MOMENTIVE GLOBAL INC

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Transcript : Momentive Global Inc. Presents at Credit Suisse 26th Annual Technology Conference, Nov-29-2022 12:20 PM

29/11/2022 | 20:20

Presenter Speech
Stephen Ju (Analysts)

All right. We're going to get started. Stephen Ju with Credit Suisse Internet equity research team. Joining me on the stage is Mr. Zander Lurie, CEO of Momentive. Welcome back, Zander. Good to have you again.

Presenter Speech
Alexander Lurie (Executives)

Nice to see you, Stephen.

Question
Stephen Ju (Analysts)

All right. Awesome. So I guess let's kind of start at the top because I think you're looking to engage with new investors. So I think mid last year, I think the company went through a strategic rebranding from the previous SurveyMonkey and the various products and now to Momentive to highlight the overall value of the broader enterprise solutions, right? So I guess given the changes and not being a different company today versus what it was last year, can you talk about the rebrand and provide a brief overview of the new Momentive as a new organization?

Answer
Alexander Lurie (Executives)

Sure. Well, it's a pleasure to be back here, and thanks for your interest. So last year, after several years of building out our enterprise product portfolio, we really upgraded the solutions to be not only available to be bought by the end user, but of course, to sell to the enterprise. And today, we have over 15,000 customers -- enterprise customers who bought from our direct sales team.

As we were building out that product portfolio, we recognized that the SurveyMonkey flag felt a bit limited for some of our upmarket solutions. And so the goal with Momentive was to rebrand the company and provide an enterprise flag, a blank canvas, if you will, to market those properties in CX as well as Market Research and Insights.

Several months later, of course, we announced the sale to Zendesk, and that took us off a bit of that path. But the strategic vision for Momentive very much holds water today. SurveyMonkey is and will always remain our flagship product, where we have almost 900,000 customers and 20 million active users. But Momentive affords us the opportunity to call into CMOs, heads of IT, heads of CX to market those newer, more enterprise-grade products that SurveyMonkey didn't do such a great job of helping the market today.

Question
Stephen Ju (Analysts)

Okay. Got you. Now I'm sorry to make this the second question, but this is unavoidable given the state of the world today. But on every investor's minds right now is what the world will look like next year, right? So given that you are observing what might start to turn into a tougher macro backdrop and what -- so what are some of the recent sort of operational initiatives that you've taken to mitigate the headwinds to revenue as well as the profits?

Answer
Alexander Lurie (Executives)

Sure. I mean you're seeing it here at the conference, you're hearing it from all tech companies, all SaaS companies, this is a dramatically more challenging environment. Significant headwinds on new sales. We will likely see headwinds on renewals. And it mandates that CEOs and CFOs operate with more rigor, and you control what you can control. When you get less ROI from your spend, you cut back on your spend.

So we eliminated 11% of our workforce, 185 folks just a couple of months ago. We've dramatically scaled back our TBHs and really are just hiring in isolated areas. We're cutting back our IT spend, our marketing spend. We're looking to shrink our real estate footprint. So on the P&L, we're just getting more rigorous, more profitable. The balance sheet, we will continue to put ourselves in a position to maximize liquidity and whether that's taking on debt, buying back stock, building up our cash balance.

And then I think you're going to see next year more focused on minimizing dilution. And so companies like ours, tech companies that have been scaling for growth, spending for growth, diluting their shareholder base are going to have to be more focused there, and we will be one of those companies that are more focused on minimizing dilution. So it's just going to take more rigor and more focus in the C-suite to make sure you deliver for shareholders in a time when revenue headwinds are real and seem to be sustained.

Question
Stephen Ju (Analysts)

Yes. Once again, I apologize for making this all about...

Answer
Alexander Lurie (Executives)

No apologies here. Fire away.

Question
Stephen Ju (Analysts)

Yes. So I mean, you're not the only one who's impacted. Your competitors are impacted as well. right? So I guess is the competitive environment starting to come down a little bit? Do you feel like you can take an offensive stance versus a defensive stance? How do you call that?

