
(48,063 |
) |
|
(1) |
Net of tax effect which was not material. |
See accompanying Notes to Condensed Consolidated Financial Statements.
6
MOMENTIVE GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)
For the three months ended June 30, 2021
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
(in thousands) |
|
Shares |
|
Amount |
|
Additional Paid-In Capital |
|
Accumulated Other Comprehensive Income |
|
Accumulated Deficit |
|
Total Stockholders’ Equity |
|
||||||
|
March 31, 2021 |
|
|
145,638 |
|
$ |
1 |
|
$ |
869,174 |
|
$ |
2,255 |
|
$ |
(523,944 |
) |
$ |
347,486 |
|
|
Common stock issued upon vesting of restricted stock units |
|
|
1,026 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Common stock issued upon stock option exercise |
|
|
588 |
|
|
— |
|
|
8,186 |
|
|
— |
|
|
— |
|
|
8,186 |
|
|
Common stock issued under employee stock purchase plan |
|
|
246 |
|
|
— |
|
|
3,873 |
|
|
— |
|
|
— |
|
|
3,873 |
|
|
Stock-based compensation expense |
|
|
— |
|
|
— |
|
|
26,150 |
|
|
— |
|
|
— |
|
|
26,150 |
|
|
Comprehensive income |
|
|
— |
|
|
— |
|
|
— |
|
|
1,091 |
|
|
— |
|
|
1,091 |
|
|
Net loss |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(29,237 |
) |
|
(29,237 |
) |
|
June 30, 2021 |
|
|
147,498 |
|
$ |
1 |
|
$ |
907,383 |
|
$ |
3,346 |
|
$ |
(553,181 |
) |
$ |
357,549 |
|
For the three months ended June 30, 2020
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
(in thousands) |
|
Shares |
|
Amount |
|
Additional Paid-In Capital |
|
Accumulated Other Comprehensive Income (Loss) |
|
Accumulated Deficit |
|
Total Stockholders’ Equity |
|
||||||
|
March 31, 2020 |
|
|
138,070 |
|
$ |
1 |
|
$ |
737,236 |
|
$ |
(2,880 |
) |
$ |
(426,966 |
) |
$ |
307,391 |
|
|
Common stock issued upon vesting of restricted stock units |
|
|
1,051 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Common stock issued upon stock option exercise |
|
|
849 |
|
|
— |
|
|
11,814 |
|
|
— |
|
|
— |
|
|
11,814 |
|
|
Common stock issued under employee stock purchase plan |
|
|
268 |
|
|
— |
|
|
3,082 |
|
|
— |
|
|
— |
|
|
3,082 |
|
|
Stock-based compensation expense |
|
|
— |
|
|
— |
|
|
20,181 |
|
|
— |
|
|
— |
|
|
20,181 |
|
|
Comprehensive income |
|
|
— |
|
|
— |
|
|
— |
|
|
1,547 |
|
|
— |
|
|
1,547 |
|
|
Net loss |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(22,924 |
) |
|
(22,924 |
) |
|
June 30, 2020 |
|
|
140,238 |
|
$ |
1 |
|
$ |
772,313 |
|
$ |
(1,333 |
) |
$ |
(449,890 |
) |
$ |
321,091 |
|
For the six months ended June 30, 2021
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
(in thousands) |
|
Shares |
|
Amount |
|
Additional Paid-In Capital |
|
Accumulated Other Comprehensive Income (Loss) |
|
Accumulated Deficit |
|
Total Stockholders’ Equity |
|
||||||
|
December 31, 2020 |
|
|
143,820 |
|
$ |
1 |
|
$ |
835,444 |
|
$ |
5,208 |
|
$ |
(494,297 |
) |
$ |
346,356 |
|
|
Common stock issued upon vesting of restricted stock units |
|
|
1,993 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Common stock issued upon stock option exercise |
|
|
1,229 |
|
|
— |
|
|
17,758 |
|
|
— |
|
|
— |
|
|
17,758 |
|
|
Issuance of restricted stock awards |
|
|
274 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Cancellation of restricted stock awards |
|
|
(64 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Common stock issued under employee stock purchase plan |
|
|
246 |
|
|
— |
|
|
3,873 |
|
|
— |
|
|
— |
|
|
3,873 |
|
|
Stock-based compensation expense |
|
|
— |
|
|
— |
|
|
50,308 |
|
|
— |
|
|
— |
|
|
50,308 |
|
|
Comprehensive loss |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,862 |
) |
|
— |
|
|
(1,862 |
) |
|
Net loss |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(58,884 |
) |
|
(58,884 |
) |
|
June 30, 2021 |
|
|
147,498 |
|
$ |
1 |
|
$ |
907,383 |
|
$ |
3,346 |
|
$ |
(553,181 |
) |
$ |
357,549 |
|
For the six months ended June 30, 2020
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
(in thousands) |
|
Shares |
|
Amount |
|
Additional Paid-In Capital |
|
Accumulated Other Comprehensive Loss |
|
Accumulated Deficit |
|
Total Stockholders’ Equity |
|
||||||
|
December 31, 2019 |
|
|
136,054 |
|
$ |
1 |
|
$ |
705,143 |
|
$ |
(444 |
) |
$ |
(402,716 |
) |
$ |
301,984 |
|
|
Common stock issued upon vesting of restricted stock units |
|
|
1,996 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Common stock issued upon stock option exercise |
|
|
1,920 |
|
|
— |
|
|
25,629 |
|
|
— |
|
|
— |
|
|
25,629 |
|
|
Common stock issued under employee stock purchase plan |
|
|
268 |
|
|
— |
|
|
3,082 |
|
|
— |
|
|
— |
|
|
3,082 |
|
|
Stock-based compensation expense |
|
|
— |
|
|
— |
|
|
38,459 |
|
|
— |
|
|
— |
|
|
38,459 |
|
|
Comprehensive loss |
|
|
— |
|
|
— |
|
|
— |
|
|
(889 |
) |
|
— |
|
|
(889 |
) |
|
Net loss |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(47,174 |
) |
|
(47,174 |
) |
|
June 30, 2020 |
|
|
140,238 |
|
$ |
1 |
|
$ |
772,313 |
|
$ |
(1,333 |
) |
$ |
(449,890 |
) |
$ |
321,091 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
7
MOMENTIVE GLOBAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
|
|
|
Six Months Ended June 30, |
|
||||
|
(in thousands) |
|
2021 |
|
2020 |
|
||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(58,884 |
) |
$ |
(47,174 |
) |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
21,478 |
|
|
24,502 |
|
|
Non-cash leases expense |
|
|
6,593 |
|
|
6,830 |
|
|
Stock-based compensation expense, net of amounts capitalized |
|
|
49,172 |
|
|
36,973 |
|
|
Deferred income taxes |
|
|
197 |
|
|
195 |
|
|
Bad debt expense |
|
|
590 |
|
|
790 |
|
|
Gain on sale of a private company investment |
|
|
— |
|
|
(1,001 |
) |
|
Other |
|
|
310 |
|
|
888 |
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
840 |
|
|
(1,506 |
) |
|
Prepaid expenses and other assets |
|
|
(7,530 |
) |
|
(6,714 |
) |
|
Accounts payable and accrued liabilities |
|
|
12,691 |
|
|
5,659 |
|
|
Accrued compensation |
|
|
(1,052 |
) |
|
(4,408 |
) |
|
Deferred revenue |
|
|
26,678 |
|
|
18,720 |
|
|
Operating lease liabilities |
|
|
(7,522 |
) |
|
(7,659 |
) |
|
Net cash provided by operating activities |
|
|
43,561 |
|
|
26,095 |
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(322 |
) |
|
(772 |
) |
|
Capitalized internal-use software |
|
|
(4,418 |
) |
|
(5,372 |
) |
|
Proceeds from sale of a private company investment |
|
|
— |
|
|
1,001 |
|
|
Net cash used in investing activities |
|
|
(4,740 |
) |
|
(5,143 |
) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from stock option exercises |
|
|
17,703 |
|
|
24,279 |
|
|
Proceeds from employee stock purchase plan |
|
|
3,873 |
|
|
3,082 |
|
|
Repayment of debt |
|
|
(1,100 |
) |
|
(1,100 |
) |
|
Net cash provided by financing activities |
|
|
20,476 |
|
|
26,261 |
|
|
Effect of exchange rate changes on cash |
|
|
101 |
|
|
(1,090 |
) |
|
Net increase in cash, cash equivalents and restricted cash |
|
|
59,398 |
|
|
46,123 |
|
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
224,614 |
|
|
131,683 |
|
|
Cash, cash equivalents and restricted cash at end of period |
|
$ |
284,012 |
|
$ |
177,806 |
|
|
Supplemental cash flow data: |
|
|
|
|
|
|
|
|
Interest paid for term debt |
|
$ |
4,267 |
|
$ |
5,198 |
|
|
Income taxes paid |
|
$ |
618 |
|
$ |
394 |
|
|
Non-cash investing and financing transactions: |
|
|
|
|
|
|
|
|
Stock compensation included in capitalized software costs |
|
$ |
1,136 |
|
$ |
1,486 |
|
|
Lease liabilities arising from obtaining right-of-use assets, net |
|
$ |
2,676 |
|
$ |
— |
|
|
Proceeds receivable from stock option exercises |
|
$ |
77 |
|
$ |
1,350 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
8
MOMENTIVE GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Company Overview and Basis of Presentation
Business
Momentive Global Inc. (the “Company”), formerly SVMK Inc., is an agile experience management company focused on helping customers shape what’s next. The Company offers SaaS feedback solutions across three major product categories—Surveys, Customer Experience, and Market Research. The Company was incorporated in 2011 as SVMK Inc., a Delaware corporation, and is the successor to operations originally started in 1999. In June 2021, SVMK Inc. was rebranded. As part of this rebranding, SVMK Inc. changed its legal name to Momentive Global Inc. and its common stock began trading under the ticker symbol “MNTV” instead of “SVMK” on The Nasdaq Global Select Market. While the Company’s name has changed, it continues to use the “SurveyMonkey” and “GetFeedback” brands among its portfolio of products. The Company’s headquarters are located in the United States and its international operations are primarily based in Ireland, Canada and the Netherlands.
Principles of Consolidation and Basis of Presentation
The accompanying interim condensed consolidated balance sheet as of June 30, 2021, the statements of operations, comprehensive loss, stockholders’ equity and cash flows for the three and six months ended June 30, 2021 and 2020 are unaudited. Such condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. These condensed consolidated financial statements include the results of operations of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. Certain other prior year balances have been reclassified to conform to the current year presentation. Such reclassifications did not affect our results of operations or operating, investing and financing cash flows.
These condensed consolidated financial statements do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with GAAP. In management’s opinion, the condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and include all normal recurring adjustments necessary for the fair presentation of the Company’s financial position as of June 30, 2021, the results of operations for the three and six months ended June 30, 2021 and 2020, and cash flows for the six months ended June 30, 2021 and 2020. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual periods.
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K filed with the SEC on February 18, 2021.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenue and expenses during the reporting periods covered by the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates due to a variety of factors, including the unforeseen effects of the COVID-19 pandemic on the Company’s business and financial results. Due to the COVID-19 pandemic, there is ongoing uncertainty and significant disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstances that would require an update to its estimates, judgments or assumptions or a revision to the carrying value of its assets or liabilities as of the date of issuance of its financial statements. These estimates, judgments and assumptions may change in the future, as new events occur or additional information is obtained. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable. The Company’s most significant estimate and use of judgment involves the valuation of acquired goodwill and intangibles from acquisitions.
9
MOMENTIVE GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Segment Information
The Company operates as a single operating segment. The Company’s chief operating decision maker (“CODM”) is its Chief Executive Officer, who reviews the Company’s operating results on a consolidated basis in order to make decisions about allocating resources and assessing performance for the entire company. The CODM uses one measure of profitability and does not segment the Company’s business for internal reporting. See Note 4 for additional information regarding the Company’s revenue by geographic area.
Related Party Transactions
Certain members of the Company’s Board of Directors (“Board”) serve as board members, are executive officers of and/or (in some cases) are investors in companies that are customers and/or vendors of the Company. The Company incurred related party expenses of $0.9 million and $1.7 million for the three and six months ended June 30, 2021, respectively, and $1.0 million and $2.0 million during the three and six months ended June 30, 2020, respectively.
2. Summary of Significant Accounting Policies
There have been no material changes in our significant accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2020.
Other Non-Operating (Income) Expense
Other non-operating (income) expense, net consists primarily of interest income, net foreign currency exchange (gains) losses, gain on sale of private company investments, net realized gains and losses related to investments, and other. The components of other non-operating (income) expense recognized in the condensed consolidated financial statements is as follows:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
(in thousands) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
||||
|
Interest Income |
|
$ |
(129 |
) |
$ |
(72 |
) |
$ |
(263 |
) |
$ |
(479 |
) |
|
Foreign currency (gains) losses, net |
|
|
75 |
|
|
166 |
|
|
449 |
|
|
344 |
|
|
Gain on sale of a private company investment |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,001 |
) |
|
Other (income) expense, net |
|
|
(65 |
) |
|
8 |
|
|
10 |
|
|
2 |
|
|
Other non-operating (income) expense, net |
|
$ |
(119 |
) |
$ |
102 |
|
$ |
196 |
|
$ |
(1,134 |
) |
During the six months ended June 30, 2020, the Company recognized a gain on sale of a private company investment of $1.0 million, which was the final installment of an earn-out payment.
Accounting Pronouncement Not Yet Adopted
Reference Rate Reform: In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 is intended to provide temporary optional expedients and exceptions to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. This guidance is effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company does not expect this update will have a material impact on its condensed consolidated financial statements and related disclosures.
10
MOMENTIVE GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
3. Revenue and Deferred Revenue
Disaggregated revenue
Revenue by sales channel was as follows:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
(in thousands) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
||||
|
Self-serve revenue |
|
$ |
75,462 |
|
$ |
65,398 |
|
$ |
146,574 |
|
$ |
128,505 |
|
|
Enterprise revenue |
|
|
33,930 |
|
|
25,543 |
|
|
65,116 |
|
|
50,701 |
|
|
Revenue |
|
$ |
109,392 |
|
$ |
90,941 |
|
$ |
211,690 |
|
$ |
179,206 |
|
Self-serve revenues are generated from products purchased independently through our website.
Enterprise revenues are generated from products sold to organizations through our sales team.
In addition, see Note 4 for information regarding the Company’s revenue by geographic area.
Deferred revenue
The Company recognized into revenue $80.5 million and $125.5 million during the three and six months ended June 30, 2021, respectively, and $65.1 million and $105.5 million during the three and six months ended June 30, 2020, respectively, that was included in the deferred revenue balances at the beginning of each respective period.
Transaction price allocated to the remaining performance obligations
As of June 30, 2021, future estimated revenue related to non-cancelable performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period was $221.6 million. The substantial majority of the unsatisfied performance obligations will be satisfied over the next twelve months.
4. Geographical Information
Revenue by geography is generally based on the billing address of the customer. For purposes of its geographic revenue disclosure, the Company defines a customer as an organization. An organization may consist of an individual paying user, multiple paying users within an organization or the organization itself. The following table sets forth the percentage of revenue by geographic area:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
||||
|
United States |
|
|
64 |
% |
|
65 |
% |
|
64 |
% |
|
65 |
% |
|
Rest of world |
|
|
36 |
% |
|
35 |
% |
|
36 |
% |
|
35 |
% |
No other country outside of the United States comprised 10% or greater of the Company’s revenue for each of the three and six months ended June 30, 2021 and 2020, respectively.
5. Cash and Cash Equivalents
As of June 30, 2021 and December 31, 2020, the following table provides a reconciliation of the amount of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the total of the same such amounts shown in the condensed consolidated statements of cash flows:
11
MOMENTIVE GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
|
(in thousands) |
|
June 30, 2021 |
|
December 31, 2020 |
|
||
|
Cash and cash equivalents |
|
$ |
283,199 |
|
$ |
224,390 |
|
|
Restricted cash included in prepaid expenses and other current assets |
|
|
488 |
|
|
224 |
|
|
Restricted cash included in other assets |
|
|
325 |
|
|
— |
|
|
Total cash, cash equivalents and restricted cash |
|
$ |
284,012 |
|
$ |
224,614 |
|
Included in cash and cash equivalents are cash in transit from payment processors for credit and debit card transactions of $3.2 million and $1.6 million as of June 30, 2021 and December 31, 2020, respectively.
6. Fair Value Measurements
Assets and liabilities recorded at fair value in the condensed consolidated financial statements are categorized based on the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels which directly relate to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:
Level 1 – Observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The carrying amounts of the Company’s financial instruments, which generally include cash equivalents, accounts receivable and accounts payable, approximate their fair values due to their short maturities. Based on borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk, the fair value of the Company’s debt was approximately $212.3 million and $214.5 million as of June 30, 2021 and December 31, 2020, respectively.
As of June 30, 2021 and December 31, 2020, respectively, the Company did not have any financial instruments accounted for pursuant to ASC 820, Fair Value Measurement.
7. Property and Equipment
As of June 30, 2021 and December 31, 2020, property and equipment consisted of the following:
|
(in thousands) |
|
June 30, 2021 |
|
December 31, 2020 |
|
||
|
Computer equipment |
|
$ |
15,668 |
|
$ |
15,770 |
|
|
Leasehold improvements |
|
|
54,333 |
|
|
54,079 |
|
|
Furniture, fixtures, and other assets |
|
|
10,564 |
|
|
10,944 |
|
|
Gross property and equipment |
|
|
80,565 |
|
|
80,793 |
|
|
Less: Accumulated depreciation |
|
|
(68,549 |
) |
|
(61,869 |
) |
|
Property and equipment, net |
|
$ |
12,016 |
|
$ |
18,924 |
|
Depreciation expense was $3.4 million and $7.0 million during the three and six months ended June 30, 2021, respectively, and $4.2 million and $8.6 million during the three and six months ended June 30, 2020, respectively.
12
MOMENTIVE GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
8. Intangible Assets and Goodwill
Acquisition intangible assets, net
As of June 30, 2021 and December 31, 2020, intangible assets, net consisted of the following:
|
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||||||||||||||
|
(in thousands) |
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
|
|
Gross Carrying Amount |
|
Accumulated Amortization |
|
Net Carrying Amount |
|
||||||
|
Customer relationships |
|
$ |
23,734 |
|
$ |
(14,412 |
) |
$ |
9,322 |
|
|
$ |
23,804 |
|
$ |
(12,448 |
) |
$ |
11,356 |
|
|
Trade name |
|
|
2,783 |
|
|
(1,507 |
) |
|
1,276 |
|
|
|
2,824 |
|
|
(1,285 |
) |
|
1,539 |
|
|
Developed technology |
|
|
20,500 |
|
|
(15,280 |
) |
|
5,220 |
|
|
|
20,881 |
|
|
(12,569 |
) |
|
8,312 |
|
|
Acquisition intangible assets, net |
|
$ |
47,017 |
|
$ |
(31,199 |
) |
$ |
15,818 |
|
|
$ |
47,509 |
|
$ |
(26,302 |
) |
$ |
21,207 |
|
Amortization expense was $2.6 million and $5.2 million during the three months and six months ended June 30, 2021, respectively, and $3.4 million and $6.7 million during the three and six months ended June 30, 2020, respectively.
Goodwill
The changes in the carrying amount of goodwill were as follows (in thousands):
|
Balance as of December 31, 2020 |
$ |
468,764 |
|
|
Foreign currency translation |
|
(2,036 |
) |
|
Balance as of June 30, 2021 |
$ |
466,728 |
|
Capitalized internal-use software
As of June 30, 2021 and December 31, 2020, capitalized internal-use software consisted of the following:
|
(in thousands) |
|
June 30, 2021 |
|
December 31, 2020 |
|
||
|
Gross capitalized internal-use software |
|
$ |
56,380 |
|
$ |
50,833 |
|
|
Less: Accumulated amortization |
|
|
(27,229 |
) |
|
(21,371 |
) |
|
Capitalized internal-use software, net |
|
$ |
29,151 |
|
$ |
29,462 |
|
Amortization expense related to capitalized internal-use software was $3.0 million and $5.9 million during the three months and six months ended June 30, 2021, respectively, and $3.6 million and $7.3 million during the three and six months ended June 30, 2020, respectively, and is included in cost of revenue in the condensed consolidated statements of operations.
