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SurveyMonkey Announces Fourth Quarter and Fiscal Year 2019 Financial Results

Company Delivers Record Revenue in 2019, Surpasses $300 million and 21% YoY growth

Fourth Quarter Enterprise Sales Revenue Grew 145% Year-over-Year to 25% of Total Revenue

Adds over 3,000 Enterprise Customers in 2019

SAN MATEO, Calif., Feb. 13, 2020 (GLOBE NEWSWIRE) -- SurveyMonkey (SVMK), a leading global survey software company, today announced that its parent company, SVMK Inc., reported fourth quarter and full year 2019 financial results for the period ended December 31, 2019.

“SurveyMonkey delivered a strong fourth quarter with 24% year-over-year revenue growth. Enterprise sales accounted for 25% of our revenue, up from 13% one year ago. We added world-class businesses to our growing customer roster, including CBS Interactive, Duracell, CORT, and Office Depot Europe,” said Zander Lurie, CEO at SurveyMonkey. “2019 was a banner year for the company: we expanded our global footprint with the launch of our Dublin data center and the acquisition of Usabilla in Amsterdam, acquired GetFeedback to enhance our Customer Experience solutions for the Salesforce ecosystem, and eclipsed $300 million of annual revenue. Our disciplined investments enabled us to deliver 17% unlevered free cash flow margin in conjunction with our accelerated revenue growth. I’ve never been more excited about the opportunity ahead.”

Q4 2019 Key Results

  • Revenue was $84.3 million, an increase of 24% year-over-year.
  • Enterprise sales revenue was approximately 25% of total revenue, up from approximately 13% in Q4 2018 and 23% in Q3 2019. We ended the quarter with 6,578 enterprise sales customers, up 84% from 3,566 in Q4 2018.
  • Deferred revenue was $141 million, an increase of 39% year-over-year.  Remaining performance obligation was $160.7M, an increase of 45% year-over-year.
  • Paying users totaled 720,921, an increase of 74,194, or 11% from 646,727 in Q4 2018, and an increase of 7,704 paying users from Q3 2019. Approximately 84% of our paying users were on annual plans, up from 77% a year ago.
  • Average revenue per user was $467, up 10% from $425 in Q4 2018 and up 4% from $448 in Q3 2019.
  • GAAP operating margin was (23%) and non-GAAP operating margin was (1%).
  • GAAP net loss was ($21.3) million and Adjusted EBITDA was $8.3 million.
  • GAAP basic and diluted net loss per share was ($0.16). Non-GAAP basic and diluted net loss per share was ($0.02).
  • Net cash provided by operating activities was $9.4 million, free cash flow was $6.6 million and unlevered free cash flow was $9.7 million for 11%, 8% and 11% margin, respectively.

Full Year 2019 Key Results

  • Revenue was $307.4 million, an increase of 21% year-over-year.
  • Enterprise sales revenue was approximately 21% of total revenue, up from approximately 12% in 2018.
  • GAAP operating margin was (22%) and non-GAAP operating margin was 1%.
  • GAAP net loss was ($73.9) million and Adjusted EBITDA was $38.6 million.
  • Net cash provided by operating activities was $54.7 million, free cash flow was $40.2 million and unlevered free cash flow was $53.7 million, for 18%, 13% and 17% margin, respectively.
  • Cash and cash equivalents totaled $131.0 million and total debt was $215.5 million for net debt of $84.5 million.

Full Year 2019 Business Milestones

Customer Experience (CX)

  • SurveyMonkey acquired GetFeedback, a CX solution designed for the Salesforce ecosystem.
  • SurveyMonkey acquired Usabilla, a leading global Voice of Customer (VoC) technology provider company, based in Amsterdam.

Market Research

  • Audience Premium launched to help professionals gather deeper, faster insights.

International

  • SurveyMonkey achieved International Organization for Standardization (ISO) 27001 security recognition from the British Standards Institute.
  • SurveyMonkey advanced cloud operations in Europe for enterprise customers with the launch of a Dublin datacenter.

Culture

  • SurveyMonkey appointed Debbie Clifford as CFO and Eric Johnson as CIO.
  • SurveyMonkey recognized as best place to work on annual round-ups by Fortune, Best Place to Work, and Glassdoor.
  • SurveyMonkey ranked #1 in the Enterprise Feedback software category in the Fall 2019 G2 Grid, ranked #1 survey software solution by Capterra’s Top 20 Survey Software report.

