Earnings Transcript for MNTV - Q4 Fiscal Year 2020

Operator: Ladies and gentlemen, thank you for standing by. My name is Rob, and I will be your conference operator today. At this time, I'd like to welcome everyone to the SurveyMonkey's Fourth Quarter and Fiscal Year 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remark, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your host, Vice President of Investor Relations, Gary Fuges. Sir, please go ahead.

Gary Fuges: Thank you. Good afternoon, and welcome to SurveyMonkey's Fourth Quarter and Full Year 2020 Earnings Call. Joining me on today's call are Zander Lurie, CEO; Tom Hale, President; and Debbie Clifford, CFO. After our prepared remarks, we'll take your questions. Prior to this call, we issued a press release and shareholder letter with our Q4 and full year 2020 financial results and related commentary. These items are posted on our Investor Relations website at investor.surveymonkey.com. During the course of this call, management will make forward-looking statements, which are subject to various risks and uncertainties, including statements relating to our strategy, investments, revenue, operating margin and cash flow. Actual results may differ materially from the results predicted, and reported results should not be considered an indication of future performance. A discussion of the risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission, in particular, in the section entitled Risk Factors in our quarterly and annual reports, and we refer you to these filings. Our discussion today will include non-GAAP financial measures unless otherwise stated. These non-GAAP measures should be considered in addition to, and not a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP results may be found in our earnings release and shareholder letter, which are furnished with our 8-K filed today with the SEC and may also be found on our IR website. With that, I'll now turn the call over to Zander. Zander?

Zander Lurie: Thank you, Gary, and thank you all for joining us today. In a year that no one saw coming, the SurveyMonkey team kept our focus and served our stakeholders in 2020. In the face of a pandemic, racial injustice and heightened political uncertainty, our team came together in a remote work environment to deliver for our customers, our shareholders and our community. We shipped compelling new products in our emerging customer experience and market research pillars. We developed new survey templates and use case solutions to help businesses, educators and nonprofits collect feedback to better navigate a volatile health crisis. We added new partners like Zoom and ServiceNow and deepened integrations with Microsoft and Salesforce to help our customers' better leverage feedback data in their core software stacks. And we found alternative paths to growth. In 2020, we grew revenue 22% to $376 million and generated over $45 million of free cash flow, with top line meeting and cash generation exceeding the full year guidance ranges we set before COVID hit. Our 2020 performance is a testament to our team's agility. We problem solve for our customers, we are accountable for our commitments. With continued innovation in product delivery and our go-to-market motion, we believe we can continue to expand our enterprise customer base and market share in 2021 and beyond. We sell software that helps customers listen, learn and take action. Employing a growth mindset also helps us plan and execute our own strategy more effectively. There were a lot of learnings across the board in 2020. Our Q4 performance illustrated sustained enterprise adoption of our feedback-oriented software. In our Enterprise channel, our products are resonating with customers because they integrate well with other systems and they do so with agility. We ended the year with approximately 8,200 enterprise customers, up 24% year-over-year. We added over 500 new logos in Q4, including well-known companies like Avon, Carrefour, Evernote, Headspace, Mulberry and the Monument Crisis Center, which we are supporting through our partnership with Listen4Good. Q4 Enterprise revenue accounted for 29% of total revenue compared to 25% in the year ago period. The book of business remains strong, with SurveyMonkey enterprise renewal rates improving sequentially in Q4 as they did in Q3. I'm also excited about early traction in our newly launched integrated CX offering, the guest feedback platform. In our self-serve channel, year-over-year revenue growth accelerated to 13%. Teams, again, was a primary growth driver, and its customers are great candidates for upselling to SurveyMonkey Enterprise. With our massive customer base, valuable products and experience in growth marketing, we believe we can continue to drive low double-digit revenue growth in self-serve, which generates healthy free cash flow and helps drive the top of the funnel for our high-growth Enterprise channel. Net-net, we had a 2020 in the face of a really tough market. We ran harder than the results give us credit for. In a year where our offices were closed from mid-March on, I wouldn't have predicted we would launch compelling new products, accelerate our Enterprise logo wins and increase our self-serve growth rate, but we did. And we need to do it again but better. Our Q4 2020 Enterprise results didn't reach the heights we set our sights on, specifically in winning new business at the higher end of the market. As we deliver more value to our customers, we believe our deal sizes will increase. Remote work will not be an excuse. The environment we compete in is the environment we will win in. We've assessed our strengths and opportunities for improvement, and we've taken the following actions we think will further improve sales efficiency and productivity. In surveys, we're steering further into high-value use cases, offering packaged solutions to help customers achieve business outcomes. In go-to-market, we hired Tom Murdock, the former Head of Digital Sales at HubSpot to lead our new high-velocity sales team. We believe this will help us capture more quick-close deals that sit between self-serve and sales. Equally importantly, this change in org design will enable our account executive leadership and team to focus on larger customers whose deal sizes and retention rates justify the investment. In CX and Market Research, where deal sizes are higher than in surveys, we're adding sales leadership and talent. In CX, we added the former Head of Oracle Europe sales, Graham Douglas, to lead our EU sales team out of Dublin. In Market Research, we've aligned our sales initiatives around three key verticals

