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x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended September 30, 2022

o			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: 001-41049

Delaware									26-0339214
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)

144 Townsend Street San Francisco, California 94107
(Address of principal executive offices) (Zip code)
(650) 567-5616
Registrant’s telephone number, including area code

Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Common Stock, $0.0001 par value per share			USER			New York Stock Exchange

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

Large accelerated filer

o

Accelerated filer

o

Non-accelerated filer

x

Smaller reporting company

¨

Emerging growth company

x

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

						Page
Part I - Financial Information
Item 1.			Financial Statements (Unaudited)			6
			Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021			6
			Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021			7
			Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) for the Three and Nine Months Ended September 30, 2022 and 2021			8
			Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021			10
			Notes to Condensed Consolidated Financial Statements			11
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			48
Item 4.			Controls and Procedures			48
Part II - Other Information
Item 1.			Legal Proceedings			50
Item 1A.			Risk Factors			50
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			84
Item 3.			Defaults Upon Senior Securities			84
Item 4.			Mine Safety Disclosures			84
Item 5.			Other Information			84
Item 6.			Exhibits			85
Signatures						86

SPECIAL NOTE REGARDING 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 (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), about us and our industry that involve substantial risks and uncertainties. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial condition, our business strategy and plans, market growth and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “target,” “plan,” “expect,” and similar expressions are intended to identify forward-looking statements.

Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

•our future financial performance, including our expectations regarding our subscription and professional revenue, cost of revenue, gross profit, gross margin, operating expenses, including changes in operating expenses, and our ability to achieve and maintain future profitability;

•our business plan, our pricing model, and our ability to effectively manage our growth;

•anticipated trends, growth rates, and challenges in our business and in the markets in which we operate;

•market acceptance of our products and services and our ability to increase adoption of our products and services;

•beliefs and objectives for future operations;

•our ability to further attract, retain, and expand a community of consumers and participants;

•our ability to timely and effectively scale and adapt our products and services;

•our ability to develop new products and services and bring them to market in a timely manner and enhance our existing products and services;

•our expectations concerning relationships with third parties;

•our ability to maintain, protect, and enhance our intellectual property;

•our ability to continue to expand internationally;

•the effects of increased competition in our markets and our ability to compete effectively;

•the impact of the COVID-19 pandemic on our operations, financial results, and liquidity and capital resources, including on customers, sales, expenses, and employees;

•future acquisitions or investments in complementary companies, products, services, or technologies;

•our ability to stay in compliance with laws and regulations that currently apply or become applicable to our business both in the United States and internationally;

•economic and industry trends, projected growth, or trend analysis;

•global macro-economic conditions, including the effects of inflation, rising interest rates and market volatility on the global economy;

•attraction and retention of qualified employees and effective management of our workforce;

•increased expenses associated with being a public company;

•the proposed transaction with Thoma Bravo and our ability to consummate the transaction in a timely manner or at all; and

•other statements regarding our future operations, financial condition, and prospects and business strategies.

These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or to changes in our expectations, except as required by law.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this report and have filed with the Securities and Exchange Commission (SEC) as exhibits to this report with the understanding that our actual future results, performance, and events and circumstances may be materially different from what we expect.

Part I - Financial Information

			September 30, 2022						December 31, 2021
Assets
Current assets:
Cash and cash equivalents			$	164,618					$	178,430
Accounts receivable, net			34,058						47,973
Costs capitalized to obtain revenue contracts, current			8,621						8,116
Prepaid expenses and other current assets			8,512						6,045
Total current assets			215,809						240,564
Property and equipment, net			2,916						3,257
Operating lease right-of-use assets, net			12,852						16,401
Intangible assets, net			449						640
Goodwill			8,785						8,785
Costs capitalized to obtain revenue contracts, non-current			12,256						12,941
Other long-term assets			808						540
Total assets			$	253,875					$	283,128
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable			$	1,524					$	1,544
Contract liabilities			96,831						90,952
Operating lease liabilities, current			5,219						5,271
Accrued expenses and other current liabilities			12,536						21,799
Total current liabilities			116,110						119,566
Operating lease liabilities, non-current			9,346						12,996
Other long-term liabilities			887						887
Total liabilities			126,343						133,449
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.0001 par value per share: 10,000 shares authorized and no shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively			—						—
Common stock and capital in excess of par value, $0.0001 par value per share: 2,000,000 shares authorized, and 144,625 and 142,241 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively			379,848						352,881
Accumulated deficit			(252,316)						(203,202)
Total stockholders’ equity			127,532						149,679
Total liabilities and stockholders’ equity			$	253,875					$	283,128

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Revenue
Subscription			$	47,517					$	35,951					$	135,900					$	96,883
Professional services			1,891						2,694						6,922						8,031
Total revenue			49,408						38,645						142,822						104,914
Cost of revenue
Subscription			8,501						7,388						24,607						21,230
Professional services			2,402						2,124						7,114						6,247
Total cost of revenue			10,903						9,512						31,721						27,477
Gross profit			38,505						29,133						111,101						77,437
Operating expenses:
Sales and marketing			29,662						23,384						93,049						62,512
Research and development			10,804						9,543						33,774						29,128
General and administrative			10,980						6,492						30,981						19,817
Restructuring			1,385						—						1,385						—
Total operating expenses			52,831						39,419						159,189						111,457
Loss from operations			(14,326)						(10,286)						(48,088)						(34,020)
Interest income, net			24						29						44						103
Other income (expense), net			(582)						896						(562)						683
Loss before provision for income taxes			(14,884)						(9,361)						(48,606)						(33,234)
Provision for income taxes			307						275						508						569
Net loss			$	(15,191)					$	(9,636)					$	(49,114)					$	(33,803)
Net loss per share attributable to common stockholders, basic and diluted			$	(0.11)					$	(0.49)					$	(0.34)					$	(1.80)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted			144,211						19,558						143,347						18,798

			Three Months Ended September 30, 2022
			Convertible preferred stock												Common stock and capital in excess of par value												Accumulated deficit						Total stockholders’ equity
			Shares						Amount						Shares						Amount
Balance as of June 30, 2022			—						$	—					143,890						$	371,844					$	(237,125)					$	134,719
Issuance of common stock upon exercise of stock options			—						—						559						688						—						688
Vesting of restricted stock units			—						—						176						—						—						—
Stock-based compensation expense			—						—						—						7,316						—						7,316
Net loss			—						—						—						—						(15,191)						(15,191)
Balance as of September 30, 2022			—						$	—					144,625						$	379,848					$	(252,316)					$	127,532

			Three Months Ended September 30, 2021
			Convertible preferred stock												Common stock and capital in excess of par value												Accumulated deficit						Total stockholders’ (deficit)
			Shares						Amount						Shares						Amount
Balance as of June 30, 2021			110,851						$	201,531					18,940						$	15,054					$	(176,648)					$	(161,594)
Issuance of common stock upon exercise of stock options and vesting of restricted stock awards			—						—						1,061						1,018						—						1,018
Stock-based compensation expense			—						—						—						2,787						—						2,787
Net loss			—						—						—						—						(9,636)						(9,636)
Balance as of September 30, 2021			110,851						$	201,531					20,001						$	18,859					$	(186,284)					$	(167,425)

			Nine Months Ended September 30, 2022
			Convertible preferred stock												Common stock and capital in excess of par value												Accumulated deficit						Total stockholders’ equity
			Shares						Amount						Shares						Amount
Balance as of December 31, 2021			—						$	—					142,241						$	352,881					$	(203,202)					$	149,679
Issuance of common stock upon exercise of stock options			—						—						1,680						2,244						—						2,244
Issuance of common stock under the employee stock purchase plan			—						—						497						2,027						—						2,027
Vesting of restricted stock units			—						—						207						—						—						—
Stock-based compensation expense			—						—						—						22,696						—						22,696
Net loss			—						—						—						—						(49,114)						(49,114)
Balance as of September 30, 2022			—						$	—					144,625						$	379,848					$	(252,316)					$	127,532

			Nine Months Ended September 30, 2021
			Convertible preferred stock												Common stock and capital in excess of par value												Accumulated deficit						Total stockholders’ (deficit)
			Shares						Amount						Shares						Amount
Balance as of December 31, 2020			110,851						$	201,531					17,948						$	12,118					$	(152,481)					$	(140,363)
Issuance of common stock upon exercise of stock options and vesting of restricted stock awards			—						—						2,053						1,822						—						1,822
Stock-based compensation expense			—						—						—						4,919						—						4,919
Net loss			—						—						—												(33,803)						(33,803)
Balance as of September 30, 2021			110,851						$	201,531					20,001						$	18,859					$	(186,284)					$	(167,425)

			Nine Months Ended September 30,
			2022						2021
Cash flows from operating activities:
Net loss			$	(49,114)					$	(33,803)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			1,139						1,204
Stock-based compensation expense			22,696						4,919
Provision for allowance for doubtful accounts			687						154
Amortization of costs capitalized to obtain revenue contracts			6,886						4,757
Changes in operating assets and liabilities:
Accounts receivable			13,228						(7,323)
Costs capitalized to obtain revenue contracts			(6,706)						(8,969)
Prepaid expenses and other assets			(2,734)						(2,877)
Accounts payable			(9)						366
Accrued liabilities			(9,306)						(1,769)
Contract liabilities			5,879						16,784
Other liabilities			86						552
Net cash used in operating activities			(17,268)						(26,005)
Cash flows from investing activities:
Purchase of property and equipment			(713)						(1,955)
Purchase of intangible assets			—						(150)
Net cash used in investing activities			(713)						(2,105)
Cash flows from financing activities:
Payment of offering costs			(102)						(4,025)
Payment of deferred purchase consideration			—						(1,766)
Proceeds from issuance of common stock upon exercise of stock options			2,244						1,822
Proceeds from issuance of common stock under the employee stock purchase plan			2,027						—
Net cash provided by (used in) financing activities			4,169						(3,969)
Net decrease in cash and cash equivalents			(13,812)						(32,079)
Cash and cash equivalents, beginning of period			178,430						96,972
Cash and cash equivalents, end of period			$	164,618					$	64,893
Supplemental disclosures of non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable and accrued liabilities			$	20					$	107
Offering costs in accrued liabilities			$	—					$	1,151

Description of Business

UserTesting, Inc. and its subsidiaries (together, UserTesting or the Company) provide developers, designers, and product managers access to a video-first, enterprise-grade software-as-a-service (SaaS) platform that enables organizations to see and hear the experiences of real people as they narrate their thoughts out loud while engaging with products, designs, apps, processes, concepts, and brands. The Company was incorporated in the state of California and commenced operations on May 30, 2007. In September 2021, the Company was reincorporated in the State of Delaware. Other than the change in corporate domicile, the reincorporation did not result in any change in the business, physical location, management, assets, liabilities, or total stockholders’ equity (deficit) of the Company, nor did it result in any change in location of the Company’s employees, including the Company’s management. Additionally, the reincorporation did not alter any stockholder’s percentage ownership interest or number of shares owned in the Company. The Company is headquartered in San Francisco and has offices located in Atlanta, Sunnyvale, Norway and the United Kingdom.