Future amortization expense
As of June 30, 2021, future amortization expense by year is expected to be as follows:
13
MOMENTIVE GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
|
(in thousands) |
|
Capitalized internal-use software, net |
|
|
Acquisition intangible assets, net |
|
||
|
Remainder of 2021 |
|
$ |
5,458 |
|
|
$ |
4,966 |
|
|
2022 |
|
|
7,397 |
|
|
|
5,076 |
|
|
2023 |
|
|
2,018 |
|
|
|
1,920 |
|
|
2024 |
|
|
68 |
|
|
|
1,667 |
|
|
2025 |
|
|
— |
|
|
|
1,389 |
|
|
Thereafter |
|
|
— |
|
|
|
800 |
|
|
Total amortization expense |
|
$ |
14,941 |
|
|
$ |
15,818 |
|
Future capitalized internal-use software amortization excludes $14.2 million of costs which are currently in the development phase.
9. Employee Benefit Plans
Equity Incentive Plans
The Company sponsors the 2018 Equity Incentive Plan (the “2018 Plan”), which was approved by stockholders on September 5, 2018. The purpose of the 2018 Plan is to promote the long-term growth and profitability of the Company by (i) providing employees with incentives to improve stockholder value and to contribute to the growth and financial success of the Company through their future services, and (ii) enabling the Company to attract, retain and reward the best‑available persons. The options granted under the 2018 Plan, may be granted at a price not less than the fair market value on the grant date.
The Board, or a committee of the Board, has granted options with an exercise price at fair value on the grant date. Grants of time-based awards generally vest over a four-year period for new hires and over a three-year period for subsequent grants to existing employees. Options expire as determined by the Board, or committee of the Board, but not more than ten years after the date of the grant.
As of June 30, 2021, 17,129,162 shares of common stock remain available for grant under the 2018 Plan.
The following is a summary of restricted stock units for the current year period:
|
|
Restricted Stock Units |
|
|||||||
|
|
Number of Shares |
|
Weighted Average Grant-Date Fair Value |
|
Weighted Average Remaining Contractual Term (in years) |
|
|||
|
Unvested at December 31, 2020 |
|
7,000,855 |
|
$ |
17.72 |
|
|
1.1 |
|
|
Granted |
|
3,279,068 |
|
$ |
25.56 |
|
|
|
|
|
Vested |
|
(1,993,215 |
) |
$ |
17.83 |
|
|
|
|
|
Forfeited/cancelled |
|
(981,563 |
) |
$ |
19.84 |
|
|
|
|
|
Unvested at June 30, 2021 |
|
7,305,145 |
|
$ |
20.93 |
|
|
1.2 |
|
14
MOMENTIVE GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The following is a summary of stock option activity for the current year period:
|
|
Stock Options |
|
||||||||||
|
|
Number of Shares |
|
Weighted Average Exercise Price |
|
Aggregate Intrinsic Value (in thousands) |
|
Weighted Average Remaining Contractual Term (in years) |
|
||||
|
Outstanding at December 31, 2020 |
|
15,100,142 |
|
$ |
16.07 |
|
$ |
143,156 |
|
|
6.9 |
|
|
Granted |
|
2,636,878 |
|
$ |
21.77 |
|
|
|
|
|
|
|
|
Exercised |
|
(1,229,180 |
) |
$ |
14.45 |
|
|
|
|
|
|
|
|
Forfeited |
|
(774,324 |
) |
$ |
19.35 |
|
|
|
|
|
|
|
|
Expired |
|
(81,383 |
) |
$ |
19.49 |
|
|
|
|
|
|
|
|
Outstanding, vested and expected to vest at June 30, 2021 |
|
15,652,133 |
|
$ |
16.98 |
|
$ |
67,395 |
|
|
6.8 |
|
|
Vested and exercisable at June 30, 2021 |
|
10,668,302 |
|
$ |
15.68 |
|
$ |
58,283 |
|
|
5.9 |
|
On February 16, 2021, the Company granted 580,911 options to purchase shares of the Company’s common stock to its Chief Executive Officer at an exercise price of $21.99 per share (the “Executive Option Grant”). The stock options contain a service condition and a market condition of achieving a per share price milestone. The grant-date fair value of the award is $5.7 million, which will be recognized using the accelerated attribution method. Stock-based compensation is recognized for each vesting tranche using service periods that range from 9 months to 3 years. The grant-date fair value was determined using the Monte Carlo valuation, which incorporates various assumptions including expected stock price volatility, contractual term, dividend yield, and stock price at grant date. During the three and six months ended June 30, 2021, the Company recognized $1.1 million and $1.6 million of stock-based compensation expense, respectively, related to this award, which is included in general and administrative expense in the condensed consolidated statement of operations.
The following is a summary of restricted stock awards for the current year period:
|
|
Restricted Stock Awards |
|
|||||||
|
|
Number of Shares |
|
Weighted Average Grant-Date Fair Value |
|
Weighted Average Remaining Contractual Term (in years) |
|
|||
|
Unvested at December 31, 2020 |
|
102,460 |
|
$ |
18.30 |
|
|
1.2 |
|
|
Granted |
|
274,417 |
|
$ |
26.89 |
|
|
|
|
|
Vested |
|
(51,619 |
) |
$ |
21.21 |
|
|
|
|
|
Forfeited/cancelled |
|
(64,823 |
) |
$ |
26.89 |
|
|
|
|
|
Unvested at June 30, 2021 |
|
260,435 |
|
$ |
24.64 |
|
|
2.1 |
|
15
MOMENTIVE GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Fair Value of Stock Options
Except for the Executive Option Grant discussed above, the Company used the Black-Scholes-Merton option pricing model to estimate the fair value of stock options granted using the following weighted-average assumptions:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||
|
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Expected life (in years) |
|
6.2 |
|
6.2 |
|
5.8 |
|
5.8 |
|
Risk-free interest rate |
|
1.2% |
|
0.5% |
|
0.8% |
|
1.4% |
|
Volatility |
|
51% |
|
52% |
|
51% |
|
48% |
|
Dividend yield |
|
—% |
|
—% |
|
—% |
|
—% |
|
Fair value of common stock |
|
$18.39 |
|
$19.24 |
|
$21.70 |
|
$21.15 |
2018 Employee Stock Purchase Plan, As Amended
The Company sponsors the 2018 Employee Stock Purchase Plan, as amended (the “ESPP”), which was approved by stockholders on September 5, 2018. The ESPP provides for 24-month offering periods beginning May 22 and November 22 of each year, and each offering period will consist of four six-month purchase periods, subject to a reset provision. On each purchase date, eligible employees will purchase the shares at a price per share equal to 85% of the lesser of (1) the fair market value of the Company’s common stock on the offering date, or (2) the fair market value of its common stock on the purchase date.
Under the reset provision, if the closing stock price on the purchase date falls below the closing stock price on the offering date of an ongoing offering period, the ongoing offering terminates immediately following the purchase of ESPP shares on the purchase date and participants in the terminated offering are automatically enrolled in the new offering period (“ESPP reset”), resulting in a modification charge to be recognized over the new offering period. During the three and six months ended June 30, 2021, there was an ESPP reset that resulted in a modification charge of $2.0 million, which is being recognized over the new offering period ending in May 2023.
During the three and six months ended June 30, 2021, the Company’s employees purchased 245,914 shares of its common stock under the ESPP with a weighted average purchase price of $15.75, with aggregate proceeds to the Company of $3.9 million. During the three and six months ended June 30, 2020, the Company’s employees purchased 267,757 shares of its common stock under the ESPP with a weighted average purchase price of $11.51, with aggregate proceeds to the Company of $3.1 million.
As of June 30, 2021, 5,416,004 shares of common stock remain available for issuance under the ESPP.
The Company used the Black-Scholes-Merton option pricing model to estimate the fair value of ESPP purchase rights granted using the following weighted-average assumptions:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
||||
|
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
Expected life (in years) |
|
1.3 |
|
1.3 |
|
1.3 |
|
1.3 |
|
Risk-free interest rate |
|
0.1% |
|
0.2% |
|
0.1% |
|
0.2% |
|
Volatility |
|
53% |
|
58% |
|
53% |
|
58% |
|
Dividend yield |
|
—% |
|
—% |
|
—% |
|
—% |
|
Fair value of common stock |
|
$19.12 |
|
$19.81 |
|
$19.12 |
|
$19.81 |
16
MOMENTIVE GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Stock-Based Compensation Expense
Stock-based compensation expense recognized in the condensed consolidated financial statements is as follows:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
(in thousands) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
||||
|
Cost of revenue |
|
$ |
1,580 |
|
$ |
1,047 |
|
$ |
3,062 |
|
$ |
2,007 |
|
|
Research and development |
|
|
10,313 |
|
|
7,496 |
|
|
19,810 |
|
|
13,953 |
|
|
Sales and marketing |
|
|
6,414 |
|
|
4,841 |
|
|
12,192 |
|
|
9,184 |
|
|
General and administrative |
|
|
7,266 |
|
|
6,087 |
|
|
14,108 |
|
|
11,829 |
|
|
Stock-based compensation expense, net of amounts capitalized |
|
|
25,573 |
|
|
19,471 |
|
|
49,172 |
|
|
36,973 |
|
|
Capitalized stock-based compensation expense |
|
|
577 |
|
|
710 |
|
|
1,136 |
|
|
1,486 |
|
|
Stock-based compensation expense |
|
$ |
26,150 |
|
$ |
20,181 |
|
$ |
50,308 |
|
$ |
38,459 |
|
As of June 30, 2021, unamortized stock-based compensation was as follows:
|
|
Unrecognized stock-based compensation (in thousands) |
|
Weighted average vesting period (in years) |
|
||
|
Restricted stock units |
$ |
140,150 |
|
|
2.4 |
|
|
Stock options |
|
41,763 |
|
|
2.3 |
|
|
Restricted stock awards |
|
5,872 |
|
|
2.3 |
|
|
ESPP |
|
7,127 |
|
|
1.9 |
|
|
Total unrecognized stock-based compensation |
$ |
194,912 |
|
|
|
|
401(k) Plan
In the United States, the Company offers its employees a defined contribution plan that qualifies as a deferred salary arrangement under Section 401 of the U.S. Internal Revenue Code (“401(k) Plan”). Under the 401(k) Plan, participating employees may defer a portion of their pretax earnings not to exceed the maximum amount allowed by the Internal Revenue Service. The Company currently provides a matching contribution of 25% of deferrals for eligible employees. Compensation expense for the Company's matching contributions was $1.2 million and $2.6 million during the three months and six months ended June 30, 2021, respectively, and $1.0 million and $2.2 million during the three and six months ended June 30, 2020, respectively.
10. Leases
The Company leases certain equipment and facilities under operating leases which expire at various dates through 2028. The Company’s operating lease costs were as follows:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
(in thousands) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
||||
|
Operating lease cost (gross lease expense) |
|
$ |
3,253 |
|
$ |
3,414 |
|
$ |
6,644 |
|
$ |
6,878 |
|
|
Variable lease costs |
|
|
1,106 |
|
|
1,414 |
|
|
2,152 |
|
|
3,017 |
|
|
Sublease income (including reimbursed expenses) |
|
|
1,309 |
|
|
1,162 |
|
|
2,565 |
|
|
2,579 |
|
During each of the three and six months ended June 30, 2021 and 2020, the Company’s short-term lease costs were nominal.
17
MOMENTIVE GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The weighted average remaining operating lease term was 7.1 years and 7.6 years as of June 30, 2021 and December 31, 2020, respectively.
The weighted average discount rate used to estimate operating lease liabilities was 7.4% and 7.5% as of June 30, 2021 and December 31, 2020, respectively.
As of June 30, 2021, maturities of operating lease liabilities and sublease income, by year are as follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Operating Lease Payments |
|
|
Sublease Income |
|
||
|
Remainder of 2021 |
|
$ |
7,449 |
|
|
$ |
(1,904 |
) |
|
2022 |
|
|
14,874 |
|
|
|
(1,481 |
) |
|
2023 |
|
|
14,399 |
|
|
|
(1,101 |
) |
|
2024 |
|
|
13,794 |
|
|
|
— |
|
|
2025 |
|
|
13,552 |
|
|
|
— |
|
|
Thereafter |
|
|
42,342 |
|
|
|
— |
|
|
Gross lease payments (income) |
|
$ |
106,410 |
|
|
$ |
(4,486 |
) |
|
Less: Imputed interest |
|
|
24,920 |
|
|
|
|
|
|
Less: Tenant improvement receivables |
|
|
456 |
|
|
|
|
|
|
Total operating lease liabilities |
|
$ |
81,034 |
|
|
|
|
|
11. Commitments and Contingencies
Non-Cancelable Purchase Commitments
The Company enters into commitments under non-cancelable purchase orders for the procurement of goods and services in the ordinary course of business. As of June 30, 2021, expected payments under such commitments are as follows (in thousands):
|
Remainder of 2021 |
$ |
6,811 |
|
|
2022 |
|
14,793 |
|
|
2023 |
|
10,282 |
|
|
2024 |
|
2,115 |
|
|
Total purchase commitments |
$ |
34,001 |
|
Letters of Credit
As of June 30, 2021, the Company had a standby letter of credit for $2.5 million which was issued in connection with the San Mateo facility.
18
MOMENTIVE GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Legal Matters
From time to time, the Company is subject to legal proceedings, claims and litigation arising in the ordinary course of business, which may include, but are not limited to, patent and privacy matters, labor and employment claims, class action lawsuits, as well as inquiries, investigations, audits and other regulatory proceedings. Periodically, the Company evaluates developments in its legal matters and records a liability when it believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both the likelihood of there being, and the estimated amount of, a loss related to such matters, and the Company's judgment may be incorrect.
There are currently no legal matters or claims that have arisen from the normal course of business that the Company believes would have a material impact on the Company’s financial position, results of operations or cash flows.
Warranties and Indemnification
The Company’s subscription services are generally warranted to perform materially in accordance with the Company’s online help documentation under normal use and circumstances. Additionally, the Company’s arrangements generally include provisions for indemnifying customers against liabilities if its subscription services infringe a third party’s intellectual property rights. Furthermore, the Company may also incur liabilities if it breaches the security or confidentiality obligations in its arrangements. To date, the Company has not incurred significant costs and has not accrued a liability in the accompanying condensed consolidated financial statements as a result of these obligations.
12. Debt
As of June 30, 2021 and December 31, 2020 the carrying values of debt were as follows:
|
|
|
|
|
|
June 30, 2021 |
|
December 31, 2020 |
||||||
|
|
|
Issuance date |
Maturity date |
|
Amount (in thousands) |
|
Effective Interest Rate |
|
Amount (in thousands) |
|
Effective Interest Rate |
||
|
2018 Refinancing Facility Agreement |
|
October 2018 |
October 2025 |
|
$ |
213,950 |
|
3.8% - 3.9% |
|
$ |
215,050 |
|
3.9% - 5.4% |
|
Less: Unamortized issuance discount and issuance costs, net |
|
|
|
|
|
1,284 |
|
|
|
|
1,434 |
|
|
|
Less: Debt, current |
|
|
|
|
|
1,900 |
|
|
|
|
1,900 |
|
|
|
Debt, non-current |
|
|
|
|
$ |
210,766 |
|
|
|
$ |
211,716 |
|
|
In October 2018, the Company entered into a Refinancing Facility Agreement (“2018 Credit Facility”), comprising a $220.0 million term loan (the “Term Loan”) and $75.0 million revolving credit facility. Loans under the 2018 Credit Facility accrue interest based upon, at the Company’s option, either at an alternate base interest rate (“ABR”) or a Eurocurrency rate, in each case plus an applicable margin. The applicable margin for the Term Loan is 2.75% in the case of a ABR loan and 3.75% in the case of a Eurocurrency loan, and the applicable margin for the revolving loan ranges from 0.75% to 1.50% in the case of a ABR loan and 1.75% to 2.50% in the case of a Eurocurrency loan, and is based on the Company’s leverage ratio. The Company will make quarterly principal payments of $550,000 on the Term Loan with any remaining principal amounts due on October 10, 2025. The principal amount on the revolving credit facility is due and all revolver commitments terminate on October 10, 2023.
As of June 30, 2021, the Company had $72.5 million of borrowing available under the line of credit portion of the 2018 Credit Facility.
The Company’s obligations under the 2018 Credit Facility are guaranteed by certain of its subsidiaries and secured by liens on substantially all of the assets of the Company and such subsidiaries. The 2018 Credit Facility contains financial, affirmative and negative covenants that, if violated, may require the Company to pay down the loans earlier than the stated maturity dates with higher interest rates. As of June 30, 2021, the Company was compliant with all of its debt covenant requirements in the 2018 Credit Facility. The Company believes that it will continue to comply with the terms of the loan agreements through the stated maturity dates. However, if the Company’s
19
MOMENTIVE GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
projections do not materialize, the Company may require additional equity or debt financing. There can be no assurance that additional financing, if required, will be available on terms satisfactory to the Company.
Principal and interest payments are due quarterly. As of June 30, 2021, future minimum payment obligations of principal amounts due by year under the 2018 Credit Facility were as follows (in thousands):
|
Remainder of 2021 |
$ |
1,100 |
|
|
2022 |
|
2,200 |
|
|
2023 |
|
2,200 |
|
|
2024 |
|
2,200 |
|
|
2025 |
|
206,250 |
|
|
Total principal outstanding |
$ |
213,950 |
|
13. Income Taxes
The Company recorded an income tax provision of $0.3 million and $0.6 million for the three and six months ended June 30, 2021, respectively, and an income tax benefit of $0.2 million and $15,000 for the three and six months ended June 30, 2020, respectively. The increase in the Company’s income tax expense for the three and six months ended June 30, 2021, relative to the respective prior periods, was primarily due to the Company’s continued international expansion.
The Company regularly evaluates the realizability of its net deferred tax assets based on all available evidence, both positive and negative. The realization of net deferred tax assets is dependent on several factors, including the likelihood and amount, if any, of future taxable income in relevant jurisdictions during periods in which those temporary differences become deductible. As of June 30, 2021, the Company continues to maintain a valuation allowance on certain deferred tax assets in the United States and certain foreign jurisdictions that are not realizable on a more likely than not basis.
The Company believes that it has provided adequate reserves for its income tax uncertainties in all open tax years. As the outcome of the audits cannot be predicted with certainty, if any issues addressed in the Company's tax audits are resolved in a manner inconsistent with management's expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. There were no material changes in gross unrecognized tax benefits during each of the three and six months ended June 30, 2021 and 2020.
14. Net Loss Per Share
Basic earnings per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net loss for the period by the weighted-average number of common shares outstanding during the period which includes potential dilutive common shares assuming the dilutive effect of outstanding restricted stock units, stock options, restricted stock awards, and shares issuable under the ESPP calculated using the treasury stock method.
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
(in thousands, except per share amounts) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(29,237 |
) |
$ |
(22,924 |
) |
$ |
(58,884 |
) |
$ |
(47,174 |
) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - basic and diluted |
|
|
146,242 |
|
|
138,777 |
|
|
145,467 |
|
|
137,844 |
|
|
Net loss per common share - basic and diluted: |
|
$ |
(0.20 |
) |
$ |
(0.17 |
) |
$ |
(0.40 |
) |
$ |
(0.34 |
) |
20
MOMENTIVE GLOBAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The Company was in a loss position for the periods presented. Accordingly, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential common shares outstanding would have been anti-dilutive. Prior to application of the treasury stock method, share equivalents (comprising restricted stock units, stock options, restricted stock awards, and shares issuable under the ESPP) excluded from the calculations of diluted net loss per share were 24.1 million during the three and six months ended June 30, 2021, and 25.4 million during the three and six months ended June 30, 2020.