Tom Hale: Thanks, Zander. I'm so proud of what our team accomplished in 2020. We had an exceptional year of product delivery and we'll build on it in 2021 with a super cycle of investment to support our journey upmarket and our long-term growth goals. Q4 capped a year of innovation. In surveys, we enhanced our Microsoft Teams functionality and announced integration with Zoom Video Communications to help drive incremental platform usage and top of the funnel activity. We introduced a response cap in our free product that shows incremental monetization. In Teams, we launched contributor seats for survey data analysis and made it easier to manage large installations for enterprises. We responded to urgent post-COVID customer needs with solutions for use cases like contact tracing, remote employee engagement and return to work. We also completed the work to support response-based pricing for SurveyMonkey Enterprise, which we rolled out to new Enterprise customers in Q2. While it's early, the seat-and-complete model continues to drive a 25%-plus lift in deal sizes for new Enterprise customers with no impact on the selling cycle in Q4. And we're seeing the green shoots of the new model driving improved monetization. For example, on our last call, I shared a story about Carlex Glass, a new enterprise customer deploying daily surveys to its 1,800 employees to track COVID risk factors. In January, the value of the Carlex relationship increased 5x after a true-up based on response volume. It's a win-win. Carlex is getting great value that enables them to keep their factories productive, and we're seeing economics that better tie to customer usage. In our newer pillars, we launched new products that we believe will help increase our mix of enterprise business as they scale. In CX, we shipped our V1 of our integrated offering to get feedback platform, an agile, price-disruptive solution that helps new customers like Carrefour, Headspace and Mulberry better leverage their existing systems of record to deliver the best experiences for their customers. We also announced our Commerce Cloud integration, which I'm proud to say we shipped today. In Market Research, we introduced our Expert Solutions to enable companies to rapidly make critical marketing decisions. Companies like Verizon Communications are already using our agile research solutions to do more of their ad creative packaging and messaging research in-house at a fraction of the cost of full-service agencies. These new products in CX and Market Research open up new opportunities that are adjacent and incremental to our survey market opportunity. As we look ahead to 2021, our promise is to deliver solutions to make it easier, faster, more cost-effective, more agile, to fill experience gaps and to better understand customers and employees. We are aggressively ramping our investments in machine learning. Our customers have seen great benefits already. Features like automated insights save time while SurveyMonkey Genius enables users to get answers with confidence, but we are just getting started. In surveys, we're investing to deliver new guided solutions that target specific use cases to increase the time to value for our customers. Our new return to work solutions shipping this month helps leaders and organizations, big and small, navigate the evolution of the employee work experience. And in addition to delivering value, our agile survey solutions will add a new arrow in the quiver of our Enterprise go-to-market motion. In CX, we will continue to build out the GetFeedback platform with prebuilt programs for key CX elements like NPS, CSAT and Card Abandonment. We'll introduce enhanced analytics and richer functionality to generate a 360-degree view of the customer and more precise customer segmentation and targeting. In 2021, the GetFeedback platform will integrate with SurveyMonkey Enterprise so customers can more easily graduate to our always-on multichannel agile CX platform. And for Market Research in 2021, it's all about expanding the breadth of our Market Research solutions. As we discussed in our December investor webinar, we're building on the success of Expert Solutions and launching new software modules to other Market Research use cases, such as brand tracking, industry tracking and pricing optimization. The market opportunity here is massive, and we believe our strategy will allow us to take share from legacy services-led offerings and to expand our share of wallet. There's a lot to get done this year but the team is up to the task. We're investing to deliver more customer value, with the goals of new logos and more expansion, and we're excited to make 2021 another great year of innovation and service of our strategy to move further upmarket. I'll now turn the call over to Debbie.