SurveyMonkey posted a shareholder letter with complete fourth quarter and fiscal 2019 financial results and management commentary on its investor relations website at investor.surveymonkey.com.

Financial Outlook

Q1 2020
Revenue $85 million - $86 million 25% YoY growth
Non-GAAP operating margin -4% to -2%


FY 2020
Revenue $375 million - $381 million 22% - 24% YoY growth
Non-GAAP Operating Margin 1% to 2%
Free Cash Flow $40 million - $43 million

We define free cash flow as operating cash flow less capital expenditures. We believe this metric provides a better view of our working capital management than unlevered free cash flow. Therefore, we will guide to free cash flow going forward. You can find a comprehensive explanation of non-GAAP measures at the end of this press release.

We expect basic and diluted weighted average shares outstanding to be approximately 136 million in Q1 and 139 million for the full year 2020.

Conference Call Information

We will host a conference call today to discuss our Q4 and Fiscal 2019 business and financial results. This call is scheduled to begin at 2:00 pm PT / 5:00 pm ET and can be accessed by dialing (866) 417-2046 or (409) 217-8231. To listen to a live audio webcast, please visit SurveyMonkey’s Investor Relations website at investor.surveymonkey.com. A replay of the audio webcast will be available on the same website following the call. A telephonic replay will be available through February 20, 2020 by dialing (855) 859-2056 or (404) 537-3406 and entering passcode 2277176#.

Upcoming Events

Zander Lurie, CEO, will be presenting at the 2020 JMP Securities Technology Conference in San Francisco, CA on Tuesday, February 25, 2020.  A live webcast will be accessible from the SurveyMonkey investor relations website at investor.surveymonkey.com. Following the event, a replay will be made available at the same location. Debbie Clifford, CFO, and Tom Hale, President, will also be hosting one-on-one meetings at the SunTrust Technology, Internet, & Services Conference in New York, NY on Tuesday, March 10, 2020.

About SurveyMonkey

SurveyMonkey is a leading global survey software company on a mission to power the curious. The company’s platform empowers over 17 million active users to measure and understand feedback from employees, customers, website and app users, and the market. SurveyMonkey’s products, enterprise solutions and integrations enable more than 335,000 organizations to solve daily challenges, from delivering better customer experiences to increasing employee retention. With SurveyMonkey, organizations around the world can transform feedback into business intelligence that drives growth and innovation.

Investor Relations Contact:

Gary J. Fuges, CFA

investors@surveymonkey.com

Media Contact:

Lara Sasken

lsasken@surveymonkey.com

Source: SurveyMonkey Inc.


SVMK INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (1)

 (in thousands)   December 31, 2019     December 31, 2018  
Assets                
Current assets:                
Cash and cash equivalents   $ 131,035     $ 153,807  
Accounts receivable, net     17,795       7,336  
Deferred commissions, current     3,078       1,981  
Prepaid expenses and other current assets     9,382       7,081  
Total current assets     161,290       170,205  
Property and equipment, net     35,072       117,718  
Operating lease right-of-use assets     63,904        
Capitalized internal-use software, net     33,156       33,280  
Acquisition intangible assets, net     33,150       9,324  
Goodwill     462,927       336,861  
Deferred commissions, non-current     5,384       3,317  
Other assets     9,376       8,643  
Total assets   $ 804,259     $ 679,348  
Liabilities and stockholders’ equity                
Current liabilities:                
Accounts payable   $ 2,677     $ 2,804  
Accrued expenses and other current liabilities     16,077       9,692  
Accrued compensation     24,031       20,070  
Deferred revenue     139,990       101,236  
Operating lease liabilities, current     8,381        
Debt, current     1,900       1,900  
Total current liabilities     193,056       135,702  
Deferred tax liabilities     4,870       4,246  
Debt, non-current     213,616       215,515  
Financing obligation on leased facility           92,009  
Operating lease liabilities, non-current     82,668        
Other non-current liabilities     8,065       12,493  
Total liabilities     502,275       459,965  
Commitments and contingencies                
Stockholders’ equity:                
Preferred stock            
Common stock     1       1  
Additional paid-in capital     705,143       551,937  
Accumulated other comprehensive loss     (444 )     (287 )
Accumulated deficit     (402,716 )     (332,268 )
Total stockholders’ equity     301,984       219,383  
Total liabilities and stockholders’ equity   $ 804,259     $ 679,348  

(1)  The Company adopted ASC 842 as of January 1, 2019 on a prospective basis.  Amounts presented as of December 31, 2019 are under ASC 842 and amounts presented as of December 31, 2018 are under ASC 840.