Fiscal Year

The Company’s fiscal year ends on December 31. References to fiscal 2021, for example, refer to the fiscal year ended December 31, 2021.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP) and applicable guidance for interim financial reporting. The condensed consolidated balance sheet as of December 31, 2021 included herein was derived from the audited financial statements as of that date, but, does not include all disclosures normally included in the complete financial statements prepared in accordance with U.S. GAAP. The accompanying condensed consolidated balance sheet as of September 30, 2022, condensed consolidated statements of operations and convertible preferred stock and stockholders’ equity (deficit) for the three and nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021, and amounts relating to such interim periods included in the accompanying notes to the condensed consolidated financial statements are unaudited and certain information and note disclosures have been condensed or omitted pursuant to applicable guidance for interim financial reporting. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements, and in management’s opinion, include all normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2022 and its results of operations for the three and nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results expected for any future annual or interim period.

The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission on March 4, 2022.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of UserTesting, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies.

The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that the Company (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period

The Company will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which the Company’s total annual gross revenue is at least $1.07 billion, (ii) the last day of the fiscal year following the fifth anniversary of the completion of the Company’s initial public offering (IPO), (iii) the date on which the Company issued more than $1.0 billion in non-convertible debt securities during the prior three-year period, or (iv) the date on which the Company becomes a large accelerated filer.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The Company bases its estimates and judgments on historical experience and on various other assumptions that it believes are reasonable under the circumstances. However, future events are subject to change and the estimates and judgments are subject to adjustment. Significant items subject to such estimates and assumptions include, but are not limited to, the estimated expected period of benefit for deferred contract acquisition costs, the determination of standalone selling price (SSP) for its performance obligations, the allowance for doubtful accounts, the useful lives of long-lived intangible assets, the value of the Company’s common stock prior to the IPO and other assumptions used to measure stock-based compensation, the fair value of assets acquired and liabilities assumed for business combinations, lease term and incremental borrowing rate for lease liabilities, and the valuation of deferred income tax assets and uncertain tax positions. Actual results could differ from those estimates.

Due to uncertainty in the macroeconomic environment, including as a result of the effects of the COVID-19 pandemic and increasing inflation, there is ongoing 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 the Company’s assets or liabilities as of the date of issuance of these condensed consolidated financial statements. These estimates, judgments and assumptions may change in the future, as new events occur or additional information is obtained.

Concentrations of Risks, Significant Customers and Investments

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, and accounts receivable. The Company maintains its cash and cash equivalents with high-quality financial institutions with investment-grade ratings. A majority of the cash balances are with U.S. banks and are insured up to the Federal Deposit Insurance Corporation limits. The Company has not experienced any losses on its cash and cash equivalents.

No single customer accounted for more than 10% of accounts receivable as of September 30, 2022 and December 31, 2021. No single customer accounted for more than 10% of total revenue during the three and nine months ended September 30, 2022 and 2021.

The Company relies on the technology, infrastructure, and software applications, including software-as-a-service offerings, of third parties in order to host or operate certain key products and functions of its business.

Comprehensive Loss

Comprehensive loss is comprised of net loss and other comprehensive income (loss). The Company has no components of other comprehensive income (loss). Therefore, net loss equals comprehensive loss for all periods presented and, accordingly, condensed consolidated statements of comprehensive loss are not presented in a separate statement.

Segment Information

The Company operates in one operating segment. An operating segment is defined as a component of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker, who is the

Cash and Cash Equivalents

The Company considers highly liquid investments with original maturities of three months or less to be cash and cash equivalents. Cash equivalents consist of money market accounts with tiered interest rates and a U.S. government money market fund, which are denominated in U.S. dollars.

Fair Value Measurements

The Company categorizes assets and liabilities recorded at fair value on its consolidated balance sheets based on the accounting guidance framework for measuring fair value on either a recurring or nonrecurring basis, whereby inputs used in valuation techniques are assigned a hierarchical level.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company measures assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires it to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. U.S. GAAP describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, to measure the fair value:

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, 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 – Inputs are unobservable based on the Company’s own assumptions used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial or nonfinancial asset or liability.

Financial instruments consist of cash and cash equivalents, accounts receivable and accounts payable. The Company’s cash equivalents consist of money market accounts with tiered interest rates and a U.S. government money market fund, which are carried at fair value. The Company has determined the carrying value to be equal to the fair value and has classified these investments as Level 1 financial instruments.

Accounts Receivable, Net

Accounts receivable, net, are recorded at the invoiced amount, net of allowance for doubtful accounts, and are not interest bearing nor secured by collateral. The allowance for doubtful accounts is based on the Company’s assessment of the collectability of accounts, considering a combination of factors including the Company’s customers’ financial condition and collection history, the age of open receivables and the current payment terms. Accounts receivable deemed uncollectible are charged against the allowance for doubtful accounts when identified. To date, allowances for doubtful accounts have not been material.

Property and Equipment, Net

Property and equipment, net, are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of three to five years for computer equipment, furniture and fixtures, and software. Leasehold improvements are amortized over the shorter of the remaining lease term or the estimated useful life. Expenditures for maintenance and repairs, which do not significantly extend the useful lives of the assets, are expensed as incurred.

The following table presents the Company’s property and equipment, net of accumulated depreciation and amortization, by geographic region (in thousands):

			September 30, 2022						December 31, 2021
United States			$	2,178					$	2,738
United Kingdom			711						510
Rest of the world			27						9
Total property and equipment, net			$	2,916					$	3,257

Impairment of Long-Lived Assets (including Goodwill and Intangible Assets)

Long-lived assets with finite lives include property and equipment and acquired intangible assets. The Company evaluates long-lived assets, including acquired intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by comparing the carrying amount of an asset or an asset group to estimated undiscounted future net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds these estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group.

Goodwill is not amortized but rather tested for impairment at least annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Goodwill impairment is recognized when the carrying value of the reporting unit exceeds its fair value, in which case an impairment charge is recorded.

The Company did not recognize any impairment charges during the three and nine months ended September 30, 2022 and 2021.

Deferred Offering Costs

Prior to the completion of the IPO in November 2021, deferred offering costs, which mainly consist of direct incremental legal, accounting, and consulting fees relating to the IPO, were capitalized in “Other long-term assets”. Upon completion of the IPO, the deferred offering costs, net of a reimbursement received from underwriters, were reclassified into equity as a reduction against IPO proceeds.

Revenue Recognition

The Company derives its revenues from two sources: (1) subscription fees from customers accessing the Company’s platform, and from customers paying for additional support; and (2) professional services and training. Revenue is recognized when promised goods or services are transferred to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services, net of any taxes collected from customers (e.g., sales and other indirect taxes), which are subsequently remitted to government authorities.

The Company determines revenue recognition through the following steps:

•Identification of the contract, or contracts, with a customer;

•Identification of the performance obligations in the contract;

•Determination of the transaction price;

•Allocation of the transaction price to the performance obligations in the contract; and

•Recognition of revenue when, or as, the Company satisfies a performance obligation.

Subscription Revenue

Subscription revenue primarily consists of subscription fees from customer agreements to access the Company’s platform, as well as additional support services. The Company’s customers do not have the ability to take possession of its software. The Company recognizes revenue for subscription fees and additional support services on a straight-line basis over the term of the contract beginning on the date access to the Company’s platform is granted, as the underlying service is a stand-ready performance obligation. Customers may also purchase incremental capacity to the Company’s platform, which is an additional stand-ready performance obligation satisfied and recognized as revenue over the remaining term of the applicable subscription. The Company views its performance obligation as a series of distinct services as the underlying subscription service is made available to the customer on a continuous basis over the contracted period of time, and that are substantially the same and have the same pattern of transfer to the customer. The Company has concluded that each distinct service is satisfied over time, specifically, given that the nature of its promise is not the actual delivery of a specified quantity of service but is rather providing a single service over a period of time. Customers who consume above their committed capacity will be invoiced for overages on a quarterly basis. The Company recognizes the overage fees as variable consideration. Revenue recognized as variable consideration was not material during the three and nine months ended September 30, 2022 and 2021.

The Company typically invoices its customers annually. Payment terms generally require that customers pay within 30 days of invoice. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue. The Company applies the practical expedient in Topic 606 paragraph 10-32-18 and does not adjust the promised amount of consideration for the effects of a significant financing component for contracts that are one year or less, and none of the Company’s multi-year contracts contain a significant financing component.