Debbie Clifford: Thanks, Tom. The fourth quarter was a solid finish to a year highlighted by healthy revenue growth, non-GAAP operating profitability and free cash flow generation. I'll start with a review of our Q4 results and then summarize the financial performance for full year 2020. I'll then review our outlook for Q1 and full year 2021. Unless otherwise noted, all comparisons are year-over-year. Revenue in Q4 was approximately $101 million, an increase of 20%. This was our first quarter where year-over-year growth rates were not affected by acquisitions, so Q4 revenue growth is on a like-for-like basis. Revenue from our Enterprise sales channel increased 39% due to growth in all three product pillars. Enterprise revenue accounted for 29% of total revenues compared to 25% in the year-ago period. Revenue from our self-serve channel grew 13% in Q4, driven again by Teams and strong free-to-paid planned convergence due to our ongoing refinement of pricing and packaging. Deferred revenue increased 21% to approximately $171 million. Remaining performance obligations, or RPO, which is the sum of deferred revenue and backlog, were $188 million, reflecting 17% growth. As we've mentioned previously, in addition to overall bookings growth and added contributors to growth in deferred revenue has been our strategy to migrate our user base from monthly to annual plans. With 88% of our paid users now on annual plans, we anticipate that deferred revenue, RPO and revenue growth will converge. Non-GAAP gross margin was 82% versus 79% in the year-ago period due primarily to revenue growth and lower volume-based costs associated with our Market Research offerings. We expect non-GAAP gross margin to normalize in the 80% range over time. Non-GAAP operating margin was 7.2% compared to a negative 1.2% in Q4 2019 and 2.2% in Q3 2020 due to revenue and gross margin performance and disciplined expense management. As seen in our outlook, we expect nominal operating leverage in 2021 versus 2020 as we continue to invest to execute on our long-term growth strategy. We generated $11.6 million in operating cash flow and $9.5 million in free cash flow. We've been able to diligently manage cash while also investing to realize our strategy and drive revenue growth, all against the challenging macroeconomic backdrop. For full year 2020, we increased revenue 22% to approximately $376 million. The Enterprise channel eclipsed $100 million annual revenue for the first time in the Company's history, growing 65% year-over-year to approximately $108 million. In 2020, we produced a 2.7% non-GAAP operating margin and generated free cash flow of approximately $46 million. Total revenue was in line with, and operating margin and free cash flow exceeded the full year guidance ranges we provided in February 2020. We ended the year with $224 million in cash and cash equivalents, an increase of approximately $93 million year-over-year, and we are now in a net positive cash position. Our 2020 performance illustrates the agility of our products and teams as well as the resilience of our business model. Turning to our outlook. For Q1, we expect revenue to be in the range of $99.5 million to $101.5 million or approximately 14% growth at the midpoint. Recall that we had $2 million of nonrecurring revenue from one Market Research enterprise customer in Q1 2020 that has a dampening effect on Q1 2021 growth rate. Normalizing for this nonrecurring revenue in the year-ago period, year-over-year growth would be approximately 17% for total revenue and in the low 30% range for Enterprise revenue at the midpoint of guidance. We expect non-GAAP operating margin to be in the range of breakeven to negative 2%, which reflects higher G&A expense seasonality as well as increased product and go-to-market investments, as Tom and Zander discussed. For full year 2021, we expect revenue to be in the range of $436 million to $443 million or approximately 16% to 18% year-over-year growth, which reflects the impact of headwinds and new enterprise sales as we exited 2020. Our revenue guidance assumes that self-serve revenues will grow similar to the growth rate in full year 2020 and the Enterprise revenue growth rate will be in the 30s. We expect non-GAAP operating margins to be in the range of 2% to 4% and free cash flow to be in the range of $43 million to $48 million, which both reflect a continuation of our balanced approach of driving incremental operating margin and generating cash while investing for long-term growth. In summary, 2020 was a year where we drove solid top line growth, operating leverage and free cash flow while managing through the market dynamics and remote work challenges associated with COVID. We are committed to our long-term strategy and are laser-focused on execution as we enter 2021. Our strategy is strong, we have a strong book of business, and we are well positioned to invest to move further upmarket and drive long-term growth. I'll now turn the call back to Zander.

Zander Lurie: Thank you, Debbie. 2020 was a big year for us in terms of product innovation and go-to-market execution, but we also made huge strides in strengthening our finest competitive advantage, our employee culture. The core of any world-class enterprise SaaS business is its people. Never has corporate culture been as important as it is today when so many employees count on their colleagues to learn and grow but also to find support and empathy. We redoubled our commitment to diversity, equity and inclusion in 2020. You don't win this race in a quarter or a year, but our sustained multiyear effort will make our business and community stronger. We plan to keep you posted on our progress in this arena, just like we update you on our product and financial achievements, if that important. In January, we announced Antoine Andrews as our Chief Diversity and Social Impact Officer. In his newly-created role, Antoine will lead the Company's diversity, equity, inclusion and social impact functions to accelerate our initiatives and positively influence our communities. With two decades of experience in organizations like Europe, Gap Inc., Nike and Symantec, Antoine will help hold us accountable to our goals to hire, retain and develop a more diverse team as well as foster an inclusive culture. He will also work with me to evolve our supplier diversity initiative and develop DEI benchmarks to help our customers in our business. I'm thrilled to welcome Antoine to the team, and I'm confident he'll drive excellence in this arena. In December, we published our first sustainability report that formally outlines our commitment to create a more sustainable, equitable and just society. We made further progress on our 2020 diversity hiring goals. In Q4, approximately 41% of our hires identified as women and 43% identified as people of color, and we added diversity at all levels of the Company. As a result of our focused hiring and retention efforts across all four quarters in 2020, representation of the Company today sits at 17% for underrepresented minorities and 44% for women. Finally, we're so pleased to see customers using our products for their own DEI initiatives. Women's March Global, a global network of 100-plus chapters advancing women's rights, is using SurveyMonkey software, expertise and audience to run Global Count, one of the largest global mapping surveys ever undertaken to document the cultural, economic and social barriers to women's progress. We're proud to support Women's March Global and other organizations through our feedback software. We strive to be world-class in DEI, and I am confident we'll gain even more momentum in this mission-critical initiative over the course of 2021. It's good for our culture, our customers, our community and our shareholders. I believe we began 2021 in the strongest position we've ever been in to accelerate our move upmarket. Our products and team are stronger today than a year ago, as is our conviction in our strategy. Thank you to all our stakeholders for their support in 2020. It's time to find more ways to win in 2021. We'll now take your questions.

Operator: [Operator Instructions] And your first question comes from the line of Mark Murphy from JPMorgan. Your line is open.

Pinjalim Bora: This is Pinjalim sitting in for Mark. Zander, first -- firstly, I just heard something. I think you said 25% yield uplift on something called seats-and-complete model. Trying to understand a little bit better, is that basically the response-based pricing along with seat-based pricing, kind of a mixture model?