SVMK INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (1)

    Three Months Ended
December 31,
    Year Ended
December 31,
 
(in thousands, except per share amounts)   2019     2018     2019     2018  
Revenue   $ 84,324     $ 67,932     $ 307,421     $ 254,324  
Cost of revenue(2)(3)     20,321       19,015       76,524       77,982  
Gross profit     64,003       48,917       230,897       176,342  
Operating expenses:                                
Research and development(2)     24,614       20,191       90,545       106,188  
Sales and marketing (2)(3)     36,908       24,174       123,573       95,783  
General and administrative(2)     21,994       20,530       83,288       97,339  
Restructuring           3,492       (66 )     3,525  
Total operating expenses     83,516       68,387       297,340       302,835  
Loss from operations     (19,513 )     (19,470 )     (66,443 )     (126,493 )
Interest expense     3,279       5,620       14,157       27,801  
Other non-operating (income) expense, net     (521 )     430       (3,962 )     298  
Loss before income taxes     (22,271 )     (25,520 )     (76,638 )     (154,592 )
Provision for (benefit from) income taxes     (977 )     (322 )     (2,779 )     148  
Net loss   $ (21,294 )   $ (25,198 )   $ (73,859 )   $ (154,740 )
Net loss per share, basic and diluted   $ (0.16 )   $ (0.20 )   $ (0.56 )   $ (1.43 )
Weighted-average shares used in computing basic and diluted net loss per share     134,969       125,454       131,568       107,900  

(1)  The Company adopted ASC 842 as of January 1, 2019 on a prospective basis.  Amounts presented for the quarter and year ended December 31, 2019 are under ASC 842 and amounts presented for the quarter and year ended December 31, 2018 are under ASC 840.

(2)  Includes stock-based compensation, net of amounts capitalized as follows:

    Three Months Ended
December 31,
    Year Ended
December 31,
 
(in thousands)   2019     2018     2019     2018  
Cost of revenue   $ 853     $ 1,155     $ 3,658     $ 8,931  
Research and development     5,296       4,836       21,159       48,739  
Sales and marketing     3,236       2,635       11,950       19,046  
General and administrative     5,813       7,040       23,478       55,054  
Stock-based compensation, net of amounts capitalized   $ 15,198     $ 15,666     $ 60,245     $ 131,770  

(3)  Includes amortization of acquisition intangible assets as follows:

    Three Months Ended
December 31,
    Year Ended
December 31,
 
(in thousands)   2019     2018     2019     2018  
Cost of revenue   $ 1,917     $ 488     $ 5,365     $ 1,952  
Sales and marketing     1,363       545       3,630       2,318  
Amortization of acquisition intangible assets   $ 3,280     $ 1,033     $ 8,995     $ 4,270  