Answer
Alexander Lurie (Executives)

So I believe that our category is quite healthy. We are in a category of providing software and services to customers who need to collect feedback, interpret that feedback and then make a good call. And that is for marketers who are learning what products they want to launch, ad campaigns to drive demand for those products, testing on pricing to make sure they find the right price for the demographic they're trying to sell to.

It applies to companies that are trying to deliver world-class customer experiences to either help acquire new customers or mitigate churn to drive upsells. And it's a global category. It's relevant to multinational corporations down to small businesses, nonprofits, educational institutions. We compete with Qualtrics on the higher end. We compete on the lower end with some smaller companies. You have Google and Microsoft in our market.

Software is a market that will -- the water will continue to get raised. And you have to continue to move the goalpost in the features and functionality you deliver for your customers. And that's what we do every day. We try and enhance the quality of our products, deliver more value in AI, in our insights and analytics, and then make sure we're optimizing the business model with pricing and packaging and demand generation to add new customers, upsell to existing customers.

And so I envision competition always getting more enhanced. That's the nature of the business we're in. But there are no single competitors who are making our job more challenging. In fact, we tend to make other companies' jobs more challenging because we deliver more value. And if you're overcharging or you have a really high price point in this kind of cost environment, we are going to go after those customers.

Question
Stephen Ju (Analysts)

Okay. So let's not make this a negative, what could go wrong conversation, but rather switch the topic to what is actually going well, right? So where are you seeing the more robustness in terms of customer end market or a type of product in terms of strength?

Answer
Alexander Lurie (Executives)

So our core surveys product is quite healthy as we're selling upmarket. We continue to add customers. We continue to consolidate large self-serve deployments to sell our Enterprise product, which offers better organizational controls, permissions, integrations for our Enterprise customers. We see really healthy renewal rates for those customers who are getting a lot of value from that product offering. And the area I am most excited about is the expansion motion.

So as I mentioned, we have over 15,000 Enterprise customers. The opportunity for us to upsell those customers and cross-sell our market insights product is a really robust motion for us. We believe there is a multiple of our existing revenue base just by expanding our existing customer base. And so that continues to be a motion that's working well. Our $25,000-and-up customers were up over 20% year-over-year in Q3.

And you'll see us continue to focus there. We've already won the customer. She has a signed contract with one of our sales folks. They're getting value from our product offering, and so we just need to avail them to other products we have. New business for us is tough. For everybody, it's tough. It just tends to be an area where you need to invest more, spend more to win new customers at a time when they're trying to dial back spend. So you'll see us put more of our selling focus and our marketing motion into upsells and cross-sells for existing customers.

Question
Stephen Ju (Analysts)

Maybe I'm preaching to the choir, but it seems like to me the information that you gather, that's not of critical business importance. So in terms of winning over new customers, is it just, all right, I just dial everything back? Or it seems like if you're trying to focus on reducing costs or operating more efficiently, kind of want to figure out like what parts of the advertising spend or what it is that you're doing wrong, and it seems like that information should be coming from the Survey products.

Answer
Alexander Lurie (Executives)

Stephen, if things don't work out for you here at CS, you have a job in our account executive team. I think you're exactly right. And I think it's why our employees are motivated by the mission of the company. It's why most investors see the value of our product offering. Our software products enable people to collect feedback from the stakeholders that are most important to them. And again, so if you're launching new products, looking for new geos, testing new ad campaigns, new pricing or just trying to deliver a world-class experience to your customers so they continue to renew, you need that feedback.

But we do have economic headwinds. You have people getting managed out who are our customers. Unemployment rates are a threat to seat-based businesses like ours. And so this is a time where it's just -- it's tougher to get a buyer's attention, and it's tougher to get deals over the finish line. And in those kinds of environments, you need to manage what you can control, which are your costs and then focus on your highest ROI-generating initiatives. And for us, it's that expansion motion I just mentioned.

Question
Stephen Ju (Analysts)

Got it. Now speaking of the expansion motion and cross-selling. I think if you go back to the history of the company, the legacy brand is SurveyMonkey. So it moved from what I guess is more of a general use case product to now what are multiple pinpoint solutions, right? So in terms of the product breadth, you now have the original surveys, market research, customer experience. What other areas do you think you can address within the Enterprise workflow with the more pinpoint solutions to further, I guess, penetrate and expand the TAM?