Zander Lurie: It is, yes. That is a core component of our strategy. We debuted it in April to all of our new SurveyMonkey Enterprise customers. And this year, we will go back to our installed base of 7,000-plus customers with a seat-and-complete model. And the blended ARPU or ARPC uplift is 25%. And we believe that as our customers use these solutions and use more survey responses, you can see that increase from there.

Pinjalim Bora: I see. So you're not really moving a customer to completely response-based, but it's going to be a mix?

Zander Lurie: Yes. It's a blended plan whereby you buy a basket of seats and then a basket of responses. And the initial ACV comes up to about a 25% uplift upon contract. But the uplift will, of course, be variable based on the utilization of responses.

Pinjalim Bora: Understood, got it. And the next question is, I mean, is there a way to understand the Enterprise business weakness? I mean, is there a primary reason that you'd circle that is hindering the Enterprise business at the high end? I mean, people would probably talk about competition. Are you seeing more competition at that level? Is there -- is that mainly a sales execution-related or product-related? Any color would be helpful.

Zander Lurie: Sure, Pinjalim. I mean, if I could just step back for a moment. We've been on this journey for three years. We got into the enterprise sales business in 2017 when we believe we had a product that reads feature parity and could deliver world-class value to our customers. I mean, I couldn't be more proud of our sales team for landing over 1,500 new logos in 2020, including 500 new logos in Q4 alone across our three pillars, across the world in companies, the biggest companies in the world, Carrefour and others, to digital-first companies to technology services, business services, financial services, CPG, you name it. And we're winning in all three categories. What's important to remember is that COVID did have a hit for a company of our size as our sales team is maturing, benefiting from the mentorship in the office, the enablement, the tooling. And so we have such an inbound volume of leads that come in for folks who don't want to transact on the web but want to buy a deployment. And so we hit some really great goals in terms of new customer acquisition. What we need to do a better job of, what I need to do a better job of is helping us drive deeper deployment, deeper deployment of our software, further expansion and cross-sell, so we can deliver more value to our customers and our business model is going to reach more value. So as Debbie said, we didn't reach the heights that we had set out for ourselves in Q4. It doesn't matter if it was COVID related. The fact is, we've taken some really tactical moves that we think are going to put us in a much stronger position in 2021. What are those? First, we hired Tom Murdock, world-class sales leader out of HubSpot, to stand up this high-velocity team. So really, to put in place a team that's much more cost-efficient to help us win those quick-close two, three call deal. That also frees up our Enterprise account executive team to go after the larger, bigger, more strategic, high-value deployment. Secondly, we hired Graham Douglas out of Oracle, leader in Europe to really help us flow out our CX business. Third, we hired Ken Ewell, Chief Customer Officer, world-class, to really help us expand our existing footprint of those 8,200 customers. And then today, as Tom mentioned, we got the press release on the Salesforce Commerce Cloud partnership, which we are really excited about. Given the 0.25 million-plus customers across Salesforce Clouds, we see a huge opportunity to attach CX software, our guest feedback platform, which is the deepest and most valuable integration in the Salesforce ecosystem. So these are a handful of moves that we are going to deliver value in '21 and help us accelerate growth.

Operator: Your next question comes from the line of Eric Sheridan from UBS. Your line is open.

Eric Sheridan: I hope everyone is well on the team. Maybe just following up on that last point by you, Zander. I want to go a little bit deeper, if we can, on how to translate, excited about early traction in the GetFeedback platform, how we should be thinking on a multiple year view? What that does for growth and customer spend and customer retention? And then maybe flipping a second question back towards margins, can we just better get a sense of some of the investments you want to make through '21? And I know we're not maybe going to get as much granularity as people would like, but just some sense of how margins evolve through the year and a better sense of how people should think about full year margins against sort of early in the year margins.

Zander Lurie: Yes, I'll kick it off, and then I'll pass it to Tom or Debbie if they want to elaborate. For me, I look at the CX category and we really entered, in earnest, in 2019 with the acquisitions of Usabilla and GetFeedback. And today, the GetFeedback platform, now we have two offerings that are integrated. You're going to see some really big platform launches and announcements as we enhance this offering in the first half of the year. But we are out there winning world-class customers like Mulberry and Carrefour and Headspace and doing things that we think are helping customers, especially ones in the Salesforce ecosystem, on this digital transformation. And the best companies, the most inspiring companies, the companies that just, poor rabbit as it in 2020 were the ones that took business models that were not well-constructed for a world where everybody is working from home and staying at home. And they pivoted. And you've got to think about your website as the first place that all customers are coming in and that's where GetFeedback is so valuable, especially if you are in the Salesforce ecosystem. So again, if you look at Qualtrics and SurveyMonkey today, we have 20,000 Enterprise customers between us. You've got to think the 0.25 million customers in the Salesforce Cloud plus ServiceNow plus Microsoft, this is a really, really early, early category where we see huge tailwinds. We've got more platform development -- product development to do, but it's not holding a fact from winning the most discerning IT buyers, customer success buyers in the world. Tom, you want to share any more on some of our customers?

