Q3 2020 SVMK Inc Earnings Call
Company.
Hey, I E R I I R.
I'm sorry that was.
We've built up over time.
A high E.R.A. I era.
Hey, Thank you.
Telephone number.
I do want to 90, because your 3697.
Thank you your line will be placed on music hold a cup of coffee again.
Thank you.
[music].
Ladies and gentlemen, thank you for standing by my name is Josh and I will be a conference operator today at this time I would like to welcome everyone to survey Monkey third quarter 2020 earnings call. All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question press. The pound key. Thank you I would now like to hand, the conference over to your host Vice President of Investor Relations, Gary Fuges. Sir. Please go ahead.
Thank you good morning, and welcome to the survey Monkey <unk> third quarter 2020 earnings call. Joining me on today's call are Zander Lurie, CEO, Tom Hill, President and Debbie Clifford CFO. After our prepared remarks, we'll take your questions Brad.
Alright to make better management decisions better investments better strategic calls 75% of companies. We've surveyed recently say they are finding it necessary to accelerate their digital transformation due to covid and 87% say customer feedback has become more important compared to pretend demick date in our view.
The urgent need for feedback and the acceleration of digital transformation are secular growth trends that play to our strengths agile software seamless integrations disruptive pricing.
As a result, our powerful easy to use feedback software is resonating with more organizations across both or go to market channels and our strategy is working we continue to move upmarket with product investments across all three of our pillars CX surveys and market research. We're innovating so customers can extract ear.
Been more insights from their feedback more AI functionality stronger enterprise controls and deeper integrations with companies like Salesforce, Microsoft and zoom.
Meanwhile, we are generating productivity and velocity through our to go to market channels sales and self Sir.
Our self serve channel continues to benefit from our team's offering and myriad growth strategy. Meanwhile, our sales channel benefits from the massive dataset in our self serve customer base.
Our enterprise sales channel had another solid quarter in spite of the challenging macro environment revenue increased 53% year over year and accounted for 29% of Q3 revenue.
We ended the quarter with approximately 7700 enterprise customers, including calm Gainsay, Mcdonald's, Japan and nerd wallet.
The response based pricing initiative, we launched in queue to for New survey Monkey enterprise customers is contributing to our sales force productivity.
In Q3 average annual contract values were up over 25% year over year compared with our legacy seats only price and model. This.
This go to market execution is critical but our success and moving up market starts with the strength of our enterprise grade products.
We hope you got a better sense of the power of survey Monkey enterprise in our mid September investor demo event.
And in queue for we plan to demo our market research offerings for the financial community. The demos are available on our I R site.
And our self serve web channel, we generated 11% year over year revenue growth with our team's offering leading the way high.
Hire top of the funnel demand for our free survey monkey offering coupled with faster conversion too are paid plans are contributing factors in our growth story <unk>.
Products packaging and pricing changes can each play a role in helping drive sustainable growth and self serve as we target them nearly 97% of users who don't currently pets.
We believe the quality of our book of business is only getting stronger or net revenue retention rate remained above 100 per cent and our renewal rates improved relative to Q too.
The pandemic is created economic shrapnel in multiple industries, but our nimble go to market strategy has enabled us to thrive by working more with customers and healthier verticals.
We are merchandising and scaling new ways for customers to engage with our products and with their stakeholders.
I'm bullish that the new cohort of customers. We have welcomed in 2020 will have strong retention in 2021 and beyond.
I am proud of our successes here and shipping new products and market research and customer experience and I'm equally confident in our three pillars strategy to accelerate our long term growth profile.
And market research the expert solution software, we launched in Q1 is already making it easier for companies to test what messaging and packaging concepts resonate best with their target audiences, reducing their reliance on traditional expensive time consuming market research services.
We believe we offer enterprise market research customers in financial services firms unparalleled access to specific cohorts of respondents.
And in October we launched that get feedback platform are integrated customer experience offering that combines the digital voice of the customer breath of usability the actions layer and salesforce connectivity of get feedback and a powerful new analytics later.