Answer
Alexander Lurie (Executives)

Yes. I mean our Survey products tend to do really well in large organizations where there are multiple use cases. And so people, the humans of the world can deploy our products at scale to help collect feedback on a whole bunch of use cases. And then the organizational controls are really critical, so that, at a certain level, executive can see certain data that a more junior-level employee cannot. Other departments can have purview into HR feedback that a sales organization cannot.

And so for us, Surveys has always been about land and expand. We never do site-wide deals, and so we land with the department. And then as that survey process gets integrated into the workflows, into the systems and customers drive more value, then they expand to other departments, other geos. And that's where that net revenue retention is really healthy.

The specific use cases, which really was the catalyst to rebrand as Momentive are largely around market insights and customer experience. Market insights, everything from brand tracker, concept testing, price testing, really helping market researchers, insights departments understand what is going to work. And this is where our products deliver, somebody with a growth mindset who's sitting either at home or in a remote office, doesn't have purview for all of our customers around the world, what's going on. use the software to interpret unstructured data, large data sets, so they can get to that right call.

We're helping people make great calls. And that is where our market insights and customer experience solutions have performed really well, and we're going to continue to upsell those to our Survey customer base.

Question
Stephen Ju (Analysts)

Okay. I think we touched on this back at the time of the IPO also, there's different -- it's a product that should be used sort of across the firm, like the Chief Marketing Officer, that's an obvious use case, right? But then there's the HR department, et cetera, right? So who is the primary point of contact at all of these firms, all of your clients, is it all? Is it -- so where is the first usual, I guess, the touch point?

Answer
Alexander Lurie (Executives)

It's both an advantage of our business model and a disadvantage. We don't have a single buyer for our products. That said, if you're talking about a 10,000-, 50,000-, 100,000-person company, that HR department needs to be world-class at surveys, and they know it. There has never been a more dynamic time. Think about the global experiment going on with Elon Musk right now. Helping interpret the data from employee bases about what benefits they want, pay, the work style, productivity, it's critical to understand the employee base, especially knowledge workers who are working remotely and have very different work styles.

And so HR is obviously a critical area. Product design, customer experience, understanding attrition rates, churn rates, upsell rates from your cohort bases around the world, that necessitate software. You cannot do that with pen-and-paper kind of surveys. You can't do that with your gut. You've got to use software to understand the level of density and data we can provide. And then as you just mentioned, market research. We've seen some of the world's best companies fail with ad campaigns that have fallen flat, price testing that's gone wrong.

You can't do this via your gut. And so those are areas in a really dynamic environment with social justice issues, macroeconomic headwinds, COVID, return to work, stay home. These are areas where really elegant, well-designed, AI-driven mobile surveys can help you get to the right answer.

Question
Stephen Ju (Analysts)

Yes. I think switching a little bit to revenue generation and monetization, I think last quarter, you highlighted some weakness in the consumption-based revenue streams and market research. I think longer term, like what do you think it's going to be in terms of the optimal monetization model for Momentive between SaaS or more the consumption-based model?

Answer
Alexander Lurie (Executives)

The vast majority of our business model is SaaS. Over 90% of our revenue is subscription, based largely on the back of Surveys. The market research area, which has been a very high-growth product line via the sales channel over the last few years has suffered a bit this year. We had some concentration with financial services companies, with technology companies. Those have been organizations which have been pretty challenging this year in terms of new sales.

And it's not to say that our products offer less value. As you mentioned before, you can argue that they're more valuable in this time. But your buyer needs to be focused, can't be distracted, budgets need to be there. And those are areas where we believe we've got a great product offering. It tends to be more consumption based. And that's -- we're piloting a SaaS model for that product as well.

Brand tracker is a great example within market insights. Tracking your brand every month or every quarter is critical. That's a SaaS-oriented sale, whereas some of our other Market research Products tend to be more consumption-based or onetime based. And we want to move more to SaaS for obvious reasons and provide more visibility on those renewal rates. And I think we have the opportunity to do that in the quarters to come.

