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SVMK Inc (SVMK) Q1 2019 Earnings Call Transcript

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SVMK earnings call for the period ending March 31, 2019.

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SVMK Inc (MNTV 2.16%)
Q1 2019 Earnings Call
May. 08, 2019, 5:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good day, ladies and gentlemen, and welcome to the SurveyMonkey first-quarter 2019 earnings conference call. [Operator instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Karim Damji, vice president of investor relations.

Dr. Damji, you may begin.

Karim Damji -- Vice President of Investor Relations

Thank you. Good afternoon, and welcome to SurveyMonkey's first-quarter 2019 earnings conference call. On today's call, we have our CEO and interim CFO, Zander Lurie; and our president, Tom Hale. Prior to this call, we issued a press release and shareholder letter with our financial results in commentary for our first-quarter 2019.

Those items are posted on our Investor Relations website at During the course of this call, management will make forward-looking statements, which are subject to various risks and uncertainties, including statements related to our strategy, investments, revenue and cash flow. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. A discussion of risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission and, in particular, the section entitled Risk Factors in our quarterly and Annual Reports and, we refer you to these filling.

Our discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition and not a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP results maybe 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 or our IR website. I'll now turn the call over to Zander.

Zander Lurie -- Chief Executive Officer and Interim Chief Financial Officer

Thanks, Karim. Good afternoon, everyone, and thank you for joining us on the call today. We had another strong quarter. In Q1, we grew revenue to $68.6 million or 17% year-over-year growth.

We generated $7.5 million in unlevered free cash flow for an 11% margin, which also includes $0.9 million in one-time transaction cost related to our acquisition of Usabilla. Our financial results demonstrate consistent focus on delivering disciplined growth and generating robust cash flow, while making investments for the future. We continued to accelerate growth in paying users, which now stand at approximately 671,000, up 10% year over year and up over 24,000 paying users from Q4 2018. Approximately 90% of our net add in Q1 joined on annual plans, primarily via sales of SurveyMonkey enterprise and our collaborative Teams offering, which drove the mix in our annual paying users up to 78% from 75% a year ago.

We know through our many years of cohort data that annual users have longer retention periods and are, therefore, higher lifetime value customers. Enterprise sales comprised approximately 16% of revenue in Q1. During the quarter, we began a targeted sales motion selling our market research solution, Audience, directly into organizations, primarily in the financial and consumer good sectors. We're already doing business with these organizations, and we've now put sales reps against certain-named accounts because we see significant opportunity to grow and upsell those customers.

On an apples-to-apples basis, without this benefit of Audience revenue, Enterprise sales would have been 14% of revenue, up from 13% in Q4. The sales driven portion of our Audience revenue is another vector in the continued growth driven by our Enterprise sales strategy. In April, we acquired Usabilla, our first acquisition as a public company. Usabilla enables organizations, such as Lufthansa, Philips and Vodafone to collect, analyze and act on real-time user feedback across websites, apps and email.

Usabilla was a strategic acquisition for SurveyMonkey because it complements our products and extends our reach in Enterprise and is strongly aligned with our strategy, business model and importantly, culture. Usabilla's offers a high-value solution on a pricing plan that scales with the value provided to the customer. As an example, pricing on the Usabilla website feedback solution is based upon the number of page views on the customer website. So as the number of page views grow, so to does our monetization.

We believe this acquisition provides SurveyMonkey a compelling opportunity to deliver more value to our customers. In the process, we accelerate both our enterprise and international expansion efforts. Our mission is to drive growth and innovation for our customers, and we're doing this by focusing on our primary growth strategies, which all are on service of driving monetization, improved retention and growth in paying users. First, selling SurveyMonkey directly to enterprises via our sales channel; second, driving adoption of our collaborative teams plan; and third, investing in our international operations to further expand our business outside the United States.

