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Edited Transcript of SVMK.OQ earnings conference call or presentation 1-Aug-19 9:00pm GMT

Q2 2019 SVMK Inc Earnings Call

Aug 7, 2019 (Thomson StreetEvents) -- Edited Transcript of SVMK Inc earnings conference call or presentation Thursday, August 1, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alexander J. Lurie

SVMK Inc. - CEO & Director

* Deborah Clifford

SVMK Inc. - CFO

* Karim Damji

SVMK Inc. - IR Manager

* Thomas E. Hale

SVMK Inc. - President

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Conference Call Participants

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* Bradley Hartwell Sills

BofA Merrill Lynch, Research Division - VP

* Eric James Sheridan

UBS Investment Bank, Research Division - MD and Equity Research Internet Analyst

* James Paul Rutherford

Stephens Inc., Research Division - Research Analyst

* Mark Ronald Murphy

JP Morgan Chase & Co, Research Division - MD

* Ronald Victor Josey

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* Youssef Houssaini Squali

SunTrust Robinson Humphrey, Inc., Research Division - MD & Senior Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the SurveyMonkey Second Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to Karim Damji, VP of Investor Relations. Sir, you may begin.

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Karim Damji, SVMK Inc. - IR Manager [2]

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Thank you. Good afternoon, and welcome to SurveyMonkey's Second Quarter 2019 Earnings Call. Today, we have prepared remarks from Zander Lurie, our CEO; Tom Hale, our President; and Debbie Clifford, our CFO. After these prepared remarks, Zander and Debbie will be available for Q&A.

Prior to this call, we issued the press release and shareholder letter with our financial results and commentary for our second quarter 2019. Those items were posted on our Investor Relations website at investor.surveymonkey.com.

During the course of this call, management will make forward-looking statements, which are subject to various risks and uncertainties including statements related to our strategy, investments, revenue and cash flow. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance.

A discussion of risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission, in particular, the section entitled Risk Factors in our quarterly and annual reports, and we refer you to these filings.

Our discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not a substitute for or in isolation from our GAAP results.

A reconciliation of GAAP to non-GAAP results may be found in our earnings release and shareholder letter, which are furnished with our 8-K filed today with the SEC and may also be found on our IR website.

I'll now turn the call over to Zander.

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Alexander J. Lurie, SVMK Inc. - CEO & Director [3]

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Thanks, Karim. Good afternoon, everyone, and thank you for joining us on the call today.

First, I'd like to welcome Debbie Clifford to the SurveyMonkey troop as our new CFO. She's now almost 4 weeks into the job, and I'm thrilled to have her onboard. She's a seasoned finance leader with deep operational experience who has managed a scaled organization. She brings a wealth of knowledge about high-growth SaaS businesses and is a great cultural addition to SurveyMonkey.

In terms of format for this call, I will start with business highlights for the quarter. Tom will go through our product and marketing initiatives, and then Debbie will discuss our financial results and outlook in more detail before opening the call to questions.

Q2 was another strong quarter and reflects focused execution by the SurveyMonkey team and continued momentum across our business. We grew revenue to $75.1 million for 20% year-over-year growth and generated $13.3 million in unlevered free cash flow for 18% margin. These results demonstrate our ability to accelerate revenue growth and generate robust cash flow while making strategic investments to scale the business. As a result, we're increasing our revenue guidance for the year.

We continue to execute against our primary growth strategies: first, selling SurveyMonkey, which now includes Usabilla, directly to enterprises via our sales channel; second, driving adoption of our collaborative self-serve Teams plans; and third, expanding our business in key international markets.

Our paying users grew to just over 692,000, up 12% year-over-year and up approximately 22,000 paying users from last quarter, driven primarily by sales of SurveyMonkey Enterprise and adoption of Teams. 80% of our paying users are now on annual plans, up from 78% last quarter and 75% a year ago. We've shifted the composition of our paid user base to a much higher mix of annual users whose lifetime value is significantly higher than our monthly users. Our annual users also drive more virality and increase the likelihood of upsell and cross-sell in the organizations where they are employed.

In addition to strong paying user growth, ARPU continues to grow at a healthy clip, now at $442 for the quarter, up 8% year-over-year and up 4% sequentially. The ARPU increase was driven by stronger pricing in our self-serve and Enterprise plans, our Audience solution as well as the addition of Usabilla.

Enterprise sales revenue grew to approximately 20% of total revenue in Q2, up from 16% last quarter and up from 11% a year ago for 110% year-over-year growth. In addition to selling our Enterprise survey platform and customer and employee feedback solutions, our sales efforts have expanded to include Audience, our market research solution, and Usabilla, our voice of customer solution. We grew our Enterprise sales customers to 4,777, up 60% year-over-year and up 868 customers from Q1, inclusive of a onetime increase of approximately 400 net new Enterprise customers from Usabilla.

