SurveyMonkey Announces Third Quarter 2020 Financial Results
Reports record revenue,
Launches its integrated customer experience offering, the GetFeedback platform
SAN MATEO, Calif., Nov. 05, 2020 (GLOBE NEWSWIRE) -- SurveyMonkey (Nasdaq: SVMK), a leader in agile software solutions for customer experience, market research, and survey feedback, today reported third quarter financial results for the period ended September 30, 2020.
“With
Q3 2020 Key Results
- Total revenue was
$95.4 million , an increase of20% year-over-year. - Enterprise sales revenue was
$27.4 million , an increase of53% year-over-year. Enterprise sales revenue accounted for approximately29% of total revenue, up from approximately23% in Q3 2019. We ended the quarter with approximately 7,700 enterprise sales customers, up25% from approximately 6,100 in Q3 2019. - Self-serve revenue was
$68.0 million , an increase of11% year-over-year. - Deferred revenue was
$165.1 million , an increase of24% year-over-year. Remaining performance obligations (RPO) were$183.3 million , an increase of20% year-over-year. - Paying users totaled approximately 803,000, an increase of approximately 90,000, or
13% from more than 713,000 in Q3 2019, and an increase of approximately 22,000 paying users from Q2 2020. Approximately87% of our paying users were on annual plans, up from82% a year ago. - Average revenue per user was
$478 , up approximately7% from$448 in Q3 2019. - GAAP operating margin was negative
23.7% and non-GAAP operating margin was2.2% . - GAAP net loss was
$26.1 million and GAAP basic and diluted net loss per share was$0.19 . Non-GAAP net loss was$1.3 million and non-GAAP basic and diluted net loss per share was approximately$0.01 . - Net cash provided by operating activities was
$17.9 million and free cash flow was$16.2 million for18.7% and17.0% margin, respectively. - Cash and cash equivalents totaled
$206.3 million and total debt was$214.1 million for net debt of$7.8 million as of September 30, 2020.
Q3 2020 Company Highlights
- Launched the GetFeedback platform, SurveyMonkey’s easy-to-deploy, cost-efficient customer experience (CX) solution that helps organizations set up their CX program within days to quickly understand and act on customer insights. Combining the power of the GetFeedback and Usabilla solutions acquired by SurveyMonkey in 2019, the unified platform offers customers a cohesive user experience to manage programs across any digital channel. The latest features include an AI-powered analytics layer and the ability to unify data and customer attributes, CX program automation, and integration with customers’ existing systems of record like Salesforce, Microsoft, Slack, and Jira.
- Hosted its inaugural CX Impact Summit for organizations and leaders focused on customer experience. The well-attended virtual event featured the launch of the GetFeedback platform, over 25 speakers from Salesforce, Box, PagerDuty, Snap Inc., InVision, CustomerThink, and other CX-minded companies, and 15 virtual sessions across three tracks.
- Announced plans to launch a robust integration between GetFeedback and Salesforce Commerce Cloud to deepen the platform’s connection with Salesforce solutions and strengthen the link between feedback and action for joint customers.
- Formed a launch partnership with Zoom to expand its integration and improve the virtual feedback experience.
- Announced its latest app release for Microsoft Teams to help organizations use in-the-moment feedback to improve employee experience through new diversity, equity, and inclusion survey templates, shared analytics, private and expanded surveys, and enhanced security.
- Launched Contributor Seats as part of SurveyMonkey Team plans to help distributed workforces collaborate more effectively by providing more flexibility on who can create and own surveys, or leverage survey results to make key decisions.
- Launched the SurveyMonkey Technology Ecosystem Program (STEP), an expanded partner platform that will allow companies to build, launch, and scale their SurveyMonkey integrations with developer resources and go-to-market opportunities.
- Launched its Tableau Election Data Hub and Exclusive Polling Partnership with Axios to provide broad access to public opinion data driving one of the most-watched elections of our lifetimes.