Our continued execution against these growth strategies, coupled with the acquisition of Usabilla gives us increased confidence that we will be in a position to accelerate growth in the second half of 2019 and beyond. I'll walk you through Q1 highlights relating to our primary growth strategies and I'll turn over time to Tom to go into more detail about the product and marketing initiatives that support them. Starting with Enterprise sales. We're continuing to execute against our plan of selling into our massive user base of over 17 million active users in over 350,000 organizations.

In a world of land and expand, we've already landed. It's our job to leverage our footprint and turn those individual feeds and ultimately, Team's accounts into direct relationships with organizations. We grew our enterprise sale customers to over 3,900, up 38% year over year and up 343 customers from Q4. Our customer span of breadth of industries and company size.

New customer signed in the quarter shows SurveryMonkey's broad appeal and resonance across industry and company size like oil and gas, Baker Hughes; professional services, Jacobs Engineering Group; government R&D contractors, Sandia National Labs; and technology companies, Shutterfly, Glu Mobile and Malwarebytes; and major companies in financial services, healthcare and manufacturing. Regardless of the product or service being sold, we believe that every company needs to collect feedback from their most important constituents, their customers, their employees and the market. Once an organization hits a certain size, they need to capture data in a programmed and secure environment warrants a conversation with our sales team. We're building out a world-class team and are on track to double the number of customer-facing reps by the end of the year.

We've got an aggressive hiring goal spanning multiple locations, which means sales training and enablement to get our reps ramp to exceed their targets. We're getting better each quarter at generating qualified leads, building pipeline and driving increased efficiency. We expect greater contribution from our sales reps through the course of the year, which we believe should lead to accelerate revenue growth in the second half. SurveyMonkey is thriving in a multi-billion dollar category.

Our products deliver a tremendous amount of value to our customers. We're investing in a business model layer and additional growth vectors beyond feed licenses. Once the price to the commensurate value our products delivered to our customers, our purpose-built solutions, integrations with partners, such as Microsoft and Salesforce and now, Usabilla, demonstrate our evolving enterprise strategy. I'll share one example of how customers are driving value from our products.

Take Metromile, a new innovative pay-per-mile insurance company. Metromile used the SurveyMonkey Enterprise and our Salesforce integration to automate gathering feedback for customer service to help them stay on top of customer interactions via Net Promoter Score, customer satisfaction and post-sales feedback. Utilizing the data from their service, Metromile increased their first-call resolution rate by 10% quarter over quarter, thereby increasing customer satisfaction and reducing cost. And they have since expanded using SurveyMonkey to track customer sentiment across all interactions.

Now to Teams. We're capitalizing on an opportunity that we believe is to remain SurveyMonkey to recognize value from rampant account sharings that's taken place on the SurveyMonkey platform for many years. With our collaborative Team's plans, we're encouraging people who are sharing accounts to sign up for a paid Teams plan, where each user maintains their own credentials providing a much better and more secure experience. On the international front, we're making the investments required to accelerate growth in our international business.

Our European sales team is up and running and already closing deals. The addition of the Usabilla team expand our selling efforts. I'll now turn it over to Tom.

Tom Hale -- President

Thanks, Zander. We rolled out account verification at the end of Q3 just after we launched the Teams' packages. As a reminder, account verification identifies when there is account sharing, notifies users and merchandises Team's plans. We're pleased with the results so far and the positive impact on our paid user numbers.

And with more than six months of data, we have increased confidence that Teams will continue to be a tailwind as we head into the second half of the year. At the end of Q1, roughly 60% of our paid user base had been enabled for account verification. We're taking a measured approach to ensure that we deliver a great customer experience. This means that we are pacing the impact of account verification on teams to build over times, some accounts adopt in weeks, others adopt in months or longer.

The ramp depends on many factors. The frequency of use, the degree of sharing, the number of active users, seasonal variations in their used case or shared usage. As a result, while we expect to complete the roll out of account verification in Q3, Teams adoption even from our earliest cohorts will continue. We're also continuing to see better-than-expected success in new customers buying multiple Teams feeds right off the bat.