SVMK INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

    Year Ended December 31,  
(in thousands)   2019     2018  
Cash flows from operating activities                
Net loss   $ (73,859 )   $ (154,740 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
Depreciation and amortization     44,832       47,166  
Non-cash leases expense     12,537        
Stock-based compensation expense, net of amounts capitalized     60,245       131,770  
Amortization of debt discount and issuance costs     301       902  
Deferred income taxes     (3,676 )     (508 )
Loss on debt extinguishment           941  
Gain on sale of a private company investment     (1,001 )     (999 )
Impairment of property and equipment           2,821  
Other     (157 )     1,798  
Changes in assets and liabilities:                
Accounts receivable     (7,239 )     (1,958 )
Prepaid expenses and other assets     (5,172 )     (5,565 )
Accounts payable and accrued liabilities     8,318       3,564  
Accrued interest on financing lease obligation, net of payments           (1,376 )
Accrued compensation     2,232       5,203  
Deferred revenue     31,181       16,353  
Operating lease liabilities     (13,890 )      
Net cash provided by operating activities     54,652       45,372  
Cash flows from investing activities                
Acquisitions, net of cash acquired     (114,603 )      
Purchases of property and equipment     (2,450 )     (9,981 )
Capitalized internal-use software     (12,034 )     (12,052 )
Proceeds from sale of a private company investment     1,001       999  
Net cash used in investing activities     (128,086 )     (21,034 )
Cash flows from financing activities                
Proceeds from initial public offering, net           232,509  
Payments of deferred offering costs           (7,173 )
Proceeds from stock option exercises     47,678       494  
Proceeds from employee stock purchase plan     5,344        
Employee payroll taxes paid for net share settlement of restricted stock units           (25,807 )
Payments to repurchase common stock           (16 )
Repayment of debt     (2,200 )     (104,050 )
Payment of debt issuance costs and other           (482 )
Net cash provided by financing activities     50,822       95,475  
Effect of exchange rate changes on cash     (76 )     (787 )
Net increase (decrease) in cash, cash equivalents and restricted cash     (22,688 )     119,026  
Cash, cash equivalents and restricted cash at beginning of period     154,371       35,345  
Cash, cash equivalents and restricted cash at end of period   $ 131,683     $ 154,371  
Supplemental cash flow data:                
Interest paid for term debt   $ 13,502     $ 20,466  
Interest paid for financing obligation on leased facility   $     $ 8,152  
Cash paid for operating leases   $ 13,777     $  
Income taxes paid   $ 756     $ 535  
Non-cash investing and financing transactions:                
Fair value of common stock issued as acquisition consideration   $ 36,204     $  
Stock compensation included in capitalized software costs   $ 3,503     $ 2,609  
Accrued unpaid capital expenditures   $ 171     $ 322  
Lease liabilities arising from obtaining right-of-use assets   $ 7,937     $  
Derecognized financing obligation related to building due to adoption of ASC 842   $ 92,009     $  
Derecognized building due to adoption of ASC 842   $ 71,781     $  

SVMK INC.

RECONCILIATION OF GAAP TO NON-GAAP DATA (unaudited) (1)(2)

Reconciliation of GAAP to Non-GAAP (Loss) Income from Operations

    Three Months Ended
December 31,
    Year Ended
December 31,
 
(in thousands, except percentages)   2019     2018     2019     2018  
GAAP Loss from operations   $ (19,513 )   $ (19,470 )   $ (66,443 )   $ (126,493 )
GAAP Operating margin     (23 )%     (29 )%     (22 )%     (50 )%
Stock-based compensation, net     15,198       15,666       60,245       131,770  
Amortization of acquisition intangible assets     3,280       1,033       8,995       4,270  
Restructuring           3,492       (66 )     3,525  
Employer payroll taxes on Performance RSUs                       1,183  
Third-party fees related to credit facility refinancing           879             879  
Non-GAAP Income from operations   $ (1,035 )   $ 1,600     $ 2,731     $ 15,134  
Non-GAAP Operating margin     (1 )%     2 %     1 %     6 %

Reconciliation of GAAP to Non-GAAP Loss and Loss per diluted share

    Three Months Ended
December 31,
    Year Ended
December 31,
 
(in thousands, except per share amounts)   2019     2018     2019     2018  
GAAP Net loss   $ (21,294 )   $ (25,198 )   $ (73,859 )   $ (154,740 )
GAAP Net loss per diluted share   $ (0.16 )   $ (0.20 )   $ (0.56 )   $ (1.43 )
Weighted-average shares used to compute GAAP net loss per diluted share     134,969       125,454       131,568       107,900  
                                 
Stock-based compensation, net     15,198       15,666       60,245       131,770  
Amortization of acquisition intangible assets     3,280       1,033       8,995       4,270  
Restructuring           3,492       (66 )     3,525  
Employer payroll taxes on Performance RSUs                       1,183  
Third-party fees related to credit facility refinancing           879             879  
Gain on sale of a private company investment                 (1,001 )     (999 )
Loss on debt extinguishment           941             941  
Income tax effect on Non-GAAP adjustments(3)     254       (339 )     (966 )     78  
                                 