Our customers continue to show SurveyMonkey's broad appeal and resonance across industry and company size. During the quarter, new Enterprise sales customers includes one of the largest institutions in the United States, Wells Fargo; Latin American e-commerce technology company, MercadoLibre; HR solution provider, TriNet; U.S. federal agency, Bonneville Power Administration; and disruptive business travel platform, TripActions. In addition, we strengthened our partnership with Salesforce through an expansion sale.

We are continuing to scale our sales team and are making great progress each quarter in recruiting, training and enablement and in productivity gains from our sales reps. Our newer demand generation efforts are enabling us to build a stronger sales pipeline.

Our strategy of leveraging our maps and customer footprint and strong brand recognition to upsell our Enterprise platform directly to organizations is working. Enterprise customers are embracing our open ecosystem approach of integrating SurveyMonkey into their existing systems of record such as Salesforce, Microsoft, Google, Oracle and Tableau. We have a growing list of new clients who have ripped out more expensive and less agile software tools in favor of SurveyMonkey.

With regard to our acquisition of Usabilla, a key tenet of our M&A thesis was the heavy overlap of buyer personas between Usabilla and SurveyMonkey. A significant portion of our SurveyMonkey customer base collects feedback in functions such as marketing, customer success and product design, the specific functional areas where Usabilla is a fit. The integration of Usabilla is well underway, and we're seeing cross-selling of Usabilla to existing SurveyMonkey customers.

I'll give you an example of how customers are getting value from Usabilla. KLM Royal Dutch Airlines implemented the Usabilla solution after launching their mobile app. In addition to the operational data KLM is gathering around customer behavior, they use Usabilla for in-app feedback to capture VOC insights in order to understand behavior and make the appropriate improvements to the app. As a result, KLM increased its app rating from 2.8 to 4.2. Capturing feedback is fully integrated into KLM's development process to find bugs and identify feature request on both their app and website, helping prioritize their product road map.

Usabilla is a high-value solution that is complementary to SurveyMonkey and can benefit from our demand-generation abilities. We are focused on building out a broader portfolio of software solutions that can be sold through our channel, and Usabilla is a perfect example of the type of M&A opportunity that fits with our strategy. We have significant confidence in our brand, balance sheet and management team to acquire and integrate attractively priced assets.

Our footprint of over 17 million active users and 692,000 paying users that sit in hundreds of thousands of organizations provide us with a unique ability to capture a massive opportunity in front of us.

Historically, we've talked about our penetration into more than 350,000 organizations. As we've worked to ensure compliance with data privacy regulations like GDPR, experience continued success upselling individuals to Enterprise and Teams offerings, which can result in e-mail consolidation into one domain and as we've refined our data tracking methodology, we've revised the population to now reflect more than 335,000 organizations. We expect that this number may experience variability over time as we continue to see success converting our broad base of individual users into higher-value users through our Enterprise and Teams offering and refining our processes.

Our goal is to expand the footprint of SurveyMonkey usage within these organizations and deepen that monetization, and our results continue to demonstrate that our strategy is working. Secular tailwinds in these markets are as strong as ever. And with the team we have in place, we believe we can capture the opportunity ahead of us.

I'll now turn the call over to Tom to provide some highlights on our product and marketing initiatives for the quarter.

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Thomas E. Hale, SVMK Inc. - President [4]

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Thanks, Zander.

In Q2, we delivered innovative capabilities to make us more competitive and to drive our growth. We built out Lightning Flows for our SurveyMonkey connector for Salesforce weaving SurveyMonkey more tightly into the native Salesforce UI framework.

In the quarter, many companies signed up for our Salesforce integration including LinkedIn and Accenture. We also significantly enhanced the experience in our Microsoft Teams integration to empower knowledge workers to solicit and share feedback. We see a broad landscape of opportunity for our open platform strategy and are investing in our Salesforce and Microsoft partnerships.

Our cloud-based international data center for SurveyMonkey Enterprise is now live and serving new customers in the EU. This has been well received by our customers, and our Dublin sales team is closing business. The Usabilla team shipped Workspaces, which enables customers to create a shared context as they collaborate on measuring goals and analyzing segments.

Workspaces and Usabilla's thought leadership earned them a strong performer in the Forrester Wave for digital voice of customer.

In addition, with their focus on security controls, Usabilla received our ISO 27001 certification this month. We delivered SurveyMonkey Enterprise capabilities that appeal to high-end users. During the quarter, we shipped Crosstabs, one of the most requested features from market researchers along with SMS surveys, custom e-mail domains and Advanced Rule Logic, which also shipped in Q2. We continued to offer powerful capabilities at disruptive price points.