Tom Hale: As you saw today, we released our integration with Salesforce Commerce Cloud. And that's just a great opportunity, an example of our going deep strategy. We are the only vendor in this space with an integration with the Commerce Cloud, and that just is our strategy to go deep as well as go broad. We want to move across clouds. I think the most important thing to point out here is that we are winning big top of the market, CX customers. I'd cite Carrefour and Avon, one of which was a Qualtrics displacement. We have firms that are looking at us to solve their CX problems. When their problems require agility, meaning time to market, time to solution, we win. When their problems are pending on a CRM solution or a Salesforce solution, we win. So we have a great opportunity to take our products straight into the heart of that Salesforce ecosystem. And we've got the investment behind this year's super cycle to really deliver for our customers.

Debbie Clifford: And then I can chime in on margin. Ultimately, what Tom talked about, the super cycle of investments in product is what is impacting the trend that you see with our operating margin over time. So if you look at our Q1 operating margin guidance, it was breakeven to negative 2%. And we do, in Q1, have the reset of certain G&A expenses like payroll taxes and employee benefits. So the biggest driver there is that we are embarking on this super cycle of investment to drive innovation in product. And what you'll see over the course of the year, in order for us to achieve our annual operating margin guidance of 2% to 4%, we're going to be gradually improving and driving operating leverage as the year progresses.

Operator: Your next question comes from the line of Brad Sills from Bank of America. Your line is open.

Bradley Sills: I wanted to ask a little bit, Zander, about some of the comments you made on the Enterprise business perhaps being a little bit weaker than expected. In your mind, is this more pipeline-oriented or do you think it's just go-to-market changes that need to be made? It sounds like some of the new hires, obviously, that's going to be a focus with CX for Graham and expand for Ken. And so I guess my question is, how would you classify the shortfall this year? Was it pipeline versus some go-to-market areas that need to be changed?

Zander Lurie: Brad, thanks for the question. Totally fair. And I think as I said, we got into this business, the Enterprise business, of really catering to large companies, mid-size companies around the world. We went from a self-serve business for 15 years where people transact on the web to ones where we were building outbound demand, driving demand generation and then really interfacing with customers and delivering value. And to be frank, COVID hit at a tough time. We were really getting our kind of sales academy humming in March with all the enablement, mentorship and our Chief Resident Officer, John an incredible carrier. And so going to a remote environment was challenging. And our sales team demonstrated a lot of grit, winning deals, deals largely that were inbound. So we've got to crisp and sharpen up our go-to-market, our demand gen, our marketing motion. And I think we took the tactical move. There's no burning fire. This is just about us not achieving the heights that I know are possible in a market that's healthy. And so we saw some reasons in Q4. We put some prescriptive measures with some big leaders. We've got some exciting new marketing demand gen motions in place. And we learned a lot in 2020. You kind of have to flex your growth mindset and recognize this environment isn't going away anytime soon. So we've made some pivots. I'm really hopeful they're going to drive some acceleration, but I have also got to take accountability for what was not our finest quarter, and that starts with me.

Bradley Sills: Got it. I appreciate that. And I wanted to ask about the Commerce Cloud solution. This is interesting. And just curious on more details there. What is the solution exactly? How is it integrated? Any use cases you could point out for that?

Zander Lurie: Yes, and I'll let Tom elaborate on this, but we acquired GetFeedback 1.5 years ago. I brought on a leader in Craig Chill, who's the CEO of GetFeedback. He is now the general manager of the GetFeedback platform. And it really helped work with his product leader who was the CEO of Usabilla to transform this product, bringing two products together and add a bunch of functionality. And it's become increasingly interesting to Salesforce, and we're super proud of this partnership. We do believe it can scale to offer customers, as Tom said, of all shapes and sizes that are prioritizing agility. Agility is a key factor. We are not targeting customers that need huge army of professional services. That's the time-intensive, hugely expensive motion that we see as a bit of yesteryear. So we're really focusing on customers that need the agility and want to be responsive to customers and their behavior on the web, take that action, get all that data into Salesforce so they can make the right moves.

Bradley Sills: Thanks, Zander.

Zander Lurie: Tom, anything else you might add there?

Tom Hale: Yes. I just want to give some use case color. I mean, we already have a lot of joint customers here, Crocs, Yeti, Deckers, Puma. And it's really oriented around this kind of in the moment of an e-commerce transaction for things like card abandonment, post-purchase surveys, being able to understand what's going on. So you can test and learn, which is the heart of any e-commerce strategy. And the key here is a two-way data interchange. It's not just about collecting some data and then figuring out what's wrong and then trying to change it. It's actually showing up in your Commerce Cloud to see the data that you're collecting. And it's across mail, across browser, and this is just part of our strategy to go deep with each one of the sales clouds because we think that there are a lot of customers who need this. And Commerce Cloud is one of the hottest and fastest-growing areas of the Salesforce business. And so it's just another great reason for us to be able to call into those customers and say, hey, we've got a solution for you. If you want to click feedback in a moment and take action on it, we've got a great solution. So we're super pleased with this. We announced it 90 days ago and shipped it this quarter. This is the kind of agility that we're able to demonstrate in the face of the market.

Operator: And your next question comes from the line of Youssef Squali from Truist. Your line is open.