Professional Services Revenue

Professional services revenue primarily consists of fees from delivering research studies, training services and strategy workshops. The Company recognizes revenue from service engagements that occur over a period of time on a proportional performance basis as labor hours are incurred.

Significant Judgments - Contracts with Multiple Performance Obligations

The Company regularly enters into contracts with customers that include promises to transfer multiple services. For arrangements with multiple services, the Company evaluates whether the individual services qualify as distinct performance obligations. In its assessment of whether a service is a distinct performance obligation, the Company determines whether the customer can benefit from the service on its own or with other readily available resources and whether the service is separately identifiable from other services in the contract. This evaluation requires the Company to assess the nature of each individual service offering and how the services are provided in the context of the contract, including whether the services are significantly integrated, highly interrelated, or significantly modify each other, which may require judgment based on the facts and circumstances of the contract.

Contracts that contain multiple performance obligations that are considered distinct require an allocation of the transaction price to each performance obligation based on each performance obligation’s relative standalone selling price (SSP). The SSP is the price at which the Company would sell a promised good or service separately to a customer. In instances where the Company does not sell a product or service separately, establishing SSP requires significant judgment. The Company estimates the SSP by considering available information, prioritizing observable inputs such as historical sales, internally approved pricing guidelines and objectives, and the underlying cost of delivering the performance obligation.

Costs Capitalized to Obtain Revenue Contracts

The Company capitalizes sales commissions and associated payroll taxes paid to internal sales personnel that are incremental costs resulting from obtaining a non-cancelable contract with a customer.

Sales commissions paid upon the initial acquisition of a customer contract are amortized on a straight-line basis over an estimated period of benefit of four years, which is typically longer than the contractual term of the customer contract but reflects the estimated period of benefit. The Company estimates the period of benefit by taking into consideration the estimated customer life, and the technological life of its platform and related significant features. The Company has elected the practical expedient to expense renewal commissions in the period of booking if the period of amortization is one year or

The Company periodically reviews these costs capitalized to obtain revenue contracts to determine whether events or changes in circumstances have occurred that could impact the recoverability of the asset. There were no impairment losses recorded during the three and nine months ended September 30, 2022 and 2021.

Costs capitalized to obtain revenue contracts earned and capitalized during the three months ended September 30, 2022 and 2021 were $2.2 million and $3.5 million, respectively, and costs capitalized to obtain revenue contracts earned and capitalized during the nine months ended September 30, 2022 and 2021 were $6.7 million and $9.0 million, respectively. Amortization expense for costs capitalized to obtain revenue contracts during the three months ended September 30, 2022 and 2021 was $2.4 million and $1.8 million, respectively, and amortization expense for costs capitalized to obtain revenue contracts during the nine months ended September 30, 2022 and 2021 was $6.9 million and $4.8 million, respectively.

Cost of Revenue

Subscription Cost of Revenue

Subscription cost of revenue consists of three categories of expenses: UserTesting Contributor Network, platform, and support. UserTesting Contributor Network costs consist primarily of contributor payments for the tests completed as well as the cost to operate and support those contributors. Platform costs consist primarily of the cost to support the Company’s platform, including infrastructure-related, hosting, and personnel-related costs, such as salaries, bonus, stock-based compensation expense, and benefits. Support costs include the personnel-related costs, such as salaries, bonus, stock-based compensation expense, and benefits, of employees who directly support customers of the Company’s subscription services and amortization of acquired intangibles.

Professional Services Cost of Revenue

Professional services cost of revenue consists primarily of personnel-related costs, third-party consulting expenses, and allocated overhead.

Software Development Costs

Software development costs include costs to develop software to be used to meet internal needs and applications used to deliver the Company’s services. The Company capitalizes development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended. Costs capitalized for developing such software applications were not material for the three and nine months ended September 30, 2022 and 2021.

Research and Development

Research and development expenses primarily consist of personnel-related expenses, including stock-based compensation directly associated with the Company’s research and development employees, contractor costs related to third-party development, and allocated overhead. Research and development costs are expensed as incurred.

Advertising Costs

Advertising costs are expensed as incurred in sales and marketing expense in the condensed consolidated statements of operations and were $2.0 million and $3.0 million for the three months ended September 30, 2022 and 2021, respectively, and $7.3 million and $7.2 million for the nine months ended September 30, 2022 and 2021, respectively.

Leases

The Company categorizes lease agreements at their inception as either operating or finance leases. Operating lease right-of-use (ROU) assets and related liabilities are included in “Operating lease right-of-use assets,” “Operating lease liabilities, current,” and “Operating lease liabilities, non-current” in the Company’s condensed consolidated balance sheets. The Company did not have any finance leases.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date, including credit premiums on its corporate borrowings, in determining the present value of lease payments. The operating lease ROU asset also includes any advance lease payments made and excludes lease incentives, where applicable. The Company’s lease terms may contain renewal and extension options of up to three years and early termination features. The Company does not include renewal or extension options or early termination features in its determination of the lease term to the extent they are not reasonably certain at lease commencement. Lease expense for lease payments to the extent they are fixed is recognized on a straight-line basis over the lease term. Variable lease payments are expensed as incurred and include certain non-lease components, such as maintenance and other services provided by the lessor to the extent the charges are variable.

The Company has elected to combine non-lease components with lease components for the purposes of calculating the ROU asset and liabilities, to the extent they are fixed. Non-lease components that are not fixed are expensed as incurred as variable lease costs. In addition, the Company does not recognize ROU assets and lease liabilities for short-term leases, which have a lease term of 12 months or less at the commencement of the lease.

In addition, the Company subleases its unoccupied facility to a third party. Such sublease has been classified as an operating lease. Any impairment to the associated ROU assets, leasehold improvements, or other assets as a result of a sublease is recognized in the period the sublease is executed and recorded in the condensed consolidated statements of operations. The Company recognizes sublease income on a straight-line basis over the sublease term.

Stock-Based Compensation

The Company has a stock incentive plan under which equity awards such as stock options, restricted stock awards (RSAs), and restricted stock units (RSUs) are granted to employees, directors, and/or consultants. Stock-based compensation expense related to equity awards is recognized based on the fair value of the awards on the date of grant. The fair value of each stock option is estimated on the grant date using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of subjective assumptions, including the fair value of the underlying common stock, risk-free interest rates, the expected term of the option, expected volatility, and expected dividend yield. The expected term of the stock options is based on the average period the stock options are expected to remain outstanding, calculated as the midpoint of the option’s vesting term and the contractual expiration period, as the Company did not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. The expected stock price volatility for the Company’s stock was determined by examining the historical volatilities of its industry peers as the Company did not have a relevant trading history of its common stock. The risk-free interest rate was calculated using the average of the published interest rates of U.S. Treasury zero-coupon issues with maturities that approximate the expected term. The dividend yield assumption is zero as the Company has no history of, nor plans of, dividend payments. The fair value of each RSA and RSU is estimated based on the fair value of the Company’s common stock on the date of grant. The related stock-based compensation expense for time-based equity awards is recognized on a straight-line basis over the corresponding requisite service period of the awards, which is generally four years.

The Company also has a 2021 Employee Stock Purchase Plan (2021 ESPP) under which stock purchase rights are granted to employees. Stock-based compensation expense related to stock purchase rights under the 2021 ESPP is recognized based on the fair value of the awards on the date of grant. The fair value of each stock purchase right under the 2021 ESPP is estimated on the grant date using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of assumptions, including the fair value of the underlying common stock, risk-free interest rates, the applicable purchase periods within an offering period, expected volatility, and expected dividend yield. The related stock-based compensation expense for stock purchase rights under the 2021 ESPP is recognized on a straight-line basis over the award’s requisite service period, which is an offering period.

The Company accounts for forfeitures as they occur.

Prior to the IPO, the fair value of the Company’s common stock underlying the awards was determined by the Company’s board of directors with input from management and third-party valuation specialists. The board of directors determined the fair value of the common stock by considering a number of objective and subjective factors including: the

After the IPO, the Company uses the publicly quoted price as reported on the New York Stock Exchange as the fair value of its common stock.

In September 2021, the Company granted RSUs which vest based upon the satisfaction of both a service-based condition and a liquidity event-based condition. The service-based vesting condition for these awards is generally satisfied over four years. The liquidity event-based vesting condition is satisfied upon the occurrence of a qualifying event, which is generally defined as an underwritten initial public offering or a change in control transaction. The related stock-based compensation expense for these awards is recognized using an accelerated attribution method from the time it is deemed probable that the liquidity event-based vesting condition will be met through the time the service-based vesting condition has been achieved. The Company began recognizing stock-based compensation expense for these RSUs in November 2021 when the liquidity event-based vesting condition applicable to these RSUs was satisfied upon the effectiveness of the Company’s IPO.

Foreign Currency

The functional currency of the Company’s foreign subsidiaries is the U.S. Dollar (USD). Monetary assets and liabilities are remeasured using foreign currency exchange rates at the end of the period, and non-monetary assets and liabilities 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 income (expense), net in the Company’s condensed consolidated statements of operations.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes, in which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the condensed consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company measures deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be reversed. The Company recognizes the effect on deferred tax assets and liabilities of a change in tax rates as income and expense in the period that includes the enactment date. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. In determining the need for a valuation allowance, the Company considers future growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which the Company operates, historical earnings and losses carryforward periods, and prudent and feasible tax planning strategies, as applicable.