- Became a Charter Member of The Board Challenge, a new initiative to help improve the representation of Black directors in corporate U.S. boardrooms.
- Released its latest Mobility Confidence Index Study with J.D. Power, which revealed a slight decrease in attitudes toward autonomous and electric vehicles in late 2020 compared to earlier this year.
- Published research on the current state of customer experience, which indicated that companies with no formal CX program had the lowest rate of financial growth (
33% ), while organizations with established (50% ) and advanced (62% ) CX programs were much more likely to experience growth, according to respondents. The company published an additional study, Adapting in Times of Crisis 2020, that highlights curiosity and agility as the top characteristics needed for companies to successfully navigate the pandemic.
SurveyMonkey posted a shareholder letter with its complete third quarter 2020 financial results and management commentary on its investor relations website at investor.surveymonkey.com.
Financial Outlook
For the fourth quarter of 2020, SurveyMonkey currently expects the following:
| Q4 2020 | ||
| Revenue | ||
| Non-GAAP operating margin | ||
The Company expects basic and diluted weighted average shares outstanding to be approximately 143 million for the fourth quarter of 2020. For a detailed explanation of the Company’s non-GAAP measures, please refer to the appendix section of this press release.
Conference Call Information
SurveyMonkey senior management will host a conference call today to discuss the Company’s Q3 2020 financial results. This call is scheduled to begin at 5:30 am PT / 8:30 am ET and can be accessed by dialing (833) 900-1542 or (236) 712-2281 (ID: 4928444). An archived webcast of the conference call will be accessible on SurveyMonkey’s Investor Relations page, investor.surveymonkey.com. A telephonic replay of the conference call will be available until Thursday, November 12, 2020, and can be accessed by dialing (800) 585-8367 or (416) 621-4642 and entering the passcode 4928444#.
About SurveyMonkey
SurveyMonkey is a leader in agile software solutions for customer experience, market research, and survey feedback. The company’s platform empowers over 17 million active users to analyze and act on feedback from employees, customers, website and app users, and market research respondents. SurveyMonkey’s products, enterprise solutions, and integrations enable more than 335,000 organizations to deliver better customer experiences, increase employee retention, and unlock growth and innovation. Ultimately, SurveyMonkey's vision is to raise the bar for human experiences by amplifying individual voices.
Investor Relations Contact:
Gary J. Fuges, CFA
investors@surveymonkey.com
Media Contact:
Sandra Gharib
pr@surveymonkey.com
Source: SVMK Inc.
SVMK INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
| (in thousands) | September 30, 2020 | December 31, 2019 | ||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 206,334 | $ | 131,035 | ||||
| Accounts receivable, net | 20,434 | 17,795 | ||||||
| Deferred commissions, current | 4,630 | 3,078 | ||||||
| Prepaid expenses and other current assets | 8,673 | 9,382 | ||||||
| Total current assets | 240,071 | 161,290 | ||||||
| Property and equipment, net | 22,510 | 35,072 | ||||||
| Operating lease right-of-use assets | 58,496 | 63,904 | ||||||
| Capitalized internal-use software, net | 29,802 | 33,156 | ||||||
| Acquisition intangible assets, net | 23,697 | 33,150 | ||||||
| Goodwill | 465,602 | 462,927 | ||||||
| Deferred commissions, non-current | 8,464 | 5,384 | ||||||