21
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 an agile experience management company focused on helping customers shape what’s next. In June 2021, we rebranded ourselves as “Momentive” and changed our legal name from “SVMK Inc.” to “Momentive Global Inc.” As a result, our common stock began trading under the ticker symbol “MNTV” instead of “SVMK” on The Nasdaq Global Select Market. While our company name has changed, we continue to use the “SurveyMonkey” and “GetFeedback” brands among our portfolio of products. Our platform empowers users to collect, analyze, and act on feedback from customers, employees, website and app users, and market research audiences. Our products enable more than 345,000 organizations to deliver better customer experiences, increase employee retention, and unlock growth and innovation. We offer SaaS feedback solutions across three major product categories—Surveys, Customer Experience, and Market Research.
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.
Impact of COVID-19
The ongoing COVID-19 pandemic continues to impact the United States and the world. As a result, we have modified certain aspects of our business, including restricting employee travel, requiring employees to work from home, transitioning our employee onboarding and training processes to remote or online programs, and canceling certain events and meetings, 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. As the administration of the vaccine program increases and COVID-19 cases decline, we continue to evaluate and refine our return to office strategy. Ultimately, we intend to offer most of our employees the flexibility to determine the amount of time they work in our offices.
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 than anticipated enterprise sales 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. In addition, some of our existing and potential customers are financially constrained in their ability to purchase our products, which we expect may negatively impact our ability to collect payments, acquire new customers, or renew subscriptions with or sell additional subscriptions to our existing customers. We expect such impacts on our revenue and costs to continue through the duration of this crisis and our business, consolidated results of operations, and financial condition could also be impacted. 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 rates in each region, the duration of the pandemic globally and
22
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 II, 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, condensed consolidated results of operations, and financial condition.
Our products
We generate substantially all of our revenue from the sale of subscriptions to our products. Our current product portfolio is structured into three primary product categories—Surveys, Customer Experience, and Market Research.
|
|
• |
Surveys: Our leading survey software products enable our customers to measure, benchmark, and act on stakeholder feedback, and we have designed our products to optimize the quality of stakeholder feedback and maximize response rates. We offer our basic survey plan to individuals at no charge. We also offer multiple tiers of subscriptions to individual paying users and teams which provide basic integrations with third-party applications and other additional features and functionality. For organizations we offer an enterprise-grade version of our survey platform and purpose-built solutions with enhanced collaboration, integration, administration, and customization tools. Revenue from Surveys is generated primarily on a subscription basis. |
|
|
• |
Customer Experience: Our Customer Experience offering, the GetFeedback CX platform, enables companies to deliver exceptional experiences that engage and retain their customers based on the ability to continuously listen and act on digital feedback. GetFeedback captures a company’s customer feedback from across digital channels, analyzes this feedback for a deeper understanding of their customers and their preferences, and automates feedback-based actions through integrations with that company’s existing system of record. We differentiate our Customer Experience offering in the market based on our software’s ease-of-implementation, ease-of-use, price-to-value, and time-to-value relative to alternative solutions, and third-party platform integrations. Revenue from Customer Experience is generated primarily on a subscription basis. |
|
|
• |
Market Research: Our Market Research offerings enable customers to quickly collect and analyze feedback on a number of market research projects, including analyzing target markets, measuring brand awareness, and gaining insights on existing and future product lines. Revenue from Market Research is generated primarily on a transactional basis. |
|
|
• |
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. |
|
|
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 versions from our Survey and Market Research products on a self-serve basis through our website and we offer a suite of enterprise-grade feedback software solutions from all three product categories through our direct sales force.
23
Our business model
We are continuing our rapid evolution from a self-serve online survey tool provider into an enterprise SaaS company. Through a combination of product innovation and acquisitions, we now offer SaaS feedback solutions across three major product categories—Surveys, Customer Experience, and Market Research. Concurrently, we are building a sales force to increase new sales and cross-selling of our SaaS offerings into small, midsize, and large enterprises.
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 our survey products. We have a broad and diverse customer base and no customer represented more than 10% of our revenue in any of the periods presented.
To capitalize on the virality of our platform and the scale of business use cases in our user base, we are executing against a two-part growth strategy: 1) deliver new features and product tiers to drive platform usage and increase the conversion of free users to paid subscribers in our self-serve channel; and 2) continue investing in product innovation and go-to-market initiatives to win new customers and convert existing self-serve subscribers to our three enterprise product categories: Surveys, Customer Experience, and Market Research. 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 half of 2021, approximately 31% of our total revenue was generated from customers who purchased software through our enterprise sales force, up from 28% in the first half of 2020.
As of June 30, 2021 and 2020, we had over 20 million and 17 million active users, respectively. As of June 30, 2021 and 2020, we had approximately 862,200 and 781,000 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 of June 30, 2021 and 2020, we had approximately 9,400 and 7,200 customers, respectively, who purchased our software through our enterprise sales channel. Our average revenue per paying user (“ARPU”) was $514 and $507 for the three and six months ended June 30, 2021, respectively, and $478 and $479 for the three and six months ended June 30, 2020, 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.
As of June 30, 2021, 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 of June 30, 2021, 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.
24
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 June 30, |
|
||||
|
(in thousands) |
|
2021 |
|
2020 |
|
||
|
Remaining performance obligations ("RPO") |
|
$ |
221,550 |
|
$ |
178,128 |
|
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 June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
(in thousands) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
||||
|
Net cash provided by operating activities |
|
$ |
26,243 |
|
$ |
21,862 |
|
$ |
43,561 |
|
$ |
26,095 |
|
|
Purchases of property and equipment |
|
|
(322 |
) |
|
(366 |
) |
|
(322 |
) |
|
(772 |
) |
|
Capitalized internal-use software |
|
|
(2,150 |
) |
|
(2,426 |
) |
|
(4,418 |
) |
|
(5,372 |
) |
|
Free cash flow |
|
$ |
23,771 |
|
$ |
19,070 |
|
$ |
38,821 |
|
$ |
19,951 |
|
25
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 revenue from sales of our transactional 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-cancelable 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 the operation of our data centers, such as data center equipment depreciation, facility costs (such as co-location rentals), amortization of capitalized software, payment processing fees, website hosting costs, external sample costs and charitable donations associated with SurveyMonkey 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.
26
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.
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, gain on sale of private company investments and other gains and losses.
Provision for Income Taxes
Provision for income taxes consists of U.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 in the 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 June 30, |
|
Six Months Ended June 30, |
|
||||||||||||||||||||
|
(in thousands) |
|
2021 |
|
% of Revenue |
|
2020 |
|
% of Revenue |
|
2021 |
|
% of Revenue |
|
2020 |
|
% of Revenue |
|
||||||||
|
Revenue |
|
$ |
109,392 |
|
|
100 |
% |
$ |
90,941 |
|
|
100 |
% |
$ |
211,690 |
|
|
100 |
% |
$ |
179,206 |
|
|
100 |
% |
|
Cost of revenue(1)(2) |
|
|
21,688 |
|
|
20 |
% |
|
21,009 |
|
|
23 |
% |
|
42,460 |
|
|
20 |
% |
|
40,953 |
|
|
23 |
% |
|
Gross profit |
|
|
87,704 |
|
|
80 |
% |
|
69,932 |
|
|
77 |
% |
|
169,230 |
|
|
80 |
% |
|
138,253 |
|
|
77 |
% |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1) |
|
|
34,225 |
|
|
31 |
% |
|
26,571 |
|
|
29 |
% |
|
67,208 |
|
|
32 |
% |
|
53,128 |
|
|
30 |
% |
|
Sales and marketing (1)(2) |
|
|
56,025 |
|
|
51 |
% |
|
42,578 |
|
|
47 |
% |
|
108,061 |
|
|
51 |
% |
|
84,669 |
|
|
47 |
% |
|
General and administrative(1) |
|
|
24,170 |
|
|
22 |
% |
|
21,339 |
|
|
23 |
% |
|
47,492 |
|
|
22 |
% |
|
43,271 |
|
|
24 |
% |
|
Total operating expenses |
|
|
114,420 |
|
|
105 |
% |
|
90,488 |
|
|
100 |
% |
|
222,761 |
|
|
105 |
% |
|
181,068 |
|
|
101 |
% |
|
Loss from operations |
|
|
(26,716 |
) |
|
(24 |
)% |
|
(20,556 |
) |
|
(23 |
)% |
|
(53,531 |
) |
|
(25 |
)% |
|
(42,815 |
) |
|
(24 |
)% |
|
Interest expense |
|
|
2,304 |
|
|
2 |
% |
|
2,422 |
|
|
3 |
% |
|
4,603 |
|
|
2 |
% |
|
5,508 |
|
|
3 |
% |
|
Other non-operating (income) expense, net |
|
|
(119 |
) |
|
— |
% |
|
102 |
|
|
— |
% |
|
196 |
|
|
— |
% |
|
(1,134 |
) |
|
(1 |
)% |
|
Loss before income taxes |
|
|
(28,901 |
) |
|
(26 |
)% |
|
(23,080 |
) |
|
(25 |
)% |
|
(58,330 |
) |
|
(28 |
)% |
|
(47,189 |
) |
|
(26 |
)% |
|
Provision for (benefit from) income taxes |
|
|
336 |
|
|
— |
% |
|
(156 |
) |
|
— |
% |
|
554 |
|
|
— |
% |
|
(15 |
) |
|
— |
% |
|
Net loss |
|
$ |
(29,237 |
) |
|
(27 |
)% |
$ |
(22,924 |
) |
|
(25 |
)% |
$ |
(58,884 |
) |
|
(28 |
)% |
$ |
(47,174 |
) |
|
(26 |
)% |
27
|
(1) |
Includes stock-based compensation, net of amounts capitalized as follows: |
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||||||||||||||
|
(in thousands) |
|
2021 |
|
% of Revenue |
|
2020 |
|
% of Revenue |
|
2021 |
|
% of Revenue |
|
2020 |
|
% of Revenue |
|
||||||||
|
Cost of revenue |
|
$ |
1,580 |
|
|
1 |
% |
$ |
1,047 |
|
|
1 |
% |
$ |
3,062 |
|
|
1 |
% |
$ |
2,007 |
|
|
1 |
% |
|
Research and development |
|
|
10,313 |
|
|
9 |
% |
|
7,496 |
|
|
8 |
% |
|
19,810 |
|
|
9 |
% |
|
13,953 |
|
|
8 |
% |
|
Sales and marketing |
|
|
6,414 |
|
|
6 |
% |
|
4,841 |
|
|
5 |
% |
|
12,192 |
|
|
6 |
% |
|
9,184 |
|
|
5 |
% |
|
General and administrative |
|
|
7,266 |
|
|
7 |
% |
|
6,087 |
|
|
7 |
% |
|
14,108 |
|
|
7 |
% |
|
11,829 |
|
|
7 |
% |
|
Stock-based compensation, net of amounts capitalized |
|
$ |
25,573 |
|
|
23 |
% |
$ |
19,471 |
|
|
21 |
% |
$ |
49,172 |
|
|
23 |
% |
$ |
36,973 |
|
|
21 |
% |
|
(2) |
Includes amortization of acquisition intangible assets as follows: |
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||||||||||||||
|
(in thousands) |
|
2021 |
|
% of Revenue |
|
2020 |
|
% of Revenue |
|
2021 |
|
% of Revenue |
|
2020 |
|
% of Revenue |
|
||||||||
|
Cost of revenue |
|
$ |
1,477 |
|
|
1 |
% |
$ |
2,003 |
|
|
2 |
% |
$ |
2,967 |
|
|
1 |
% |
$ |
4,013 |
|
|
2 |
% |
|
Sales and marketing |
|
|
1,117 |
|
|
1 |
% |
|
1,355 |
|
|
1 |
% |
|
2,250 |
|
|
1 |
% |
|
2,713 |
|
|
2 |
% |
|
Amortization of acquisition intangible assets |
|
$ |
2,594 |
|
|
2 |
% |
$ |
3,358 |
|
|
4 |
% |
$ |
5,217 |
|
|
2 |
% |
$ |
6,726 |
|
|
4 |
% |
Comparison of the Three Months Ended June 30, 2021 and 2020
Revenue and cost of revenue
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
||||
|
(dollars in thousands) |
|
2021 |
|
2020 |
|
$ Change |
|
% Change |
|
||||
|
Revenue |
|
$ |
109,392 |
|
$ |
90,941 |
|
$ |
18,451 |
|
|
20 |
% |
|
Cost of revenue |
|
|
21,688 |
|
|
21,009 |
|
|
679 |
|
|
3 |
% |
|
Gross profit |
|
$ |
87,704 |
|
$ |
69,932 |
|
$ |
17,772 |
|
|
25 |
% |
|
Gross margin |
|
|
80 |
% |
|
77 |
% |
|
|
|
|
|
|
Revenue increased for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. Paying users increased 10% from approximately 781,000 as of June 30, 2020 to approximately 862,200 as of June 30, 2021 and ARPU increased 8% from $478 for the three months ended June 30, 2020 to $514 for the three months ended June 30, 2021.
Revenue growth was driven by an increase of $10.1 million, or 15%, in our self-serve channel, as well as an increase of $8.4 million, or 33%, in our enterprise sales 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. Enterprise sales accounted for 31% and 28% of revenue for the three months ended June 30, 2021 and 2020, respectively.
Cost of revenue increased for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, primarily due to a $1.3 million increase in personnel related costs due to headcount growth and a $0.6 million increase in external sample costs and charitable donations associated with SurveyMonkey Audience, our market research panel solution, all due to increased sales, partially offset by a $0.7 million decrease in capitalized software amortization and a $0.5 million decrease in amortization of intangible assets related to our prior acquisitions.
Our gross margin increased for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 primarily due to the increase in revenue.
28
Research and development
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
||||
|
(dollars in thousands) |
|
2021 |
|
2020 |
|
$ Change |
|
% Change |
|
||||
|
Research and development |
|
$ |
34,225 |
|
$ |
26,571 |
|
$ |
7,654 |
|
|
29 |
% |
Research and development expenses increased for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, primarily due to a $6.7 million increase in personnel related costs due to headcount growth. In addition, there were increases in professional services and IT costs.
Sales and marketing
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
||||
|
(dollars in thousands) |
|
2021 |
|
2020 |
|
$ Change |
|
% Change |
|
||||
|
Sales and marketing |
|
$ |
56,025 |
|
$ |
42,578 |
|
$ |
13,447 |
|
|
32 |
% |
Sales and marketing expenses increased for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, primarily due to a $7.3 million increase in personnel related costs due to headcount growth and an increase of $5.4 million in costs related to brand campaigns and paid marketing. In addition, there were increases in professional services and IT costs.
General and administrative
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
||||
|
(dollars in thousands) |
|
2021 |
|
2020 |
|
$ Change |
|
% Change |
|
||||
|
General and administrative |
|
$ |
24,170 |
|
$ |
21,339 |
|
$ |
2,831 |
|
|
13 |
% |
General and administrative expenses increased for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, primarily due to a $2.5 million increase in personnel related costs as well as increases in IT costs and other expenses.
Interest expense
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
||||
|
(dollars in thousands) |
|
2021 |
|
2020 |
|
$ Change |
|
% Change |
|
||||
|
Interest expense |
|
$ |
2,304 |
|
$ |
2,422 |
|
$ |
(118 |
) |
|
(5 |
)% |
Interest expense decreased for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to lower interest rates and 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.
29
Other non-operating (income) expense, net
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
||||
|
(dollars in thousands) |
|
2021 |
|
2020 |
|
$ Change |
|
% Change |
|
||||
|
Other non-operating (income) expense, net |
|
$ |
(119 |
) |
$ |
102 |
|
$ |
(221 |
) |
|
(217 |
)% |
Other non-operating income, net for the three months ended June 30, 2021 increased compared to the three months ended June 30, 2020 (where the amounts resulted in other non-operating expense), primarily due to an increase in interest income.
Provision for (benefit from) income taxes
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
||||
|
(dollars in thousands) |
|
2021 |
|
2020 |
|
$ Change |
|
% Change |
|
||||
|
Provision for (benefit from) income taxes |
|
$ |
336 |
|
$ |
(156 |
) |
$ |
492 |
|
|
(315 |
)% |
|
Effective tax rate |
|
|
(1 |
)% |
|
1 |
% |
|
|
|
|
|
|
The provision for income taxes increased for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 (where amounts resulted in a benefit from income taxes) primarily due to our continued international expansion.
Comparison of the Six Months Ended June 30, 2021 and 2020
Revenue and cost of revenue
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
||||
|
(dollars in thousands) |
|
2021 |
|
2020 |
|
$ Change |
|
% Change |
|
||||
|
Revenue |
|
$ |
211,690 |
|
$ |
179,206 |
|
$ |
32,484 |
|
|
18 |
% |
|
Cost of revenue |
|
|
42,460 |
|
|
40,953 |
|
|
1,507 |
|
|
4 |
% |
|
Gross profit |
|
$ |
169,230 |
|
$ |
138,253 |
|
$ |
30,977 |
|
|
22 |
% |
|
Gross margin |
|
|
80 |
% |
|
77 |
% |
|
|
|
|
|
|
Revenue increased for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. Paying users increased 10% from approximately 781,000 as of June 30, 2020 to approximately 862,200 as of June 30, 2021 and ARPU increased 6% from $479 for the six months ended June 30, 2020 to $507 for the six months ended June 30, 2021.
Revenue growth was driven by an increase of $18.1 million, or 14%, in our self-serve channel, as well as an increase of $14.4 million, or 28%, in our enterprise sales 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. Enterprise sales accounted for 31% and 28% of revenue for the six months ended June 30, 2021 and 2020, respectively.
Cost of revenue increased for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to a $2.3 million increase in personnel related costs due to headcount growth and an increase of $1.2 million in web hosting costs and payment processing fees, all due to increased sales, partially offset by a $1.4 million decrease in capitalized software amortization and a $1.0 million decrease in amortization of intangible assets related to our prior acquisitions.
Our gross margin increased for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 primarily due to the increase in revenue.
30
Research and development
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
||||
|
(dollars in thousands) |
|
2021 |
|
2020 |
|
$ Change |
|
% Change |
|
||||
|
Research and development |
|
$ |
67,208 |
|
$ |
53,128 |
|
$ |
14,080 |
|
|
27 |
% |
Research and development expenses increased for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to a $13.0 million increase in personnel related costs due to headcount growth.
Sales and marketing
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
||||
|
(dollars in thousands) |
|
2021 |
|
2020 |
|
$ Change |
|
% Change |
|
||||
|
Sales and marketing |
|
$ |
108,061 |
|
$ |
84,669 |
|
$ |
23,392 |
|
|
28 |
% |
Sales and marketing expenses increased for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to a $12.9 million increase in personnel related costs due to headcount growth and an increase of $9.7 million in costs related to brand campaigns and paid marketing. In addition, there were increases in professional services and IT costs.
General and administrative
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
||||
|
(dollars in thousands) |
|
2021 |
|
2020 |
|
$ Change |
|
% Change |
|
||||
|
General and administrative |
|
$ |
47,492 |
|
$ |
43,271 |
|
$ |
4,221 |
|
|
10 |
% |
General and administrative expenses increased for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to a $4.6 million increase in personnel related costs as well as increases in IT costs and other expenses, offset by a decrease in outside legal, accounting and other professional fees.
Interest expense
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
||||
|
(dollars in thousands) |
|
2021 |
|
2020 |
|
$ Change |
|
% Change |
|
||||
|
Interest expense |
|
$ |
4,603 |
|
$ |
5,508 |
|
$ |
(905 |
) |
|
(16 |
)% |
Interest expense decreased for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to lower interest rates and 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
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
||||
|
(dollars in thousands) |
|
2021 |
|
2020 |
|
$ Change |
|
% Change |
|
||||
|
Other non-operating (income) expense, net |
|
$ |
196 |
|
$ |
(1,134 |
) |
$ |
1,330 |
|
|
(117 |
)% |
Other non-operating expense, net for the six months ended June 30, 2021 increased compared to the six months ended June 30, 2020 (where the amounts resulted in other non-operating income), primarily due to a $1.0 million gain on sale of a private company investment in the prior year.