The Company’s tax positions are subject to income tax audits by multiple tax jurisdictions. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not the position is sustainable upon examination by the taxing authority, based on the technical merits. The Company measures the tax benefit recognized as the largest amount of benefit which is more likely than not to be realized upon settlement with the taxing authority. Significant judgment is required to evaluate uncertain tax positions. The Company’s evaluations are based upon a number of factors, including changes in facts or circumstances, changes in tax law or guidance, correspondence with tax authorities during the course of audits, and effective settlement of audit issues. Changes in the recognition or measurement of uncertain tax positions could result in material increases or decreases in the Company’s income tax expense in the period in which the Company makes the change, which could have a material impact on the Company’s effective tax rate or operating results. The amount of income taxes paid is subject to examination by U.S. federal, state, and foreign tax authorities. To the extent the assessment of such tax position changes, the Company records the change in estimate in the period in which the determination is made.

Net Loss Per Share

Prior to the automatic conversion of all the shares of the Company’s outstanding convertible preferred stock into shares of common stock upon the closing of the Company’s IPO, holders of the Company’s common stock were not entitled to dividends until declared dividends to holders of the Company’s convertible preferred stock have been paid. The Company was required to use the two-class method of calculating earnings per share. The two-class method requires that earnings per share be calculated separately for each class of security. As the Company incurred losses during the periods presented, the Company used the methods described below to calculate net loss per share.

The Company calculates basic net loss per share by dividing net loss attributable to common stockholders by the weighted-average number of the Company’s shares of common stock outstanding during the respective period. Net loss attributable to common stockholders is net loss minus convertible preferred stock dividends declared, of which there were none during the periods presented.

The Company’s potentially dilutive securities, which include stock options and preferred stock, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same.

Recently Adopted Accounting Standards

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by this new guidance. This new guidance is effective for the Company for its fiscal year beginning January 1, 2022, and may be adopted either prospectively or retrospectively to all implementation costs incurred after the date of adoption. The Company adopted this guidance effective January 1, 2022, and the adoption did not have a material impact on its condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by eliminating some exceptions to the general approach in ASC 740, Income Taxes in order to reduce cost and complexity of its application. This new guidance is effective for the Company for its fiscal year beginning January 1, 2022, and interim periods within its fiscal year beginning January 1, 2023, and early adoption is permitted. Most amendments within this guidance are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company adopted this guidance effective January 1, 2022, and the adoption did not have a material impact on its condensed consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments Topic 326: Credit Losses Measurement of Credit Losses on Financial Instruments (Topic 326), which requires an entity to utilize a new impairment model known as the current expected credit loss (CECL) model to estimate its lifetime “expected credit loss” and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. This guidance also requires new disclosures for financial assets measured at amortized cost, loans, and available-for-sale debt securities. Entities will apply the standard’s provisions as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. Topic 326 is effective for the Company for its fiscal year beginning January 1, 2023. The Company does not expect the adoption of this standard will have a material impact on its condensed consolidated financial statements.

Contract Balances

The Company receives payments from customers based on a billing schedule as established in its customer contracts. Accounts receivable are recorded when the Company contractually has the right to consideration. There were no impairment losses recorded during the three and nine months ended September 30, 2022 and 2021.

Contract liabilities consisted of the following (in thousands):

			September 30, 2022						December 31, 2021
Deferred revenue			$	91,714					$	84,494
Customer deposits			5,117						6,458
Contract liabilities			$	96,831					$	90,952

Deferred revenue represents billings under noncancellable contracts that have been invoiced in advance of revenue recognition, and the balance is recognized as revenue when transfer of control to customers has occurred or services have been provided. Customer deposits consist of billings for anticipated revenue generating activities in advance of the start of the contractual term or for the portion of a contract term that is subject to cancellation and refund. Revenue is deferred when the Company has the right to invoice in advance of performance under a customer contract. The current portion of deferred revenue and customer deposits are recognized during the following 12-month period, provided the customers with cancellable contracts do not invoke their termination rights. As of September 30, 2022 and December 31, 2021, the Company’s contract liabilities were $96.8 million and $91.0 million, respectively. The amount of revenue recognized during the nine months ended September 30, 2022 and 2021 that was included in contract liabilities at the beginning of each period was $83.6 million and $57.5 million, respectively.

Remaining Performance Obligations

The terms of the Company’s subscription agreements are primarily annual and, to a lesser extent, multi-year. The Company's subscription agreements are generally noncancellable. Revenue allocated to remaining performance obligations represents noncancellable contracted revenue that has not yet been recognized and includes deferred revenue and unbilled amounts that will be recognized as revenue in future periods. Unbilled portions of the remaining performance obligation denominated in foreign currencies are revalued each period based on the period end exchange rates. Cancellable remaining performance obligations, which includes customer deposits, are not included in the Company’s remaining performance obligation disclosure. As of September 30, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $119.8 million. As of September 30, 2022, the Company expects to recognize the significant majority of its remaining performance obligations as revenue over the subsequent twelve months, and the remainder over 24 months. The remaining performance obligations exclude customer deposits and unbilled amounts of cancellable contracted revenue of $5.9 million as of September 30, 2022.

Disaggregation of Revenue

The following table sets forth revenue by geographic area for the periods presented:

			Three Months Ended September 30,
			2022												2021
			(in thousands)						%						(in thousands)						%
United States			$	38,845					79		%				$	31,444					81		%
International			10,563						21						7,201						19
Total revenue			$	49,408					100		%				$	38,645					100		%

			Nine Months Ended September 30,
			2022												2021
			(in thousands)						%						(in thousands)						%
United States			$	113,278					79		%				$	86,082					82		%
International			29,544						21						18,832						18
Total revenue			$	142,822					100		%				$	104,914					100		%

No single country other than the United States represented 10% or more of the Company’s revenue during the three and nine months ended September 30, 2022 and 2021.

The Company follows guidance provided in ASC 820, Fair Value Measurement, for valuation of financial assets and financial liabilities and for nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This guidance also establishes a framework for measuring fair value and expands disclosures about fair value measurements.

The Company’s investment portfolio consists of tiered interest money market accounts and a U.S. government money market fund amounting to $117.9 million as of September 30, 2022 and tiered interest money market accounts amounting to $33.6 million as of December 31, 2021, which are carried at fair value. The Company has determined the carrying value to be equal to the fair value and has classified these investments as Level 1 financial instruments. There were no transfers in or out of Level 3 during the periods presented.

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

			September 30, 2022						December 31, 2021
Computer, equipment, and software			$	2,879					$	2,632
Furniture and fixtures			393						357
Leasehold improvements			2,067						1,822
Property and equipment, gross			5,339						4,811
Less: accumulated depreciation			(2,423)						(1,554)
Property and equipment, net			$	2,916					$	3,257

Depreciation expense was $0.3 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively, and $0.9 million and $0.4 million for the nine months ended September 30, 2022 and 2021, respectively.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

			September 30, 2022						December 31, 2021
Sales tax payable			$	641					$	5,528
Accrued compensation and benefits			4,159						7,218
Accrued tax liabilities			2,544						2,805
ESPP liability			1,559						466
Others			3,633						5,782
Accrued expenses and other current liabilities			$	12,536					$	21,799

The Company is subject to indirect taxation in some, but not all, of the various U.S. states and foreign jurisdictions in which it conducts business. Therefore, the Company has an obligation to charge, collect, and remit Value Added Tax or Goods and Services Tax in connection with certain of its foreign sales transactions and sales and use tax in connection with eligible sales to subscribers in certain U.S. states. In addition, on June 21, 2018, the U.S. Supreme Court overturned the physical presence nexus standard and held that states can require remote sellers to collect sales and use tax. As a result of this ruling and given the scope of the Company’s operations, taxing authorities continue to provide regulations that increase the complexity and risks to comply with such laws and could result in substantial liabilities, prospectively as well as retrospectively. The Company was at various stages of negotiations or pursuit of favorable rulings with the respective taxing authorities regarding these liabilities as of December 31, 2021. Based on the information available, the Company continued to evaluate and assess the jurisdictions in which an indirect tax nexus exists and believed that the indirect tax liabilities are adequate and reasonable. However, due to the complexity and uncertainty around the application of these rules by taxing authorities, results may vary materially from the Company’s expectations. The Company recorded its best estimate of the liability (including related penalties and interest) of $4.7 million as of December 31, 2021, which is included in sales tax payable above. During 2021 and 2022, the Company was accepted into the voluntary disclosure agreement process in certain jurisdictions. As a result, the estimated liability as of September 30, 2022 and December 31, 2021 is net of the reversal of sales and use tax accruals including related penalties and interest of $2.9 million in the nine months ended September 30, 2022 and $4.1 million in the fiscal year ended December 31, 2021, pursuant to the respective arrangements. There was no such estimated liability as of September 30, 2022.

Goodwill

As of September 30, 2022 and December 31, 2021, goodwill was $8.8 million. Goodwill represents the excess of the purchase price over the fair value of net assets acquired from Teston AS in 2020. Goodwill amounts are not amortized but are rather tested for impairment at least annually during the fourth quarter or more frequently if events or changes in circumstances indicate that goodwill may be impaired.

Intangible Assets, Net

Intangible assets, net of $0.4 million and $0.6 million as of September 30, 2022 and December 31, 2021, respectively, consisted of developed technology.

Amortization expense of acquired intangible assets was $0.1 million and $0.3 million for the three months ended September 30, 2022 and 2021, respectively, and $0.2 million and $0.8 million for the nine months ended September 30, 2022 and 2021, respectively.

Revolving Line of Credit

On June 18, 2021, the Company entered into a Fifth Loan and Security Modification Agreement with a lender, which provides the Company with the ability to borrow up to $5.5 million, maturing on June 18, 2024, and which accrues interest at a per annum rate equal to the greater of 3.25% and prime rate as reported in The Wall Street Journal or such other rate of interest publicly announced from time to time by the lender as its prime rate (6.25% at September 30, 2022 and 3.25% at December 31, 2021). The credit facility is secured by a security interest on substantially all the Company’s assets and is subject to certain financial covenants. The Company may use the proceeds of future borrowings under the credit facility for general corporate purposes which may include, without limitation, financing the consideration for and fees, costs and expenses related to an acquisition. Pursuant to this agreement, the Company is required to maintain at all times unrestricted cash with the lender in an amount equal to at least $5.5 million.