| Other assets | 8,781 | 9,376 | ||||||
| Total assets | $ | 857,423 | $ | 804,259 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 5,752 | $ | 2,677 | ||||
| Accrued expenses and other current liabilities | 15,715 | 16,077 | ||||||
| Accrued compensation | 25,693 | 24,031 | ||||||
| Deferred revenue, current | 164,282 | 139,990 | ||||||
| Operating lease liabilities, current | 8,091 | 8,381 | ||||||
| Debt, current | 1,900 | 1,900 | ||||||
| Total current liabilities | 221,433 | 193,056 | ||||||
| Deferred revenue, non-current | 776 | 1,015 | ||||||
| Deferred tax liabilities | 5,480 | 4,870 | ||||||
| Debt, non-current | 212,191 | 213,616 | ||||||
| Operating lease liabilities, non-current | 76,340 | 82,668 | ||||||
| Other non-current liabilities | 9,402 | 7,050 | ||||||
| Total liabilities | 525,622 | 502,275 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock | — | — | ||||||
| Common stock | 1 | 1 | ||||||
| Additional paid-in capital | 806,002 | 705,143 | ||||||
| Accumulated other comprehensive income (loss) | 1,807 | (444 | ) | |||||
| Accumulated deficit | (476,009 | ) | (402,716 | ) | ||||
| Total stockholders’ equity | 331,801 | 301,984 | ||||||
| Total liabilities and stockholders’ equity | $ | 857,423 | $ | 804,259 | ||||
SVMK INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands, except per share amounts) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Revenue | $ | 95,429 | $ | 79,317 | $ | 274,635 | $ | 223,097 | ||||||||
| Cost of revenue (1)(2) | 21,899 | 19,626 | 62,852 | 56,203 | ||||||||||||
| Gross profit | 73,530 | 59,691 | 211,783 | 166,894 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development (1) | 30,068 | 22,718 | 83,196 | 65,931 | ||||||||||||
| Sales and marketing (1)(2) | 43,875 | 30,926 | 128,544 | 86,665 | ||||||||||||
| General and administrative (1) | 22,181 | 20,992 | 65,452 | 61,294 | ||||||||||||
| Restructuring | — | — | — | (66 | ) | |||||||||||
| Total operating expenses | 96,124 | 74,636 | 277,192 | 213,824 | ||||||||||||
| Loss from operations | (22,594 | ) | (14,945 | ) | (65,409 | ) | (46,930 | ) | ||||||||
| Interest expense | 2,379 | 3,572 | 7,887 | 10,878 | ||||||||||||
| Other non-operating income, net | (143 | ) | (887 | ) | (1,277 | ) | (3,441 | ) | ||||||||
| Loss before income taxes | (24,830 | ) | (17,630 | ) | (72,019 | ) | (54,367 | ) | ||||||||
| Provision for (benefit from) income taxes | 1,289 | (1,320 | ) | 1,274 | (1,802 | ) | ||||||||||
| Net loss | $ | (26,119 | ) | $ | (16,310 | ) | $ | (73,293 | ) | $ | (52,565 | ) | ||||
| Net loss per share, basic and diluted | $ | (0.19 | ) | $ | (0.12 | ) | $ | (0.53 | ) | $ | (0.40 | ) | ||||
| Weighted-average shares used in computing basic and diluted net loss per share | 141,034 | 133,417 | 138,907 | 130,434 | ||||||||||||
(1)Includes stock-based compensation, net of amounts capitalized as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Cost of revenue | $ | 1,222 | $ | 718 | $ | 3,229 | $ | 2,805 | ||||||||
| Research and development | 8,322 | 5,468 | 22,275 | 15,863 | ||||||||||||
| Sales and marketing | 5,912 | 2,918 | 15,096 | 8,714 | ||||||||||||
| General and administrative | 6,150 | 5,678 | 17,979 | 17,665 | ||||||||||||
| Stock-based compensation, net of amounts capitalized | $ | 21,606 | $ | 14,782 | $ | 58,579 | $ | 45,047 | ||||||||
(2)Includes amortization of acquisition intangible assets as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Cost of revenue | $ | 1,800 | $ | 1,557 | $ | 5,813 | $ | 3,448 | ||||||||
| Sales and marketing | 1,270 | 964 | 3,983 | 2,267 | ||||||||||||
| Amortization of acquisition intangible assets | $ | 3,070 | $ | 2,521 | $ | 9,796 | $ | 5,715 | ||||||||