We observed this trend in Q4. And in Q1, our data-driven test and learn activities accelerated the adoption of net new Team feeds. Because the mix of new Teams feeds favors the higher value Teams premier package, we are steering into new sales of Teams. And as a result, as we exited Q1, we made the Teams package the default display on our pricing page.

Teams plans have been purchased by 154 of the Fortune 500 companies, 46 of the Fortune 100 companies and in over 90 countries around the world. When we see large team sizes and concentration of teams within organizations, it's a great signal that we have a value opportunity for our sales force. With the Teams rollout well under way, in Q1, we turned our attention to increasing the value we deliver for our higher end customers. A great example of this is Sentiment Analysis, which we launched in February.

Open-ended questions provide some of the richest feedback that are time consuming to read and require manual review. Sentiment Analysis automatically categorizes text responses using machine learning and natural language processing, allowing our customers to quickly identify topics that need their attention. We're proud to lead the market in offering powerful capabilities like this at a disruptive price point. In addition, we continue to invest in building an ecosystem of partners and integrations for our enterprise customers.

Our partners like Salesforce and Microsoft have millions of users and hundreds of thousands of customers, all of which have a need for a system like SurveyMonkey. By integrating people powered data into these systems of record, we're creating value for our customers and our partners. We're currently mid-stride on building out the lightning version of the SurveyMonkey integration with Salesforce. Today, our current integration is a featured solution on the Salesforce app exchange and we're seeing good success at selling to the Salesforce customer base.

In Q1, we saw a lot of traction in our strategic partnership with Microsoft. We shipped our Power BI integration in February and started to develop a vision to expand on our existing integration with Microsoft Teams. The result of this joint innovation was previewed in Satya Nadella's keynote at the Microsoft Build Conference earlier this week. The presentation showcased SurveyMonkey working together with Microsoft Graph and Microsoft Outlook to imagine the future of intelligent peer-to-peer feedback from colleagues that you work with most frequently.

Our teams are hard at work on making this vision a reality, and we can't wait to bring this new innovation to our joint customers. Turning to marketing. We're getting more efficient and effective at generating demand. In Q1, our marketing team produced a new high watermark for pipeline, a material increase over Q4 with a slightly lower marketing spend.

In addition, we're getting more efficient in our FEN spend and we're directing the savings into Q2 efforts that will demonstrate how SurveyMonkey delivers value to business leaders and the Enterprise organizations. For example, over the course of Q2, we will be launching Curiosity Conference Live, a SurveyMonkey branded event series, in New York, Chicago and San Francisco with speakers from leading companies like Salesforce, Zendesk, and Unilever. In Europe, we'll be exhibiting and speaking at the Salesforce World Tour in London to reach Salesforce customers. This month, we'll be launching a test of a brand campaign that leverages out-of-home channels and digital channels to promote the perception of SurveyMonkey as an enterprise grade platform.

As we always do, we'll be testing and learning in Q2 and we are excited to measure the impact of this test we have on our business to inform investments in marketing for the second half of the year. In the end of May, we'll be launching the initial phase of our European cloud data center to enterprise customers. Our new cloud infrastructure will improve our user experience and site speed allow us to host data locally. Our exec team will be in Europe for the launch, meeting with customers, prospects and press.

We know that data sovereignty and privacy are critical and our Dublin sales team is ready to start selling. Between Teams, product investment to deliver greater value to customer and our foundational international investments, we have increased confidence and the effectiveness of our growth drivers. I'll now turn it over to Zander for our financial results and outlook.

Zander Lurie -- Chief Executive Officer and Interim Chief Financial Officer

Thanks, Tom. I will quickly touch on our Q1 results and then move to our Q2 and full-year outlook. Revenue was $68.6 million for a 17% year-over-year growth, driven by 10% year-over-year increase in paying users and an 8% year-over-year increase in annualized revenue per user, or ARPU. Before moving onto expenses and profitability, I want to clarify that unless otherwise noted, all income statement and cash flow measures that follow are non-GAAP.