As of September 30, 2022 and December 31, 2021, the Company had no outstanding borrowings pursuant to the above credit facility and was in compliance with the above agreement with the lender.

Operating Leases

The Company leases its office facilities in the United States and the United Kingdom under non-cancellable agreements that expire at various dates through August 2025.

Total operating lease costs, excluding short-term lease costs, variable lease costs, and sublease income, each of which were immaterial for the periods presented, were as follows (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Operating lease costs			$	1,496					$	1,365					$	4,499					$	4,325

Supplemental cash flow information related to leases were as follows (in thousands):

			Nine Months Ended September 30,
			2022						2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	4,635					$	3,931
Right-of-use assets obtained in exchange for lease obligations:
Operating leases			372						1,010

The weighted-average remaining lease term and discount rate for the Company’s operating leases were as follows:

			September 30, 2022						December 31, 2021
Weighted-average remaining lease term			2.7 years						3.3 years
Weighted-average discount rate			5.8%						5.8%

The total remaining lease payments under non-cancelable operating leases as of September 30, 2022 were as follows (in thousands):

Remainder of 2022			$	1,522
2023			5,696
2024			5,147
2025			3,368
Total undiscounted lease payments			15,733
Less imputed interest			(1,168)
Present value of operating lease liabilities			$	14,565

Other Contractual Commitments

The Company’s other contractual commitments relate mainly to third-party cloud infrastructure agreements and online services agreements. There were no material contractual obligations that were entered into during the three and nine months ended September 30, 2022 that were outside the ordinary course of business.

Warranties, Indemnification, and Contingencies

The Company enters into service level agreements with customers which warrant defined levels of uptime and support response times and permit those customers to receive credits for prepaid amounts in the event that those performance and response levels are not met. To date, the Company has not experienced any significant failures to meet defined levels of performance and response. In connection with the service level agreements, the Company has not incurred any significant costs and has not accrued any liabilities in the condensed consolidated financial statements.

In the ordinary course of business, the Company enters into contractual arrangements under which the Company agrees to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, intellectual property infringement claims made by third parties, and other liabilities relating to or arising from the Company’s platform or the Company’s acts or omissions. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract. Further, the Company’s obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments.

In addition, the Company has agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines, and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as the Company’s director or officer or that person’s services provided to any other company or enterprise at the Company’s request. The Company maintains director and officer insurance coverage that may enable the Company to recover a portion of any future amounts paid.

Legal Proceedings

In the ordinary course of business, the Company may be subject from time to time to various proceedings, lawsuits, disputes, or claims. The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These estimates are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel, and other information and events pertaining to a particular matter. In general, the resolution of a legal matter could be material to the Company’s financial condition or cash flows, or both, or could otherwise adversely affect the Company’s operating results. The outcomes of legal proceedings and other contingencies are, however, inherently unpredictable and subject to significant uncertainties. At this time, the Company does not have any such matters that, if resolved unfavorably, would have a material impact on its financial condition, results of operations or cash flows.

Common Stock and Preferred Stock

In connection with the Company’s IPO in November 2021, the Company’s Restated Certificate of Incorporation became effective, which authorized the issuance of 2,000,000,000 shares of common stock with a par value of $0.0001 per share and 10,000,000 shares of preferred stock with a par value of $0.0001 per share.

The Company had the following shares of common stock reserved for future issuance (in thousands):

			September 30, 2022						December 31, 2021
Outstanding stock awards to purchase common stock			26,021						25,181
Stock awards available for future grants			20,538						16,154
Shares available for issuance under 2021 ESPP			4,024						3,100
			50,583						44,435

Equity Incentive Plan

In June 2007, the Company adopted the 2007 Equity Incentive Plan (the 2007 Plan). Under the 2007 Plan, the Company originally authorized the issuance of 500,000 shares. In March 2013, the board of directors adopted the 2013 Equity Incentive Plan (the 2013 Plan) and ceased granting awards under the 2007 Plan. Upon the effective date of the suspension of the 2007 Plan, all remaining shares available for issuance under the 2007 Plan became available for issuance under the 2013 Plan and any options that expired or were forfeited automatically become available under the 2013 Plan.

In October 2021, the Company’s board of directors and stockholders approved the adoption of the 2021 Equity Incentive Plan (2021 Plan), which became effective in connection with the IPO. Under the 2021 Plan, 15,700,000 shares of the Company’s common stock are initially reserved for future issuance. Upon the effective date of the 2021 Plan, any remaining shares available for issuance under the Company’s 2013 Plan were added to the shares of the Company’s common stock reserved for issuance under its 2021 Plan, and the Company ceased granting awards under the 2013 Plan. The number of shares reserved for issuance under the 2021 Plan will increase automatically on January 1 of each of the first ten calendar years during the term of the 2021 Plan by the number of shares equal to 5% of the aggregate number of shares of all classes of the Company’s common stock issued and outstanding as of the immediately preceding December 31, or a lesser number as may be determined by the Company’s board of directors.

The 2021 Plan authorizes the award of both incentive stock options and nonqualified stock options, as well as the award of RSAs, RSUs, stock appreciation rights, and performance and stock bonus awards. Pursuant to the 2021 Plan, incentive stock options may be granted only to employees. The exercise price of an option cannot be less than 100% of the fair value of one share of common stock on the date of grant and the exercise price of any incentive stock option granted to a 10% stockholder cannot be less than 110% of the fair value of one share of common stock on the date of grant. Options are exercisable over periods not to exceed ten years from the date of grant (five years for incentive stock options granted to stockholders owning greater than 10% of all classes). Vesting terms for options is generally four years. The Company may grant all other types of awards to its employees, directors, and consultants.

As of September 30, 2022 and December 31, 2021, 20,538,259 and 16,153,747 shares of common stock have been reserved for issuance under the 2021 Plan, respectively.

In October 2021, the Company’s board of directors and stockholders approved the adoption of the 2021 ESPP, which became effective in connection with the IPO. Under the 2021 ESPP, 3,100,000 shares of the Company’s common stock are initially reserved for future issuance. The number of shares reserved for issuance and sale under the 2021 ESPP will increase automatically on January 1 of each of the first ten calendar years during the term of the 2021 ESPP by the number of shares equal to 1% of the aggregate number of shares of all classes of the Company’s common stock issued and outstanding as of the immediately preceding December 31, or a lesser number as may be determined by the Company’s board of directors or compensation committee. Subject to stock splits, recapitalizations, or similar events, no more than 31,000,000 shares of the Company’s common stock may be issued over the term of the 2021 ESPP.

Under the 2021 ESPP, eligible employees will be offered the option to purchase shares of the Company’s common stock at a discount over a series of offering periods through accumulated payroll deductions over the period. Each offering period may itself consist of one or more purchase periods. No offering period may be longer than 27 months. The purchase price for shares purchased under the 2021 ESPP during any given purchase period will be 85% of the lesser of the fair market value of the Company’s common stock on (i) the first day of the applicable offering period or (ii) the last day of the purchase period.

As of September 30, 2022 and December 31, 2021, 4,024,434 and 3,100,000 shares of common stock have been reserved for issuance under the 2021 ESPP, respectively.

The following table summarizes the stock option activity during the nine months ended September 30, 2022 (in thousands, except per share data):

			Options Outstanding
			Outstanding Stock options						Weighted-Average Exercise Price						Weighted-Average Remaining Contractual Life (Years)						Aggregate Intrinsic Value
Balance as of December 31, 2021			22,690						$	1.71					7.56						$	153,883
Exercised			(1,680)						1.34												8,431
Forfeited			(1,013)						3.17
Expired			(53)						1.66
Balance as of September 30, 2022			19,944						1.66						6.82						48,015
Vested and exercisable:
September 30, 2022			14,435						$	1.22					6.35						$	39,336
December 31, 2021			11,917						$	0.96					6.66						$	88,893

No options were granted during the nine months ended September 30, 2022. The weighted-average grant date fair value of options granted during the nine months ended September 30, 2021 was $4.05.

The following table summarizes the RSU activity during the nine months ended September 30, 2022 (in thousands, except per share data):

			Restricted Stock Units
			Number of Shares						Weighted-Average Grant Date Fair Value
Balance as of December 31, 2021			2,491						$	16.11
Granted			4,707						9.21
Vested			(207)						9.70
Forfeited			(914)						12.12
Balance as of September 30, 2022			6,077						11.59

There was no RSA activity during the nine months ended September 30, 2022.

In 2021, the Company began granting RSUs to its employees and directors. These RSUs generally vest upon the satisfaction of a service-based vesting condition with a vesting period of generally four years. In September 2021, the Company granted RSUs settleable for 2,490,942 shares of its common stock with a weighted average grant date fair value of $16.11 per share, which vested based upon the satisfaction of both a service-based condition and a liquidity event-based condition. The Company recognized compensation expense for these RSUs using an accelerated attribution method beginning in November 2021 when the liquidity event-based vesting condition applicable to these RSUs was satisfied upon the effectiveness of the Company’s IPO. The Company recognized stock-based compensation expense of $3.3 million and $11.9 million associated with these RSUs for the three and nine months ended September 30, 2022, respectively.