SVMK INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
| Nine Months Ended September 30, | ||||||||
| (in thousands) | 2020 | 2019 | ||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (73,293 | ) | $ | (52,565 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 36,328 | 32,468 | ||||||
| Non-cash leases expense | 9,958 | 9,185 | ||||||
| Stock-based compensation expense, net of amounts capitalized | 58,579 | 45,047 | ||||||
| Deferred income taxes | 608 | (1,866 | ) | |||||
| Provision for doubtful accounts | 1,156 | 309 | ||||||
| Gain on sale of a private company investment | (1,001 | ) | (1,001 | ) | ||||
| Other | 1,834 | 143 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (3,929 | ) | (1,382 | ) | ||||
| Prepaid expenses and other assets | (6,900 | ) | (2,908 | ) | ||||
| Accounts payable and accrued liabilities | 5,851 | 5,955 | ||||||
| Accrued compensation | 1,689 | (1,401 | ) | |||||
| Deferred revenue | 24,242 | 23,486 | ||||||
| Operating lease liabilities | (11,135 | ) | (10,237 | ) | ||||
| Net cash provided by operating activities | 43,987 | 45,233 | ||||||
| Cash flows from investing activities | ||||||||
| Acquisitions, net of cash acquired | — | (114,603 | ) | |||||
| Purchases of property and equipment | (772 | ) | (2,026 | ) | ||||
| Capitalized internal-use software | (7,051 | ) | (9,593 | ) | ||||
| Proceeds from sale of a private company investment and other | 1,095 | 1,001 | ||||||
| Net cash used in investing activities | (6,728 | ) | (125,221 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from stock option exercises | 37,301 | 41,846 | ||||||
| Proceeds from employee stock purchase plan | 3,082 | 2,662 | ||||||
| Repayment of debt | (1,650 | ) | (1,650 | ) | ||||
| Net cash provided by financing activities | 38,733 | 42,858 | ||||||
| Effect of exchange rate changes on cash | (957 | ) | (435 | ) | ||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 75,035 | (37,565 | ) | |||||
| Cash, cash equivalents and restricted cash at beginning of period | 131,683 | 154,371 | ||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 206,718 | $ | 116,806 | ||||
| Supplemental cash flow data: | ||||||||
| Interest paid for term debt | $ | 7,386 | $ | 10,391 | ||||
| Income taxes paid | $ | 709 | $ | 756 | ||||
| Non-cash investing and financing transactions: | ||||||||
| Fair value of common stock issued as acquisition consideration | $ | — | $ | 36,204 | ||||
| Stock compensation included in capitalized software costs | $ | 1,692 | $ | 2,889 | ||||
| Lease liabilities arising from obtaining right-of-use assets, net | $ | — | $ | 7,548 | ||||
| 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.
SUPPLEMENTAL DISAGGREGATED REVENUE DATA (unaudited)
Quarterly Disaggregated Revenue
| Three Months Ended | ||||||||||||||||||||||
| (in thousands) | Sep. 30, 2020 | Jun. 30, 2020 | Mar. 30, 2020 | Dec. 31, 2019 | Sep. 30, 2019 | Jun. 30, 2019 | Mar. 30, 2019 | |||||||||||||||
| Self-serve revenue | $ | 68,001 | $ | 65,398 | $ | 63,107 | $ | 62,948 | $ | 61,348 | $ | 60,071 | $ | 57,619 | ||||||||
| Enterprise revenue | 27,428 | 25,543 | 25,158 | 21,376 | 17,969 | 15,068 | 11,022 | |||||||||||||||
| Revenue | $ | 95,429 | $ | 90,941 | $ | 88,265 | $ | 84,324 | $ | 79,317 | $ | 75,139 | $ | 68,641 | ||||||||
Annual Disaggregated Revenue
| Year Ended December 31, | ||||||||
| (in thousands) | 2019 | 2018 | ||||||
| Self-serve revenue | $ | 241,986 | $ | 220,822 | ||||
| Enterprise revenue | 65,435 | 33,502 | ||||||
| Revenue | $ | 307,421 | $ | 254,324 | ||||
Self-serve revenues are generated from products purchased independently through our website.