Youssef Squali: So a couple of questions. Zander, I don't want to beat the dead horse on this Enterprise sales, but I'm trying to just reconcile the 39% growth that you guys just achieved in Enterprise sales channel in the fourth quarter, in the middle of COVID, which is great with your comment about COVID having to hit you guys hard and being the reason for the kind of the softer guide for Enterprise -- new Enterprise sales in Q1 and Q2 -- or Q1 and the rest of the year. And if it's just a sales efficiency issue, trying to understand the investment increase or the new investment cycle that you guys alluded to in the letter. Is there anything structural in the way you're looking at the investments needed in 2021 to maybe change your long-term margin outlook for the business?

Zander Lurie: Thanks, Youssef. I don't think we're going to have any update on long-term margin outlook. Here's what I could say about the category. This is a huge category when we went public 2.5 years ago. You are seeing more companies compress the cycle to digital transformation. Your business starts on the web. Your ability to react, to respond, understand what's important to customers, as Tom said, some of the key attributes we're focusing on. This is what every coming. We have incredible testimonial from trucking companies and retail companies and doctors' offices and state governments. I mean, this is the way business gets done today. And CX is at the heart of that, surveys are at the heart of that. So we love the category. We have taken a tactical move. We are redoubling our commitment to the strategy. There is nothing swat about this strategy. If there's any criticism of our performance, it's execution-based, and I think we have taken the prescriptive measures that put us in a position to accelerate growth. If there's any of the Q1 numbers that look light on revenue, it's a result of 90-plus percent of our businesses is subscription-based and some of the dies we cast already. So we've taken the moves we believe were necessary to accelerate and to reach our aspirations. And I'll let Debbie elaborate on margins. But right now, we know this is a competitive environment. We want to continue to stay at the bleeding edge of world-class products and marketing and sales. And it's a hypercompetitive environment for people. So we know what it takes to win.

Debbie Clifford: And yes, if I would just highlight, we look at RPO growth as a leading indicator of our business performance and the exit RPO growth rate was 17%. And if you were trying to reconcile the trajectory of Enterprise growth from Q4 into Q1, if you normalize our revenue guide for the $2 million nonrecurring Market Research revenue that we had in the year-ago period, that growth rate would be about 17%. That's in line with RPO. So I encourage you to look at RPO as the indicator of our performance. That's what we're most focused on.

Operator: Your next question comes from the line of Chad Bennett from Craig-Hallum. Your line is open.

Chad Bennett: So just -- can you give any more color, just I know it's fairly early, just on the CX pipeline, and what you're seeing there in sales cycles related to the CX product? And then also again, it's early but relative deal sizes of CX deals in the pipeline to your average enterprise deals. And kind of the last add-on to that question is, when you look at your outlook for this year for enterprise growth and I think you said in the 30s, can you at least qualitatively talk about how much of a CX impact you have baked into that growth?

Zander Lurie: Chad, thank you for the question. CX was, as you know -- CX and Market Research are both smaller businesses for us in hypergrowth, new general managers, new sales leaders in place. In CX specifically, we are targeting customers that prioritize agility. Customers that have big challenges, who need to solve business outcomes. Primarily, they are Salesforce shops, and these are customers that we see as ripe for opportunity to help them on survey-based, integration with Salesforce as well as help them on understanding what's going on, on their website with these issues around card abandonment, design, et cetera. So the deal sizes are demonstrably bigger than our ACVs or for the overall business because these are $30,000, $40,000, $50,000 deal sizes relative to the survey where the median or mean are quite smaller. So this is a business that is not only significantly larger deal size but has room for expansion as there's more utility of that CX integration. The deal cycles can be 30 days, can be 90 days. It's really about our ability to generate high-quality demand, reach the ideal buyers and how to keep their challenges in their own business.

Debbie Clifford: And just to follow on. In terms of the impact to the guide in the overall growth rate in 2021, what I'd say is that Customer Experience is a small business for us today but we anticipate it's going to drive growth in the future. It's a single-digit contributor to our total revenue number today. As we've stated in the past, we don't expect it's going to be a big driver of revenue growth in 2021. We think it will accelerate bookings growth in the back half of the year. But given the recurring nature of our business model, those bookings don't manifest much into revenue until 2022 and beyond. But we are very bullish about this opportunity.

Chad Bennett: Great. And then maybe one quick follow-up for me. So just in terms of -- I know you've made a lot of leadership changes and it looks like high-quality adds, for sure, on the Enterprise side of the business. But just in terms of the feet on the street, so to speak, and the ability to sell CX, I mean, Zander, I think you talked about getting better at driving deeper deployments on the enterprise side. You doubled the sales force, Enterprise sales force in '19. I'm sure you added to it decently in '20 also. I understand the leadership changes, but do you have an enterprise-grade sales force right now?

Zander Lurie: I mean, what I will say about the CX team is it punches way above its current revenue number. So if Fred Gilbert and Graham Douglas are listening, we have staffed up to build a $100 million business in a relatively short time frame because we believe this product is world-class. We believe the opportunity is massive and we know the difference that world-class salespeople can make. And we're giving them all the support and resources and marketing they need. And when we tee up the right buyer to help her with her need, whether she's in health care or CPG or any of the businesses, we can meet the moment. And this team is in a position to accelerate growth, as Debbie said, in the back half of this year. But we'll take our for Q4, but we believe this is a multi, multiyear growth opportunity, and we are set up and staffed for success over the long term.