To enable broader adoption of SurveyMonkey, we shipped Build-It-For-Me, which combines interview questions, like who do you want to survey and what is your goal, to automatically create a survey from more than 50 templates then automatically adding actionable tips and recommendations. Like SurveyMonkey Genius, Build-It-For-Me leverages machine learning and our massive data sets to empower anyone to be an effective market researcher.

Finally, to enable customers to more easily adopt Teams when they have large groups of individual users, we shipped a series of innovations to enable larger customers to manage users, data and surveys.

We continue to be excited about the performance of our self-serve Teams plans. In Q2, Teams exceeded our expectations for new user adoption, and with less than 1 year in market, Teams plans have been purchased by 207 companies in the Fortune 500 and by 1/2 of the Fortune 100. We're driving Teams sign-ups from new users by merchandising Teams as the primary offering for our self-serve customers while upgrades from existing customers continue to be strong. We'll complete the rollout of account verification in Q3, but it's important to note that even with account verification coming to a close, we still see Teams adoption from our earliest wave of account verification cohorts back in October 2018. We continue to focus on Teams upgrade and are adding in engagement and expansion activities as we prepare to renew our first cohorts of Teams from the end of Q3 last year.

Turning to marketing. The brand campaign that we tested in Q2 raised the profile of the company to enterprise buyers, and the market is taking notice. In addition to being named the leader by Forrester for digital voice of customer solutions, the leading review site for enterprise software, G2, designated SurveyMonkey a leader in the enterprise feedback management category. To expand our thought leadership, we'll be hosting our second annual virtual Curiosity Conference in September this year with speakers from companies like Lyft, Zendesk, Cuisinart and others. We're very proud of the team of world-class marketers and especially of the recent leaders we've added in the last quarter.

Before I hand it to Debbie, I want to update you on our opportunity in agile research. As a reminder, companies are adopting agile research to keep up with increasing competition and changing consumer behavior. Continuous sampling, automated research, short time lines and rapid iteration are the hallmarks of agile research, creating a great opportunity for our Audience products. Audience enables companies to get results quickly and at a fraction of the cost of traditional research. Market research is right for disruption, and we're increasingly steering our investment in sales, marketing and product to take advantage of this opportunity especially in the financial services and consumer goods verticals.

Let me give you an example. Zwilling Beauty Group, a global premium beauty tools company known for their Tweezerman brands, uses agile research techniques to win in a hypercompetitive space. Zwilling Beauty Group uses SurveyMonkey Audience to quickly make data-driven, consumer-centric decisions about which new products to invest in, how to appeal to local markets in the U.S., China and Europe, to understand changing consumer preferences, to track perception of their brands and to understand emerging competitive threats. Zwilling Beauty Group is one of many companies shifting significant spend from traditional market research to SurveyMonkey.

And during the quarter, we also launched a partnership with J.D. Power around agile research to expand their data collection efforts through digital consumer channels leveraging SurveyMonkey Audience to unlock insights from new customer segments. We're thrilled to partner with J.D. Power in this effort and to showcase how agile research can deliver unmatched insights in the business-to-business space. We continue to see agile research as an area of growth and innovation, and we look forward to sharing our progress and plans in this exciting space. I'll now hand it over to Debbie to go through our Q2 financial results.

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Deborah Clifford, SVMK Inc. - CFO [5]

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Thanks, Tom.

I'm excited to be here at SurveyMonkey and look forward to working with the team to capitalize on the large opportunity ahead of us. It's a great time to join SurveyMonkey, fresh after a successful IPO and poised for growth ahead. I look forward to taking leadership role in SurveyMonkey's next chapter, working to execute on our strong growth strategy while at the same time building out rigorous financial processes that drive automation, efficiency and scale. I've not met most of you on the call, but I look forward to meeting and working with all of you.

Now onto the financial results. I'll provide a recap of our Q2 results and then walk through our Q3 and full year outlook. We closed a strong quarter with Q2 revenue of $75.1 million for 20% year-over-year growt driven by continued strength in selling SurveyMonkey directly to enterprises via our sales channel as well as ongoing uptake of our Teams offering.

Before moving on to expenses, I want to clarify that unless otherwise noted, all income statement and cash flow measures that follow are non-GAAP. You'll find a reconciliation of GAAP to non-GAAP results in our earnings release and shareholder letter on the IR website, which we have provided with our 8-K filed today with the SEC.

Q2 non-GAAP gross margin was 78% versus 74% in the prior year. Total non-GAAP operating expenses in Q2 were $56.9 million, an increase of $16 million or 39% year-over-year driven by our ongoing investments to realize our growth opportunity. We continue to invest in R&D to drive platform development and innovation across our product portfolio as well as ongoing spend to build and scale our sales and marketing efforts. In addition, we're continuing to make some G&A investments required as a relatively new public company.