Question
Stephen Ju (Analysts)

Cool. And I think you also called out record levels of expansion bookings with, I think, 2,240 customers spending over $25,000 a year and 900 customers using more than 1 Enterprise product, right? So what products are you seeing the greatest amount of traction for adoption and expansion despite the macro environment?

Answer
Alexander Lurie (Executives)

Yes. We almost always land with Surveys. We land with the department, we land up with a geo, you land with 10 or 25 seats and expand from there. We know through a lot of testing and cohort analysis that our Surveys product expands really well. And I think the real beauty in this business model will be when we can attach CX or attach market insights to those Survey deployments.

And so it's important to remember the reason we are in customer experience products and the reason we're in market insights products, that's what people started to use SurveyMonkey for, at its most rudimentary and simplistic level. And so we poured a whole bunch of product build-out and go-to-market resources into really redoubling our efforts with purpose-built software solutions. And we've seen really good uptake there.

But that expansion motion is largely about selling market insights and CX products at much higher ACVs to existing enterprise Survey customers. We know they have the need for it. If you're at a 50,000-person company utilizing our survey solution, I guarantee you have somebody who's buying market research and CX products. We want that to be from us. And so that's the enterprise motion we're most focused on expansion.

Question
Stephen Ju (Analysts)

Understood. Now I think recently, you've called out some deceleration in the self-serve business. So can you talk about what's driving that and what you might be doing as a remedy to reinvigorate the top of the model?

Answer
Alexander Lurie (Executives)

Yes, we have execution gaps and I own that. It's on me. For 20 years, we've had this really elegant viral growth in our SurveyMonkey base. And for many, many years, the business grew double digit. Obviously, very profitable and financed our upmarket innovation into the enterprise solutions. Last year, between the rebrand, which consumed a whole bunch of marketing resources and time and dollars to launch Momentive. Then the Zendesk distraction, coupled with kind of post-COVID hangover on traffic.

We've seen our SurveyMonkey traffic to our core flagship property flagged this year. We called it out in March. We diagnosed it early. We recognized exactly what we needed to do. We needed to redouble our efforts in search engine optimization. Fresh, really good content is the core driver, which feeds traffic to sites like ours from Google. We needed to get sharper in our search engine marketing spend and push back against some of the ankle biters that we're bidding against our big head and torso keywords.

And then we launched a really fresh ad campaign with Giancarlo Esposito that I mentioned back in September. So we've seen a surge in traffic to SurveyMonkey the first time it's been up in 6 quarters year-over-year. Converting that free traffic into paid subscribers is the work. And we knew that it was going to be a tall order in this environment. It's coming more slowly than I'd like to see. But for many, many years, the most correlated factor in our paid subscription base has been free sign-ups.

And we're signing over 30,000 free sign-ups a day. And so we've just got to work harder to show those free trials the value of our paid offering and move them from a free trial to a paid subscription routine.

Question
Stephen Ju (Analysts)

How do you attract more of the free users through SEO? Is it just differentiated content? How to create a survey?

Answer
Alexander Lurie (Executives)

Yes.

Question
Stephen Ju (Analysts)

Or yes, it's just...

Answer
Alexander Lurie (Executives)

Yes. I mean the elections was a huge win for us. We helped our partner at NBC News land 35 senate races. Looking at different demographics and Latino cohort versus other demographics around certain issues that were very popular in the election. So we did over 300,000 surveys, fed that data to our partner and got some great insights. And that kind of content out in the ecosystem really showcases for people that nobody has the density and diversity of data that SurveyMonkey has, just because of our user base. You have 20 million people in the world sending surveys. And so it's really hard to go into an airport with paper and pen or call people at dinner time to solicit their opinions at a scale like us. And then obviously, we use AI in a differentiated way, taking unstructured data and making sense of it.

Question
Stephen Ju (Analysts)

So 30,000 sign-ups a day, can you remind us what the free user base, and you said the magic word, the conversion rate, right? So what is the imputed, I guess, conversion rate that you have from free to paying right now? Where should that be?