31
Provision for (benefit from) income taxes
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
||||
|
(dollars in thousands) |
|
2021 |
|
2020 |
|
$ Change |
|
% Change |
|
||||
|
Provision for (benefit from) income taxes |
|
$ |
554 |
|
$ |
(15 |
) |
$ |
569 |
|
|
(3793 |
)% |
|
Effective tax rate |
|
|
(1 |
)% |
* |
|
|
|
|
|
|
|
|
*Less than 1%
The provision for income taxes increased for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 (where amounts resulted in a benefit from income taxes) primarily due to our continued international expansion.
Liquidity and Capital Resources
As of June 30, 2021 and December 31, 2020, our principal sources of liquidity were cash and cash equivalents totaling $283.2 million and $224.4 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.
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 of June 30, 2021 and December 31, 2020, we had deferred revenue of $197.3 million and $170.6 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.
32
Cash Flows
The following table summarizes our cash flows for the periods indicated:
|
|
|
Six Months Ended June 30, |
|
||||
|
(in thousands) |
|
2021 |
|
2020 |
|
||
|
Net cash provided by operating activities |
|
$ |
43,561 |
|
$ |
26,095 |
|
|
Net cash used in investing activities |
|
|
(4,740 |
) |
|
(5,143 |
) |
|
Net cash provided by financing activities |
|
|
20,476 |
|
|
26,261 |
|
|
Effects of exchange rate changes on cash |
|
|
101 |
|
|
(1,090 |
) |
|
Net increase in cash, cash equivalents and restricted cash |
|
$ |
59,398 |
|
$ |
46,123 |
|
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, 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 six months ended June 30, 2021, cash provided by operating activities was $43.6 million, primarily due to our net loss of $58.9 million, adjusted for non-cash charges of $78.4 million and net cash inflows of $24.1 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 $26.7 million increase in deferred revenue, a $12.7 million increase in accounts payable and accrued liabilities, and a $0.8 million decrease in accounts receivable, partially offset by cash used for prepaid expenses and other assets of $7.5 million and operating lease liabilities of $7.5 million and a $1.1 million decrease in accrued compensation.
During the six months ended June 30, 2020, cash provided by operating activities was $26.1 million, primarily due to our net loss of $47.2 million, adjusted for non-cash charges of $69.2 million and net cash inflows of $4.1 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 $18.7 million increase in deferred revenue, a $5.7 million increase in accounts payable and accrued liabilities, offset by cash used for operating leases of $7.7 million, prepaid expenses and other assets of $6.7 million, a decrease in accrued compensation of $4.4 million, and an increase in accounts receivable of $1.5 million.
Cash Flows from Investing Activities
Our primary investing activities have consisted of capital expenditures to purchase equipment necessary to support our data center facilities and 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 six months ended June 30, 2021 of $4.7 million was primarily attributable to cash used for the development of internal-use software of $4.4 million that is capitalized and purchases of property and equipment of $0.3 million.
Net cash used in investing activities during the six months ended June 31, 2020 of $5.1 million was primarily attributable to the net cash used for the development of internal-use software of $5.3 million that is capitalized and purchases of property and equipment of $0.8 million, which was partially offset by proceeds from the sale of a privately-held company of $1.0 million.
33
Cash Flows from Financing Activities
Cash provided by financing activities during the six months ended June 30, 2021 of $20.5 million was primarily attributable to proceeds from the exercise of stock options of $17.7 million and shares purchased under our employee stock purchase plan of $3.9 million, partially offset by the principal payments on our credit facilities of $1.1 million.
Cash provided by financing activities during the six months ended June 30, 2020 of $26.3 million was primarily attributable to proceeds from the exercise of stock options of $24.3 million and shares purchased under our employee stock purchase plan of $3.1 million, partially offset by the principal payments on our credit facilities of $1.1 million.
Contractual Obligations
Our principal commitments consist of obligations under our credit facilities and leases for office space. As of June 30, 2021, the future non-cancelable minimum payments under these commitments were as follows:
|
|
|
Payments Due by Period |
|
|||||||||||||||||||
|
(in thousands) |
|
Total |
|
Remainder of 2021 |
|
2022 |
|
2023 |
|
2024 |
|
2025 |
|
Thereafter |
|
|||||||
|
Credit facilities(1) |
|
$ |
213,950 |
|
$ |
1,100 |
|
$ |
2,200 |
|
$ |
2,200 |
|
$ |
2,200 |
|
$ |
206,250 |
|
$ |
— |
|
|
Interest payments on credit facilities(1) |
|
|
35,022 |
|
|
4,205 |
|
|
8,276 |
|
|
8,190 |
|
|
8,127 |
|
|
6,224 |
|
|
— |
|
|
Operating leases(2) |
|
|
106,410 |
|
|
7,449 |
|
|
14,874 |
|
|
14,399 |
|
|
13,794 |
|
|
13,552 |
|
|
42,342 |
|
|
Purchase commitments(3) |
|
|
34,001 |
|
|
6,811 |
|
|
14,793 |
|
|
10,282 |
|
|
2,115 |
|
|
— |
|
|
— |
|
|
Total contractual obligations |
|
$ |
389,383 |
|
$ |
19,565 |
|
$ |
40,143 |
|
$ |
35,071 |
|
$ |
26,236 |
|
$ |
226,026 |
|
$ |
42,342 |
|
|
(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 of June 30, 2021 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 $4.5 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-cancelable purchase orders for data center hosting services and the procurement of goods and services in the ordinary course of business. |
Off-Balance Sheet Arrangements
As of June 30, 2021, 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.
34
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 judgments, 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 judgments, estimates and actual results, our financial condition or results of operations would be affected. We base our judgments 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 judgments 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 and six months ended June 30, 2021, as compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.
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.
35
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks include primarily interest rate and foreign currency exchange risks.
Foreign Currency Exchange Risk
Where the functional currency of our foreign subsidiaries is generally the U.S. dollar, monetary assets and liabilities are remeasured using foreign currency exchange rates at the end of the period, and non-monetary assets are remeasured based on historical exchange rates. Gains and losses due to foreign currency are the result of either the remeasurement of subsidiary balances or transactions denominated in currencies other than the foreign subsidiaries’ functional currency and are included in other non-operating (income) expense, net in the condensed consolidated statements of operations.
We have foreign currency exchange risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar, principally the Euro, the British Pound Sterling, the Australian dollar, the Canadian dollar, the Japanese Yen and the Brazilian Real. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in foreign exchange gains (losses) related to changes in foreign currency exchange rates. In the event our foreign currency denominated assets, liabilities, sales or expenses increase, our operating results may be more greatly affected by fluctuations in the exchange rates of the currencies in which we do business.
From time to time, we may enter into foreign currency derivative contracts to reduce the risk that our cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. To date, we have not entered into any material derivative financial instruments. During the three and six months ended June 30, 2021 and 2020, we did not have any material amount of derivative financial instruments. A hypothetical 10% change in foreign currency exchange rates for the three and six months ended June 30, 2021 applicable to our business would not have had a material impact on our condensed consolidated financial statements.
Interest Rate Risk
As of June 30, 2021 and December 31, 2020, we had cash and cash equivalents of $283.2 million and $224.4 million, respectively, which consisted primarily of bank deposits. Interest-earning instruments carry a degree of interest rate risk. However, our historical interest income has not fluctuated significantly. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. For the three and six months ended June 30, 2021, a hypothetical 10% change in interest rates would not have had a material impact on our financial statements.
As of June 30, 2021 and December 31, 2020, we had borrowings under our credit facilities comprising of $214.0 million and $215.1 million aggregate principal value, respectively. Loans under the credit facilities accrue interest based upon, at our option, either at an ABR or a Eurocurrency rate, in each case plus an applicable margin, which exposes us to interest rate risk. Additionally, in July 2017, the U.K. Financial Conduct Authority, the regulator of the London Interbank Offered Rate (“LIBOR”), indicated that it will no longer require banks to submit rates to the LIBOR administrator after 2021 and therefore the continuation of LIBOR on the current basis cannot be guaranteed. In March 2021, relevant regulators confirmed that the publication of the one-week and two-month U.S. dollar LIBOR would cease after December 31, 2021, and all remaining U.S. dollar LIBOR tenors would cease after June 30, 2023. Our credit facilities provide that we may borrow at LIBOR or LIBOR-successor benchmark-based rates of interest that vary depending on our credit ratings and prevailing market conventions. The planned phase out of LIBOR as a benchmark may also result in an increase on our future interest obligations. As of June 30, 2021, a 100 basis point increase in the ABR would result in an increase in interest payments on our debt of $0.1 million.
36
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In addition, our ability to maintain an effective internal control environment has not been impacted by the COVID-19 pandemic. We continue to monitor the impact of the COVID-19 pandemic on the design and operating effectiveness of our controls and, despite our employees working remotely, have not experienced any changes that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Disclosure Controls and Procedures
Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are subject to legal proceedings, claims and litigation arising in the ordinary course of business, which may include, but are not limited to, patent and privacy matters, labor and employment claims, class action lawsuits, as well as inquiries, investigations, audits and other regulatory proceedings. Periodically, we evaluate developments in our legal matters and record a liability when we believe that it is both probable that a loss has been incurred and the amount can be reasonably estimated. Significant judgment is required to determine both likelihood of there being, and the estimated amount of, a loss related to such matters, and our judgment may be incorrect.
There are currently no legal matters or claims that have arisen from the normal course of business that we believe would have a material impact on our financial position, results of operations or cash flows.
Future litigation may be necessary, among other things, to defend ourselves or our users by determining the scope, enforceability and validity of third-party proprietary rights or to establish our proprietary rights. The results of any litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited condensed consolidated financial statements and related notes, before making a decision to invest in our common stock. Our business, results of operations, financial condition or prospects could also be harmed by risks and uncertainties that are not presently known to us or that we currently believe are not material. If any of the risks actually occur, our business, results of operations and financial condition could be adversely affected. In that event, the market price of our common stock could decline, and you could lose all or part of your investment. In addition, the impacts of COVID-19 and any worsening of the economic environment may exacerbate the risks described below, any of which could have a material impact on us. This situation is changing rapidly, and additional impacts may arise that we are not currently aware of.
Summary Risk Factors
The following summarizes the most material risks that make an investment in our securities risky or speculative. If any of the following risks occur or persist, our business, financial condition, results of operations and prospects could be materially harmed and the market price of our common stock could significantly decline:
Business and Operations
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the effects of the COVID-19 pandemic could materially and adversely affect our business (including our reopening plans), financial condition and results of operations, including by, among other things, decreasing customer demand for our products and services or putting at risk our ability to collect from customers amounts due for products and services; |
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our financial results depend on our ability to attract and retain customers, convert unpaid users to customers, and develop and expand relationships with organizational customers; |
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our revenue growth rate has fluctuated in recent periods and may slow in the future; |
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our business depends on a strong and trusted brand, and any failure to maintain, protect and enhance our brand would hurt our ability to retain or expand our customer and user base, our market share and our ability to attract and retain employees; |
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as a substantial portion of our sales efforts are increasingly targeted at winning enterprise customers, we may not succeed in building a significant and effective salesforce or managing our sales channels |
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effectively, our sales cycle may become lengthier and more expensive, we may encounter greater pricing pressure and our customers may be displeased with our support and services; |
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our inability to successfully retain our existing senior management and other key personnel or to attract and retain new qualified personnel could materially and adversely impact our ability to operate or grow our business; |
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general global economic conditions and our inability to compete successfully in our markets may materially and adversely affect demand for our products, services and solutions; |
Information Technology and Cybersecurity
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we have experienced, and may in the future experience, interruptions in the performance of our network infrastructure, websites, other systems and those of third-party service providers, including server failures that temporarily impair or disable the performance of our websites due to a variety of factors, such as infrastructure changes, human or software errors, capacity constraints and denial of service or fraud or security attacks; |
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we are vulnerable to software bugs, computer viruses, break-ins, ransomware or phishing attacks, employee errors or malfeasance, attempts to overload our servers with denial-of-service or other attacks and similar disruptions from unauthorized use of our computer systems, any of which could lead to interruptions, delays or website shutdowns, causing loss of critical data or the unauthorized disclosure or use of personally identifiable or confidential information; |
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if we experienced a widespread security breach or other incident that impacted a significant number of our customers to whom we owe indemnity obligations, we could be subject to indemnity claims or other damages that exceed our insurance coverage; |
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the introduction of new products and solutions by competitors or the development of entirely new technologies to replace existing offerings could make our survey platform and other solutions obsolete or adversely affect our business; |
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a disruption in the continuous and reliable operation of our information technology systems and digital monitoring technologies may materially and adversely affect our operations and result in loss of revenue, data breaches, remediation costs, increased cybersecurity costs or non-compliance with certain laws and regulations, which may result in litigation or reputational damage; |
Financial or Operating Results
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we have substantial indebtedness and lease obligations, which reduce our capability to withstand adverse developments or business conditions; |
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we may have difficulty operating or integrating any acquired businesses, assets or product lines profitably due to our failure to manage the growth effectively, the interruption of, or delays in, the operation of our existing business or other factors within or beyond our control; |
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our international sales and operations may present additional risks, including, but not limited to, changes to trade protection measures, taxation policies or other laws and regulations, currency exchange rate fluctuations, restrictions on currency repatriation, labor disturbances and political instability; |
Regulatory and Tax Compliance
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there has been increased uncertainty around the legality of various mechanisms for personal data transfers from the European Union to the United States and other countries outside the European Union and if the mechanisms on which we rely for the transfer of data are found to be invalid or are modified or replaced, our business could be substantially and materially impacted; |
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any failure or perceived failure by us to comply with our privacy or data protection policies or legal obligations to customers, respondents, users or other third parties, or any compromise of security that results in the unauthorized disclosure, transfer or use of personal or other information, may result in |
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governmental enforcement actions, litigation or public statements critical of us by consumer advocacy groups, competitors, the media or others and could cause our users to lose trust in our offerings; and |
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our inability to adequately protect our intellectual property from third‑party infringement, or claims that we are infringing on a third party’s intellectual property rights, may result in competitive harm, the expenditure of significant time and resources enforcing our rights or defending against such claims, or restrictions on our sale of products or services. |
Risks Related to Our Business and Operations
Our business depends on our ability to retain, upsell and cross-sell customers, and any decline in renewals, upsells or cross-sells could adversely affect our business, results of operations and financial condition.
Our business depends upon our ability to maintain and expand our relationships with our users. Customers can choose between monthly or annual subscriptions, and customers are not obligated to and may not renew their paid subscriptions after their existing plans expire. As a result, we cannot assure that customers will renew their paid plans utilizing the same tier of our products and solutions or upgrade to our premium products or solutions. Renewals of paid plans may decline or fluctuate because of several factors, such as dissatisfaction with our products, solutions or support, a user no longer having a need for our products or reducing IT spending, such as in response to the COVID-19 pandemic, or the perception that competitive products are better or less expensive options. As our customer base continues to grow, even if our customer retention rates remain the same on a percentage basis, the absolute number of customers we lose each month will increase. We must continually add new customers to replace customers whose accounts are closed and to grow our business beyond our current user base, which may involve significantly higher marketing expenses than we currently anticipate.
We invest in new features and improvements to our product functionality as well as targeted marketing campaigns to drive conversion of unpaid users to paying users. Individual users often bring us into their organization for business purposes, and from there we seek to establish an organizational relationship through the deployment of our enterprise solutions. As we scale within organizations, we seek to further grow the business relationship by cross-selling purpose-built solutions. If our customers do not renew or cancel their subscriptions, or if we fail to upsell our customers to higher tier individual subscriptions or to enterprise solutions, or if we fail to cross-sell additional products and services to our customers, our business, results of operations and financial condition may be harmed.
Additionally, many of our users initially register to use our free basic survey product. We strive to demonstrate the value of our products to our registered users, thereby encouraging them to convert to paying users through end-of-survey marketing. As of June 30, 2021, we had over 20 million active users, of which approximately 862,200 were paying users. The actual number of unique users may be lower than we report as one person could count as multiple, active users or paying users. For example, if an individual paying user also had a designated seat in a SurveyMonkey Enterprise deployment, we would count that person as two paying users. As a result, we may have fewer unique users that we may be able to convert, upsell or cross-sell. Our inability to determine the number of our unique users is a limitation in the data that we measure and may adversely affect our understanding of certain aspects of our business and make it more challenging to manage our business. Most of our active users never convert to a paying user, and if we are unable to convert free users to paying users, our business, results of operations and financial condition could suffer.
Our revenue growth rate has fluctuated in recent periods and may slow in the future.
We have a history of delivering revenue growth and positive cash flow from operations. However, our rates of revenue growth have fluctuated, and may slow in the future. Many factors may contribute to declines in our growth rates, including higher market penetration, increased competition, slowing demand for our survey platform, a failure by us to continue capitalizing on growth opportunities, the maturation of our business, and impacts resulting from the COVID-19 pandemic, among others. You should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance. If our growth rates decline, investors’ perceptions of our business and the trading price of our common stock could be adversely affected.
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Our business depends on a strong and trusted brand, and any failure to maintain, protect and enhance our brand would hurt our ability to retain or expand our customer and user base, our market share and our ability to attract and retain employees.
We have developed a strong and trusted brand of “SurveyMonkey” that we believe has contributed significantly to the success of our business. In June 2021, we rebranded and changed our name from SVMK Inc. to Momentive Global Inc. We may not be able to maintain or benefit from name recognition or status under the “Momentive” brand as we did using the “SurveyMonkey” brand, as investors may not understand or appreciate our rebranding efforts. We believe that enhancing and maintaining awareness of all of our brands, including “Momentive” and “SurveyMonkey”, in a cost-effective manner is critical to our goal of achieving widespread acceptance of our existing and future products, attracting new customers and attracting and retaining top talent. Furthermore, we receive a high degree of media coverage around the world and we believe that the importance of brand recognition will increase as competition in our industry increases. Successful promotion of our brands will depend largely on the effectiveness of our marketing and media partnership efforts and the effectiveness and affordability of our products for our target customer demographic. Such brand promotion activities may not yield increased revenue and, even if they do, any revenue increases may not offset the expenses we incur to promote our brand. Unfavorable publicity regarding, for example, our privacy or data protection practices, terms of service, service quality, the launch of “Momentive” as our parent brand, litigation, regulatory activity or the perception of inaccurate poll data from properly or improperly drafted surveys by third parties using our survey platform, the actions of our partners and customers or the actions of other companies that provide similar products and solutions to us, could adversely affect our reputation, brand, the size and engagement of our user base and our ability to attract and retain users. If we fail to promote and maintain our brands successfully, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brands, we may lose our existing customers to our competitors or be unable to attract new customers or employees, which could harm our business, results of operations and financial condition.
As a substantial portion of our sales efforts are increasingly targeted at winning enterprise customers, our sales cycle may become lengthier and more expensive, we may encounter greater pricing pressure and our customers may be displeased with our customer support, all of which could harm our business and results of operations.
As a substantial portion of our sales efforts are increasingly targeted at prospective enterprise customers, we face greater costs, longer sales cycles and less predictability in the completion of some of our sales. In this market, the customer’s decision to use our products may be an enterprise-wide decision, in which case these types of sales require us to provide greater levels of customer education to familiarize these customers with the uses, features and benefits of our products and purpose-built solutions, as well as education regarding our security and governance practices and compliance with privacy and data protection laws and regulations, especially for those customers in more heavily-regulated industries. In addition, larger enterprises may demand more support services and features, which puts additional pressure on our support and success organizations to satisfy the increased support required for our customers. Further, as we continue to grow our operations and support our global user base, we need to be able to continue to provide efficient customer support that meets our customers’ needs globally at scale. As a result of these factors, these sales opportunities may require us to devote greater sales support and professional survey platform resources to paying users in order to familiarize these new customers with our value proposition, or require us to hire additional support personnel, which could increase our costs, lengthen our sales cycle and divert our own sales and professional services resources to a smaller number of larger customers, while potentially requiring us to delay revenue recognition on some of these transactions. These significant expenditures in time and money may not result in a sale. Our strategy is to work with third parties to increase the breadth of capability and depth of capacity for delivery of our products and solutions to our customers. If a customer is not satisfied with the quality or interoperability of our products and solutions with their own IT environment, we could incur additional costs to address the situation, which could adversely affect our margins. Moreover, any customer dissatisfaction with our products and solutions, or a failure to maintain high-quality customer support, or a market perception that we do not maintain high-quality customer support, could damage our ability to encourage broader adoption of our products by that customer and generate positive recommendations to other potential users. In addition, any negative publicity resulting from such situations,
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regardless of its accuracy, may further damage our business by affecting our ability to compete for new business with current and prospective customers.