This intuitive and powerful C X solution stands up quickly collect feedback from multiple consumer touch points and integrates with our customers systems of record to help them use feedback to close the loop with their customers more efficiently.
It should be abundantly clear in this digital transformation age that there is clear and compelling market need for our agile C X platform.
80% of companies. We've survey would say their online interactions have increased seamless digital experiences and speed the value are at a premium and this plays to our strengths.
We believe we can scale in this market by winning with enterprises, who can't or won't take an expensive time consuming proserv first approach to solving foresee X.
The obvious starting points here our own installed base customer feedback is the number one use case for surveys and the salesforce ecosystem.
We reached a big milestone in our CX product strategy, but the journey is just beginning.
The survey Monkey team continued to execute across the board in Q3, we are winning in three big categories through a powerful price disruptive and agile software and we have the people the assets strategy to build a large enterprise business in the years to come.
The pandemic is creating a challenging market for many people and companies, it's exacerbating the Gulf between the haves and have nots.
Fortunately for survey monkeys shareholders. We believe we will continue to thrive because our products meet the needs of a market in the midst of a digital transformation.
I will now turn the call over to Tom who will provide more color on the great product work, we accomplished over the last quarter Tom.
Thanks, Sandor the team posted another great quarter of product delivery and innovation.
Remote work through digital channels is the new normal making engagement and in the moment feedback critical capabilities.
In Q3, we expanded our integrations with leading virtual communication and collaboration platforms.
Retail financial services and technology customers for example, Mentholatum a global health Wellness company used market research solutions to test packaging and messaging concepts with potential customers to get results in days not months.
Today Mentholatum is one of dozens of early adopters using our expert solutions. It's early days, but we're seeing increasing traction and velocity as we replace expensive time consuming services with agile powerful and cost effective software and data.
Finally, the team delivered our most exciting product launch of the year to get feedback platform.
At our C X impact summit, we had more people registered than some of our competitors have customers highlighting the mid market opportunity in our broad customer footprint.
Or messages simple customer expectations are changing faster than ever and companies must be agile to keep up.
However, legacy C X offerings aren't built to help I T resource constrained CX teams move quickly or to engage their customers and leverage existing systems have records to drive action.
To get feedback platform flip the script on CX, enabling underserved companies to realize the value of agile C X and this means providing insights and data in the systems, where the work happens not locking date, Oh way in a C X Ivory tower.
And Pandora are using our CX platform to spend more time nurturing customer relationships and less time configuring technology.
But we are just getting started there is a massive opportunity to sell to get feedback platform into our enterprise customer base and to companies in the Salesforce ecosystem.
This has been an incredible year of product innovation and execution and survey monkey from the March launch of expert solutions. The July platform migration to the cloud and the integration of get feedback and use abella to launch to get feedback platform. In October. This team has delivered at an incredibly high level. In spite of 2000 Twenty's challenges I'm proud of the work we've done an Eva.
We've mentioned previously in addition to overall bookings growth and added contributor to growth in both deferred revenue in our P O as in our strategy to migrate our user base from monthly the annual plan.
With 87 per cent of our pig users now on annual plan.
We anticipate the deferred revenue and R. P O growth will continue to normalize toward our revenue growth rate.
Non-GAAP gross margin was 80% versus 78% and the year ago period, due primarily to revenue growth.
Non-GAAP operating margin with 2.2% compared to 3% and two 320, 19, and 2.5% and Q2 2020 due to revenue performance.
Set in part by continued investments and R&D in sales and marketing to support our products and go to market initiatives.
We generated 17.9 million and operating cash flow and $16.2 million in free cash flow, which reflects the revenue growth the impact of the proactive expense measures. We took earlier in the year and continued optimization of working capital.
Our business uniquely drive both strong revenue growth and cash generation for the year to date, we've posted free cash flow of 36 million and our cash balance is increased by 75 million.