Non-GAAP operating margin was 2%, which reflects the revenue overperformance flowing through to operating income and which compares to 8% non-GAAP operating margin in the same period last year.

Turning to the balance sheet. We ended the quarter with $154.5 million in cash and cash equivalents and $216.5 million in total debt for net debt of $62 million. We also continue to generate healthy cash flow with unlevered free cash flow of $13.3 million or 18% margin during the quarter.

Now on to our outlook. We're entering the second half of this the year with incredible momentum. For Q3 2019, we expect revenue to be in the range of $77 million to $78 million for 19% year-over-year growth at the mid-point. We expect operating margin to be approximately breakeven for the quarter and diluted weighted average shares outstanding to be between 134 million and 135 million.

Building on our strong performance in the first half of this year, we're increasing our revenue guidance for the full year 2019. We now expect revenue to be in the range of $302 million to $306 million for 20% year-over-year growth at the mid-point, which implies further acceleration year-over-year in the fourth quarter.

We're managing our operating margin for the full year 2019 to approximately breakeven as we focus on continued execution against our primary growth strategies. We have a large opportunity in front of us, and we'll continue to make disciplined investments that we believe will accelerate growth.

We expect unlevered free cash flow for 2019 to be in the range of $50 million to $53 million for 17% margin at the mid-point, and we expect 2019 fully diluted weighted average shares outstanding to be between 132 million and 134 million.

I'll now turn the call back over to Zander.

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Alexander J. Lurie, SVMK Inc. - CEO & Director [6]

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Thanks, Debbie. Great to have you here.

I'd like to thank all the SurveyMonkey employees for their continued hard work in delivering a great quarter and driving accelerated revenue growth. The category for survey software is expansive and growing. Our customers are using SurveyMonkey software to solve diverse and mission-critical use cases, to improve their customer and user experiences, increase employee engagement and conduct agile market research so they can drive growth and innovation in their business.

The evolution of our business is unique in the industry. We built a market-leading brand by selling subscriptions directly to end users working inside organizations. Our focus today is leveraging that footprint to sell SurveyMonkey Teams to administrators and our enterprise-grade platform and solutions to corporate buyers globally. Our business model is thriving because of the low customer acquisition cost and robust cash flow characteristics in the self-serve channel, coupled with the higher growth dynamics of Enterprise SaaS in our Enterprise sales channel.

Before I open it up for Q&A, similar to last quarter, I want to close out with some recent insights delivered via SurveyMonkey Audience, this time, in connection with J.D. Power and the recent partnership Tom mentioned. Powered by SurveyMonkey Audience, J.D. Power launched their inaugural Mobility Conference -- Confidence Index just a few days ago, which gather insights from over 5,000 consumers in each of their 2 studies: one for self-driving vehicles and the other for battery electric vehicles.

The study suggests that consumers' confidence in the future of self-driving vehicles and battery electric vehicles is relatively low to neutral at best. On a scale of 1 to 100, 0 to 40 being low, 41 to 60 being neutral and 61 to 100 being positive, the Mobility Confidence Index for self-driving vehicles is, wait for it, 36, but slightly higher for battery electric vehicles which stands at 55, suggesting the sizable opportunity for manufacturers to measure, understand and influence consumer attitudes to new mobility technologies. With billions of dollars being spent in this market, agile research is where companies competing in this industry can get an edge.

Thank you for your time today. Debbie and I will be available for Q&A. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Ron Josey with JMP Securities.

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Ronald Victor Josey, JMP Securities LLC, Research Division - MD and Senior Research Analyst [2]

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I wanted to ask a little bit more about Enterprise and the Salesforce. And with Enterprise now accounting for 20% of revenue and your approach -- your product and targeted approach is clearly working here, I think you mentioned, Zander, better productivity from the sales reps. And so I just wanted to talk a little bit about -- or hear more about the maturation of Salesforce. You mentioned on the call maybe some insights from, I think, you talked about Salesforce. And then, Tom, you mentioned the Build-It-For-Me product, just how it automatically creates surveys. Can you just talk maybe longer term how you think that might evolve? I imagine it might lower friction in creating more surveys and more usage, but just wanted to get your thoughts there. So Enterprise, Salesforce and Build-It-For-Me.

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Alexander J. Lurie, SVMK Inc. - CEO & Director [3]

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Sure, Ron. Thanks for the ongoing support and the question. Yes, I'll take the sales question first. As I said at the IPO, this was a mission-critical part of our strategy, leverage this massive footprint of domains, where we have over 70 million active users, hundreds of thousands of domains where we have paying customers. Recognizing that getting these companies on Enterprise plans was better for the company, a better use of our product and data integrity, and we continue to build better application functionality and security for the company.