Non-GAAP Net loss   $ (2,562 )   $ (3,526 )   $ (6,652 )   $ (13,093 )
Non-GAAP Net loss per diluted share   $ (0.02 )   $ (0.03 )   $ (0.05 )   $ (0.12 )
Weighted-average shares used to compute Non-GAAP net loss per diluted share     134,969       125,454       131,568       107,900  

(1)  Please see Appendix A for explanation of non-GAAP measures used.
(2)  The Company adopted ASC 842 as of January 1, 2019 on a prospective basis.  Amounts presented for the quarter and year ended December 31, 2019 are under ASC 842 and amounts presented for the quarter and year ended December 31, 2018 are under ASC 840.
(3)  Due to the full valuation allowance on our US deferred tax assets, there were no tax effects associated with the Non-GAAP adjustments for stock-based compensation, net, restructuring, employer payroll taxes on Performance RSUs, third-party fees related to credit facility refinancing, gain on sale of a private company investment and loss on debt extinguishment. Non-GAAP adjustments pertain to the income tax effects of amortization of acquisition-related intangible assets and release of valuation allowance as a result of acquisitions.

SVMK INC.

RECONCILIATION OF GAAP TO NON-GAAP DATA (unaudited) (1)(2)

Calculation of Free Cash Flow and Unlevered Free Cash Flow

    Three Months Ended December 31,     Year Ended December 31,  
(in thousands)   2019     2018     2019     2018  
Net cash provided by operating activities   $ 9,419     $ 11,390     $ 54,652     $ 45,372  
Purchases of property and equipment     (424 )     (1,170 )     (2,450 )     (9,981 )
Capitalized internal-use software     (2,441 )     (3,195 )     (12,034 )     (12,052 )
Free cash flow   $ 6,554     $ 7,025     $ 40,168     $ 23,339  
Interest paid for term debt     3,111       4,021       13,502       20,466  
Employer payroll taxes on Performance RSUs                       1,183  
Third-party fees related to credit facility refinancing           879             879  
Unlevered free cash flow   $ 9,665     $ 11,925     $ 53,670     $ 45,867  

Calculation of Adjusted EBITDA

    Three Months Ended December 31,     Year Ended December 31,  
(in thousands)   2019     2018     2019     2018  
Net loss   $ (21,294 )   $ (25,198 )   $ (73,859 )   $ (154,740 )
Provision for (benefit from) income taxes     (977 )     (322 )     (2,779 )     148  
Other non-operating (income) expenses, net     (521 )     430       (3,962 )     298  
Interest expense     3,279       5,620       14,157       27,801  
Depreciation and amortization     12,589       12,046       44,832       47,166  
Stock-based compensation, net     15,198       15,666       60,245       131,770  
Restructuring           3,492       (66 )     3,525  
Employer payroll taxes on Performance RSUs                       1,183  
Third-party fees related to credit facility refinancing           879             879  
Adjusted EBITDA   $ 8,274     $ 12,613     $ 38,568     $ 58,030  

(1)  Please see Appendix A for explanation of non-GAAP measures used.
(2)  The Company adopted ASC 842 as of January 1, 2019 on a prospective basis.  Amounts presented for the quarter and year ended December 31, 2019 are under ASC 842 and amounts presented for the quarter and year ended December 31, 2018 are under ASC 840.


SVMK INC.

RECONCILIATION OF GAAP TO NON-GAAP DATA (unaudited) (1)(2)

Supplemental GAAP and Non-GAAP Information

    Three Months Ended
December 31,
    Year Ended
December 31,
 
(in thousands, except percentages)   2019     2018     2019     2018  
GAAP Gross profit   $ 64,003     $ 48,917     $ 230,897     $ 176,342  
GAAP Gross margin     76 %     72 %     75 %     69 %
Stock-based compensation, net     853       1,155       3,658       8,931  
Amortization of acquisition intangible assets     1,917       488       5,365       1,952  
Employer payroll taxes on Performance RSUs                       103  
Non-GAAP Gross profit   $ 66,773     $ 50,560     $ 239,920     $ 187,328  
Non-GAAP Gross margin     79 %     74 %     78 %     74 %
                                 