We may not succeed in building a significant and effective salesforce, and we may fail to manage our sales channels effectively.
While a growing portion of our revenue in recent periods has been derived from our sales efforts, we are investing in building and developing a larger and more robust salesforce, particularly internationally where our brand is less well known, but we may not be as successful as we anticipate. Our limited experience selling directly to small, medium and large organizations through our salesforce may impede our future growth. Further, our ability to manage a larger direct salesforce is uncertain. Identifying and recruiting additional qualified sales personnel and training them requires significant time, expense and attention. In addition, many organizations undertake a significant evaluation and negotiation process, which can lengthen our sales cycle, and some organizations demand more specialized features on our survey platform. We may spend substantial time, effort and money on sales efforts without any assurance that our efforts will produce any sales. As a result, our sales efforts may lead to greater unpredictability in our business, results of operations and financial condition.
Additionally, we have global partners who broaden the scope of our market research solutions by providing access to additional panelists around the world. Our partners are generally in nonexclusive agreements with us, are not subject to minimum obligations and may be terminated at any time without cause. If we fail to manage our sales efforts successfully or they otherwise fail to perform as we anticipate, it could reduce our sales and increase our expenses, as well as weaken our competitive position.
Our industry is intensely competitive, and competitors may succeed in reducing our sales.
Our products face intense competition from many different companies, including but not limited to:
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Qualtrics, Alchemer (formerly SurveyGizmo), Typeform, Google Forms and Microsoft Forms in Surveys; |
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Medallia, MaritzCX and Salesforce surveys in Customer Experience; and |
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Nielsen, Kantar and YouGov in Market Research. |
These competitors vary in size, and many have significantly greater financial, marketing and product development resources than we have, larger sales and marketing budgets and resources, broader distribution or established relationships or lower labor and research and development costs. We also compete with offline methods of information collection, such as pen-and-paper surveys, telephone surveys, forms and applications and less-automated methods such as email. Our competitors may devote greater resources and time on developing and testing products and solutions, undertake more extensive marketing campaigns and partnerships, adopt more aggressive pricing policies or otherwise develop more commercially successful products and solutions than we do. Our competitors may have preexisting relationships which required significant upfront investment by the customer, and these customers may prefer to continue existing and established relationships rather than adopt our survey platform. We cannot assure that we will be able to increase or maintain the large user base that we currently enjoy.
There are relatively low barriers to entry into our business. As a result, we are likely to face additional and intense competition from new entrants into the market in the future. There can be no assurance that existing or future competitors will not develop or offer products that provide significant performance, price, speed, creative or other advantages over those offered by us, and this could have an adverse effect on our business. We also operate in a highly fragmented market, and consolidation of our competitors or customers may also adversely affect our business. In addition, historically, our business has enjoyed relatively high margins and growth, which may attract new competition into our markets, including competition from companies employing alternate business models. Loss of existing or future market share to new competitors and increased price competition could substantially harm our business, results of operations and financial condition.
Our corporate culture has contributed to our success, and if we cannot maintain this culture as we grow, we could lose the innovation, creativity and teamwork fostered by our culture and our business may be harmed.
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We have worked to develop a strong culture around our team, which is built on four key pillars of celebrating curiosity, maintaining a diverse, collaborative and inclusive work environment, seeking to positively influence our industry and community, and delivering value to our customers. We believe that our culture has been and will continue to be a critical contributor to our success. We expect to continue to hire as we expand, and we believe our corporate culture has been crucial in our success and our ability to attract highly skilled personnel. If we do not continue to develop our corporate culture or maintain and preserve our core values as we grow and evolve both in the United States and internationally, we may be unable to foster the innovation, curiosity, creativity, focus on execution, teamwork and the facilitation of critical knowledge transfer and knowledge sharing we believe we need to support our growth. Preservation of our corporate culture is also made more difficult as the majority of our work force has been working from home in connection with restrictions placed upon businesses due to the COVID-19 pandemic. When we are able to return to the office, we intend to offer most of our employees the flexibility to determine the amount of time they work in our offices, which may present operational challenges and risks, including negative employee morale and productivity, low employee retention, and increased compliance and tax obligations in a number of jurisdictions. Our headcount growth may result in a change to our corporate culture, which could harm our business.
We depend on our talent to grow and operate our business, and if we are unable to hire, integrate, develop, motivate and retain our personnel, we may not be able to grow effectively.
Our future success depends, in part, on our ability to identify, hire, integrate, develop, motivate and retain top talent, including senior management, engineers, designers, product managers, sales representatives and customer support representatives. Our ability to execute efficiently is dependent upon contributions from all of our employees, in particular our senior management team. As we continue to grow, we cannot guarantee we will continue to attract or retain the personnel we need to maintain our competitive position. In addition to hiring new employees, we must continue to focus on retaining our best talent. Competition for these resources, particularly for engineers, is intense, and competition for the facilities to house our employees is also intense, especially in the San Francisco Bay Area where our headquarters is located. We may need to invest significant amounts of cash and equity for new and existing employees and we may never realize returns on these investments, and we also are investing heavily in our facilities. If we are not able to effectively increase and retain our talent, our ability to achieve our strategic objectives will be adversely impacted, and our business will be harmed. The loss of one or more of our key employees, and any failure to have in place and execute an effective succession plan for key executives, could seriously harm our business. Employees may be more likely to leave us if the shares they own or the shares underlying their equity incentive awards have significantly appreciated or significantly reduced in value. Additionally, if our senior management team, including any new hires that we may make, fails to work together effectively or to execute on our plans and strategies on a timely basis, our business could be harmed.
In addition, our future also depends on the continued contributions of our senior management team and other key personnel, each of whom would be difficult to replace. Although we have entered into employment agreements or offer letters with our key employees, these agreements have no specific duration and constitute at-will employment, and we do not maintain key person life insurance for any employee. In addition, from time to time, there may be changes in our senior management team that may be disruptive to our business. If our senior management team, including any new hires that we may make, fails to work together effectively and to execute our plans and strategies on a timely basis, our business, results of operations and financial condition could be harmed.
Risks Related to Information Technology and Cybersecurity
Any significant disruption in service or security on our websites or in our systems could result in a loss of users, damage to our reputation and harm to our business.
Our brand, reputation and ability to attract and retain users and customers depend in part upon the reliable performance of our network infrastructure, websites, other systems and those of third-party service providers. We have experienced, and may in the future experience, interruptions in these systems, including server failures that temporarily impair or disable the performance of our websites due to a variety of factors, such as infrastructure
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changes, human or software errors, capacity constraints and denial of service or fraud or security attacks. In some instances, we may not be able to rectify or even identify the cause or causes of these site performance problems within an acceptable period of time. As our solutions become more complex and our user traffic increases, we expect that it will become increasingly challenging to maintain and improve the performance of our products and solutions, especially during peak usage times. If our products are unavailable to users or fail to function as quickly as users expect, it could result in reduced customer satisfaction and reduced attractiveness of our products to customers. This in turn could lead to decreased sales to new customers, harm our ability to retain existing customers and the issuance of service credits or refunds, any of which could hurt our business, results of operations and financial condition.
We expect to continue to make significant investments to build new products and enhance the features and functionality of our existing products and solutions. To the extent that we do not effectively address capacity constraints, upgrade our systems and data centers as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be harmed. Further, even if we are able to upgrade our systems, any such expansion will be expensive and complex, requiring management time and attention. Additionally, problems with the reliability or security of our systems, including unauthorized access to, or improper use of, the information of our users, could result in the loss of intellectual property, the introduction of malicious code to our applications, or harm to our reputation and negatively affect our business. Affected users could also initiate legal or regulatory action against us in connection with such incidents, which could cause us to incur significant expense and liability or result in orders or consent decrees forcing us to modify our business practices.
We may not timely and effectively scale and adapt our existing technology and network infrastructure to rapid technological changes, enhance our existing products and solutions or develop new products.
The industry in which we compete is characterized by rapid technological change and frequent introductions of new products and solutions, as well as changing customer needs, requirements and preferences. Our ability to grow our user base and increase revenue from existing customers will depend heavily on our ability to enhance the features and functionality of our products and solutions, introduce new products and solutions, anticipate and respond effectively to these changes on a timely basis and interoperate across an increasing range of devices, operating systems and third-party applications. The success of our products depends on our continued investment in our research and development organization to increase the accessibility, ease-of-use and interoperability of our existing solutions and the development of features and functionality that users may require.
The introduction of new products and solutions by competitors or the development of entirely new technologies to replace existing offerings could make our survey platform and other solutions obsolete or adversely affect our business, results of operations and financial condition. We may experience difficulties with software development, design or marketing that could delay or prevent our development, introduction or implementation of our product experiences, features or capabilities. We have in the past experienced delays in our internally planned release dates of new features and capabilities, and we cannot assure you that new product experiences, features or capabilities will be released according to schedule. If users do not widely adopt our survey platform or purchase our products and services, we may not be able to realize a return on our investment. If we do not accurately anticipate user demand or we are unable to develop, license or acquire new features and capabilities on a timely and cost-effective basis, or if such enhancements do not achieve market acceptance, it could result in adverse publicity, loss of revenue or market acceptance or claims by users brought against us, each of which could have a material and adverse effect on our reputation, business, results of operations and financial condition.
If our security measures are compromised, or if our websites are subject to attacks that degrade or deny the ability of users and respondents to access our products, or if our customer or respondent data are compromised, users may curtail or stop use of our survey platform.
Our products collect, process, store, share, disclose and use customers’ and respondents’ information and communications, some of which may be private. We also work with third-party vendors to process credit card payments by our customers and are thus subject to payment card association operating rules, and rely on the availability and certain security measures of our third-party payment processors. We also process and retain sensitive information and other data relating to our business, such as employees’ personal information and our
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confidential information. We anticipate to continue to expend significant amounts in an effort to reduce the risk of security breaches and other security incidents. We are vulnerable to software bugs, computer viruses, break-ins, ransomware or phishing attacks, employee errors or malfeasance, attempts to overload our servers with denial-of-service or other attacks and similar disruptions from unauthorized use of our computer systems, any of which could lead to interruptions, delays or website shutdowns, causing loss of critical data or the unauthorized disclosure or use of personally identifiable or confidential information. It is virtually impossible for us to entirely mitigate the risk of breaches of our survey platform or other security incidents affecting our products, internal systems, networks or data. In addition, the functionality of our products may be disrupted by third parties, including disgruntled employees, former employees or contractors. The security measures we use internally, and have integrated into our products, which are designed to detect unauthorized activity and prevent or minimize security breaches, may not function as expected or may not be sufficient to protect against certain attacks. Additionally, we may face delays in identifying or responding to security breaches or other security incidents. With the increase in personnel working remotely during the COVID-19 pandemic, we and our service providers are at increased risk for security breaches. We are taking steps to monitor and enhance the security of our platform, systems, IT infrastructure, networks, and data; however, the unprecedented scale of remote work may require additional personnel and resources, which nevertheless cannot be guaranteed to fully safeguard our platform or any systems, IT infrastructure, networks, or data upon which we rely. If we or any of our vendors experience or are believed to have experienced any compromises to security that result in site performance or availability problems, the complete shutdown of our websites or the actual or perceived loss or unauthorized disclosure or use of confidential information, such as credit card information, personal health information, trade secrets or other proprietary information, our users may be harmed or lose trust and confidence in us and choose to decrease the use of our products, which would cause us to suffer reputational and financial harm.
In addition, we may be subject to regulatory investigations or litigation in connection with a security breach or related issues, and we could also be liable to third parties for these types of breaches. Such litigation, regulatory investigations and our technical activities intended to prevent future security breaches are likely to require additional management resources and expenditures. If our security measures fail to protect this information adequately or we fail to comply with other rules and regulations, such as the Health Insurance Portability and Accountability Act, the General Data Protection Regulation (“GDPR”), the EU-U.S. and Swiss-U.S. Privacy Shield Framework and Principles or applicable credit card association operating rules, we could be liable to both our users for their losses, as well as the vendors under our agreements with them, we could be subject to fines and higher transaction fees, we could face regulatory action, and our users and vendors could end their relationships with us, any of which could harm our business, results of operations and financial condition.
Our internal systems are exposed to the same cybersecurity risks and consequences of a breach as our customers and other enterprises. However, since our business is focused on providing reliably secure products to our customers, we believe that an actual or perceived breach of, or security incident affecting, our internal networks, systems or data could be especially detrimental to our reputation, customer confidence in our products and solutions and our business.
While our insurance policies include liability coverage for certain of these matters, if we experienced a widespread security breach or other incident that impacted a significant number of our customers to whom we owe indemnity obligations, we could be subject to indemnity claims or other damages that exceed our insurance coverage. We also cannot be certain that our insurance coverage will be adequate for data handling or data security liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.
Our products and solutions and internal systems rely on software that is highly technical, and if it contains undetected errors, our business could be adversely affected.
Our products and solutions and internal systems rely on software that is highly technical and complex. In addition, our products and solutions and internal systems depend on the ability of our software to store, retrieve, process
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and manage immense amounts of data. Our software has contained, and may now or in the future contain, undetected errors, bugs or vulnerabilities. Some errors in our software may only be discovered after the code has been released for external or internal use. Errors or other design defects within our software may result in a negative experience for our users, delay product introductions or enhancements or result in measurement or other errors. We also rely on third-party software that may contain errors or bugs. Any actual or perceived errors, failures, vulnerabilities, bugs or defects discovered in our software or third-party software we use could result in damage to our reputation, cause a reduction in revenue or delay in market acceptance of our products, require us to issue refunds to our customers or expose us to claims for damages, cause us to lose existing users or make it more difficult to attract new users, divert our development resources or require us to make extensive changes to our survey platform, any of which could adversely affect our business, results of operations and financial condition. The costs incurred in correcting such defects or errors may be substantial and could harm our results of operations and financial condition. Moreover, the harm to our reputation and legal liability related to such errors or defects may be substantial and could harm our business.
We depend on our infrastructure and third-party data centers, and any disruption in the operation of these facilities or failure to renew the services could impair the delivery of our products and solutions and adversely affect our business.
We currently deploy our products and solutions and serve all of our users using a combination of our own custom-built infrastructure that we lease and operate in co-location facilities and third-party data center services such as Amazon Web Services. While we typically control and have access to the servers we operate in co-location facilities and the components of our custom-built infrastructure that are located in those co-location facilities, we control neither the operation of these facilities nor our third-party service providers. Furthermore, we have no physical access or control over the services provided by Amazon Web Services. Consequently, we may be subject to misconduct or unauthorized data access by such third-party service providers or service disruptions, including those that are directly or indirectly attributable to the COVID-19 pandemic, as well as failures to provide adequate services for reasons that are outside our direct control.
Data center leases and agreements with the providers of data center services expire at various times. The owners of these data centers and providers of these data center services may have no obligation to renew their agreements with us on commercially reasonable terms or at all. Problems faced by data centers, with our third-party data center service providers, with the telecommunications network providers with whom we or they contract, or with the systems by which our telecommunications providers allocate capacity among their users, including us, could adversely affect the experience of our users. Our third-party data center operators could decide to close their facilities or cease providing services without adequate notice. In addition, any financial difficulties, such as bankruptcy, faced by our third-party data centers operators or any of the service providers with whom we or they contract may have negative effects on our business, the nature and extent of which are difficult to predict. In addition, these facilities may be located in areas prone to natural disasters and pandemics and may experience events such as earthquakes, floods, fires, power loss, telecommunication failures and similar events. They may also be subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct. Any damage to, or failure of, our systems generally, or those of the third-party providers, could result in interruptions in use of our products that may reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their services with us and adversely affect our ability to attract new customers and retain existing customers.
If the data centers and service providers that we use are unable to keep up with our growing needs for capacity, or if we are unable to renew our agreements with data centers and service providers on commercially reasonable terms, we may be required to transfer servers or content to new data centers or engage new service providers, and we may incur significant costs and possible service interruption in connection with doing so. In addition, if we do not accurately plan for our data center capacity requirements and we experience significant strains on our data center capacity, we may experience delays and additional expenses in arranging new data centers, and our users could experience service outages that may subject us to financial liabilities, result in customer losses and harm our business. Any changes in third-party service levels at data centers or any real or perceived errors, defects, disruptions or other performance problems with our products and solutions could harm our reputation and may result in damage to, or loss or compromise of, our users’ content. Interruptions in our products and solutions
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might, among other things, reduce our revenue, cause us to issue refunds to users, subject us to potential liability, harm our reputation or our ability to retain customers.
Risks Related to Financial or Operating Results
Our business, results of operations and financial condition may fluctuate on a quarterly and annual basis, which may result in a decline in our stock price if such fluctuations result in a failure to meet the expectations of securities analysts or investors.
Our operating results have in the past and could in the future vary significantly from quarter-to-quarter and year-to-year and may fail to match our past performance, our projections or the expectations of securities analysts because of a variety of factors, many of which are outside of our control. Any of these events could cause the market price of our common stock to fluctuate. Factors that may contribute to the variability of our operating results include:
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our ability to attract new users to our survey platform; |
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our ability to convert users of our free basic survey product to paying users; |
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our ability to retain paying users; |
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our ability to prevent account sharing and software piracy; |
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our ability to maintain and improve our products; |
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shifts in the way customers, respondents and users access our websites and products from personal computers to mobile devices; |
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the effectiveness of our rebranding, which launched in June 2021; |
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the effectiveness of our marketing campaigns, including old strategies that may cease to be effective and the failure of new efforts; |
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disruptions or outages in the availability of our websites or products, actual or perceived breaches of privacy and compromises of our customer or respondent data; |
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changes in our pricing policies or those of our competitors; |
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our ability to increase sales of our products and solutions to new customers and expand sales of additional products and solutions to our existing customers; |
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the size and seasonal variability of our customers’ research and marketing and budgets; |
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the extent to which existing customers renew their agreements with us and the timing and terms of those renewals; |
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general industry, market and macroeconomic conditions, including the impacts associated with the COVID-19 pandemic; |
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the timing and cost of investing in our technology infrastructure, product initiatives, facilities and international expansion may be greater than we anticipate; |
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our needs related to facilities and data centers may change over time and vary from our original forecasts, and the value of the property that we lease or own may fluctuate; |
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expenses related to hiring, incentivizing and retaining employees; |
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the timing and costs of expanding our sales organization and delays or inability in achieving expected productivity; |
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the timing of certain expenditures, including capital expenditures; |
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the entrance of new competitors in our market whether by established companies or the entrance of new companies; |
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currency exchange rate fluctuations; |
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our ability to integrate acquisitions and realize the expected benefit of such acquisitions in a timely manner or at all; |
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changes in the price of our subscription plans; and |
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changing tax laws and regulations. |
Our historical operating results may not be indicative of our future operating results. In addition, global economic concerns, including those caused by the COVID-19 pandemic, continue to create uncertainty and unpredictability and add risk to our future outlook. An economic downturn in any particular region in which we do business or globally could result in reductions in sales of our products, decreased renewals of existing arrangements and other adverse effects that could harm our business, results of operations and financial condition. In addition, borrowings under our credit facilities are at variable rates of interest and expose us to interest rate risk. On July 27, 2017, the UK Financial Conduct Authority (the “FCA”) announced that it would phase out LIBOR as a benchmark by the end of 2021. It is unclear if at that time LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. In March 2021, relevant regulators confirmed that the publication of the one-week and two-month U.S. dollar LIBOR would cease after December 31, 2021, and all remaining U.S. dollar LIBOR tenors would cease after June 30, 2023. Recent proposals for LIBOR reforms may result in the establishment of new methods of calculating LIBOR or the establishment of one or more alternative benchmark rates. Although our existing credit facilities provide for application of successor rates based on prevailing market conditions, it is not currently possible to predict the effect of any establishment of alternative reference rates or any other reforms to LIBOR that may be enacted in the United Kingdom or elsewhere. As a result, our future interest obligations may increase and adversely impact our results of operations.