So we have hired a world-class sales leadership team. John Schoenstein and Linda Campbell have built out a really incredible team to go prosecute this opportunity globally. You see our customer base up 60% year-over-year. Sales revenue up over 100% year-over-year. And with the addition of Usabilla, we're just continuing to add high AOV offerings. So every day, we're trying to get a little bit better, better hiring. We're ahead of plan in hiring -- in doubling our customer-facing sales reps for the year, better training, better marketing collateral, better demand gen, and then just higher AOVs, better productivity and days to first sale quota teams. And so as I said before, this is not a light switch moment. This is going to be about rigor, discipline and just getting better and better every quarter. And I'm proud to see us at 20%, and I'm proud to see that hyper growth in the sales channel, and I feel like there's plenty more to come globally.

On the product front, Build-It-For-Me is just another application in terms of how we use AI, machine learning templates to deliver more engagement for our customers. So because we have 2.5 million plus people answering questions on our platform every day, hundreds of thousands of surveys being sent every month, people don't need to come on and create a great survey. We have the methodology, templates data to help them do that. And we're using machine learning and the fact that we have the largest canonical data set in the world with over 50 billion answers to create better templates. You saw it with -- last year with data with SurveyMonkey Genius, and we're doing it with data with Build-It-For-Me. So we do think this is the future of enabling customer success folks, product folks, sales folks, HR departments to send better surveys, collect better data so they can get better insights, which is why they come to SurveyMonkey in the first place.

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Operator [4]

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Our next question comes from Eric Sheridan with UBS.

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Eric James Sheridan, UBS Investment Bank, Research Division - MD and Equity Research Internet Analyst [5]

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Maybe following up on Ron. Just would love to think, well, maybe not quantitatively, just think how qualitatively, Zander, beyond '19, how you're sort of rank ordering the levers for growth going forward. You've done a lot in the partnership, in the product front, had a lot of execution success since the IPO. What's changed in terms of how you're thinking about those levers of growth and what investors should sort of root themselves to in terms of thinking about the long-term opportunity?

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Alexander J. Lurie, SVMK Inc. - CEO & Director [6]

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Yes. Thank you, Eric, for the question. I think you guys have been covering this space, and there's been a lot of activity with Qualtrics' sale last year, with the Medallia IPO recently, with our IPO. This is a massive category. There are millions and millions of companies who need enterprise survey products. If you just look at the Salesforce alone, which is an ecosystem that we're really doubling down on, they have hundreds of thousands of customers. If a company can afford to pay for the CRM software to get better data and operational know-how from their customers, they need to be collecting sentiment and opinion data, and that's where SurveyMonkey is unique. It's where our integration matters. And we believe that there are literally hundreds of thousands of customers who should be buying our Enterprise products. Today, we have just under 5,000.

So we think there is nothing inherently American about this opportunity. It's a global opportunity. It's why we lit up the data center and staffed up the sales team in Europe. So we believe the Enterprise selling motion is one that we are going to expand for many years, and it will become a larger and larger component of our business.

We also believe that the Teams opportunity, which is still not even a year old for us, is germane to SurveyMonkey. There's just no other company in the world that has that kind of rampant credential sharing that has happened in SurveyMonkey. So for us, to put out a really good collaborative Teams product and to move more and more of our users into that product so they can have a better user experience, their IT groups can be happy, and obviously, it's great for our shareholders and business model. We believe that Teams and Enterprise will be a multiyear growth strategy all in service of how can we deliver our customers better insights in this global feedback economy. And again, we've talked about it qualitatively. If you look at what's happening in the market today, the Internet is democratizing the access -- accessible information. Everything you need to know about what jobs do I want to apply for, does the company have a good culture, how is their HR department's benefit, is this product priced fairly, user reviews. If you look at what's happening with Amazon and Glassdoor, and I could go down the list, access to information, democratizing that information, that access to data is what is changing the future of business, and it's all centered around feedback, collecting reviews, collecting information, structured, unstructured data, and it's where we play a leadership role.

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Operator [7]

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Our next question comes from Brad Sills with Bank of America Merrill Lynch.

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Bradley Hartwell Sills, BofA Merrill Lynch, Research Division - VP [8]

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Wanted to ask about Teams conversion. You mentioned that the account verification activation will be complete this quarter. What's been your experience so far in terms of enforcement of that account verification for conversion and the actual conversion? What should we expect in terms of the adoption or ramp of that? Is this a multiyear cycle for Teams conversion, once we get past the final account verification?