GAAP Research and development   $ 24,614     $ 20,191     $ 90,545     $ 106,188  
GAAP Research and development margin     29 %     30 %     29 %     42 %
Stock-based compensation, net     5,296       4,836       21,159       48,739  
Employer payroll taxes on Performance RSUs                       456  
Non-GAAP Research and development   $ 19,318     $ 15,355     $ 69,386     $ 56,993  
Non-GAAP Research and development margin     23 %     23 %     23 %     22 %
                                 
GAAP Sales and marketing   $ 36,908     $ 24,174     $ 123,573     $ 95,783  
GAAP Sales and marketing margin     44 %     36 %     40 %     38 %
Stock-based compensation, net     3,236       2,635       11,950       19,046  
Amortization of acquisition intangible assets     1,363       545       3,630       2,318  
Employer payroll taxes on Performance RSUs                       228  
Non-GAAP Sales and marketing   $ 32,309     $ 20,994     $ 107,993     $ 74,191  
Non-GAAP Sales and marketing margin     38 %     31 %     35 %     29 %
                                 
GAAP General and administrative   $ 21,994     $ 20,530     $ 83,288     $ 97,339  
GAAP General and administrative margin     26 %     30 %     27 %     38 %
Stock-based compensation, net     5,813       7,040       23,478       55,054  
Employer payroll taxes on Performance RSUs                       396  
Third-party fees related to credit facility refinancing           879             879  
Non-GAAP General and administrative   $ 16,181     $ 12,611     $ 59,810     $ 41,010  
Non-GAAP General and administrative margin     19 %     19 %     19 %     16 %

(1)  Please see Appendix A for explanation of non-GAAP measures used.
(2)  The Company adopted ASC 842 as of January 1, 2019 on a prospective basis.  Amounts presented for the quarter and year ended December 31, 2019 are under ASC 842 and amounts presented for the quarter and year ended December 31, 2018 are under ASC 840.


APPENDIX A

SVMK INC.
EXPLANATION OF NON-GAAP MEASURES

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with US GAAP (“GAAP”), we use the following Non-GAAP financial measures: Non-GAAP income from operations, Non-GAAP operating margin, Non-GAAP net loss, Non-GAAP net loss per share, Non-GAAP gross profit, Non-GAAP gross margin, Non-GAAP research and development, Non-GAAP research and development margin, Non-GAAP sales and marketing, Non-GAAP sales and marketing margin,  Non-GAAP general and administrative, Non-GAAP general and administrative margin, adjusted EBITDA, free cash flow and unlevered free cash flow. Our definition for each Non-GAAP measure used is provided below, however a limitation of Non-GAAP financial measures are that they do not have uniform definitions. Accordingly, our definitions for Non-GAAP measures used will likely differ from similarly titled Non-GAAP measures used by other companies thereby limiting comparability.

With regards to the Non-GAAP guidance provided above, a reconciliation to the corresponding GAAP amounts are not provided as the quantification of certain items excluded from each respective Non-GAAP measure, which may be significant, cannot be reasonably calculated or predicted at this time without unreasonable efforts.  For example, the Non-GAAP adjustment for stock-based compensation expense, net, requires additional inputs such as number of shares granted and market price that are not currently ascertainable.

Non-GAAP income from operations, Non-GAAP operating margin: We define Non-GAAP income from operations as GAAP loss from operations excluding stock-based compensation, net, amortization of acquisition intangible assets, restructuring, employer payroll taxes on Performance RSUs and third-party fees related to credit facility refinancing. Non-GAAP operating margin is defined as Non-GAAP income from operations divided by revenue.

Non-GAAP net loss, Non-GAAP net loss per share: We define Non-GAAP net loss as GAAP net loss excluding stock-based compensation, net, amortization of acquisition intangible assets, restructuring, employer payroll taxes on Performance RSUs, third-party fees related to credit facility refinancing, gain on sale of a private company investment and loss on debt extinguishment. Non-GAAP net loss per share is defined as Non-GAAP net loss divided by the weighted-average shares outstanding.

Non-GAAP gross profit, Non-GAAP gross margin: We define Non-GAAP gross profit as GAAP gross profit excluding stock-based compensation, net, amortization of acquisition intangible assets and employer payroll taxes on Performance RSUs. Non-GAAP gross margin is defined as Non-GAAP gross profit divided by revenue.

Non-GAAP research and development, Non-GAAP research and development margin: We define Non-GAAP research and development as GAAP research and development excluding stock-based compensation, net and employer payroll taxes on Performance RSUs. Non-GAAP research and development margin is defined as Non-GAAP research and development divided by revenue.