Stock-Based Compensation

The assumptions used under the Black-Scholes option pricing model to calculate the estimated fair value of stock options granted to employees are as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

Fair value of common stock

*

$ 10.97 — 17.04

*

$ 3.88 — 17.04

Risk-free interest rate

*

0.94% — 1.00%

*

0.94% — 1.05%

Expected term (years)

*

5.84 — 6.08

*

5.73 — 6.08

Expected volatility

*

55.24% — 56.82%

*

54.04% — 56.82%

Expected dividend yield

*

None

*

None

____________

The following table summarizes the assumptions used to calculate the estimated fair value of stock purchase rights granted under the 2021 ESPP using the Black-Scholes-Merton option pricing model:

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

Fair value of common stock

*

*

$ 4.52

*

Risk-free interest rate

*

*

1.54% — 2.66%

*

Expected term (years)

*

*

0.49 — 1.99

*

Expected volatility

*

*

53.74% — 60.64%

*

Expected dividend yield

*

*

None

*

____________

The total stock-based compensation expense by line item in the accompanying condensed consolidated statements of operations is summarized as follows (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Cost of revenue:
Subscription			$	211					$	11					$	553					$	30
Professional services			239						78						701						160
Operating expenses:
Sales and marketing			2,920						404						9,057						1,079
Research and development			1,384						237						4,574						620
General and administrative			2,562						2,057						7,811						3,030
Total stock-based compensation expense			$	7,316					$	2,787					$	22,696					$	4,919

As of September 30, 2022, the unrecognized stock-based compensation expense related to outstanding unvested stock options was $12.1 million, which is expected to be recognized over a weighted-average period of 2.5 years.

As of September 30, 2022, the unrecognized stock-based compensation expense related to outstanding RSUs was $50.5 million which is expected to be recognized over the remaining weighted-average vesting period of approximately 3.0 years.

As of September 30, 2022, the unrecognized stock-based compensation expense related to outstanding stock purchase rights granted under the 2021 ESPP was $2.8 million which is expected to be recognized over 1.6 years.

The Company’s quarterly tax provision is based upon an estimated annual effective tax rate. The Company’s provision for income taxes has not been historically significant to the business as the Company has incurred U.S. operating losses to date. The provision for income taxes consists primarily of state taxes and foreign taxes in jurisdictions in which the Company conducts business.

The Company’s provision for income taxes was $0.3 million and $0.3 million for the three months ended September 30, 2022 and 2021, respectively, and $0.5 million and $0.6 million for the nine months ended September 30, 2022 and 2021, respectively, with an effective tax rate of (2.1)% and (2.9)% for the three months ended September 30, 2022 and 2021, respectively, and an effective tax rate of (1.0)% and (1.7)% for the nine months ended September 30, 2022 and 2021, respectively. The effective tax rate differs from the U.S. statutory tax rate primarily due to the valuation allowance on the Company’s U.S. deferred tax assets.

The Company maintains a full valuation allowance against its U.S. deferred tax assets as of September 30, 2022. It regularly assesses the need for a valuation allowance against its net deferred tax assets. In making that assessment, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more likely than not that some or all of the deferred tax assets will not be realized. Due to cumulative losses over recent years and based on all available evidence, the Company has determined that it is more likely than not that its U.S. deferred tax assets will not be realized as of September 30, 2022.

The Company has elected to record taxes associated with its Global Intangible Low-Taxed Income as period costs if and when incurred.

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (the Inflation Act) into law. The Inflation Act contains certain tax measures, including a corporate alternative minimum tax of 15% on some large corporations and an excise tax of 1% on corporate stock buy-backs. The Company does not expect the new law to have a material impact on its condensed consolidated financial statements.

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the periods presented (in thousands, except share and per share data):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Numerator:
Net loss attributable to common stockholders, basic and diluted			$	(15,191)					$	(9,636)					$	(49,114)					$	(33,803)
Denominator:
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted			144,211						19,558						143,347						18,798
Net loss per share attributable to common stockholders, basic and diluted			$	(0.11)					$	(0.49)					$	(0.34)					$	(1.80)

The potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been antidilutive are as follows (in thousands):

			September 30,
			2022						2021
Convertible preferred shares			—						110,851
Options and RSUs issued and outstanding			26,021						26,144
ESPP			243						—
Total antidilutive securities			26,264						136,995

For each of the periods presented where the Company reported a net loss, the effect of all potentially dilutive securities would be antidilutive, and as a result diluted net loss per common share is the same as basic net loss per common share.

The Company maintains a retirement savings plan, established pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended (the Code). Participants may contribute up to applicable annual Code limits. The plan allows the Company to make matching contributions to eligible participants. The Company provided a matching contribution up to 4% of eligible participants’ compensation for the three and nine months ended September 30, 2022 and 2021. The plan provides for automatic salary deferrals of 5% of compensation each year. Participants are permitted to change their salary deferral percentage and waive the automatic deferral provision. All participants’ deferrals, rollovers and matching contributions are 100% vested when contributed. The Company recognized $0.8 million and $0.7 million in expenses related to the 401(k) match for the three months ended September 30, 2022 and 2021, respectively, and $2.6 million and $2.2 million for the nine months ended September 30, 2022 and 2021, respectively.

In July 2022, management approved, committed to and initiated a plan of termination that resulted in a reduction in the Company’s total full-time employee workforce by approximately 7%. The Company substantially completed this workforce reduction in the third quarter of 2022. As a result of this workforce reduction, the Company incurred a pre-tax cash charge of approximately $1.4 million for one-time termination benefits, which substantially consist of severance and were recorded to the restructuring expense line item within the Company’s condensed consolidated statements of operations. All charges associated with the workforce reduction were incurred and substantially paid in the third quarter of 2022.

On October 26, 2022, the Company entered into a definitive agreement to be acquired by Thoma Bravo, a leading software investment firm, and Sunstone Partners for $7.50 per share, in an all-cash transaction valued at approximately $1.3 billion. The transaction, which was unanimously approved by the Company’s board of directors, is currently expected to close in the first half of 2023, subject to customary closing conditions, including approval by the Company’s stockholders and the receipt of required regulatory approvals. Upon completion of the transaction, the Company’s common stock will no longer be publicly listed and the Company will become a privately held company.

The agreement includes a “go-shop” period expiring at 11:59 p.m. Pacific time on December 10, 2022, which allows the Company’s board of directors and its advisors to actively initiate, solicit and consider alternative acquisition proposals from third parties. The Company’s board of directors will have the right to terminate the merger agreement to enter into a superior proposal subject to the terms and conditions of the merger agreement. There can be no assurance that this “go-shop” will result in a superior proposal, and the Company does not intend to disclose developments with respect to the solicitation process unless and until it determines such disclosure is appropriate or otherwise required.

Pursuant to the agreement, the Company may be required to pay a termination fee of up to approximately $33.9 million, if the agreement is terminated under certain circumstances, and may be entitled to receipt of a termination fee of approximately $67.8 million, if the agreement is terminated under certain circumstances.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such difference include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” in Part II, Item IA of this Quarterly Report on Form 10-Q.

Our mission is to empower every organization with the breakthrough perspectives they need to deliver truly exceptional customer experiences using human insight.

We have pioneered a video-first, enterprise-grade software-as-a-service (SaaS) platform that enables organizations to see and hear the experiences of real people as they engage with products, designs, apps, processes, concepts, or brands. Our platform captures authentic, credible, and highly contextualized customer perspectives from targeted audiences who have opted in to share their thoughts, whether for digital, real-world, or omnichannel experiences. Using machine learning, our platform analyzes these perspectives and surfaces key moments of insight rapidly and at scale. This helps organizations to free up time and resources and make better customer experience decisions faster using the power of video to drive alignment and action.

On October 26, 2022, we entered into a definitive agreement to be acquired by Thoma Bravo and Sunstone Partners for $7.50 per share, in an all-cash transaction valued at approximately $1.3 billion. The merger is currently expected to close in the first half of 2023, subject to customary closing conditions, including approval by our stockholders and required regulatory approvals. For more information see Note 13, “Subsequent Events,” in the notes to our condensed consolidated financial statements.

We generate revenue primarily from the sale of subscriptions to our platform, which accounted for over 90% of our total revenue during each of the three and nine months ended September 30, 2022 and 2021. Our subscription plan includes access to our platform including customer support. The substantial majority of our subscriptions are for a one year, non-cancelable term, with some large, multi-year subscriptions ranging up to three years and some small, short-term subscriptions of less than one year. Our contracts are typically billed annually in advance and we generally recognize subscription revenue ratably over the contract term.

We also generate revenue from professional services. Our professional services include research studies, training services, and strategy workshops. Professional services revenue comprised less than 10% of our total revenue during each of the three and nine months ended September 30, 2022 and 2021.

We offer two primary subscription pricing plans – a seat-based subscription plan and a flex-based subscription plan. Each pricing plan provides platform access to our customers for the duration of the contract term and revenue is recognized ratably. Within each pricing plan, we offer specific editions based on varying levels of tools, features, and functionality.

Our seat-based subscription pricing plan varies depending on the platform edition and the number and type of seats. It provides an additional pricing option to our customers. Our pricing plans are structured to further facilitate expansion within our customers’ organizations, including making it easier for our customers to add additional users and use cases. Customers utilizing the flex-based subscription pricing plan typically enter into an annual contract that covers access to the platform and the pricing is based on expected annual committed utilization of the platform’s features. Customers who exceed their contractual limits are able to purchase either additional committed usage or on demand usage. The pricing plan and related utilization is determined based on the activity the customer processes within the platform, including the number and type of Customer Experience Narratives (CxNs) generated, and type of audience targeting used. 

Our go-to-market strategy is based on the size and region of our customers. We primarily sell through a direct selling motion, with field sales representatives who focus on enterprise customers and an inside sales organization which sells to mid-market and small and medium-sized business customers. We have also started investing in creating channel partnerships and relationships with resellers, distributors, and strategic partners to broaden our reach.