Answer
Alexander Lurie (Executives)

Yes. I mean it's always been a single-digit percentage of our users that convert from free to pay. And so it's on us to make sure we show customers more opportunities to deploy a survey. And once that survey goes out, then the data comes in, and that's the aha moment. It doesn't matter how much money you make, it doesn't matter how senior you are, you care about what your stakeholders feel and think because you want to invest in your business, you want to make a great call. And so we use those certain points in the survey creation process or data collection process as an upgrade for a pay trigger.

Question
Stephen Ju (Analysts)

Okay. So for right now, it seems like top funnel is the primary focus and get the traffic in and then highlight the value, convert them. Okay.

Answer
Alexander Lurie (Executives)

Correct. And rigorous price testing and packaging testing. It's an area where we're world-class based on years of experience.

Question
Stephen Ju (Analysts)

Okay. Got it. Now...

Answer
Alexander Lurie (Executives)

Is the U.S. beating Iran, yet? Do we have an update?

Question
Stephen Ju (Analysts)

I'm not sure. We won. Okay. All right.

Answer
Alexander Lurie (Executives)

We're up?

Question
Stephen Ju (Analysts)

We're up. Okay. Awesome. All right.

Answer
Alexander Lurie (Executives)

Thank you for paying attention. Appreciate your interest.

Question
Stephen Ju (Analysts)

So I guess at the time of the Analyst Day, I think you outlined targets for 5% to 8% self-serve growth towards, I guess, you previously talked about a low double-digit growth for the business in the longer term. So given the early indications of that turnaround that we're talking about, like does that raise your confidence of the overall targets that you talked about?

Answer
Alexander Lurie (Executives)

Yes. In August, we had an IR Virtual Day rolled out our focus to get the business up into the mid-teens growth rate. Again for a couple of years, we were in the 20s. It's obviously single digit right now. And so this is a multiyear growth rate, it comes via 2 channels. The self-serve channel, we believe, is kind of a mid- to high single-digit grower through both adding of new users, but also pricing.

We've recently introduced a price change for our annual subscription base here in the U.S. that will phase in over the next 12 months. And I believe that kind of mid- to high single digits is feasible in the next few years. And then on the sales side, of course, we're still targeting 20-plus percent growth where we have a fabulous product offering and the opportunity for upsell and expansion.

So the net-net is a business growing in the teens with really, really healthy profit margins, which are at our control, and you will see us, this year, we've guided a 7% EBIT margin, 14% to 16% EBIT margin here in Q4. It's up from 2% last year, and we've counseled the market that we'll see 500 basis points of expansion in 2023 from 2022.

Question
Stephen Ju (Analysts)

Great. Now digging a little bit on the sales perspective. So I think you announced the restructuring program, you touched on this earlier here as well. So I think you decreased your workforce by about 11%. And I guess because the targeting there was reducing the outbound legion in SMB sales as well as you're focusing on the larger deals as well, right, and expansion. So this seems to place you more of an up market trajectory here. So do you anticipate sort of the incremental competitive intensity to arrive? Or especially as your historical strength seems to have been and the speed of market and ease of use?

Answer
Alexander Lurie (Executives)

Yes. I think we still very much steer into speed and value. That's where we win. People have used our products. They know the value our products deliver. And at a really attractive price point, they can get up and going and integrate into their enterprise systems really quickly. So we really just took out the weakest performing leg of our go-to-market motion. It's not to say it wasn't adding value. It was, but that team was a lower -- had a lower ROI than some of the other demand generation and selling motions we had.

So we're still very much focused on that mid-market customers, not to say we don't win at the very high end. But our best win rates are in that mid-market, and speed and value are obviously critical drivers in our winning.

Question
Stephen Ju (Analysts)

And by speed, you mean like the ease of being able to create the survey and...

Answer
Alexander Lurie (Executives)

Get you up and going. Get you -- I mean from the moment you're doing your analysis and your own SurveyMonkey or you're talking to one of our sales folks. You have a need, you have a program, you have a budget, we can get you up and going in a couple of weeks with a really robust program that you're proud to send out surveys that integrates with your system of record, your sales force shop, in particular. And you can start consuming the data and making great calls. And it's not the kind of expensive multi-hundred thousand dollar high professional services deployment that takes months.

Question
Stephen Ju (Analysts)

Months. Yes, that was my next question, how long it takes with the other guys. Yes.