We've been able to diligently manage cash while also in best thing to realize our strategy and drive revenue growth all against the challenging macroeconomic backdrop.
We ended the quarter with $206 million in cash and cash equivalent an increase of approximately 30 million quarter over quarter. We've made significant progress in achieving a net neutral that position or total potential liquidity stands at approximately 276 million which includes capacity of.
70 million on a revolving credit facility.
Our 20th 20th financial performance to date is a testament to our growth strategy and the resilience of our business model, which is enabling us to continue to drive revenue growth and free cashflow, while also investing for the long term.
Turning to our outlook for Q4, we expect revenue to be in the range of 99, two 101 million or 19% year over year growth is a good point we.
We expect non-GAAP operating margin to be in the range of 2% to 4%.
In the eyes since our last call.
We made further progress on our 2020 diversity goals approximately 53% of our Q3 hires identified as women and 27% identified as people of color.
We also increased diversity and positioned to director plus level and invested in new tools and technologies to further help ensure our recruiting processes are inclusive.
Additionally, we stood up a team of diversity sources to help identify and connect with underrepresented talent.
Secondly, we kicked off team wide employee training on racial equity led by the Justice collective a 100% women of color owned social impact consultancy that centers. This work around racial and social equity.
These webinars are designed to increase our teams exposure to important context on the history and ongoing impact of racial injustice.
Help us develop shared language for D.I. concepts and cultivate agency and competent that will help them prioritized.
In our work in our workplace.
Focused on customer feedback during the pandemic. So there is just a huge tailwind for a purpose built solution like this one how do we generate demand for it you know we built a strong stable of account executives and btr's that are reaching out and as we said, we're really targeting that mid market ecosystem entailed forswear tens of thousands of customers have a sales force.
Simpson's, but don't have software built to help them collect feedback and take action. So we're partnering with Salesforce in Mary ways, you know not only building the integration to be the number one in the App. It's huge but also we've trained over a thousand as and go to market folks in salesforce on how to refer get feedback. So we see continued opportunities to make the <unk>.
It sort of benefit mix of benefits are you seeing is it more sort of a flow.
You know being a scaled Internet company like we are we have a world class growth marketing team with product marketing engineering folks who are just constantly find the renewable source of growth to continue to drive numbers as well as geographic expansion. There really are just a number of ways for us to continue to drive that seltzer business and we see no <unk>.
Insight to our ability to post that low double digit growth rate.
Seeing.
The bulk of.
The upside yet so response rate response based pricing is really going to drive future growth as people use our products more drive more value from it and obviously, we garner incremental revenue from higher response.
They are collecting so we're we're really thrilled with this new model is just as Tom and I have said for since 2018.
It really aligns with our March to increase monetization and capture more value as our customers derive more value from a products.
Your next question comes from the line of Mark Murphy with JP Morgan. Please go ahead.
Yes. Thank you Tom as I was wondering if you could comment on the financial significance other resume our partnership but I'm I'm curious on that because [noise].
If survey monkey is conducting there's a pulse checks and the post meeting feedback there's such a tremendous volume of a gym sessions occurring every day I'm, just wondering how that opportunity might stack up for you.
Yeah. Thanks, Mark its a great question you know as we said on the call. This was a really important quarter for us in terms of those enterprise integrations and the way we think about the zoom and also partners like Microsoft is as it's a way for us to get top of funnel awareness and usage to drive folks into our conversion funnel online for a low friction converge.
And so in many ways the incredible volume that we're seeing with xoom or the incredible increase in adoption around Microsoft teams is a great way for us to both get awareness and get into the usage profile of individual users, who click convert and then ultimately become customers of ours. So we think of it as a top of funnel expander and we're really pleased with the results on the Microsoft.
Front.
We look forward to what we're going to do with them.