We have achieved significant growth in recent periods. Our total revenue for the three months ended September 30, 2022 and 2021 was $49.4 million and $38.6 million, respectively, representing period-over-period growth of 28%. Our total revenue for the nine months ended September 30, 2022 and 2021 was $142.8 million and $104.9 million, respectively, representing period-over-period growth of 36%. As we have grown our business, we have made significant investments in sales and marketing and research and development. As a result, our net loss was $15.2 million and $9.6 million for the three months ended September 30, 2022 and 2021, respectively, and $49.1 million and $33.8 million for the nine months ended September 30, 2022 and 2021, respectively.

Initial Public Offering

In November 2021, we completed our IPO in which we issued and sold 10,000,000 shares of our common stock at a public offering price of $14.00 per share, resulting in net proceeds of $124.1 million after deducting underwriting discounts and commissions of $9.8 million and offering costs of $6.1 million. We incurred offering expenses, net of a reimbursement received from the underwriters, of approximately $6.2 million in connection with the IPO, of which $0.1 million was paid in the first quarter of 2022. In connection with the IPO, all the shares of outstanding convertible preferred stock were automatically converted into an equivalent number of shares of common stock.

Acquiring New Customers

We believe that understanding and improving customer experiences through human insight represents a broad and underpenetrated market opportunity. We will continue to invest in sales and marketing to continue to acquire new customers, and our go-to-market model is built in a scalable way to support new customer growth of all sizes.

Expanding Within Existing Customers Across Core and New Functional Teams

We are focused on driving value, additional adoption, and growth within existing customers using our land-and-expand model. Our platform’s use cases are continuing to expand as customers continue to see value from human insight, which drives adoption across multiple teams.

Continuing to Grow Internationally

To further our international strategy and focus, we have sales offices in Edinburgh, Scotland covering the Europe, Middle East, and Africa region and Singapore covering the Asia-Pacific region. During the three and nine months ended September 30, 2022, approximately 21% of our total revenue came from customers outside the United States. International revenue for the three and nine months ended September 30, 2022 increased approximately 47% and 57%, respectively, compared to the prior year period. We believe international expansion will be a key growth driver for our business.

Innovating and Expanding Our Platform

We have a strong history of innovation and have pioneered a video-first, enterprise-grade platform that enables organizations to see and hear the experiences of real people as they engage with products, designs, apps, processes, concepts, or brands. We intend to continue to invest in new features and functionality, extending the platform to a broader range of enterprises, geographies, users and use cases.

Deepening Our Network of Channel Partnerships

We are in the early phases of building out our UserTesting partners and reseller program. Our focus areas include working with agencies, systems integrators, and resellers. All of these channels will enable us to achieve go-to-market leverage as we scale, supporting our continued growth.

We monitor and review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make strategic decisions. We believe that these key business metrics provide meaningful supplemental information in assessing our operating performance.

Customers

			September 30, 2022						December 31, 2021						September 30, 2021
Total Customers(1)			2,580						2,350						2,170
Large Customers			404						305						279

____________

(1)Total customer count is rounded down to the nearest 10 customers.

We measure and track the number of customers, and we believe the number of customers is useful information to investors, because our ability to attract new customers, grow our customer base and retain existing customers helps drive our success and is an important contributor to our revenue growth. We have successfully demonstrated a history of growing our customer base. A customer in a particular period is defined as a customer for whom we recognize subscription revenue in the last month of the measurement period. We define a single customer as the parent entity of the subsidiaries and divisions that contract with us. If a customer has multiple subsidiaries or divisions, then we aggregate subscription revenues from all entities to the parent level. We define our Large Customers as those spending at least $100,000 in ARR. We believe that our ability to increase our Large Customers indicates our progress with a critical segment of our customer base. We expect to increase our Large Customers as more users and teams across organizations and industries realize the value of our platform in today’s digital age. Our use of customer count may have certain limitations as an analytical tool and should not be considered in isolation or as a substitute for revenue or an analysis of our results as reported under GAAP. For example, other companies, including companies in our industry, may calculate the number of customers differently, which could reduce its usefulness as a comparative measure.

Net Dollar-based Retention Rate

			September 30, 2022						December 31, 2021						September 30, 2021
Net Dollar-based Retention Rate			107		%				118		%				119		%

Our ability to retain and expand subscription revenue from existing customers is an important indicator of the stability of our revenue base, the long-term value of our platform to our customers, and future business opportunities. We calculate net dollar-based retention rate in order to measure our ability to retain and expand subscription revenue from our existing customers. Our net dollar-based retention rate compares the quarterly subscription revenue from the same cohort of customers across comparable periods and reflects customer renewals, expansion, contraction and churn. For each quarter, the cohort of customers are identified based on having subscription revenue at the beginning of the same quarter in the prior year. We calculate our net dollar-based retention rate in a quarter by dividing: (i) the total subscription revenue of the customer cohort in the current quarter, by (ii) the total subscription revenue of those same customers in the same quarter of the prior year. We expect our net dollar-based retention rate to fluctuate in future periods due to a number of factors, including our expected growth, the level of penetration within our customer base, our ability to upsell and cross-sell products to existing customers, and our ability to retain our customers.

Calculated Billings (Non-GAAP)

We believe that calculated billings helps investors better understand our sales activity for a particular period, which is not necessarily reflected in our revenue given that we generally recognize revenue ratably over the subscription term.

We define calculated billings, a non-GAAP financial measure, as total revenue plus the change in contract liabilities from the beginning to the end of the period. We typically invoice our customers annually in advance, and to a lesser extent quarterly in advance, for subscriptions to our platform. Calculated billings in any particular period generally reflect amounts invoiced to customers.

The following table sets forth our calculated billings and growth rate, and provides a reconciliation of revenue to calculated billings, for the periods presented:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
			(in thousands, except percentages)												(in thousands, except percentages)
Revenue			$	49,408					$	38,645					$	142,822					$	104,914
Increase (decrease) in contract liabilities			(2,962)						5,346						5,879						16,784
Calculated billings (non-GAAP)			$	46,446					$	43,991					$	148,701					$	121,698
Year-over-year calculated billings growth rate			6		%				49		%				22		%				50		%

Our use of calculated billings has certain limitations as an analytical tool and should not be considered in isolation or as a substitute for revenue or an analysis of our results as reported under GAAP. Calculated billings are recognized when a customer is invoiced, while the related revenue is generally recognized ratably over the subscription term. Calculated billings are affected by seasonality in terms of when we enter into agreements with customers and the mix of billings in each reporting period as we typically invoice customers annually in advance, and to a lesser extent quarterly in advance. Therefore, fluctuations in billings should not be taken as an indication of changes in future revenue. Also, other companies, including companies in our industry, may not use calculated billings, may calculate billings differently, may have different billing frequencies, or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of calculated billings as a comparative measure.

Revenue

Subscription Revenue

Subscription revenue primarily consists of subscription fees from customer agreements to access our platform, as well as additional support services. Our customers do not have the ability to take possession of our software. We recognize revenue for subscription fees and additional support services on a straight-line basis over the term of the contract beginning on the date access to our platform is granted, as the underlying service is a stand-ready performance obligation. Customers may also purchase incremental capacity to our platform, which is an additional stand-ready performance obligation. We recognize incremental capacity as a series of distinct software-based services that are satisfied over the remaining term of the applicable subscription. Certain customer contracts are sold with a contractual maximum of platform usage. Customers who consume their committed capacity will be invoiced for overages on a quarterly basis. We recognize these overage fees as variable consideration. We expect our subscription revenue to increase over the long term, depending on our ability to attract new customers and expand usage with existing customers, which fluctuates from period to period.

Professional Services

Professional services primarily consist of fees from professional services including research studies, training services, and strategy workshops. Professional services are generally considered distinct from access to our platform. We recognize revenue from service engagements that occur over a period of time on a proportional performance basis as the services are delivered. While we expect our professional services revenue to increase over the long term in terms of absolute dollars, professional services revenue will fluctuate and may decline from period to period and may not grow consistently with our subscription revenue.

Cost of Revenue, Gross Profit and Gross Margin

Subscription Cost of Revenue

Subscription cost of revenue consists of three categories of expenses: UserTesting Contributor Network, platform, and support. UserTesting Contributor Network costs consist primarily of participant payments and fees as well as the cost to operate and support those participants. Platform costs consist primarily of the cost to operate our platform, including infrastructure-related, hosting, and personnel-related costs, such as salaries, bonus, stock-based compensation expense, and benefits. Support costs include the personnel-related costs, such as salaries, bonus, stock-based compensation expense, and

Professional Services Cost of Revenue

Professional services cost of revenue consists primarily of personnel-related costs associated with professional services personnel, including stock-based compensation, third-party consulting services, and allocated overhead.

Gross Profit and Gross Margin

Gross profit is total revenue less cost of revenue and gross margin is gross profit expressed as a percentage of revenue. Our gross margin may vary from period to period as our mix or cost of revenue fluctuates. Our gross margin on subscription revenue is significantly higher than our gross margin on professional services revenue. In addition, we may experience changes in our professional services gross margin due to a mismatch between when revenue is recognized and when related expenses are incurred. We expect our gross margin may vary from period to period and increase modestly in the long term.

Operating Expenses

Sales and Marketing

Sales and marketing expenses primarily consist of personnel-related expenses, including stock-based compensation directly associated with our sales and marketing organization. Other sales and marketing expenses include costs for promotional events to promote our brand, web advertising, trade conferences, and allocated overhead. Sales commissions that are directly related to acquiring customer contracts, as well as associated payroll taxes, are deferred upon execution of a contract with a customer, and subsequently amortized to sales and marketing expense over an estimated period of benefit of four years. We have elected the practical expedient to expense renewal commissions in the period of booking if the period of amortization is one year or less, and we amortize commissions related to renewal contracts that are greater than one year over the weighted average renewal term. We plan to increase our investment in sales and marketing over the foreseeable future, primarily through increased headcount in our sales and marketing functions and investment in brand- and product-marketing efforts. Although we expect our sales and marketing 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 sales and marketing expenses will decline as a percentage of revenue in the long term.