Answer
Alexander Lurie (Executives)

And those businesses are -- they're under duress right now because you'll see a lot of multi-hundred thousand dollar customers come down to price points like ours, which could be a 1/4 or even 1/5 of the cost.

Question
Stephen Ju (Analysts)

But there is still a deployment challenge with the other guys versus you, right, in terms of go-to-market with some survey that you've crafted together and getting immediately extracting data that's actionable.

Answer
Alexander Lurie (Executives)

Yes.

Question
Stephen Ju (Analysts)

Okay. Fair enough. Now how much of the go-to-market sort of reorg was factored into the strategic outlook provided at the Analyst Day?

Answer
Alexander Lurie (Executives)

I mean, obviously, August wasn't too far between the space of the time we did the reorg. So we had contemplated a smaller headcount at end of year. And we know we have the resources to compete and grow and be effective. And it's going to necessitate more productivity, but I believe we have the right team on the floor to do that. So that was contemplated in the 14% to 16% guidance range we delivered.

Question
Stephen Ju (Analysts)

Okay. And talking about the positive side of things, have you seen opportunities to, I guess, reinvest in areas where you decided to focus on amidst the restructuring?

Answer
Alexander Lurie (Executives)

Yes. I mean, look, people appreciate focus and clarity and they want the accountability. Our team wants to win. We believe we have the product set and the mission to win. We've got some key areas identified where we believe we have the right products. We know we're going to continue to stay focused on the AI and analytics, R&D function. We know our go-to-market function is going to be focused on expansion.

We know we've got a challenging macro environment to deal in. But as I keep telling the team for every dollar of churn we have, we should be going to get $2 of somebody else's churn. And the category is healthy. Our customers need our products. They need us to be accountable. The kinds of wins you see, the Bank of America -- am I allowed to talk about your competitors?

Question
Stephen Ju (Analysts)

Yes.

Answer
Alexander Lurie (Executives)

Bank of America kind of expanded from a large survey deployment to a large market insights deployment. Those kinds of customer wins where they put us through ruthless kind of diligence, and there's a discerning buyer on the other end. They showcase for me the quality of our products and that when we execute well, we can be an exemplary player in the space, and we just need to do that at greater scale and consistency in 2023.

Question
Stephen Ju (Analysts)

Got it. And you, just on stage, reiterated the 500 basis points of margin expansion for next year?

Answer
Alexander Lurie (Executives)

Correct.

Question
Stephen Ju (Analysts)

Right. So -- despite the worsening macro, right? So...

Answer
Alexander Lurie (Executives)

We control what we could control, and cost levers are definitely things within our control.

Question
Stephen Ju (Analysts)

Okay. Understood. All right. Cool. So I guess in the few minutes that we have left, once again, I think I've asked you this question I think last year, I don't think -- but I think 2 years ago, we asked you the question of, hey, it's a year from now and here we are sitting at the Credit Suisse conference once again. And looking backwards into 2023, what do you think we will be talking about in terms of what you have accomplished in the trailing 12 months?

Answer
Alexander Lurie (Executives)

I mean I've never had more conviction that a successful 2023 for us is going to be ruthless execution. And I think we are moving to an environment where CEOs and CFOs are just going to have to get more rigorous, make tougher calls. It might feel like a little less employee-friendly environment because it's not growth at all costs where perks are dramatically scaled back.

But I think our employee base finds the most satisfaction and reward from winning. It's not the quality of the granola bars you're serving, it's the quality of products we're delivering our customers. And so a crisper execution, better win rates, delivering revenue growth is at the high end of what we're targeting with a cost envelope that's smaller and employee base that's not growing.

I've never been in an environment here in the last 7 years where our employee base doesn't grow markedly year-over-year. It's not going to grow next year. So that kind of revenue reacceleration, plus significant margin expansion, I think, will set us up and our employees up for a real feeling of reward and fulfillment and winning to help our customers get the value they can from our products. So that's what I'm looking for in 2023.

Question
Stephen Ju (Analysts)

Awesome. And with that, I think we'll wrap it up. Thanks again for joining us, Zander.

Answer
Alexander Lurie (Executives)

Thanks, Stephen. I appreciate you. Thanks, everybody.

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