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Alexander J. Lurie, SVMK Inc. - CEO & Director [9]

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Yes. Thanks, Brad. I mean I think the Teams product is the future of our self-serve offering. If you look at our user base today, it's now 80% annual. That's up from 75% annual just a year ago. So while our paid user base is up 12%, our annual users are up over 20%. So in the quarter we disclosed, we added 22,000 users, but well over 100% of new users are annual. So you see us, we're just prescriptively migrating people from monthly plans to annual Teams and Enterprise plans via the product, packaging, pricing, et cetera. So I think you can look at this as a multiyear motion. We now default to the Teams offering page on the web, and we continue to put kind of value-added features that make the Teams product more compelling. We haven't even started renewing that product yet as we just launched it in early October of 2018, but given what we're seeing with auto renew off rates and the administrative role, we believe that the retention rates are going to be really significant.

And it bears mentioning, the value of an annual subscriber to SurveyMonkey is multiples better on an LTV basis than the value of a monthly subscriber. So when you see us adding more annual users and driving up that mix of our user base to more annual Teams and Enterprise, the LTV against those customers is just markedly higher. And over time, we're just going to migrate more and more of those monthly cohorts into better packages and drive engagement and drive LTV. So we do think it's a multiyear offering, and our marketing teams are aggressively and creatively thinking of new ways to delight and please our customers, and our product teams are putting new features in those plans to make those packages more valuable.

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Bradley Hartwell Sills, BofA Merrill Lynch, Research Division - VP [10]

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That's great. And one more, if I may, please. Just on the Enterprise traction here. Obviously, you're seeing some acceleration here. I think 12% quarter-on-quarter Enterprise customers this quarter growth ex Usabilla, which is up from 9% -- 10% last quarter. Or last year, it was up 5% in Q2. So you're obviously seeing great traction there. When you look back on kind of where you were 1.5 years ago before going into this Enterprise motion and kind of where you are today, what has surprised you maybe to the upside or even some learnings that you've kind of gained having now 1.5 years of view here?

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Alexander J. Lurie, SVMK Inc. - CEO & Director [11]

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Yes. Thanks for the compliments to our team, Brad. I am thrilled with performance, and it has exceeded my expectations from when we went public last September. And if you look at '16, '17 where we rarely built out the Enterprise product and really launched the sales team with the hiring of John Schoenstein in late '17, we're less than 2 years in to go into market with this product. It is a big category. While we are the market-leading brand, I think we're a challenger in the enterprise sales category.

And I think it's demonstrated a couple of things. First, this is a big market for collecting feedback and collecting sentiment opinion data. And for companies that you're seeing [have flaws] on the cover of the New York Times here with their data integrity or their marketing know-how or their pricing of their products, they need to be collecting customer sentiment data. Everybody is talking about customer centricity and putting the customer first, putting employees first. If you want to build a better culture and a more customer-centric organization, you need to listen to your customers. So it's a big space for us to compete in.

Secondly, I'd just give props to the team here at SurveyMonkey across product engineering, marketing and sales, finance, legal. We have elevated our game to make this company an enterprise SaaS business. We happen to have a really great consumer brand that people are familiar with and a large subscription customer base. But our energy, focus, rigor, new hires, our new CFO, our new CIO, you're seeing us put our emphasis on going upmarket, selling into Enterprise, and for our revenue from the sales channel this quarter to grow over 100%, our customer base up over 60%, to be able to sign customers like Wells Fargo and Salesforce and LinkedIn and Accenture, and I could go down the list, we're here to stay. And we are a challenger who's taking market share and just getting more and more aggressive and more confident.

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Operator [12]

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Our next question comes from Youssef Squali with SunTrust.

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Youssef Houssaini Squali, SunTrust Robinson Humphrey, Inc., Research Division - MD & Senior Analyst [13]

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So Debbie, congrats on the new assignment. I have a couple of questions. The -- if I look at the deferred revenues, it was up about $14 million sequentially. I think that's the highest we've ever seen it. And then it's up 25%, I think, year-on-year. Growth and change of deferred has more than doubled. Just trying to see how do you guys reconcile that strength with the 18% to 20% revenue growth that you're guiding to in Q3.

And as a related question, I guess, on pricing. Maybe, Zander, you can just speak to this in general. But around the IPO, you were talking about how faster growth in Enterprise is going to have the net effect of depressing growth in ARPU. And the 8% we saw this past quarter is basically in line with what you did in prior quarter even though Enterprise doubled. Just help us understand what your -- kind of what you're seeing on the pricing side. Obviously, it's coming in stronger than you thought may be. Maybe help us just understand the dynamics there, the dynamic that's going on there.