Operator: Your next question comes from the line of Brian Fitzgerald from Wells Fargo. Your line is open.

Brian Fitzgerald: Maybe two kind of follow-ups. The first one is on seats and completes. Any update on when you may implement that in renewals? And do you think you can drive similar uplift in renewals as you have in new enterprise sales? And then it looks like a bit of a slower start to the year in terms of reported revenue growth. The guide implies that acceleration. Just wondering if you had any thoughts on how that plays out over the course of the year and the revenue growth trajectory as we exit '21 into '22.

Zander Lurie: Yes, I'll let Debbie elaborate more on the shape of the year. It's annoying to bring up the onetime $2 million customer in Q1 of last year, but we told you all it was an anomaly, given the name of the customer and we meant it. So the implied point for revenue growth in Q1 is 17%. Seats and complete is absolutely critical. We sold over 1,000 SurveyMonkey Enterprise deals between April and December 31, with seats-to-complete buyers understand the model. Our team did a nice job of landing the messaging. And clearly, the value proposition is there to warrant the higher price, the 25-plus percent higher ACVs. So we've got a big job to do going back to our 7,000 enterprise logos in the installed base. We couldn't have a better leader in Ken Ewell and Jeff Coleman and team to go back. But clearly, we are going to be going back with a message of value, and this solution going to value that Tom discussed around how we are helping customers with business outcomes. We've got a pretty exciting return to work solution coming at every C suite officer in the world thinking about how she's going to bring her company back to work. And those kinds of packaged solution to what's going to drive more value and also help on these renewals because we see some it's important to remember, seats and complete doesn't always the P&L this year. It's really about longer-term response-based pricing and utilization of those responses which drive that uplift.

Debbie Clifford: I would just add, in terms of the revenue growth trajectory throughout the year, in Q1, our guidance is 14% growth at the midpoint. And for the full year, we guided to 16% to 18% as a range. And so our goal is to accelerate revenue growth throughout the year so that we can have a strong exit rate and that we're hitting that 16% to 18% aggregate annual guidance.

Operator: Your next question comes from the line of Ron Josey from JMP Securities. Your line is open.

Ron Josey: This one is probably a relatively short one, but we've spoken a lot about sales force and execution. I wanted to maybe, Debbie, you made a comment on the super cycle of investment and talking about where margins are going for 1Q and the full year. You talked about increased product and go-to-market investments. And so I wanted to just unpack that comment a little bit more on the product side. Just now that you've got the GetFeedback suite and a slew of new products, can you just talk a little bit more about the product focus and where these investments might be focused on?

Debbie Clifford: Sure. I can start and then I'll turn it over to Tom to provide more specifics. But ultimately, with this super cycle of investment in products, we're looking to invest across all three pillars. We are excited about the opportunity that we have across these three pillars. In surveys, we're investing in the further development of use cases and the ability to give our sales reps more targeted selling motion with the product to back it up. In the GetFeedback suite, we have more work to continue to make that an end-to-end platform to tackle that category. And in Market Research, I think this is just the beginning. We've done some great work over the past year with the rollout of concept testing and some other new ideas that we have in that space. And I think that we have even more that we are going to be investing in as we head into 2021. Tom, do you want to --

Tom Hale: Yes, you nailed it, Debbie. I'd add that integrations with partners like Zoom and Microsoft Teams, I think we're super excited about what we're doing. And then, of course, one of the big areas I mentioned on the call is AI and ML. And that's really about automating insights to save time, and that really fits with our agile market positioning and value proposition. We want to make users as effective at finding the signal and the noise and pulling that out and that comes with improved data quality and it improves as you're gathering data from a wide range of sources and mapping that with data inside your enterprise. So AI and ML is going to be a big part of the super cycle of investment. And we're super excited about the competitive advantage that gives us in our agile positioning.

Operator: Your next question comes from the line of Joshua Reilly from Needham & Company. Your line is open.

Joshua Reilly: This is Josh on for Ryan. A couple of questions here. First off, self-service was strong in the quarter. I know we haven't talked about that much here yet. But we know earlier in 2020, you discussed the sign-ups were really strong to the platform. Do you believe the fourth quarter results here were a reflection of those sign-ups earlier in the year, upgrading to paid subscriptions? Or is this cohort converting more quickly to paid after signing up more recently to the platform? And then secondly, on the self-service side, what are you seeing in terms of trends after lowering the paywall on free responses from 100 to 40 earlier this year?

Zander Lurie: Josh, you sound like somebody who might be interested in working on our growth marketing team. These are all the kind of important experimentation we think about as we balance the delivery of value with the pricing we charge. On your first question, no, the Enterprise relationship self-serve here, we have such a large cohort of customers who sign up for a free account every day, 40,000 to 50,000 people that the funnel is pretty well tuned and we have very good visibility in terms of the cycle of conversion from free to paid, so not much connectivity between the early COVID sign-ups with it's a much shorter cycle. Your second question, it's important. We continue to experiment across engineering, marketing, product, our pricing around the optimal presentation of our SKUs. We've seen new features we have offered in the platform. Packaging teams has obviously been an important contributor. We love the retention rates associated with Teams because we have multiple users on it in multiple credit cards, less churn, more sharing of the data. But we do continue to get better and better. And as we launch new features and new capabilities, that presents new variables for our growth marketing team to evaluate. And I think this is an evergreen area that for us to continue to drive low double-digit rate growth.