You'll find a reconciliation of GAAP to non-GAAP results in our earnings release and shareholder letter on the website, which we provided with our 8-K filed today and with the SEC. Also as a reminder, we adopted the new lease accounting standards beginning January 1, 2019, whereby the lease payments associated with our San Mateo facility are now accounted for as an operating expense. Previously, they were treated primarily as interest expense. The impact of this change is roughly $1.5 million moving from interest expense to operating expense for this quarter.

Q1 gross margin was 77%, compared to 71% a year ago, due primarily to lower capitalized software amortization. Regarding operating expenses. We continue to invest in growing R&D to drive continued platform innovation and further develop our products. We're investing in sales and marketing efforts to support both our self-serve and enterprise sales channels, and we've also made investments in G&A to operate as a public company.

Operating margin in Q1 was breakeven. Adjusting for the $0.9 million in transaction cost related to our Usabilla acquisition, operating margin would have been 1%. Unlevered free cash flow was $7.5 million for an 11% margin. Adjusting for the Usabilla transaction cost, unlevered free cash flow would have been $8.4 million for a 12% margin.

Total headcount grew to 910 people for a 24% year-over-year increase. This excludes the 130 employees from the Usabilla transaction, which closed April 1, and we welcome all of them. Turning to the balance sheet. We ended the year with $166 million in cash and cash equivalent and $217 million in total debt for net debt of $51 million.

Now to our financial outlooks. With the strength in our Teams offerings and enterprise sales, coupled with the acquisition of Usabilla, we're updating our financial outlook for Q2 and full-year 2019. Our financial outlook includes contribution from Usabilla beginning April 1, 2019. The revenue contribution from Usabilla will be impacted by standard purchase accounting adjustment to deferred revenue that will reduce the amount of revenue to be recognized.

The Usabilla revenue included in SurveyMonkey's financial results will be initially be lower than what Usabilla would have recognized on a stand-alone basis. We expect the headwind from the deferred revenue adjustment to be strongest in Q2 2019 and then have decreasing impact over the course of the year. Post the deferred revenue adjustment, we expect Usabilla to contribute approximately 200 basis points of the 17% to 20% year-over-year revenue growth in our full-year 2019 financial outlook, a disproportionate percentage of which will be recognized in the second half of the year. We also expect Usabilla to be a headwind on non-GAAP operating margin and unlevered free cash flow margin.

For Q2 2019, we expect total revenue to be in the range of $72 million to $73 million for approximately 16% year-over-year growth. As a reminder, in Q2 2018, we benefited from the pricing changes to our self-served customers that began in mid-2017 and drove maximum core impact with 21% year-over-year growth, setting up a more difficult comparison from a year-over-year growth perspective in this second quarter of 2019. Operating margin is expected to be in the range of negative 4% to negative 2% and diluted weighted average shares outstanding to be approximately 130 million shares, inclusive of the shares issued in the Usabilla acquisition. Now for the full-year 2019.

We expect revenue to be in the range of $298 million to $304 million for 18% year-over-year revenue growth at the midpoint, implying 20% year-over-year revenue growth for the second half of 2019 at the midpoint. Operating margin is expected to be in the range of negative 1% to positive 1% and unlevered free cash flow to be in the range of $50 million to $53 million for a 17% margin. We expect 2019 fully diluted weighted average shares outstanding to be approximately $130 million to $133 million. With regards to the CFO search, we are attracting world-class candidates and I look forward to sharing the news about this critical hire.

We're confident in the investments that we're making the drive enterprise sales and adoption of our team's plans, as well as extending our international business. I'd like to thank all SurveyMonkey employees for their hard work and delivering a strong quarter and welcome all the Usabilla to the SurveyMonkey troop. Before we open it up for Q&A, I want to close out with some proprietary resource that our survey research team conducted. We have more than 2 million respondents come across our platform every day, and we have our own proprietary audience panel.