Non-GAAP sales and marketing, Non-GAAP sales and marketing margin: We define Non-GAAP sales and marketing as GAAP sales and marketing excluding stock-based compensation, net, amortization of acquisition intangible assets and employer payroll taxes on Performance RSUs. Non-GAAP sales and marketing margin is defined as Non-GAAP sales and marketing divided by revenue.

Non-GAAP general and administrative, Non-GAAP general and administrative margin: We define Non-GAAP general and administrative as GAAP general and administrative excluding stock-based compensation, net, employer payroll taxes on Performance RSUs and third-party fees related to credit facility refinancing. Non-GAAP general and administrative margin is defined as Non-GAAP general and administrative divided by revenue.

We use these Non-GAAP measures to compare and evaluate our operating results across periods in order to manage our business, for purposes of determining executive and senior management incentive compensation, and for budgeting and developing our strategic operating plans. We believe that these Non-GAAP measures provide useful information about our operating results, enhance the overall understanding of our past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by our management in evaluating our financial performance and for operational decision making, but they are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

We have excluded the effect of the following items from the aforementioned Non-GAAP measures because they are non-cash and/or are non-recurring in nature and because we believe that the Non-GAAP financial measures excluding this item provide meaningful supplemental information regarding operational performance and liquidity. We further believe this measure is useful to investors in that it allows for greater transparency to certain line items in our financial statements and facilitates comparisons to historical operating results and comparisons to peer operating results. A description of the Non-GAAP adjustments for the above measures is as follows:

  • Stock-based compensation, net: We incur stock based-compensation expense on a GAAP basis resulting from equity awards granted to our employees. Although stock-based compensation is a key incentive offered to our employees, and we believe such compensation contributed to the revenues earned during the periods presented and also believe it will contribute to the generation of future period revenues, we continue to evaluate our business performance excluding stock-based compensation expenses. Stock-based compensation expenses will recur in future periods.
  • Amortization of intangible assets: We incur amortization expense on intangible assets on a GAAP basis resulting from prior acquisitions. Amortization of acquired intangible assets is inconsistent in amount and frequency and is significantly affected by the timing and size of any acquisitions. Investors should note that the use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of acquired intangible assets will recur in future periods.
  • Restructuring: Restructuring expenses consist of employee severance and other exit costs. We believe it is useful for investors to understand the effects of these items on our total operating expenses. We expect that restructuring costs will generally diminish over time with respect to past acquisitions and/or strategic initiatives.  However, we may incur these expenses in future periods in connection with any new acquisitions and/or strategic initiatives.
  • Employer payroll taxes on Performance RSUs: We incurred incremental employer payroll taxes on Performance RSUs during the third quarter of 2018 as a result of our initial public offering. Employer payroll taxes on Performance RSUs are excluded from our Non-GAAP results as we currently do not expect to incur expenses of a similar nature in future periods because we will no longer grant Performance RSUs where a vesting condition is our initial public offering.
  • Third-party fees related to credit facility refinancing: Certain financing costs were incurred on a GAAP basis resulting from the refinancing of our credit refinancing of our credit facilities. We expect that such transactions will be infrequent in occurrence and are therefore the incremental expenses incurred are excluded from our Non-GAAP results as they do not otherwise relate to our core business operations. However, we may incur these expenses in future periods in connection with any new debt refinancing.
  • Gain on sale of a private company investment: Gain on sale of a private company investment because it was recognized on a GAAP basis resulting from the sale of certain corporate assets. We expect that such transactions will be infrequent in occurrence and are therefore excluded from our Non-GAAP results as they do not otherwise relate to our core business operations.
  • Loss on debt extinguishment: Loss on debt extinguishment was recognized on a GAAP basis resulting from the refinancing of our credit facilities. We expect that such transactions will be infrequent in occurrence and are therefore excluded from our Non-GAAP results as they do not otherwise relate to our core business operations. However, we may incur these expenses in future periods in connection with any new debt refinancing.

For more information on the Non-GAAP financial measures, please see the “Reconciliation of GAAP to Non-GAAP Data” section of this press release. The accompanying tables provide details on the GAAP financial measures that are most directly comparable to the Non-GAAP financial measures and the related reconciliations between those financial measures.