Research and Development

Research and development expenses primarily consist of personnel-related expenses, including stock-based compensation directly associated with our research and development employees and outside services costs. Research and development costs are expensed as incurred. We expect that our research and development expenses will increase in absolute dollars in the near term as we focus on further developing our platform and infrastructure. Although we expect our research and development expenses will increase in absolute dollars in future periods and may vary from period to period as a percentage of revenue in the near term, we expect that research and development expenses will decline as a percentage of revenue in the long term.

General and Administrative

General and administrative expenses primarily consist of personnel-related expenses, including stock-based compensation directly associated with our finance, legal and human resources organizations, professional fees for external legal, accounting, and other consulting services, bad debt expense, and allocated overhead. We expect to increase the size of our general and administrative function to support the growth of our business. We also expect to incur additional expenses as a result of operating as a public company, including expenses related to compliance and reporting obligations of reporting companies and increased costs for insurance, investor relations expenses, and professional services. As a result, we expect that our general and administrative expenses will increase in absolute dollars for the foreseeable future. Although we expect our general and administrative expenses will increase in absolute dollars in future periods and may vary from period to period as a percentage of revenue in the near term, we expect that general and administrative expenses will decline as a percentage of revenue in the long term.

Restructuring

Restructuring expenses consist of one-time termination benefits, which substantially consist of severance.

Interest Income, Net

Interest income, net consists primarily of income earned on cash equivalents.

Other Income (Expense), Net

Other income (expense), net consists primarily of miscellaneous non-operational income and expense, including grant money received from a grant agreement as well as sublease income.

Provision for Income Taxes

Provision for income taxes consists of federal, state and foreign income taxes. Due to cumulative losses, we maintain a valuation allowance against our U.S. deferred tax assets. We consider all available evidence, both positive and negative, including but not limited to earnings history, projected future outcomes, industry and market trends and the nature of each of the deferred tax assets in assessing the extent to which a valuation allowance should be applied against our U.S. deferred tax assets.

The following tables set forth selected condensed consolidated statements of operations data for each of the periods indicated (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Revenue:
Subscription			$	47,517					$	35,951					$	135,900					$	96,883
Professional services			1,891						2,694						6,922						8,031
Total revenue			49,408						38,645						142,822						104,914
Cost of revenue(1)(2):
Subscription			8,501						7,388						24,607						21,230
Professional services			2,402						2,124						7,114						6,247
Total cost of revenue			10,903						9,512						31,721						27,477
Gross profit			38,505						29,133						111,101						77,437
Operating expenses(1)(2):
Sales and marketing			29,662						23,384						93,049						62,512
Research and development			10,804						9,543						33,774						29,128
General and administrative			10,980						6,492						30,981						19,817
Restructuring			1,385						—						1,385						—
Total operating expenses			52,831						39,419						159,189						111,457
Loss from operations			(14,326)						(10,286)						(48,088)						(34,020)
Interest income, net			24						29						44						103
Other income (expense), net			(582)						896						(562)						683
Loss before provision for income taxes			(14,884)						(9,361)						(48,606)						(33,234)
Provision for income taxes			307						275						508						569
Net loss			$	(15,191)					$	(9,636)					$	(49,114)					$	(33,803)

_______________

(1)Includes stock-based compensation expense as follows (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Cost of revenue:
Subscription			$	211					$	11					$	553					$	30
Professional services			239						78						701						160
Operating expenses:
Sales and marketing			2,920						404						9,057						1,079
Research and development			1,384						237						4,574						620
General and administrative			2,562						2,057						7,811						3,030
Total stock-based compensation expense			$	7,316					$	2,787					$	22,696					$	4,919

In September 2021, we granted RSUs to our employees which will vest based upon the satisfaction of both service-based and liquidity event-based vesting conditions. We recognize stock-based compensation expense associated with these RSUs, using an accelerated attribution method, beginning in November 2021, as the liquidity event-based vesting condition applicable to these RSUs was satisfied upon the effectiveness of our IPO in November 2021. We recognized stock-based compensation expense of $3.3 million and $11.9 million associated with these RSUs for the three and nine months ended September 30, 2022, respectively.

(2)Includes amortization of acquired intangible assets as follows (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Cost of revenue:
Subscription			$	21					$	163					$	63					$	492
Operating expenses:
Sales and marketing			—						47						—						144
Research and development			43						43						128						130
General and administrative			—						—						—						—
Total amortization of acquired intangible assets			$	64					$	253					$	191					$	766

The following table sets forth selected condensed consolidated statements of operations data expressed as a percentage of revenue for each of the periods indicated:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Revenue:
Subscription			96		%				93		%				95		%				92		%
Professional services			4						7						5						8
Total revenue			100						100						100						100
Cost of revenue:
Subscription			17						19						17						20
Professional services			5						6						5						6
Total cost of revenue			22						25						22						26
Gross profit			78						75						78						74
Operating expenses:
Sales and marketing			60						60						65						59
Research and development			22						25						24						28
General and administrative			22						17						22						19
Restructuring			3						—						1						—
Total operating expenses			107						102						112						106
Loss from operations			(29)						(27)						(34)						(32)
Interest income, net			—						—						—						—
Other income (expense), net			(1)						3						—						1
Loss before provision for income taxes			(30)						(24)						(34)						(31)
Provision for income taxes			1						1						—						1
Net loss			(31)		%				(25)		%				(34)		%				(32)		%

Comparison of the Three and Nine Months Ended September 30, 2022 and 2021

Revenue

			Three Months Ended September 30,																								Nine Months Ended September 30,
			2022						2021						$ Change						% Change						2022						2021						$ Change						% Change
			(in thousands, except percentages)
Subscription			$	47,517					$	35,951					$	11,566					32		%				$	135,900					$	96,883					$	39,017					40		%
Professional services			1,891						2,694						(803)						(30)		%				6,922						8,031						(1,109)						(14)		%
Total revenue			$	49,408					$	38,645					$	10,763					28		%				$	142,822					$	104,914					$	37,908					36		%

Total revenue for the three and nine months ended September 30, 2022 increased by $10.8 million and $37.9 million, or 28% and 36%, respectively, as compared to the three and nine months ended September 30, 2021 primarily due to the increase in subscription revenue described below.

Subscription revenue for the three and nine months ended September 30, 2022 increased by $11.6 million and $39.0 million, or 32% and 40%, respectively, as compared to the three and nine months ended September 30, 2021. The increase was primarily due to net growth with existing customers, as reflected in our net revenue dollar-based retention rate of 107% as of September 30, 2022, and sales to new customers as reflected by the increase in our total customers to 2,580 as of September 30, 2022 compared to 2,170 as of September 30, 2021. The increase in subscription revenue was also impacted by the sales tax adjustments that resulted in a $1.0 million net increase in subscription revenue for the nine months ended September 30, 2022 primarily due to the favorable resolution of potential sales tax liabilities. Excluding the $1.0 million favorable sales tax adjustments, subscription revenue would have been $134.9 million for the nine months ended September 30, 2022, up 39% as compared to $96.9 million for the nine months ended September 30, 2021. See Note 4 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details regarding the sales tax reversal.

Professional services revenue for the three and nine months ended September 30, 2022 decreased by $0.8 million and $1.1 million, or 30% and 14%, respectively, as compared to the three and nine months ended September 30, 2021. The decrease was primarily due to the amount of professional services engagements sold and the timing of the performance of those services as customers requested to have more services completed in the three and nine months ended September 30, 2021 as compared to the three and nine months ended September 30, 2022.

Cost of Revenue

			Three Months Ended September 30,																								Nine Months Ended September 30,
			2022						2021						$ Change						% Change						2022						2021						$ Change						% Change
			(in thousands, except percentages)
Subscription			$	8,501					$	7,388					$	1,113					15		%				$	24,607					$	21,230					$	3,377					16		%
Professional services			2,402						2,124						278						13		%				7,114						6,247						867						14		%
Cost of revenue			10,903						9,512						1,391						15		%				31,721						27,477						4,244						15		%
Gross Profit			$	38,505					$	29,133					$	9,372					32		%				$	111,101					$	77,437					$	33,664					43		%
Gross Margin:
Subscription			82		%				79		%																82		%				78		%
Professional Services			(27)		%				21		%																(3)		%				22		%
Total gross margin			78		%				75		%																78		%				74		%

Cost of revenue for the three and nine months ended September 30, 2022 increased by $1.4 million and $4.2 million, or 15% in each period, as compared to the three and nine months ended September 30, 2021, respectively, primarily due to the increase in subscription cost of revenue described below.

Subscription cost of revenue for the three and nine months ended September 30, 2022 increased by $1.1 million and $3.4 million, or 15% and 16%, respectively, as compared to the three and nine months ended September 30, 2021, primarily driven by increased personnel-related costs of $0.9 million and $3.2 million for the three and nine months ended September 30, 2022, respectively.

Professional services cost of revenue for the three and nine months ended September 30, 2022 increased by $0.3 million and $0.9 million, or 13% and 14%, respectively, as compared to the three and nine months ended September 30, 2021, primarily driven by increased personnel-related costs.

Operating Expenses

Sales and Marketing

			Three Months Ended September 30,																								Nine Months Ended September 30,
			2022						2021						$ Change						% Change						2022						2021						$ Change						% Change
			(in thousands, except percentages)
Sales and marketing			$	29,662					$	23,384					$	6,278					27		%				$	93,049					$	62,512					$	30,537					49		%
Percentage of revenue			60		%				60		%										—		%				65		%				59		%										6		%