So we are able to gather volumes of data in real-time for market researchers. This year, we're seeing some of the largest and most anticipated IPOs from the market with LYFT and Pinterest already out, Uber pricing tomorrow, and Slack on deck. We ran a recent survey with over 15,000 respondents over the course of a few days about which of these companies they would invest in,with nearly one in three choosing Uber followed by a tie between Pinterest and Airbnb at roughly 20%. The results skew differently by gender with men more heavily favoring Uber and women slightly favoring Pinterest.

We wish all this newly midfit and soon-to-be public companies much success in the public markets. Thank you for your time. I'll now turn it over to Q&A. Operator?

Questions & Answers:


[Operator instructions] Our first question comes from Mark Murphy of J.P. Morgan. You may proceed with your question.

Mark Murphy -- J.P. Morgan -- Analyst

Thank you very much, and congrats on the results. Zander, I wanted to ask you at a high level, how are our customers responding to the account verification initiative? And more specifically, when you think through the mix of users who were, in fact, sharing someone else's log in and they decided to opt in to Teams. And when you think about that in comparison to those who perhaps have decided to opt out, I'm just curious how that ratio is looking? Because it seems like the whole equation is coming together quite nicely for you.

Zander Lurie -- Chief Executive Officer and Interim Chief Financial Officer

Yeah. Thanks, Mark. Teams is obviously an important contributor to our paying user growth. And I tell you that the debut of Teams in Q3, it just dovetails really nicely with the security environment we're competing in everyday.

It's just not OK to share username, password credentials in and we know the vast majority of usage on SurveyMonkey is a workplace application inside of big companies, small companies, nonprofited use. So the security environment has provided a really nice tailwind for us to introduce these really collaborative package that secure environment that we deliver these package and better user experience for users now to have their own login. And as Tom mentioned in his prepared remarks, the Teams plans are skewing to the higher premier mix of higher AOV. And while we have not yet had to renewal Team, that would come up for renewal in October, we know that many of the factors that contribute to churn in our individual business around credit card failures or retries or people leaving the organization, we think, are absent in Teams.

So we're excited about the higher AOV and we're looking forward to having that revenue retention from the renewals.

Mark Murphy -- J.P. Morgan -- Analyst

OK. Then as a follow-up. It's very strong quarter in terms of sequential growth in the deferred revenue that we see on the balance sheet. And I think I'm presuming that is core organic strength in the business.

Because Usabilla, as you said, did not close until after the quarter on April 1. Is there a way you could walk us through the drivers of that strength and the deferred revenue? In other words, is that enterprise that we're seeing is that more of the annual plans? Is that the use case solution sales taking off or is there some other effects there?

Zander Lurie -- Chief Executive Officer and Interim Chief Financial Officer

It's a good question and it does highlight we have an incredibly visible business with over 90% of our revenue from subscriptions. Our annual sub now, that mix is higher than it has ever been at 78% and that's driven by the vast majority of our new net adds in Q1 are from Teams and enterprise and those are all annual. So it just showcases that SurveyMonkey is used in organizations, and we want our products to be bought at the organizational level whether that's IT department or marketing department or HR department at the Enterprise level or via the self-serve teams, where one person in the organization is taking accountability of the administrative function to buy Teams for four to five to six people. So the two primary growth drivers Teams and Enterprise are leading to higher mix of annual percentage, which is driving the deferred revenue base, is the driving the visibility and achieving right ground for our sales team to move in to these accounts that are significant users in Teams.

Mark Murphy -- J.P. Morgan -- Analyst

OK. One final one, if I may. We're noticing that you have this hyper growth rates or hyper SaaS growth rates in the Enterprise, part of the business. And I believe that your sales force there you're saying is going to become larger.

I think every quarter for this year, probably in the next year as well. Are you able to look at that trend, Zander or Tom, and kind of sense incremental confidence in just how that enterprise growth is going to contribute and help the acceleration in growth upward into the 20th year in the next year or two?

Zander Lurie -- Chief Executive Officer and Interim Chief Financial Officer

Sure. I can take that one. We reviewed the strategy in our roadshow in last September. And I just have increased confidence now relative to where I was two quarters ago and even one quarter ago.