Joshua Reilly: Okay, great. And then maybe just a second question here. If you look at the recent Qualtrics IPO, I think a really good part of the story there obviously is the opportunity for Market Research. That area of the CX market from some work that we've done seems maybe a bit less competitive. Is that what you're seeing in the market? And then how should we think about the uptake of the product within the base of Enterprise survey customers versus net new customers coming to the platform?

Zander Lurie: It's a great question. Let me take it in several different ways. First off, Market Research is a massive TAM. It's only going to be bigger in a post-COVID world as companies need to do more research to understand their target market, their target campaign, specific product specs, employee benefits, et cetera. One of our favorite new customers in the last year is Chime, and they really mobile banking kind of financial services company. They did a big jersey sponsorship with the Dallas Mavericks and used our Market Research platform to evaluate the efficacy of that. We think there's going to be a huge disruption in this market. We want to be a player in that. And we are already seeing really good results. We put a woman named Priyanka Car in the general manager, surrounded her with a really fine team that's going after much, much higher ACV than you see, particularly in our survey area because auto, CPG, health care, the huge dollars are spent by the insights and Market Research folks to understand those core variables, which helps you get success out of the whatever investment you're making. So we think this is a big market. It's competitive, but it's largely competitive with legacy players, professional services, expensive and we're disrupting that software. As Tom said, we continue to roll out new solutions around brand tracking, concept testing, which gives specific buyers a really helpful solution for whatever business outcome we're chasing.

Operator: And your final question comes from the line of Parker Lane from Stifel. Your line is open.

Parker Lane: So Zander, you briefly touched on return to work as a catalyst going forward. But I was wondering if you can talk more broadly around the demand trends you're seeing for sort of employee-facing surveys and I guess even the engage tool that you have. Is that an area of the business you think can play a much more significant role in 2021 and beyond when we think about more distributed workforces and some of the announcements we've seen from large tech companies in your neck of the woods recently?

Zander Lurie: Absolutely. I mean, if you look at this issue today, the longer we're in COVID, the more you have to go back to first principles and ask how everything is going to work. And I never thought CEOs and others would be discussing things like elevator protocols and bathroom protocols and how you're going to feed employees and flexiglass between cubes and why are we going to the office. But we are all being forced to ask ourselves these really fundamental questions. I mean, the days of asking somebody to commute 60 minutes to the office to come and do e-mail and meeting rooms and talk to people on Zoom and deal with latency with half the people in the room and half on Zoom, those days are over. We have got to be more prescriptive about what collaboration, design session, sales are going to happen and why you're bringing people back to the office. Every C-suite leader is doing surveys today and asking critical questions and measuring those cohorts across the world and understanding the longitudinal analysis. The HR role had been elevated to the most important position in the Company, and we're seeing a ton of engagement utility across everyone. And we've really ingested a lot of the engage attributes into the core SurveyMonkey platform and putting packaged solutions in that core platform to help our customers. So you're going to see us roll out more functionality areas talked about in marketing will be a big pivotal driver of sales as it is the top of mind issue for some of the C-suite across every geo and every vertical.

Tom Hale: Yes. And I'll chime in with the telehealth, health care patient experience. I mean, this used to be simply the domain of like a subset of the health care industry. It is the entire health care industry now. That is a huge space for us to steer into. And then in some sense, every company has become conscious of health care issues and needs to really manage and track that. And so these are some of the solution areas that we find just are huge opportunities for us to steer into. And our customers and our prospects are dragging us in that direction. So it's a great opportunity. Then throw in Zoom and like remote work, we've got giant spaces to step into and our brand name and our ease of use and our accessibility are just huge assets there.

Parker Lane: And does that at all change how you're actually targeting inside of organizations from a go-to-market perspective? It would strike me that there's more HR leadership that would be involved there and maybe even elevating all the way up to the C-suite in cases where you're not already having those conversations.

Zander Lurie: We think we're working with consultants as well. I was on a call with our head of HR this week. And the HR buyer, if he or she was ever asking for budget, this year, they're getting it because there is no more critical issue for the C-suite, even the Board, in terms of how do we provide a safe and inclusive environment for our employees to do their best work. We are all totally reliant on our people, and we want to make sure we give them the kind of environment in a new world where we're also learning. There's a lot less to do.

Operator: And we have reached the allotted time for our Q&A. I would like to turn the call back over to CEO, Zander Lurie, for closing remarks. Sir?

Zander Lurie: Well, thank you so much. We definitely appreciate all of your continued interest in SurveyMonkey. Frankly, I miss seeing you all at conferences. I miss being you on bus tours to our office. We're going to compete and try and win in the Zoom environment, but it does make some of these calls a little less intimate. We began this year in a position of strength across our team with our products, and we are committed to the strategy to further move upmarket, drive long-term growth, achieve that 25-plus percent revenue growth we believe is possible. We look forward to connecting with you all this quarter at JMP, Berenberg and Truist. I wish you all and your families' healthy recovery during this COVID period. And thank you and have a good evening.

Operator: This concludes today's conference call. You may now disconnect.