Enterprise revenues are generated from products sold to organizations through our sales team.
SVMK INC.
RECONCILIATION OF GAAP TO NON-GAAP DATA (unaudited) (1)
Reconciliation of GAAP to Non-GAAP (Loss) Income from Operations
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands, except percentages) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| GAAP Loss from operations | $ | (22,594 | ) | $ | (14,945 | ) | $ | (65,409 | ) | $ | (46,930 | ) | ||||
| GAAP Operating margin | (24 | )% | (19 | )% | (24 | )% | (21 | )% | ||||||||
| Stock-based compensation, net | 21,606 | 14,782 | 58,579 | 45,047 | ||||||||||||
| Amortization of acquisition intangible assets | 3,070 | 2,521 | 9,796 | 5,715 | ||||||||||||
| Restructuring | — | — | — | (66 | ) | |||||||||||
| Non-GAAP Income from operations | $ | 2,082 | $ | 2,358 | $ | 2,966 | $ | 3,766 | ||||||||
| Non-GAAP Operating margin | 2 | % | 3 | % | 1 | % | 2 | % | ||||||||
Reconciliation of GAAP to Non-GAAP Loss and Loss per diluted share
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands, except per share amounts) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| GAAP Net loss | $ | (26,119 | ) | $ | (16,310 | ) | $ | (73,293 | ) | $ | (52,565 | ) | ||||
| GAAP Net loss per diluted share | $ | (0.19 | ) | $ | (0.12 | ) | $ | (0.53 | ) | $ | (0.40 | ) | ||||
| Weighted-average shares used to compute GAAP net loss per diluted share | 141,034 | 133,417 | 138,907 | 130,434 | ||||||||||||
| Stock-based compensation, net | 21,606 | 14,782 | 58,579 | 45,047 | ||||||||||||
| Amortization of acquisition intangible assets | 3,070 | 2,521 | 9,796 | 5,715 | ||||||||||||
| Restructuring | — | — | — | (66 | ) | |||||||||||
| Gain on sale of a private company investment | — | — | (1,001 | ) | (1,001 | ) | ||||||||||
| Income tax effect on Non-GAAP adjustments (2) | 97 | (1,029 | ) | 72 | (1,219 | ) | ||||||||||
| Non-GAAP Net loss | $ | (1,346 | ) | $ | (36 | ) | $ | (5,847 | ) | $ | (4,089 | ) | ||||
| Non-GAAP Net loss per diluted share | $ | (0.01 | ) | $ | — | $ | (0.04 | ) | $ | (0.03 | ) | |||||
| Weighted-average shares used to compute Non-GAAP net loss per diluted share | 141,034 | 133,417 | 138,907 | 130,434 | ||||||||||||
(1) Please see Appendix A for explanation of non-GAAP measures used.
(2) 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 and gain on sale of a private company investment. Non-GAAP adjustments pertain to the income tax effects of amortization of acquisition-related intangible assets.
SVMK INC.