We hired John Schoenstein in September '17, world-class chief sales officer. He has built out an incredible leadership team from the best companies in the world, many from here in the Bay Area, but Enterprise, SaaS, Large-Cap Internet. That team is firing on a strategy that we believe is going to lead to higher growth in the Enterprise sales channel. So what does that mean? That means more people on the ground who are calling into our customer base, right? We have tens of thousands of customers, we believe, are appropriate to be selling our enterprise solution.

So more people is a key driver. More productivity as better training enablement lead to more throughput is the second one. As Tom talked about the selling per the value and making sure that we're moving beyond feed licenses to selling solutions. Usabilla is a great example of that.

It's not just based on feeds, it's based on value. And over time, more integration is going to lead to net revenue expansion and cross-selling. Everybody is benefiting from this Customer 360 that we developed. It's our own proprietary technology, which governs, which of the 350,000 companies to be selling into.

So you can imagine that for large companies like J.P. Morgan where you work and others, where we have a lot of active users, those are companies that should be on our Enterprise plan.

Mark Murphy -- J.P. Morgan -- Analyst

OK. Very good. Thank you so much. Have a good night.

Zander Lurie -- Chief Executive Officer and Interim Chief Financial Officer

Thank you.


Thank you. And our next question comes from Ron Josey of JMP. You may proceed with your question.

Unknown speaker

This is David on Ron. A few questions. I think we noticed recent price increase in your SurveyMonkey Audience product. Can you talk a little bit about the pricing strategy there? And is there any change in the go-to-market? And secondly, ARPU was up 8% this quarter.

What exactly drove that? Was it Teams adoption or adoption of higher price products or the enterprise rollout? And can you just remind us how you think about balance between user growth and ARPU as it relates to revenue?

Zander Lurie -- Chief Executive Officer and Interim Chief Financial Officer

Hey, David. Yeah. I'll take the first. In terms of Audience pricing, we are constantly growth testing.

So we are thinking about the massive volume, the traffic across our website in terms of our pricing plans and individual Teams, Audience. And we're a disruptor in this market. Our market research product gives folks the access to filling these slides panels that you can build cohorts and get massive amounts of feedback in time periods that nobody else can provide. And so we adjust our pricing as appropriate on how difficult building that panel or cohort might be.

And as we launch new features and functionality into Audience, you'll see that come through in pricing as well. On the second question, we are driving for paid user growth. All three key growth strategies are aligned, Teams, Enterprise, International to build out a number of paid users. We did not manage for ARPU.

There are multiple headwinds and tailwinds, which contribute to ARPU. So we are guided toward expecting ARPU to decrease over time. We saw a strong increase in Q4 and it flattened out here in Q1, still an 8% increase year over year. So we are really managing for paid user growth and then making sure we price our products and solutions commensurate with the value they are delivering for customers and ARPU is the output.

Unknown speaker

That's helpful. Thank you.


Thank you. And our next question comes from Eric Sheridan of UBS. You may proceed with your question.

Eric Sheridan -- UBS -- Analyst

Thanks so much for taking the question. Maybe on your Europe. You highlighted the international expansion in the shareholder letter. Just wanted to know if you could get a little bit sense of how the transaction you just did is going to be a stimulant in Europe versus some of the organic investments you're making in Europe? How we should think about the investments now working their way into the P&L and into user growth and revenue growth as we move through the year, just so we can better understand investments now versus return as we move through '19 and into 2020? Thanks so much, guys.

Zander Lurie -- Chief Executive Officer and Interim Chief Financial Officer

Yeah. Thanks, Eric. Good question. So as I mentioned, 36% of our business is generated outside the United States.

Europe is the highest opportunity for us in terms of high-developed markets, strong economies. There is no SurveyMonkey of France, of Germany, of U.K. So we want to be the market leader there, and our products have already been adopted by so many enterprises at the subset level. So we really did three things early this year, which we believe will generate acceleration in revenue in the second half of this year and beyond.