Adjusted EBITDA: We define adjusted EBITDA as net loss excluding provision for (benefit from) income taxes, other non-operating (income) expenses, net, interest expense, depreciation and amortization, stock-based compensation, net, restructuring, employer payroll taxes on Performance RSUs and third-party fees related to credit facility refinancing. We consider adjusted EBITDA to be an important measure because it helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that are not indicative of the core operating performance of our business that are excluded from adjusted EBITDA. Adjusted EBITDA has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of other GAAP financial measures. Some of the limitations of adjusted EBITDA are that it excludes recurring expenses for interest payments, does not reflect the dilution that results from stock-based compensation, and does not reflect the cost to replace depreciated property and equipment. It may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure.

Free cash flow: We define free cash flow as GAAP net cash provided by operating activities less purchases of property and equipment and capitalized internal-use software. We consider free cash flow to be an important measure because it measures our liquidity after deducting capital expenditures for purchases of property and equipment and capitalized software development costs, which we believe provides a more accurate view of our cash generation and cash available to grow our business. Our free cash flow included cash payments for interest on our long-term debt of $3.1 million and $13.5 million, for the quarter and year ended December 31, 2019, respectively, and $4.0 million and $20.5 million for the quarter and year ended December 31, 2018, respectively. For the year ended December 31, 2018, our free cash flow also included a one-time payment for employer payroll taxes on Performance RSUs of $1.2 million.  For the quarter and year ended December 31, 2018, our free cash flow also included third-party fees related to the refinancing of our credit facilities of $0.9 million. We expect our free cash flow to increase as we reduce cash paid for interest on our long-term debt following the partial repayment of the outstanding indebtedness under our credit facilities of $101.3 million in the fourth quarter of 2018. We expect to generate positive free cash flow over the long term. Free cash flow has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash provided by operating activities. Some of the limitations of free cash flow are that free cash flow does not reflect our future contractual commitments and may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure.

Unlevered free cash flow: Unlevered free cash flow is a liquidity measure used by management in evaluating the cash generated by our operations after purchases of property and equipment and capitalized internal-use software but prior to the impact of our capital structure. The usefulness of unlevered free cash flow as an analytical tool is limited because it excludes certain items which are settled in cash, does not represent residual cash flow available for discretionary expenses, does not reflect our future contractual commitments, and is calculated differently by other companies in our industry. Accordingly, it should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as net cash provided by operating activities.

Safe Harbor Statement

“Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995: This press release may contain forward-looking statements about our financial outlook, outstanding shares, products, including our investments in products, technology and other key strategic areas. The achievement of the matters covered by such forward-looking statements involves risks, uncertainties and assumptions. If any of these risks or uncertainties materialize or if any of the assumptions prove incorrect, the company’s results could differ materially from the results expressed or implied by the forward-looking statements the company makes.

The risks and uncertainties referred to above include - but are not limited to - risks related to our ability to retain and upgrade customers; our revenue growth rate; our brand; our marketing strategies; our self-serve business model; the length of our sales cycles; the growth and development of our salesforce; security measures; expectations regarding our ability to timely and effectively scale and adapt existing technology and network infrastructure to ensure that our products and services are accessible at all times; competition; our debt; revenue recognition; our ability to manage our growth; our culture and talent; our data centers;  privacy, security and data transfer concerns, as well as changes in regulations, which could impact our ability to serve our customers or curtail our monetization efforts; litigation and regulatory issues; expectations regarding the return on our strategic investments; execution of our plans and strategies, including with respect to mobile products and features and expansion into new areas and businesses; our international operations; intellectual property; the application of U.S. and international tax laws on our tax structure and any changes to such tax laws; acquisitions we have made or may make in the future; the price volatility of our common stock; and general economic conditions.

Further information on these and other factors that could affect our financial results are included in documents filed with the Securities and Exchange Commission from time to time, including the section entitled “Risk Factors” in the Annual Report on Form 10-K that will be filed for the year ended December 31, 2019, which should be read in conjunction with these financial results. These documents are or will be available on the SEC Filings section of our Investor Relations website page at investor.surveymonkey.com. All information provided in this release and in the attachments is as of February 13, 2019, and we undertake no obligation to update this information.