RECONCILIATION OF GAAP TO NON-GAAP DATA (unaudited) (1)
Calculation of Free Cash Flow
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Net cash provided by operating activities | $ | 17,892 | $ | 23,521 | $ | 43,987 | $ | 45,233 | ||||||||
| Purchases of property and equipment | — | (691 | ) | (772 | ) | (2,026 | ) | |||||||||
| Capitalized internal-use software | (1,679 | ) | (3,066 | ) | (7,051 | ) | (9,593 | ) | ||||||||
| Free cash flow | $ | 16,213 | $ | 19,764 | $ | 36,164 | $ | 33,614 | ||||||||
Supplemental GAAP and Non-GAAP Information
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in thousands, except percentages) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| GAAP Gross profit | $ | 73,530 | $ | 59,691 | $ | 211,783 | $ | 166,894 | ||||||||
| GAAP Gross margin | 77 | % | 75 | % | 77 | % | 75 | % | ||||||||
| Stock-based compensation, net | 1,222 | 718 | 3,229 | 2,805 | ||||||||||||
| Amortization of acquisition intangible assets | 1,800 | 1,557 | 5,813 | 3,448 | ||||||||||||
| Non-GAAP Gross profit | $ | 76,552 | $ | 61,966 | $ | 220,825 | $ | 173,147 | ||||||||
| Non-GAAP Gross margin | 80 | % | 78 | % | 80 | % | 78 | % | ||||||||
| GAAP Research and development | $ | 30,068 | $ | 22,718 | $ | 83,196 | $ | 65,931 | ||||||||
| GAAP Research and development margin | 32 | % | 29 | % | 30 | % | 30 | % | ||||||||
| Stock-based compensation, net | 8,322 | 5,468 | 22,275 | 15,863 | ||||||||||||
| Non-GAAP Research and development | $ | 21,746 | $ | 17,250 | $ | 60,921 | $ | 50,068 | ||||||||
| Non-GAAP Research and development margin | 23 | % | 22 | % | 22 | % | 22 | % | ||||||||
| GAAP Sales and marketing | $ | 43,875 | $ | 30,926 | $ | 128,544 | $ | 86,665 | ||||||||
| GAAP Sales and marketing margin | 46 | % | 39 | % | 47 | % | 39 | % | ||||||||
| Stock-based compensation, net | 5,912 | 2,918 | 15,096 | 8,714 | ||||||||||||
| Amortization of acquisition intangible assets | 1,270 | 964 | 3,983 | 2,267 | ||||||||||||
| Non-GAAP Sales and marketing | $ | 36,693 | $ | 27,044 | $ | 109,465 | $ | 75,684 | ||||||||
| Non-GAAP Sales and marketing margin | 38 | % | 34 | % | 40 | % | 34 | % | ||||||||
| GAAP General and administrative | $ | 22,181 | $ | 20,992 | $ | 65,452 | $ | 61,294 | ||||||||
| GAAP General and administrative margin | 23 | % | 26 | % | 24 | % | 27 | % | ||||||||
| Stock-based compensation, net | 6,150 | 5,678 | 17,979 | 17,665 | ||||||||||||
| Non-GAAP General and administrative | $ | 16,031 | $ | 15,314 | $ | 47,473 | $ | 43,629 | ||||||||
| Non-GAAP General and administrative margin | 17 | % | 19 | % | 17 | % | 20 | % | ||||||||
(1) Please see Appendix A for explanation of non-GAAP measures used.
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 (loss) income from operations, Non-GAAP operating margin, Non-GAAP net loss, Non-GAAP net loss per diluted 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, and 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 (loss) income from operations, Non-GAAP operating margin: We define Non-GAAP (loss) income from operations as GAAP loss from operations excluding stock-based compensation, net, amortization of acquisition intangible assets and restructuring. Non-GAAP operating margin is defined as Non-GAAP (loss) income from operations divided by revenue.
Non-GAAP net loss, Non-GAAP net loss per diluted share: We define Non-GAAP net loss as GAAP net loss excluding stock-based compensation, net, amortization of acquisition intangible assets, restructuring, gain on sale of a private company investment, and including the income tax effect on Non-GAAP adjustments. Non-GAAP net loss per diluted 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 and amortization of acquisition intangible assets. 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. 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 and amortization of acquisition intangible assets. 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. 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 condensed 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.
- Gain on sale of a private company investment: Gain on sale of a private company investment 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.
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.
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. 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.
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 the COVID-19 coronavirus pandemic; 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 Quarterly Report on Form 10-Q that will be filed for the quarter ended September 30, 2020, 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 November [5], 2020, and we undertake no obligation to update this information.