First is the acquisition of Usabilla, Amsterdam-based, 75% of their people and revenue is outside the United States. They were standing up and winning the best customers in market and competing against some much larger competitors. So we thought this was a -- it was gap in our offering. And now that the part of their family, we feel like our CX offering is the most compelling in the category.

Second is we just hired the sales team in Q1. It's small and mighty, but they are already out closing deals. And as they get trained, enabled we feel they're going to take down significant share in the back half and in 2020. And third, Tom's engineering team is staying up a European data center, which we will plan to launch the first phase on -- at the end of this month and we're all going over to cut the ribbon.

This is a really exciting opportunity for us to be in the cloud and to provide data sovereignty to European customers, which we know is super important and deliver faster site experiences. So we feel like we're going to have a world-class offering in the following weeks, and the sales team is going to be effective at telling you. You will see the revenue growth pick up slowly. It's not a material contributor in '19, it's better than second half than the first, and it will be better in '20 than in '19.

Eric Sheridan -- UBS -- Analyst

Great. Thanks, guys.


Thank you. And our next question comes from Youssef Squali of SunTrust. You may proceed with your question.

Youssef Squali -- SunTrust Robinson Humphrey -- Analyst

Great. Thank you, and congratulations on a solid quarter. Two questions, I guess. One is around the growth in the self-serve.

So Enterprise seems to have been on fire. I think even sequentially was up -- like something like 24% by our math. I think to your commentary, Teams seems to also have been done really well. But can you just expand on growth in self-serve? And what kind of firepower are you putting behind that now that the Teams' done more and more emphasis is on these other two? And I have a follow-up.

Zander Lurie -- Chief Executive Officer and Interim Chief Financial Officer

Youssef, yeah, we're doing -- we're doing two things. First, we're investing in our products and platform, the Salesforce integration, the Microsoft integration. Tom talked about some of the key new products and features we shipped in the quarter around Sentiment Analysis, mobile products. So we're constantly making the product better.

The second thing is we're just adjusting the business model so that we can capture more monetization commensurate with the value we're delivering. Enterprise is pretty clear strategy. Teams, we know we needed that product in that market and we're pretty thrilled with the adoption. We're not breaking out the two, but suffice to say, we are constantly working on driving top-of-the-funnel awareness and user growth into that 17.5 million base of active users.

And so whether it's through our marketing channels or the new off-line channels that Tom discussed or international efforts, because we have such high gross margins and low cost associated with people trying our product, we want to drive that top-of-the-funnel awareness and then move them through the funnel into the right plan whether it is Enterprise, Teams, individual accounts, etc.

Youssef Squali -- SunTrust Robinson Humphrey -- Analyst

But was there much of growth decel at the self-serve level?

Tom Hale -- President

No, I think the way you look at it, Youssef, this is Tom, is that Teams along with the other SKUs in Salesforce and the aggregate are actually going to be experiencing a tailwind going into the second half of the year. We don't make a distinction calling the self-serve business anything different from Teams, it's really the same service business, it's just a slightly -- it's just a different SKU. So I think we're very confident in the self-serve business. And one highlight I would up for you is we've seen some real efficiencies and being able to force demand using search engine marketing.

We made some investments there in DMP and that's really coming back to us as a much more efficient kind of cost per acquisition for self-serve customers. And so we actually expect that we can accelerate in the second half of the year.

Youssef Squali -- SunTrust Robinson Humphrey -- Analyst

Awesome. Very helpful. And then lastly, if you can maybe just help decompose a little further the guide up on revenue and the guide down on margins between Usabilla, Enterprise and then Teams it will awesome? Anything you can do there.

Zander Lurie -- Chief Executive Officer and Interim Chief Financial Officer

Yeah. I mean, I think we're one quarter into the year. We do have increased confidence in the overall plan. I think the change in the guide is a reflection of adding Usabilla in 200 basis points that will contribute through the rest of the three quarters and more of that growth will come in the second and third quarter -- excuse me, the second half of the year.