We have substantial indebtedness and lease obligations, which reduce our capability to withstand adverse developments or business conditions.
We have incurred substantial indebtedness, and as of June 30, 2021, our total aggregate indebtedness was approximately $214.0 million of principal outstanding. We also have, and will continue to have, significant lease obligations. As of June 30, 2021, our total aggregate obligations under our long-term leases was $106.4 million. Our payments on our outstanding indebtedness and lease obligations are significant in relation to our revenue and cash flow, which exposes us to significant risk in the event of downturns in our businesses (whether through competitive pressures or otherwise), our industry or the economy generally, including the global economic downturn as a result of the COVID-19 pandemic, since our cash flows would decrease but our required payments under our indebtedness and lease obligations would not. Economic downturns may impact our ability to comply with the covenants and restrictions in our credit facilities and agreements governing our other indebtedness and lease obligations and may impact our ability to pay or refinance our indebtedness or lease obligations as they come due, which would adversely affect our business, results of operations and financial condition.
Our overall leverage and the terms of our financing arrangements could also:
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make it more difficult for us to satisfy obligations under our outstanding indebtedness; |
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limit our ability to obtain additional financing in the future for working capital, capital expenditures or acquisitions; |
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limit our ability to refinance our indebtedness on terms acceptable to us or at all; |
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limit our ability to adapt to changing market conditions; |
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restrict us from making strategic acquisitions or cause us to make non-strategic divestitures; |
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require us to dedicate a significant portion of our cash flow from operations to paying the principal and interest on our indebtedness, thereby limiting the availability of our cash flow to fund future capital expenditures, working capital and other corporate purposes; |
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limit our flexibility in planning for, or reacting to, changes in our business and in our industry generally; and |
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place us at a competitive disadvantage compared with competitors that have a less significant debt burden. |
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We may be required to delay recognition of some of our revenue, which may harm our financial results in any given period.
We may be required to delay recognition of revenue for a significant period of time after entering into an agreement due to a variety of factors, including, among other things, whether:
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the transaction involves both current products and products that are under development; |
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the customer requires significant modifications, configurations or complex interfaces that could delay delivery or acceptance of our products; |
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the transaction involves acceptance criteria or other terms that may delay revenue recognition; or |
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the transaction involves performance milestones or payment terms that depend upon contingencies. |
Because of these factors and other specific revenue recognition requirements under generally accepted accounting principles in the United States (“GAAP”), we must have very precise terms in our contracts to recognize revenue when we initially provide access to our survey platform or other products. Although we strive to enter into agreements that meet the criteria under GAAP for current revenue recognition on delivered performance obligations, our agreements are often subject to negotiation and revision based on the demands of our customers. The final terms of our agreements sometimes result in delayed revenue recognition, which may adversely affect our financial results in any given period. In addition, more customers may require extended payment terms, shorter term contracts or alternative licensing arrangements that could reduce the amount of revenue we recognize upon delivery of our other products and could adversely affect our short-term financial results.
Furthermore, the presentation of our financial results requires us to make estimates and assumptions that may affect revenue recognition. In some instances, we could reasonably use different estimates and assumptions, and changes in estimates are likely to occur from period to period. Accordingly, actual results could differ significantly from our estimates.
Our results of operations may not immediately reflect downturns or upturns in sales because we recognize revenue from our users over the term of their paid subscriptions with us.
We recognize revenue from paid subscriptions to our products and solutions over the terms of the subscription period. Paying users can choose between monthly or annual subscriptions, and customers of SurveyMonkey Enterprise make a minimum one-year subscription commitment and are increasingly purchasing multi-year subscriptions. Amounts that have been billed are initially recorded as deferred revenue until the revenue is recognized. As a result, a large portion of our revenue for each quarter reflects deferred revenue from paid subscriptions entered into during previous quarters, and downturns or upturns in subscription sales, or renewals and potential changes in our pricing policies may not be reflected in our results of operations until later periods. Our paid subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as paid subscription revenue from new users is recognized over the applicable subscription term.
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If we fail to effectively manage our growth, our business and results of operations could be harmed.
The scope and complexity of our business have also increased significantly. The growth and expansion of our business creates significant challenges for our management, operational and financial resources. In the event of continued growth of our operations or in the number of our third-party relationships, our information technology systems and our internal controls and procedures may not be adequate to support our operations. To effectively manage our growth, we must continue to improve our operational, financial and management processes and systems and to effectively expand, train and manage our employee base, and in the near term, do so remotely during the COVID-19 pandemic. When we are able to return to the office, we intend to offer most of our employees the flexibility to determine the amount of time they work in our offices, which may present operational challenges and risks, including negative employee morale and productivity, low employee retention, and increased compliance and tax obligations in a number of jurisdictions. As our organization continues to grow and we are required to implement more complex organizational management structures, we may find it increasingly difficult to maintain the benefits of our corporate culture, including our ability to quickly develop and launch new and innovative products and solutions. This could negatively affect our business performance.
We continue to experience growth in our headcount and operations, which will continue to place significant demands on our management and our operational and financial infrastructure. As of June 30, 2021, 31% of our employees had been with us for less than one year and 24% for more than one year but less than two years. As we continue to grow, we must effectively integrate, develop and motivate a large number of new employees, and we must maintain the beneficial aspects of our corporate culture. To attract top talent, we have had to offer, and believe we will need to continue to offer, highly competitive compensation packages before we can validate the productivity of those employees. In addition, fluctuations in the price of our common stock may make it more difficult or costly to use equity compensation to motivate, incentivize and retain our employees. We face significant competition for talent from other internet, software and high-growth companies, which include both publicly traded and privately-held companies. The risks of over-compensating employees and the challenges of integrating a growing employee base into our corporate culture are exacerbated by our international expansion. Additionally, because of our growth, we have expanded our operating and financing lease obligations and purchase commitments, which have increased our expenses. We may not be able to hire new employees quickly enough to meet our needs. If we fail to effectively manage our hiring needs and successfully integrate our new hires, especially remotely, our efficiency and ability to meet our forecasts and our employee morale, productivity and retention could suffer, and our business, results of operations and financial condition could be adversely affected.
Additionally, if we do not effectively manage the growth of our business and operations, the quality of our products and solutions could suffer, which could negatively affect our brand, results of operations and overall business. Further, we have made changes in the past, and will likely make changes in the future, to our products that our customers may not like, find useful or agree with. We may also decide to discontinue certain features, products or solutions or charge for certain features, products or solutions that are currently free or increase fees for any of our features, products or solutions. If users are unhappy with these changes, they may decrease their usage of our products or stop using them generally, and in the past we have experienced a decrease in our number of paying users as a result of pricing changes. In addition, they may choose to take other types of action against us, such as organizing petitions or boycotts focused on our company, our website or our products and services, filing claims with the government or other regulatory bodies or filing lawsuits against us. Any of these actions could negatively impact our growth and brand, which would harm our business.
If currency exchange rates fluctuate substantially in the future, the results of our operations, which are reported in U.S. dollars, could be adversely affected.
We conduct our business around the world and a significant portion of our transactions outside of the United States are denominated in foreign currencies. As we continue to expand our international operations, we become more exposed to the effects of fluctuations in currency exchange rates. We incur expenses for employee compensation and other operating expenses at our non-U.S. locations in the local currency, and accept payment from customers in currencies other than the U.S. dollar. Since we conduct business in currencies other than U.S. dollars but report our financial results in U.S. dollars, we face exposure to fluctuations in currency exchange rates
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and any increase in the value of the U.S. dollar against these foreign currencies could cause our revenue to decline relative to our costs, thereby decreasing our operating margins. Exchange rate fluctuations between the U.S. dollar and other currencies could have a material impact on our profitability and hinder our ability to predict our future results and earnings. For example, because we recognize revenue over time, exchange rate fluctuations at one point in time may have a negative impact in future quarters. There can be no assurance that we will be successful in managing our exposure to currency exchange rate risks, which may adversely affect our business, results of operations and financial condition. Additionally, because we conduct business in currencies other than U.S. dollars, but report our results of operations in U.S. dollars, we also face remeasurement exposure to fluctuations in currency exchange rates, which could hinder our ability to predict our future results and earnings and could materially impact our results of operations. From time to time, we may enter into foreign currency derivative contracts to reduce the risk that our cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. During the three and six months ended June 30, 2021 and 2020, we did not have any material amount of derivative financial instruments.
Expansion into international markets is important for our growth, and as we expand internationally, we will face additional business, political, regulatory, operational, financial and economic risks, any of which could increase our costs and hinder such growth.
Continuing to expand our business to attract users in countries other than the United States is a critical element of our business strategy. An important part of targeting international markets is increasing our brand awareness and developing offerings that are localized and customized for the users in those markets. We have a limited operating history as a company outside of the United States. We expect to continue to devote significant resources to international expansion through acquisitions and partnerships, the establishment of additional offices and increasing our foreign language offerings. Our ability to expand our business and to attract talented employees and users in an increasing number of international markets will require considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal systems, alternative dispute resolution systems, regulatory systems and commercial infrastructures. Expanding our international focus may subject us to risks that we have not faced before or increase risks that we currently face, including but not limited to risks associated with recruiting and retaining talented and capable management and employees in foreign countries; challenges caused by distance, time zone, language and cultural differences; developing and customizing products and solutions that appeal to the tastes and preferences of users in international markets; competition from local survey providers with significant market share in those markets and with a better understanding of user preferences; reliance on third parties and partnerships to provide product support and services that we do not resource directly outside of the United States, such as panelists for our SurveyMonkey Audience solution; protecting and enforcing our intellectual property rights; the inability to extend proprietary rights in our brand, content or technology into new jurisdictions; compliance with applicable foreign laws and regulations, including privacy and data protection laws and laws relating to content; credit risk and higher levels of payment fraud; currency exchange rate fluctuations; protectionist laws and business practices that favor local businesses in some countries; foreign tax consequences; foreign exchange controls or U.S. tax restrictions that might restrict or prevent us from repatriating income earned in countries outside of the United States; political, economic and social instability; higher costs associated with doing business internationally; export or import regulations; and trade and tariff restrictions.
Entering new international markets will be expensive, our ability to successfully gain market acceptance in any particular market is uncertain and the distraction of our senior management team could harm our business, results of operations and financial condition.
We derive, and expect to continue to derive, a substantial majority of our revenue from a limited number of software products.
We derive, and expect to continue to derive, a substantial majority of our revenue from our paid individual and enterprise subscription offerings to our survey platform. As such, the market acceptance of our survey platform is critical to our success. Demand for subscription access to our survey platform and for our other products and solutions is affected by a number of factors, many of which are beyond our control, such as continued market acceptance of our survey platform by customers for existing and new use cases, the timing of development and
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release of new products, solutions, features and functionality that are lower cost alternatives introduced by us or our competitors, technological changes and developments within the markets we serve and growth or contraction in our addressable markets. If we are unable to continue to meet customer demands or to achieve more widespread market acceptance of our survey platform, our business, results of operations and financial condition could be harmed.
Risks Related to Regulatory and Tax Compliance
We collect, process, store, share, disclose and use personal information and other data, which subjects us to governmental regulations and other legal obligations related to privacy and security, and our actual or perceived failure to comply with such obligations could harm our business.
We collect, process, store, share, disclose and use information from and about our customers, respondents, users, sales leads and prospects, including personal information and other data. There are numerous laws around the world regarding privacy, data protection and security, including laws regarding the collection, processing, storage, sharing, disclosure, use and security of personal information and other data from and about our customers, respondents, users, sales leads and prospects. The scope of these laws is changing, subject to differing interpretations, may be costly to comply with, and may be inconsistent among countries and jurisdictions or conflict with other rules.
We strive to comply with applicable laws, policies and legal obligations relating to privacy, data protection and security and are subject to the terms of our privacy notices and privacy-related obligations to third parties. However, these obligations may be interpreted and applied in new ways and/or in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Data privacy, data protection and security are active areas, and new laws and regulations are likely to be enacted.
Any failure or perceived failure by us to comply with our privacy or data protection policies, our privacy- or data protection-related obligations to customers, respondents, users or other third parties, our data disclosure and consent obligations or our privacy-, data protection- or security-related legal obligations, or any compromise of security that results in the unauthorized disclosure, transfer or use of personal or other information, which may include personally identifiable information or other data, may result in governmental enforcement actions, litigation or public statements critical of us by consumer advocacy groups, competitors, the media or others and could cause our users to lose trust in us, which could have an adverse effect on our business. Additionally, if third parties we work with, such as customers, partners, vendors or developers, violate applicable laws, our policies or other privacy-, data protection- or security-related obligations, such violations may also put our users’ information at risk and could in turn have an adverse effect on our business. Governmental agencies may also request or take member or customer data for national security or informational purposes, and can also make data requests in connection with criminal or civil investigations or other matters, which could harm our reputation and our business. Additionally, our compliance with the laws of one jurisdiction may be in contravention to laws or regulations that we are subject to in other jurisdictions.
In addition, there has been increased uncertainty around the legality of various mechanisms for personal data transfers from the European Union to the United States, the United Kingdom, and other countries outside the European Union, which may have a significant impact on the transfer of data from the European Union to companies in the United States or other jurisdictions, including us. For example, we may have to require some of our vendors who process personal data to take on additional privacy, data protection and security obligations, and some may refuse, causing us to incur potential disruption and expense related to our business processes. We may also have to substantially reorganize our infrastructure to meet local requirements regarding data storage, access and transfer which also has the potential to adversely impact our business and cause significant additional expense. If our policies and practices, or those of our vendors, are, or are perceived to be, insufficient or if our users and customers have concerns regarding the transfer of data from the European Union to the United States, we could be subject to orders to suspend our services, enforcement actions or investigations by the Federal Trade Commission, California Attorney General, individual EU Data Protection Authorities or lawsuits by private parties, use of our products could decline and our business could be negatively impacted. There is also uncertainty as to
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whether certain legal mechanisms for the lawful transfer of data from the European Union to the United States or other jurisdictions will withstand legal challenges, and such legal mechanisms may be modified or replaced. If the mechanisms on which we rely for the transfer of data are found to be invalid or are modified or replaced, our business would be substantially impacted, as key agreements may need to be renegotiated, customers may lose confidence in our ability to transfer data legally from the European Union to the United States or other jurisdictions and we may be subject to orders to suspend our services, enforcement actions or investigations by the Federal Trade Commission, California Attorney General, or EU Data Protection Authorities.
Public scrutiny of internet privacy and security issues may result in increased regulation and different industry standards, which could deter or prevent us from providing our products to our customers, thereby harming our business.
The regulatory framework for privacy and security issues worldwide is evolving and is likely to remain in flux for the foreseeable future. Various government and consumer agencies have also called for new regulation and changes in industry practices. Practices regarding the registration, collection, processing, storage, sharing, disclosure, use and security of personal and other information by companies offering an online service like our survey platform and other solutions have recently come under increased public scrutiny.
For example, the European Union has enacted the GDPR, which became effective in May 2018 and the State of California has enacted the California Consumer Privacy Act 2018 (“CCPA”) which became effective on January 1, 2020. The GDPR and CCPA require greater compliance efforts for companies with users or operations in the European Union and/or California and provides for fines of: in the case of the GDPR, up to the greater of €20,000,000 or 4% of global annual revenue for noncompliance; or in the case of the CCPA, up to $2,500 per violation or $7,500 for each intentional violation, as well as a private right of action for certain failures to implement and maintain reasonable security measures.
In the United States, the federal government and many state governments have reviewed and are reviewing the need for greater regulation of the collection, processing, storage, sharing, disclosure, use and security of information concerning consumer behavior with respect to online services, including regulations aimed at restricting certain targeted advertising practices and collection and use of data from mobile devices. This review may result in new laws or the promulgation of new regulations or guidelines. For example, the State of California and other states have passed laws relating to disclosure of companies’ practices with regard to Do-Not-Track signals from internet browsers, the ability to delete information of minors and new data breach notification requirements. California has also adopted privacy guidelines with respect to mobile applications and in 2018 enacted the CCPA. The CCPA requires covered companies to provide new disclosures to California consumers, and affords such consumers rights to access and delete personal information and new abilities to opt-out of certain sales of personal information, among other things. The CCPA became enforceable on July 1, 2020. Laws similar to the CCPA have also been proposed in other states, and one state, Nevada, has implemented a law imposing obligations similar to the CCPA. Additionally, a new privacy law, the California Privacy Rights Act (“CPRA”), was approved by California voters on November 3, 2020. The CPRA will take effect on January 1, 2023 and, as currently drafted, would significantly modify the CCPA, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses. We cannot yet predict the full impact of the CCPA, CPRA, or other similar laws or regulations on our business or operations, but they may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.
In June 2016, the United Kingdom voted to leave the European Union, commonly referred to as “Brexit,” which could also lead to further legislative and regulatory changes. The United Kingdom left the European Union on January 31, 2020 with a transition period through December 31, 2020. The risks are yet undetermined depending on the outcomes of negotiations that could arise during this time period and beyond. A Data Protection Act has been enacted that substantially implements GDPR, which became law in May 2018. It remains unclear, however, how United Kingdom data protection laws or regulations and enforcement strategies will develop in the medium to longer term and how data transfers to and from the United Kingdom will be regulated.
Additionally, we historically have participated in the EU-U.S. Privacy Shield and a related program, the Swiss-U.S. Privacy Shield, and made use of certain model clauses approved by the European Commission (the “SCCs”), with regard to certain transfers of personal data from the European Economic Area (“EEA”) to the United States. Both
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the EU-U.S. Privacy Shield Framework and SCCs have been subject to legal challenge, however, and on July 16, 2020, the Court of Justice of the European Union (“CJEU”) issued a decision that invalidated the EU-U.S. Privacy Shield and imposed additional obligations on companies when relying on the SCCs. This CJEU decision may result in European data protection regulators applying differing standards for, and requiring ad hoc verification of, transfers of personal data from Europe to the United States or may result in those transfers being deemed unlawful. Additionally, the SCCs were updated in June 2021. We are analyzing the impacts of this decision and resulting recommendations from the European Data Protection Board as well as individual data protection authorities and the updated SCCs, and we may find it necessary or appropriate to take different or additional steps with respect to transfers of personal data, which may result in significant increased costs of compliance and limitations on our customers and us. We may be unsuccessful in maintaining legitimate means for our transfer and receipt of personal data from the EEA or Switzerland. We may experience reluctance or refusal by current or prospective European customers to use our survey platform or other solutions, and we and our customers may face a risk of orders to suspend our services or enforcement actions by data protection authorities in the EEA relating to personal data transfers to us and by us from the EEA. Any such actions could result in substantial costs and diversion of resources, distract management and technical personnel and negatively affect our business, operating results and financial condition.
Outside the European Union and the United States, a number of countries have adopted or are considering privacy laws and regulations, including laws and regulations requiring local storage and processing of data, that may result in greater compliance efforts. In addition, government agencies and regulators have reviewed, are reviewing and will continue to review the personal data practices of certain online companies. If we are unable to comply with any such reviews or decrees that result in recommendations or binding changes, or if the recommended changes result in degradation of our products, our business could be harmed.
Our business, including our ability to operate and expand internationally, could be adversely affected if legislation or regulations are adopted, interpreted or implemented in a manner that is inconsistent with our current business practices and that require changes to these practices, the design of our websites, mobile applications, survey platform, solutions, features or our privacy policies. In particular, the success of our business has been, and we expect will continue to be, driven by our ability to responsibly gather and use data from data subjects and help our customers collect and analyze data from survey respondents. Therefore, our business could be harmed by any significant change to applicable laws, regulations or industry standards or practices regarding the storage, use or disclosure of data our customers or respondents share with us, or regarding the manner in which the express or implied consent of consumers for such collection, analysis and disclosure is obtained. Such changes may require us to modify our survey platform, features and other products, possibly in a material manner, and may limit our ability to develop new products, solutions and features that make use of the data that we collect.