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Alexander J. Lurie, SVMK Inc. - CEO & Director [14]

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Yes. Youssef, thanks. ARPU up 8% to $442 is a pleasant surprise. I wouldn't say we managed -- for an ARPU number, we managed to deepen our monetization for delivering more value to our customers, and there is a company-wide mandate to really sell the value. So as you see us move upmarket with Enterprise, we're selling more seats into Enterprise, we're also selling solutions, our Salesforce integration, TechValidate, our new Usabilla product. And the sales team has more weapons to take to market. So we are able to deepen our monetization, and we're not solving for an ARPU number. And so there are puts and takes as we do have some volume discounts for seats, but the solutions are obviously much higher AOV ticket. So quite pleased with that ARPU number. We don't guide to it, but what we are focused on is deepening the monetization.

And I'll take the question for Debbie, and then let her elaborate if she'd like since she's, what, 17 days into her seat. I was obviously methodical about going through that interview process over several months and really did prioritize the operational rigor that Debbie brings to bear. She comes from 12 years of world-class SaaS experience and had a real leadership role in crafting that business model. And I'm confident her -- she's not a only a cultural addition to the team, but she's going to raise our game. She's a significant upgrade from the interim CFO, yours truly, who sat in that role before.

So on the deferred revenue base, obviously, the visibility we have in our business is significant because approximately 3/4 of our revenue does either come off the balance sheet or from our renewable space. So I know Debbie is still getting familiar with the team and the business model, and I'm looking forward to her having a stronger voice on these calls when she's deeper into the role.

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Deborah Clifford, SVMK Inc. - CFO [15]

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Thanks, Zander. It's been a great experience so far. I'm just finishing up my fourth week. I've enjoyed meeting everybody, employees, Board members, getting deeper into the company story. I'm impressed with the team, and I look forward to working with everyone. And given this is an earnings call, I'd say that there's no better time to get up to speed on the investor story than joining during an earnings cycle. So I look forward to meeting and working with all of you and developing a better sense of the investor perspective.

I don't have specifics on the deferred revenue side, but I would say that I think that the strategy that Zander has talked about is why we're seeing such growth in deferred revenue and why we're guiding to greater revenue growth on the back half of the year. So selling more into the Enterprise, Teams and the expansion internationally are all going to be drivers of deferred revenue and revenue growth.

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Youssef Houssaini Squali, SunTrust Robinson Humphrey, Inc., Research Division - MD & Senior Analyst [16]

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Okay. And just one quick one, did you guys break out Usabilla contribution to revenue in the quarter?

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Alexander J. Lurie, SVMK Inc. - CEO & Director [17]

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No, we didn't. We guided -- when we announced the deal on the Q1 call, we said that they would contribute about 2 points of growth for the year, and then it would be more back-end loaded because of the deferred revenue adjustment. So they are right on track. We signed up -- if you go to our Board of Directors page, you'll see we have some ex public company CFOs, CEOs, COOs. They know how to review an acquisition, and we signed up for a plan, and the team is executing nicely against that plan. But we won't be breaking out any specific product contribution going forward.

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Operator [18]

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(Operator Instructions) Our next question comes from Mark Murphy with JPMorgan.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division - MD [19]

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Tom, the volume of Enterprise sales customers added in Q2 is pretty strong even if we exclude the 400 net new from Usabilla. I'm interested in just what caused that kind of step-function increase in Q2. Was it related to any customers churning off of Qualtrics post acquisition perchance? And is there any type of onetime effect there that would mean revert in future quarters?

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Alexander J. Lurie, SVMK Inc. - CEO & Director [20]

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Mark, you are not last. You're just batting clean up here. We have plenty of customers who've moved off of Qualtrics and signed up for SurveyMonkey, so we go toe to toe with Qualtrics quite frequently. We love our opportunity to sell into that Salesforce ecosystem. Salesforce customers, that is their system of record, and they want an agile solution where you can work in that system. And given the remarks that Tom made about the new Lightning Flows we've created and the ease of use in our product to help customers in Salesforce collect sentiment, opinion data, we think put SurveyMonkey in the best position to compete.

So we like our winning percentage against Qualtrics. There is nothing onetime about this quarter. So you saw about 400 of those customers came from Usabilla, and the 450 or so that came from SurveyMonkey. And it's just a function of a larger sales team with better training, better marketing, better demand gen out in the market getting crisper and just having more success. So we will continue to invest in that Enterprise story, and I envision us continuing at this clip.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division - MD [21]

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Okay. And then just as a follow-up, Tom. If you peel back the layers of the top line acceleration to 20%, clearly, you're mentioning Enterprise and Teams driving a lot of the momentum. Is there also consistency or even uplift in the growth of the core self-serve business?

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Alexander J. Lurie, SVMK Inc. - CEO & Director [22]

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If you look at how we're deploying our product and marketing resources, it's really about building just a world-class survey product and platform with our solutions. We happen to have 2 go-to-market channels, 1 via website and then 1 through the sales channel. So overall growth, if you just see, given the focus we're putting on the sales channel, that will be the hyper growth channel. And as we said, our sales team has a unique opportunity unlike any company I know, that they're only selling into existing customers, domains where we have footprint, where we have engagement, active use of our products and moving those self-serve footprints up into our higher AOV revenue plans in Enterprise where we see a 4x revenue uplift is core to the business model. So we see still kind of that high single-digit, low double-digit growth against the self-serve product and then the hyper growth in the sales channel, and the net-net of it all for the second quarter was 20% year-over-year revenue growth.