Bears repeating I just have a ton of confidence that this new cohort of enterprise customers. We signed up in 2020 are going to be very sticky and have better renewal rates and expansion opportunities in 2021 and beyond if you think about the world. We're operating in today, where we seeing record numbers of unemployment and and dislocations in economy folks that are.
We're kind of in this digital transformation in fin serve CPG Hell.
Global brands that are using this product and they're coming back and giving us incredible feedback about how it's helping their customer connectivity, helping drive pricing, helping you know increase there. She sat score. So you know see actually I think you're gonna see us continue to invest in R&D and we've got a terrific team led by credit shoulder Margaret research is largely about.
Go to market and introducing this product starting with all of the equity analysts on the call. Many of you were using this product and deriving great value. It's on us to make sure that our sales and marketing efforts you know.
Disrupt more of this 45 billion dollar legacy offline very expensive market. We know we have a killer solution to to drive more customer Guy and then surveys is really just about continued excellence across the the business model building out more use cases, driving more integrations with zoom in others pricing packaging segmentation.
<unk> geographic expansion so ton of R&D work on the analytics later in AI and I'll kick over to Tom If you want to expand a bit on where you see our priorities and 21.
Security in our product getting more value from our product or that maybe we had just turned out that the weakest customers, but it was it was pleasing to see in what is traditionally the acquired this quarter to see healthy renewal rates. So kudos to our customer success team, that's helping our customers derive more value there.
And as I said in 21, I, just we've had just more and more tip of the spear focused this year on really healthy verticals like tech than serve and CPG healthcare and so seeing customers that are are buying our enterprise product. This year. We know these are customers that are set up to renew as long as we deliver on the value that they've committed.
In self serve.
We're just getting better and better at taking what was a massive horizontal survey platform, where we used to just charge people by month or by year and moving people on dynamically into the plans best suited for their needs and so as as Tom mentioned in the script.
The teams offering has been a massive success. We launched this the same month that we went public in September 2018.
The investment that we committed to and I committed to it the board. So we are going to be driving higher pay TV out of all three pillars I will say the market research deals are demonstrably bigger we have a fraction of enterprise customers and market research relative to our survey monkey enterprise pillar, but the deals are materially bigger and you're talking about hershey's.
Colgate and.
IBCM and JP Morgan. These are massive customers that spend billions of dollars in market research to get to the right answer and they look at us with its very agile solution.
And frankly, a more liquid and diverse responded base.
Alright, you can correct me, if I'm wrong here, but I think Jamie dime instead, we've taken the emergency response test and we have passed and I think you know eight months and be Covid I feel the same I haven't been in our office since March I've only seen a handful of colleagues in person I haven't visited any customers I haven't obviously sat down with any of our shareholders and <unk>.
So the fact that we're eight months into this pandemic and work from home and economic volatility in electoral uncertainty and our business is growing 20% year over year, and we signed up for 940, New 49, new enterprise customers and acb's or up in the high twenties and we've we've locked responds based pricing and the new get feedback platform.
Alright of your free you just before they hit the paywall could you kind of talk about that a little bit and how that's impacted maybe that ink or improved conversion that you guys talked it up thank you.
Yeah. Thanks, Brett This is Tom as you know, we we lowered the number of responses that we provide before the the paywall and and that just continues to be a driver of self serve conversion. It's a it's a steady impact that we we observe first and in Q2 and it carried into Q3. So it's it's one of the factors.
That's driving you know kind of the elevated conversion on the self certified.
No no no further questions in the queue I'd like to turn the call back over to the standard of living for clothing American.
Thank you all for your continued interest in serving Monkey I'm proud of how our team has supported our stakeholders and our colleagues throughout the year, which has been just a kaleidoscope of uncertainty we look forward to connecting with you all this quarter and virtual investor conferences hosted by Needham Credit Suisse Wells Fargo and you'll be S ended our mid November investor Webinar.
On a market research offers Philadelphia, everyone will look forward to talking to you again this quarter and next.
This concludes today's conference call. Thank you Chinese you may now disconnect.
[music].
Okay.
[music].