Our business is subject to a variety of U.S. and foreign laws, many of which are unsettled and still developing and which could subject us to claims or otherwise harm our business.
We are subject to a variety of laws in the United States and abroad, including laws regarding privacy, data protection, data security, data retention and consumer protection, accessibility, sending and storing of electronic messages (and related traffic data where applicable), human resource services, employment and labor laws, workplace safety, intellectual property and the provision of online payment services, including credit card processing, consumer protection laws, anti-bribery and anti-corruption laws, import and export controls, federal securities laws and tax regulations, which are continuously evolving and developing. The scope and interpretation of the laws and other obligations that are or may be applicable to us, our vendors or partners or certain groups of our users are often uncertain and may be conflicting, particularly laws and other obligations outside of the United States. For example, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement and other theories based on the nature and content of the materials searched, the advertisements posted or the content provided by users.
In addition, regulatory authorities around the world are considering a number of legislative and regulatory proposals concerning privacy, spam, data storage, data protection, local storage or processing of data, content regulation, cybersecurity, intellectual property infringement, consumer rights, government access to personal
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information and other matters that may be applicable to our business. Compliance with these laws may require substantial investment or may provide technical challenges for our business. More countries are enacting and enforcing laws related to the appropriateness of content and enforcing those and other laws by blocking access to services that are found to be out of compliance. It is also likely that as our business grows, evolves and an increasing portion of our business shifts to mobile and our solutions are used in a greater number of countries and additional groups, we will become subject to laws and regulations in additional jurisdictions. Users of our site and our solutions could also abuse or misuse our survey platform and other products in ways that violate laws or cause damage to our business. It is difficult to predict how existing laws will be applied to our business and whether we will become subject to new laws or legal obligations that will impact our business.
If we are not able to comply with these laws or other legal obligations, or if we or our vendors or users become liable under these laws or legal obligations, or if our products or services are suspended or blocked, we could be directly harmed, and we may be forced to implement new measures to reduce exposure to this liability. This may require us to expend substantial resources or to discontinue certain solutions, which would negatively affect our business, results of operations and financial condition. We could also be subject to investigations, enforcement actions and sanctions, mandatory changes to our products and solutions, disgorgement of profits, fines and damages, civil and criminal penalties or injunctions, claims for damages, termination of contracts and loss of intellectual property rights. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs incurred as a result of this potential liability could harm our business, results of operations and financial condition.
We are subject to export and import control laws and regulations that could impair our ability to compete in international markets or subject us to liability if we violate such laws and regulations.
We are subject to U.S. export controls and sanctions regulations that prohibit the shipment or provision of certain products and solutions to certain countries, governments and persons targeted by U.S. sanctions. While we take precautions to prevent our products and services from being exported or used in violation of these laws, including implementing IP address blocking, we cannot guarantee that the precautions we take will prevent violations of export control and sanctions regulations. If we are found to be in violation of U.S. sanctions or export control laws, it could result in substantial fines and penalties for us and for the individuals working for us.
In addition, various countries regulate the import and export of certain encryption and other technology, including import and export permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our products or could limit our users’ ability to access our survey platform in those countries. Changes in our products, or future changes in export and import regulations, may prevent our users with international operations from deploying our products globally or, in some cases, prevent the export or import of our products to certain countries, governments or persons altogether. Any change in export or import regulations, economic sanctions or related legislation or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell subscriptions to our products to, existing or potential users with international operations. Any decreased use of our survey platform or limitation on our ability to export or sell our products would likely adversely affect our business, results of operations and financial condition.
Failure to comply with anti-bribery, anti-corruption and anti-money laundering laws could subject us to penalties and other adverse consequences.
We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the U.K. Bribery Act and other anti-corruption, anti-bribery and anti-money laundering laws in various jurisdictions both domestic and abroad. These laws generally prohibit us and our employees from improperly influencing government officials or commercial parties in order to obtain or retain business, direct business to any person or gain any advantage. The FCPA, U.K. Bribery Act and similar applicable anti-bribery and anti-corruption laws also prohibit our third-party business partners, representatives and agents from engaging in corruption and bribery. We may be held liable for the acts of recently acquired companies, our third-party business partners, representatives and agents. To that end, in addition to our own salesforce, we leverage third parties to sell our products and conduct our business abroad. We and our third-party business partners, representatives and agents may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and may be
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held liable for the corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, channel partners and agents, even if we do not explicitly authorize such activities. While we have policies and procedure to address compliance with such laws, we cannot assure you that our employees and agents will not take actions in violation of our policies or applicable law, for which we may be ultimately held responsible. Any violation of the FCPA or other applicable anti-bribery, anti-corruption laws and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, imposition of significant legal fees, loss of export privileges, severe criminal or civil sanctions or suspension or debarment from U.S. government contracts, substantial diversion of management’s attention, drop in stock price or overall adverse consequences to our business, all of which may have an adverse effect on our reputation, business, results of operations and financial condition.
Our international operations involve risks that could increase our expenses, adversely affect our operating results and require increased time and attention of our management.
We derive a portion of our revenue from customers located outside of the United States and we have significant operations outside of the United States, including engineering, sales and customer support. We plan to expand our international operations, but such expansion is contingent upon the financial performance of our existing international operations as well as our identification of growth opportunities.
Our international operations are subject to risks in addition to those our domestic operations face, including:
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potential loss of proprietary information due to misappropriation or laws that may be less protective of our intellectual property rights than U.S. laws or that may not be adequately enforced; |
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requirements of foreign laws and other governmental controls, including laws related to privacy, data protection and transfer, trade and labor restrictions and related laws that reduce the flexibility of our business operations; |
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local business and cultural factors that differ from our normal standards and practices, including business practices that we are prohibited from engaging in by the FCPA, U.K. Bribery Act and other anti-corruption laws and regulations; |
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restrictions on our ability to repatriate cash from our international subsidiaries or to exchange cash in international subsidiaries into cash available for use in the United States; |
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fluctuations in currency exchange rates, economic instability and inflationary conditions could reduce our customers’ ability to obtain financing for software products and solutions or that could make our survey platform and solutions more expensive or could increase our costs of doing business in certain countries; |
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limitations on future growth or inability to maintain current levels of revenue from international sales if we do not invest sufficiently in our international operations, or execute properly on such investments; |
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difficulties in staffing, managing and operating our international operations, including difficulties related to administering our equity incentive plan in some foreign countries; |
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difficulties in coordinating the activities of our geographically dispersed and culturally diverse operations; |
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seasonal reductions in business activity in the summer months in Europe and in other periods in other countries; |
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costs and delays associated with developing software and providing support in multiple languages; and |
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political unrest, war or terrorism, or regional natural disasters or pandemics (including the COVID-19 pandemic), particularly in areas in which we have facilities. |
The level of corporate tax from sales to our non-U.S. customers is generally less than the level of tax from sales to our U.S. customers. This benefit is contingent upon existing tax regulations in the U.S and in the countries in which our international operations are located. Future changes in domestic or international tax regulations could adversely affect our ability to continue to realize these tax benefits.
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The intended tax efficiency of our corporate structure and intercompany arrangements depend on the interpretation and application of the tax laws of various jurisdictions and on how we operate our business, and changes to our effective tax rate could adversely impact our results.
Our corporate structure and intercompany arrangements, including the manner in which we develop and use our intellectual property and the transfer pricing of our intercompany transactions, are intended to optimize business efficiency as well as reduce our worldwide effective tax rate. The tax laws of various jurisdictions, including the United States and the other jurisdictions in which we operate, are subject to change, and their application to our international business activities is subject to interpretation and depends on our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or for transfer pricing on intercompany arrangements, or they may make a determination that the manner in which we operate results in our business not achieving the intended tax consequences. This could increase our worldwide effective tax rate and harm our results of operations and financial condition. Our effective tax rate could be adversely affected by several other factors, many of which are outside of our control, such as: increases in expenses that are not deductible for tax purposes, the tax effects of restructuring charges or purchase accounting for acquisitions, increases in withholding taxes, changes related to our ability to ultimately realize future benefits attributed to our deferred tax assets, including those related to other-than-temporary impairment, and a change in our decision to indefinitely reinvest foreign earnings. Further, we periodically undergo review and audit by both domestic and foreign tax authorities and expect such actions to continue in the future. Any adverse outcome of such a review or audit could have a negative effect on our results of operations and financial condition.
The enactment of legislation implementing changes in the U.S. taxation of international business activities, the adoption of other tax reform policies or changes in tax legislation or policies in jurisdictions outside of the United States could materially impact our results of operations and financial condition.
Changes to U.S. tax laws, including limitations on the ability of taxpayers to claim and utilize foreign tax credits and the deferral of certain tax deductions until earnings outside of the United States are repatriated to the United States, as well as changes to U.S. tax laws that may be enacted in the future, could impact the tax treatment of our domestic and foreign earnings and adversely impact our effective tax rate. The same is true for changes to tax laws in the other countries in which we operate. Due to the expanding scale of our international business activities, any changes in the U.S. or international taxation of such activities may increase our worldwide effective tax rate and harm our business, results of operations and financial condition.
Our operating results may be harmed if we are required to collect sales or other related taxes on subscriptions to our products in jurisdictions where we have not historically done so.
We collect sales, use, value-added and other transaction taxes as part of our subscription agreements in a number of jurisdictions. One or more states or countries may seek to impose incremental or new sales, use, value added or other tax collection obligations on us, including for past sales by us or our resellers and other partners. A successful assertion by a state, country or other jurisdiction that we should have been or should be collecting additional sales, use, value added or other taxes on our products could, among other things, result in substantial tax liabilities, discourage users from utilizing our products or otherwise harm our business, results of operations and financial condition.
We have a history of net losses, we anticipate increasing expenses in the future and we may not be able to achieve or maintain profitability.
We have incurred net losses on an annual basis since our reincorporation. We incurred net losses of approximately $29.2 million and $58.9 million during the three months and six months ended June 30, 2021, respectively, and $22.9 million and $47.2 million during the three and six months ended June 30, 2020, respectively. We had an accumulated deficit of approximately $553.2 million as of June 30, 2021. As we strive to grow our business, we expect expenses to increase in the near term, particularly as we continue to make investments to scale our business. For example, we are actively investing in our sales team, and we will need an increasing amount of technical infrastructure to continue to satisfy the needs of our user base. We also expect our research and development expenses to increase as we continue to hire employees for our engineering, product and design
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teams to support these efforts. In addition, we will incur additional general and administrative expenses to support both our growth as well as our operations as a publicly traded company. These investments may not result in increased revenue or growth in our business. We may encounter unforeseen or unpredictable factors, including unforeseen operating expenses, complications or delays, which may result in increased costs. Furthermore, it is difficult to predict the size and growth rate of our market, user demand for our survey platform, the entry of competitive survey platforms or other products or the success of existing competitive products and solutions. As a result, we may not achieve or maintain profitability in future periods. If we fail to grow our revenue sufficiently to keep pace with our investments and other expenses, our business, results of operations and financial condition would be adversely affected.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2020, we had $292.1 million of federal and $187.7 million of state net operating loss carryforwards available to reduce future taxable income, which began to expire during 2020. As of December 31, 2020, we had federal research and development credits of $22.1 million which will begin to expire in 2032; state research and development credits of $17.0 million which will carryforward indefinitely; and foreign research and development credits of $0.9 million which will begin to expire in 2037. Under Sections 382 and 383 of the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change attributes, such as research tax credits, to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Based on analysis performed, we have concluded that approximately $53.3 million of net operating loss carryforwards from companies we have previously acquired are subject to limitation under Section 382 of the Code. At this time, for our non-acquired net operating losses, we have not completed a study to assess whether an ownership change under Section 382 of the Code has occurred, or whether there have been multiple ownership changes since our formation. We may have experienced various ownership changes, as defined by the Code, as a result of past financing transactions (or other activities), and we may experience ownership changes in the future as a result of subsequent changes in our stock ownership, some of which may be outside of our control. Accordingly, our ability to utilize the aforementioned carryforwards may be limited.
General Risks
If internet search engines’ methodologies are modified or our search result page rankings decline for other reasons, use and engagement by users could decline.
We depend in part on various internet search engines to direct a significant portion of our traffic to our websites. Similarly, we depend on providers of mobile application “store fronts” to allow users to locate and download our mobile applications that enable our product. Our ability to maintain the number of visitors directed to our websites and users of our survey platform is not entirely within our control. Our competitors’ search engine optimization, or SEO, efforts may result in their websites receiving a higher search engine results page ranking than ours, or internet search engines could revise their methodologies in an attempt to improve their search results, which could adversely affect the placement of our search result page ranking. If search engine companies modify their search algorithms in ways that are detrimental to our new user growth or in ways that make it harder for our users to use our website, if we fail to successfully manage changes in SEO and social media traffic or if our competitors’ SEO efforts are more successful than ours, overall growth in our user base could slow, user engagement could decrease and we could lose existing users. These modifications may be prompted by search engine companies entering the online survey market or aligning with competitors. Additionally, our competitors may adopt search engine marketing tactics such as bidding on our terms in order to drive up our costs. This could make it more expensive to acquire new customers using our current marketing methods. Our websites have experienced fluctuations in search engine results page rankings in the past, and we anticipate similar fluctuations in the future. Any reduction in the number of users directed to our websites would harm our business, results of operations and financial condition.
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Our business depends on continued and unimpeded access to the internet and mobile networks by us and our users on personal computers and mobile devices.
Our survey platform and solutions depend on the ability of our customers, respondents and users to access our products through their personal computers and mobile devices. Currently, this access is provided by companies that have significant market power in the broadband and internet access marketplace, including incumbent telephone companies, cable companies, mobile communications companies and government-owned service providers, any of whom could take actions that degrade, disrupt or increase the cost of user access to our products, which would, in turn, negatively impact our business. In addition, internet or network access could be disrupted by other third parties. Further, the adoption of any laws or regulations that adversely affect the growth, popularity or use of the internet and mobile networks, including laws limiting internet neutrality, could decrease the demand for our paid subscription offerings or the usage of our survey platform and increase our cost of doing business.
If we are unable to effectively operate on mobile devices, our business could be adversely affected.
Our customers and respondents are increasingly accessing our products on mobile devices. We are devoting valuable resources to solutions related to monetization of mobile usage, and cannot assure you that these solutions will be successful. If the mobile solutions we have developed do not meet the needs of current prospective customers or respondents, or if our solutions are difficult to access, they may reduce their usage of our products or cease using our products altogether and our business could suffer. Additionally, we are dependent on the interoperability of our products with popular mobile operating systems, networks and standards that we do not control, such as Android and iOS operating systems, and any changes in such systems and terms of service that degrade our solutions’ functionality or give preferential treatment to competitive products could adversely affect traffic and monetization on mobile devices. We may not be successful in maintaining and developing relationships with key participants in the mobile industry or in developing products that operate effectively with these technologies, systems, networks or standards. Each manufacturer or distributor may establish unique technical standards for its devices, and our products may not work or be easily accessible or viewable on these devices as a result. Some manufacturers may also elect not to include our products on their devices, or we may have difficulty preparing or loading our applications in app stores. As new devices and products are continually being released, it is difficult to predict the challenges we may encounter in developing versions of our solutions for use on these alternative devices. If we are unable to successfully implement monetization strategies for our solutions on mobile devices, or if these strategies are not as successful as our offerings for personal computers or if we incur excessive expenses in this effort, our business, results of operations and financial condition would be negatively affected.
If we are unable to successfully implement monetization strategies for our solutions on mobile devices, or these strategies are not as successful as our offerings for personal computers, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected.
Failure to protect or enforce our intellectual property rights could harm our business and results of operations.
We regard the protection of our trade secrets, copyrights, trademarks, trade dress, databases, domain names and patents as critical to our success. We strive to protect our intellectual property rights by relying on federal, state and common law rights and other rights provided under foreign laws. These laws are subject to change at any time and could further restrict our ability to protect our intellectual property rights. In addition, the existing laws of certain foreign countries in which we operate may not protect our intellectual property rights to the same extent as do the laws of the United States. We also have a practice of entering into confidentiality and invention assignment agreements with our employees and contractors, and often enter into confidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information. In addition, from time to time we make our technology available to others under license agreements, including open source license agreements. However, these contractual arrangements and the other steps we have taken to protect our intellectual property rights may not prevent the misappropriation of our proprietary information, infringement of our intellectual property rights or deter independent development of similar or competing technologies by others and may not provide an adequate remedy in the event of such misappropriation or infringement.
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Obtaining and maintaining effective intellectual property rights is expensive, including the costs of defending our rights. We are seeking to protect certain of our intellectual property rights through filing applications for copyrights, trademarks, patents and domain names in a number of jurisdictions, a process that is expensive and may not be successful in all jurisdictions. Even where we have such rights, they may later be found to be unenforceable or have a limited scope of enforceability. In addition, we may not seek to pursue such protection in every location. In particular, we believe it is important to maintain, protect and enhance our brands. Accordingly, we pursue the registration of domain names and our trademarks and service marks in the United States and in many locations outside of the United States. We have already and may, over time, increase our investment in protecting innovations through investments in patents and similar rights, and this process is expensive and time-consuming.
Litigation may be necessary to enforce our intellectual property rights, protect our proprietary rights or determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could adversely affect our business and results of operations. We may also incur significant costs in enforcing our trademarks against those who attempt to imitate our “Momentive” and “SurveyMonkey” brands and other valuable trademarks and service marks.
In addition, we have chosen to make certain of our technology available under open source licenses that allow others to use the technology without payment to us. While we hope to benefit from these activities by having access to others’ useful technology under open source licenses, there is no assurance that we will receive the business benefits we expect.
If we fail to maintain, protect and enhance our intellectual property rights, our business, results of operations and financial condition may be harmed and the market price of our common stock could decline.
We have relationships with third parties to provide, develop and create applications that integrate with our products, and our business could be harmed if we are not able to continue these relationships.
We use software and services licensed and procured from third parties to develop and offer our survey platform and other products. We may need to obtain future licenses and services from third parties to use intellectual property and technology associated with the development of our products, which might not be available to us on acceptable terms or at all. Any loss of the right to use any software or services required for the development and maintenance of our products could result in delays in the provision of our products until equivalent technology is either developed by us or, if available from others, is identified, obtained and integrated, which could harm our business. Any errors or defects in third-party software or services could result in errors or a failure of our products, which could harm our business, results of operations and financial condition.
We also depend on our ecosystem of developers to create applications that will integrate with our survey platform. We offer prebuilt integrations, data portability and single sign-on identity with applications, such as those offered by Salesforce, Marketo, Tableau, Microsoft, and Oracle, as well as open APIs and configurable integrations. Our competitors may be effective in providing incentives to third parties to favor their survey platform, or to prevent or reduce subscriptions to our survey platform. Our reliance on this ecosystem of developers creates certain business risks relating to the quality of the applications built using our application programming interface, including product interruptions of our survey platform from these applications, lack of product support for these applications, our reputation being harmed if the applications do not function as intended and possession of intellectual property rights associated with these applications. We may not have the ability to control or prevent these risks. As a result, issues relating to these applications could adversely affect our brand, reputation, business, results of operations and financial condition.
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If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenue could be impaired and our results of operations may suffer. Even if we are successful, we cannot assure you that these relationships will result in increased customer usage of our products or increased revenue.
Our use of open source software could negatively affect our ability to offer and sell subscriptions to our products and subject us to possible litigation.