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Mark Ronald Murphy, JP Morgan Chase & Co, Research Division - MD [23]

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And a final one for Debbie, if you're not able to provide the Usabilla contribution to revenue, do you happen to have its contribution to deferred revenue?

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Deborah Clifford, SVMK Inc. - CFO [24]

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Yes. We're not disclosing that at this point.

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Operator [25]

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Our next question comes from James Rutherford with Stephens Inc.

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James Paul Rutherford, Stephens Inc., Research Division - Research Analyst [26]

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Welcome aboard, Debbie. A couple from me. First on competition, a follow-up to Mark's question. It stood out to us that you mentioned in the prepared remarks, Zander, an increasing number of Enterprise customers that are replacing their more expensive platforms to SurveyMonkey. I know a lot of your opportunity is greenfield today, but just would love some more color around that competitive takeaway dynamic? Is this something new that you're seeing? And kind of part B of that question is of your roughly 5,000 Enterprise customers, how many of those do you think also have a Qualtrics or Medallia kind of type platform also operating in the background?

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Alexander J. Lurie, SVMK Inc. - CEO & Director [27]

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So I don't have a number there. But thematically, I would say that Enterprise customers of SurveyMonkey probably don't have Qualtrics or Medallia offering. Those are larger deployments often with a lot of professional services, often take months to install just a heavier solution. I would say that probably all of Medallia's customers have paying SurveyMonkey customers inside. So you can imagine that there are going to be a lot of Medallia and Qualtrics customers who also buy SurveyMonkey. And I think we are going to continue to aggressively target the top 10% of those 335,000 domains. That's really where we're spending our time, the 30,000 to 40,000 domains where we have the most active customers, paying customers, engagement surveys sent. That's really the opportunity for us. And if they happen to be existing Qualtrics and Medallia customers today, we can either complement -- supplement them or have those systems ripped out. So it's a competitive market. We're not often competing in RFPs because we do have a big proprietary greenfield opportunity selling into our base. But as the market grows and gets more competitive, we really like the competitive position we sit in with our brands, ease-of-use of our products and the hearts and minds of a lot of people inside those companies.

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James Paul Rutherford, Stephens Inc., Research Division - Research Analyst [28]

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Okay. That's helpful. And then one follow-up on Audience. It seems like having some real success here. And last quarter, you talked about starting up like a focused selling strategy primarily, I think you mentioned finance and CPG organizations. It just seems like the tone here is that you're taking this product very broadly across your base of customers now. Just hoping to get a sense of some of the drivers here, and what kind of portion of your Enterprise growth this might contribute over medium to longer term. And that's it for me.

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Alexander J. Lurie, SVMK Inc. - CEO & Director [29]

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Yes. Jim, Audience is an important part of our business. It's one of the larger solutions we sell. It is the one where we've decided to staff a dedicated team against financial services and CPG in particular. Given the size of these organizations, the amount of their spend and their interest in having a human being in SurveyMonkey they can talk to. So we will pick off verticals where we see a big opportunity. It's a -- as Tom mentioned in his prepared remarks, the agile research category is a huge one, we have a unique opportunity because of our panel. The fact that millions of people come across SurveyMonkey every day, we have the opportunity to help ask them, are you interested in buying electric car or will you try a plant-based burger? We can segment across gender, incomes, ZIP Code, hobbies, interests, et cetera. So we will elevate our investment in sales to the extent we see an opportunity and attach it to SurveyMonkey Enterprise, Usabilla, our VOC solutions, and really excited about the $45 billion TAM that we're competing in. And J.D. Power is just one of the good partnerships that we've announced, and we will continue to explore other opportunities.

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Operator [30]

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And I'm currently showing no further questions at this time. I'd like to turn the call back over to Zander Lurie for closing remarks.

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Alexander J. Lurie, SVMK Inc. - CEO & Director [31]

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Yes. I just wanted to thank the analysts and research folks who have continued to cover us and help investors understand our story. We do appreciate the way your questions and your commentary and the data you're calculating are helping us clarify the story. I want to thank the SurveyMonkey team globally for your excellent efforts in Q2 and continued rigor and focus to deliver a great Q3. Look forward to talking to everybody in about 90 days, and wish you a great rest of your Thursday. Thank you very much.

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Operator [32]

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Ladies and gentlemen, this concludes today's conference. Thanks for joining, and have a wonderful day.