A portion of the technologies we use incorporates open source software, and we may incorporate open source software in the future. Open source software is generally licensed by its authors or other third parties under open source licenses. The terms of many open source licenses have not been interpreted by U.S. or other courts, and these licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our products. These licenses may require us to offer our products that incorporate such open source software for no cost, that we make publicly available source code for modifications or derivative works we create based upon, incorporating or using the open source software, and/or that we license such modifications or derivative works under the terms of the particular open source license. We may face claims from others claiming ownership of open source software or patents related to that software, rights to our intellectual property or breach of open source license terms, including a demand for release of material portions of our source code or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation, which could be costly to defend, require us to purchase a costly license, require us to establish additional specific open source compliance procedures, or require us to devote additional research and development resources to remove open source elements from or otherwise change our solutions, any of which would have a negative effect on our business and results of operations. In addition, if we were to combine our own software with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of some software that would be valuable to keep as a trade secret and/or not make available for use by others. Any of the foregoing could disrupt and harm our business, results of operations and financial condition.
We may be subject to legal proceedings and litigation, including intellectual property and privacy disputes, which are costly to defend and could materially harm our business and results of operations.
We may be party to lawsuits and legal proceedings in the normal course of business. These matters are often expensive and disruptive to normal business operations. We may face allegations, lawsuits and regulatory inquiries, audits and investigations regarding data privacy, security, labor and employment, consumer protection and intellectual property infringement, including claims related to privacy, patents, publicity, trademarks, copyrights and other rights. We may also face allegations, lawsuits and regulatory inquiries, audits and investigations related to our acquisitions, securities issuances or our business practices, including public disclosures about our business. Litigation and regulatory proceedings, and particularly the patent infringement and class action matters we could face, may be protracted and expensive, and the results are difficult to predict. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages and include claims for injunctive relief. Additionally, our litigation costs could be significant. Adverse outcomes with respect to litigation or any of these legal proceedings may result in significant settlement costs or judgments, penalties and fines, or require us to modify our products or require us to stop offering certain features, all of which could negatively impact our user and revenue growth. We may also become subject to periodic audits, which would likely increase our regulatory compliance costs and may require us to change our business practices, which could negatively impact our revenue growth. Managing legal proceedings, litigation and audits, even if we achieve favorable outcomes, is time-consuming and diverts management’s attention from our business.
The results of regulatory proceedings, litigation, claims and audits cannot be predicted with certainty, and determining reserves for pending litigation and other legal, regulatory and audit matters requires significant judgment. There can be no assurance that our expectations will prove correct, and even if these matters are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our reputation, business, results of operations, financial condition and the market price of our common stock.
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The COVID-19 pandemic could harm our business and results of operations.
The COVID-19 pandemic continues to impact worldwide economic activity and financial markets. In light of the uncertain and rapidly evolving situation relating to the spread of the disease, we have taken precautionary measures intended to minimize the risk of the virus to our employees, our customers and the communities in which we operate, which could negatively impact our business. For example, in response to the COVID-19 pandemic, we have suspended all business-related travel and instituted work-from-home procedures in accordance with government mandated shelter-in-place guidelines. As the administration of the vaccine program increases and COVID-19 cases decline, we continue to evaluate and refine our return to office strategy. Ultimately, we intend to offer most of our employees the flexibility to determine the amount of time they work in our offices. Although many jurisdictions have relaxed their guidelines and restrictions, in some cases, these have been, or may in the future be, reinstated. Precautionary measures that have been adopted could negatively affect our customer success efforts, sales and marketing efforts, delay and lengthen our sales cycles or create operational or other challenges, any of which could harm our business, results of operations and financial condition. For example, we have experienced an increase in attrition rates and impact to our sales cycle length, particularly among customers in segments and industries more severely impacted by the ongoing effects of the COVID-19 pandemic, such as travel and hospitality, and these conditions can affect the rate of IT spending and could adversely affect our customers’ ability or willingness to purchase our products, delay prospective customers’ purchasing decisions, reduce the value or duration of their subscription contracts all of which could adversely affect our future sales and operating results. In addition, the severity and spread of new or existing variants of the virus and changes in infection rates may impact the health and productivity of our workforce and may disrupt the operations of our customers, partners and other third-party providers for an indefinite period of time, including as a result of travel restrictions and business shutdowns. It is not possible at this time to estimate the impact that the COVID-19 pandemic could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted.
Our business could be disrupted by catastrophic events and man-made problems, such as power disruptions, data security breaches and terrorism.
Our systems are vulnerable to damage or interruption from the occurrence of any catastrophic event, including earthquake, fire, flood, tsunami or other weather event, power loss, telecommunications failure, software or hardware malfunction, cyber-attack, war, terrorist attack, incident of mass violence or pandemics (including the COVID-19 pandemic), which could result in lengthy interruptions in the use of our products. In particular, our U.S. headquarters, certain of the facilities we lease to house our computer and telecommunications equipment and some of the data centers we utilize are located in the San Francisco Bay Area, a region known for seismic activity, and our insurance coverage may not compensate us for losses that may occur in the event of an earthquake or other significant natural disaster. In addition, acts of terrorism, including malicious internet-based activity, could cause disruptions to the Internet or the economy as a whole. Even with our disaster recovery arrangements, use of our products could be interrupted. If our systems were to fail or be negatively impacted as a result of a natural disaster, pandemic, or other event, our ability to deliver products and solutions to our users would be impaired or we could lose critical data. If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster, and successfully execute on those plans in the event of a disaster or emergency, our business, results of operations, financial condition and reputation would be harmed.
We have implemented a disaster recovery program that allows us to move website traffic to a backup data center in the event of a catastrophe. This allows us the ability to move traffic in the event of a problem, and the ability to recover in a short period of time. However, to the extent our disaster recovery program does not effectively support the movement of traffic in a timely or complete manner in the event of a catastrophe, our business and results of operations may be harmed.
We do not carry business interruption insurance sufficient to compensate us for the potentially significant losses, including the potential harm to our business, results of operations and financial condition that may result from interruptions in our product use as a result of system failures.
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We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.
We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features, products and solutions, or enhance our existing survey platform, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we have engaged and may continue to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed.
Acquisitions and investments could result in operating difficulties, dilution and other harmful consequences that may adversely impact our business, results of operations and financial condition.
We have acquired a number of companies in the past and may make additional acquisitions in the future to add employees, complementary companies, products, solutions, technologies or revenue. Future acquisitions could be material to our results of operations and financial condition. We also expect to continue to evaluate and enter into discussions regarding a wide array of potential strategic transactions. The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to complete acquisitions on favorable terms, if at all. The process of integrating an acquired company, business or technology has created, and will continue to create, unforeseen operating difficulties and expenditures. The areas where we face risks include:
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loss of key employees of the acquired company and other challenges associated with integrating new employees into our culture, as well as reputational harm if integration is not successful; |
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diversion of management time and focus from operating our business to addressing acquisition integration challenges; |
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implementation or remediation of controls, procedures and policies at the acquired company; |
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integration of the acquired company’s accounting, human resource and other administrative systems, and coordination of product, engineering and sales and marketing function; |
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assumption of contractual obligations that contain terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability; |
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failure to successfully further develop the acquired technology or realize our intended business strategy; |
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failure to find commercial success with the products or services of the acquired company; |
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difficulty of transitioning the acquired technology onto our existing survey platforms and maintaining the security standards for such technology consistent with our other products and solutions; |
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failure to successfully onboard customers or maintain brand quality of acquired companies; |
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liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; |
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failure to generate the expected financial results related to an acquisition on a timely manner or at all; and |
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failure to accurately forecast the impact of an acquisition transaction. |
These risks or other problems encountered in connection with our acquisitions and investments could cause us to fail to realize the anticipated benefits of such acquisitions or investments, incur unanticipated liabilities and adversely affect our business generally.
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Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or write-offs of goodwill, any of which could harm our financial condition. In addition, any acquisitions we announce could be viewed negatively by users, marketers, developers, partners or investors.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our condensed consolidated financial statements include those related to deferred commissions, stock-based compensation, business combination valuation of goodwill and acquired intangible assets, and incremental borrowing rate for leases. Due to the COVID-19 pandemic, there is ongoing uncertainty and significant disruption in the global economy and financial markets, and while we are not aware of any specific event or circumstance that would require an update to our estimates, judgments or assumptions, they may change in the future. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the trading price of our common stock.
The tracking of certain of our user metrics is done with internal tools and is not independently verified. Certain of our user metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.
We track certain user metrics with internal tools, which are not independently verified by any third party. Our internal tools have a number of limitations and our methodologies for tracking these metrics may change over time, which could result in unexpected changes to our user metrics, including the metrics we report. If the internal tools we use to track these metrics undercount or overcount performance or contain algorithm or other technical errors, the data we report may not be accurate. For example, we track the number of individual users and organizational domains but cannot determine the number of unique users or unique organizations in which we have paying customers with certainty, and our inability to determine the number of our unique users and unique organizations in which we have paying customers may adversely affect our understanding of certain aspects of our business and make it more challenging to manage our business. In addition, limitations or errors with respect to how we measure data (or the data that we measure) may affect our understanding of certain details of our business, which could affect our longer-term strategies. Additionally, regulatory changes could affect requirements related to data we track related to our metrics, and those changes could impact how we continue to measure and compare data over time. If our performance metrics are not accurate representations of our business, if we discover material inaccuracies in our metrics or if the metrics we rely on to track our performance do not provide an accurate measurement of our business, our reputation may be harmed and our business, results of operations and financial condition could be adversely affected, causing our stock price to decline.
Certain of our growth expectations and key business metrics included in this Quarterly Report on Form 10-Q could prove to be inaccurate, and any real or perceived inaccuracies may harm our reputation and negatively affect our business.
Growth expectations are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. We also rely on assumptions and estimates to calculate certain of our key business metrics, such as paying users. We regularly review and may adjust our processes for calculating our key business metrics to improve their accuracy. Our key business metrics may differ from estimates published by third parties or from similarly titled metrics of our competitors due to differences in methodology. If investors or analysts do not perceive our metrics to be accurate representations of our business, or if we discover material inaccuracies in our metrics, our reputation, business, results of operations and financial condition would be harmed.
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If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the applicable listing standards of The Nasdaq Stock Market LLC. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly and place significant strain on our personnel, systems and resources.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight. If any of these new or improved controls and systems do not perform as expected, we may experience material weaknesses or significant deficiencies in our controls.
Our internal controls may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to maintain effective controls could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. If we identify material weaknesses in our internal control over financial reporting or fail to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results or report them within the timeframes required by law or stock exchange regulations. Failure to comply with Section 404 of the Sarbanes-Oxley Act could also potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. If any material weaknesses exist or are discovered and we are unable to remediate any such material weakness, our reputation, business, results of operations and financial condition may be adversely affected. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on The Nasdaq Global Select Market.
Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to provide an annual management report on the effectiveness of our internal control over financial reporting and our independent registered public accounting firm is also required to formally attest to the effectiveness of our internal control over financial reporting annually. Our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have an adverse effect on our business and results of operations and could cause a decline in the price of our common stock.
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Our reported results of operations may be adversely affected by changes in accounting principles generally accepted in the United States.
Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board (the “FASB”), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported results of operations and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. It is difficult to predict the impact of future changes to accounting principles or our accounting policies any of which could negatively affect our results of operations.
Indemnity provisions in various agreements potentially expose us to liability for intellectual property infringement, data protection and other losses.
Our agreements with customers and other third parties may include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, privacy, data protection or information security issues, damages caused by us to property or persons or other liabilities relating to or arising from our products or other contractual obligations. Some of these indemnity agreements provide for uncapped liability for which we would be responsible, and some indemnity provisions survive termination or expiration of the applicable agreement. Large indemnity payments could harm our business, results of operations and financial condition. Although we normally contractually limit our liability with respect to such obligations, we may still incur substantial liability related to them and we may be required to cease use of certain functions of our products as a result of any such claims. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other existing customers and new customers and harm our business, results of operations and financial condition.
Risks Related to Our Common Stock
The trading price of our common stock could be volatile, and you could lose all or part of your investment.
Technology stocks have historically experienced high levels of volatility. The trading price of our common stock may fluctuate substantially depending on a number of factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our common stock. Factors that could cause fluctuations in the trading price of our common stock include the following:
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price and volume fluctuations in the overall stock market from time to time; |
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announcements of new products, solutions or technologies, commercial relationships, acquisitions or other events by us or our competitors; |
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changes in how customers perceive the benefits of our products and future offerings; |
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departures of key personnel; |
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reaction to our press releases, other public announcements and filings with the SEC, as well as reaction to third-party reports regarding our business, markets and the industry in which we operate; |
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fluctuations in the trading volume of our shares or the size of our public float; |
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sales of large blocks of our common stock; |
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actual or anticipated changes or fluctuations in our results of operations; |
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whether our results of operations meet the expectations of securities analysts or investors; |
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changes in actual or future expectations of investors or securities analysts; |
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actual or perceived significant data breaches involving our products or website; |
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litigation involving us, our industry or both; |
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governmental or regulatory actions or audits; |
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regulatory developments in the United States, foreign countries or both; |
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general economic conditions and trends, including trade conflicts or the imposition of tariffs; |
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major catastrophic events or pandemics (including the COVID-19 pandemic) in our domestic and foreign markets; and |
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“flash crashes,” “freeze flashes” or other glitches that disrupt trading on the securities exchange on which we are listed. |
In addition, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, results of operations or financial condition. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. In the past, following periods of volatility in the trading price of a company’s securities, securities class action litigation has often been brought against that company. If our stock price is volatile, we may become the target of securities litigation. Securities litigation could result in substantial costs and divert our management’s attention and resources from our business. This could have an adverse effect on our business, results of operations and financial condition.
Shares of our common stock are subordinate in right of payment to our debts and other liabilities, resulting in a greater risk of loss for stockholders.
Shares of our common stock are subordinate in right of payment to all of our current and future debt. We cannot assure that there would be any remaining funds after the payment of all of our debts for any distribution to holders of the common stock.
Our debt service requirements and restrictive covenants limit our ability to borrow more money, to make distributions to our stockholders and to engage in other activities.
Our existing credit agreement, as amended, contains a number of covenants that limit our ability and our subsidiaries’ ability to, among other things, transfer or dispose of assets, pay dividends or make distributions, incur additional indebtedness, create liens, make investments, loans and acquisitions, engage in transactions with affiliates, merge or consolidate with other companies or sell substantially all of our assets. Our credit agreement is guaranteed by us and certain of our subsidiaries and secured by substantially all of the assets of the borrower subsidiary, us and the guarantor subsidiaries. The terms of our credit agreement may restrict our current and future operations and could adversely affect our ability to finance our future operations or capital needs or to execute preferred business strategies. In addition, complying with these covenants may make it more difficult for us to successfully execute our business strategy and compete against companies who are not subject to such restrictions. Additionally, our obligations to repay principal and interest on our indebtedness make us vulnerable to economic or market downturns.
If we are unable to comply with our payment requirements, our lenders may accelerate our obligations under our credit agreement and foreclose upon the collateral, or we may be forced to sell assets, restructure our indebtedness or seek additional equity capital, which would dilute our stockholders’ interests. If we fail to comply with any covenant it could result in an event of default under the agreement and the lenders (or any subsequent lender) could make the entire debt immediately due and payable. If this occurs, we might not be able to repay our debt or borrow sufficient funds to refinance it. Even if new financing is available, it may not be on terms that are acceptable to us. These events could cause us to cease operations.
Our failure to comply with our credit agreement and other indebtedness could require us to abandon our business.
Our indebtedness increases the risk that we will not be able to operate profitably because we will need to make principal and interest payments on our debt. Debt financing also exposes our stockholders to the risk that their holdings could be lost in the event of a default on the indebtedness and a foreclosure and sale of our assets for an amount that is less than the outstanding debt. Our ability to obtain additional debt financing, if required, will be subject to approval of our lenders, which may not be granted, or the interest rates and the credit environment as well as general economic factors and other factors over which we have no control may not be favorable. This may hinder our ability to service our existing debt or obtain additional debt financing.
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If securities or industry analysts publish reports that are interpreted negatively by the investment community or publish negative research reports about our business, our share price and trading volume could decline.
The trading market for our common stock depends, to some extent, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts or the information contained in their reports. If one or more analysts publish research reports that are interpreted negatively by the investment community, or have a negative tone regarding our business, financial or operating performance, industry or end-markets, our share price could decline. In addition, if a majority of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
Sales of substantial amounts of our common stock in the public markets, or the perception that such sales could occur, could reduce the price that our common stock might otherwise attain.
Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales could occur, could adversely affect the market price of our common stock and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate. Shares of our capital stock outstanding as of June 30, 2021 are freely tradable without restrictions or further registration under the Securities Act, except for any shares held by our insiders and subject to periodic “blackout” periods, or held by our “affiliates” as defined in Rule 144 under the Securities Act, any unvested restricted stock awards, and restricted stock issued in connection with the acquisition of Usabilla.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of rendering more difficult, delaying or preventing a change of control or changes in our management. Among other things, our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:
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authorize our board of directors to issue, without further action by the stockholders, up to 100,000,000 shares of undesignated preferred stock; |
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require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent; |
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specify that special meetings of our stockholders can be called only by our board of directors, the Chair of our board of directors or our Chief Executive Officer; |
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establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors; |
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establish that our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving three-year staggered terms; |
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prohibit cumulative voting in the election of directors; |
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provide that our directors may be removed only for cause; |
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provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and |
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require the approval of our board of directors or the holders of at least 66 2⁄3% of our outstanding shares of capital stock to amend our amended and restated bylaws and certain provisions of our amended and restated certificate of incorporation. |
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. Provisions in our credit facilities also deter or prevent a business combination. In addition, institutional shareholder representative groups, shareholder activists and others may disagree with our corporate governance provisions or other practices, including anti-takeover
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provisions, such as those listed above. We generally will consider recommendations of institutional shareholder representative groups, but we will make decisions based on what our board and management believe to be in the best long-term interests of our company and stockholders; however, these groups could make recommendations to our stockholders against our practices or our board members if they disagree with our positions. Finally, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated bylaws provides that the Court of Chancery of the State of Delaware is the exclusive forum for:
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any derivative action or proceeding brought on our behalf; |
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any action asserting a breach of fiduciary duty; |
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any action asserting a claim against us arising under the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; and |
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any action asserting a claim against us that is governed by the internal-affairs doctrine. |
If a court were to find the Delaware exclusive-forum provision in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business.
Our amended and restated bylaws further provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. Notwithstanding the foregoing, these provisions do not apply to any cause of action arising under the Exchange Act.
Both of these exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees.
We do not expect to declare any dividends in the foreseeable future.
We have never declared nor paid any cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any cash dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors. As a result, stockholders must rely on sales of their common stock after price appreciation as the only way to realize any future gains on their investment, if any. Our ability to pay dividends is also subject to restrictions in our credit facilities as well as the restrictions on the ability of our subsidiaries to pay dividends or make distributions to us.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
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ITEM 6. EXHIBITS
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Incorporated by Reference |
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Exhibit No. |
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Exhibit Description |
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Form |
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File No. |
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Exhibit |
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Filing Date |
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3.1 |
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Fourth Amended and Restated Certificate of Incorporation of the Registrant, as amended. |
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3.2 |
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8-K |
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001-38664 |
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3.2 |
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June 21, 2021 |
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4.1 |
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10.1* |
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Form of Indemnification Agreement between the Registrant and each of its directors and officers. |
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10.2* |
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Momentive Global Inc. 2018 Equity Incentive Plan and related form agreements. |
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10.3* |
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10.4* |
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Form of Change of Control and Severance Agreement between the Registrant and each of its officers. |
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10.5* |
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10.6* |
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Momentive Global Inc. Executive Incentive Compensation Plan. |
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10.7* |
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Offer Letter by and between Registrant and Justin Coulombe, dated June 15, 2021. |
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8-K |
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001-38664 |
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3.2 |
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June 21, 2021 |
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31.1 |
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31.2 |
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32.1† |
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101.INS |
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XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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Indicates management contract or compensatory plan. |
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The certification attached as Exhibit 32.1 to this Quarterly Report on Form 10-Q is furnished pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of Momentive Global Inc., whether made before or after the date of this Quarterly Report on Form 10-Q, regardless of any general incorporation language in such filing. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Momentive Global Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Momentive Global Inc. |
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Date: August 5, 2021 |
By: |
/s/ JUSTIN D. COULOMBE |
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Justin D. Coulombe |
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Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) |
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