The purchase price adjustments for deferred revenue, we have to be -- you recognize the full brunt of the cost associated with the people you bring on and the products you're spending, but you don't capture the full value of the deferred revenue. So it makes your first quarter add a box with the acquisition not as pretty in a financial perspective. Over time, we believe it's going to contribute nicely to that acceleration of top line. And you could see we're guiding at the midpoint to 20% growth in the second half.

And I think we'll finish the year at a very good clip.

Youssef Squali -- SunTrust Robinson Humphrey -- Analyst

Great. Thanks.


Thank you. [Operator instructions] Our next question comes from James Rutherford of Stephens. You may proceed with your question.

James Rutherford -- Stephens Inc. -- Analyst

Hey, good afternoon. Thanks for taking the question, Zander and Tom. Couple of questions for me on the enterprise. First, you've seen great success in adding customers here, especially in what's typically a seasonally weak quarter for enterprise selling.

So very impressive, but I'm curious what are you seeing from those enterprise customers after they adopt SurveyMonkey? Are you seeing good spread of adoption within the organization be it additional feeds or additional departments that kind of adopt the technology?

Tom Hale -- President

Thanks, James. Q1 is not seasonally the strongest quarter for Enterprise sales and so for us to continue add customers at the same clip in a traditional weaker kind of seasonal quarter was great. I'm proud of the Team. You asked a good question, which is kind of key to our business model.

It really is about net revenue retention. Our ability to -- we've already landed via self-serve in 350,000 organizations. And so utilizing that Customer 360 and steering our kind of new and highly trained sales team into the best 10% of those accounts leads to our ability to sell that initial enterprise deployment and that then leads to expansion via more feeds, new cross-selling solutions. So when you turn on similar sign on and domain lock down and you give the IT department and others kind of that holistic view of the data, we're really excited by the net revenue retention we're seeing.

We don't break it out by our different classes, but we're over 100% year over year on our organization domains. And you can imagine at the Enterprise level, it's more favorable. So I think that is going to be a key hallmark. Once we get SurveyMonkey integrated into the workflows and other systems of record that are important inside the organizations and enable people to collect feedback so they can do better by the customers and employees, that just leads to incremental growth for us.

James Rutherford -- Stephens Inc. -- Analyst

OK. That's helpful. And then a question on the model, if I may. Gross margins improved quite a bit sequentially in year over year, with COGS actually declining on a dollar basis.

I know you mentioned a little bit about this in the prepaid comments. Can you talk about once again some of the drivers there? And what the outlook for the year is on the gross margin line? Thank you very much.

Zander Lurie -- Chief Executive Officer and Interim Chief Financial Officer

Yeah. It's two things. It's acceleration of revenue and it's the reduction in capitalized software. So that amortization helps us there as we're amortizing lots of gross margins.

You see that 71% to 77% move year over year.

James Rutherford -- Stephens Inc. -- Analyst

Great. Thanks.


Thank you. And our next question comes from Brad Sills of Bank of America. You may proceed with your question.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Great. Thanks, guys. Wanted to ask about the audience go-to-market, you mentioned earlier, Zander, kind of going to market with some reps of scientists, specific vertical in the Enterprise. What led to that? Are you some traction there? Is there certain vertical play there in financials and consumer? And should we expect to see that type of organization for CX and engage down the road?

Zander Lurie -- Chief Executive Officer and Interim Chief Financial Officer

Brad, good question. I think the [Inaudible] road show helped crystalize our thinking here, When you go out and see 100 of the world's best banks and institutions and analysts and showcase the power of what our market research product can do in really timely period. So far us, we had a lot of self-serve customers on our Audience platform. And recognizing that we had particular concentration and strength with some of the world's best financial institutions and CPG companies, we stood up a small team really kind of use those targeted-named accounts and deliver better service.

And that -- we're only doing because we feel like there's significant expansion within those named accounts and the teams are off to good start. I think there's a tunnel runway here. If you think about the private equity funds, the hedge funds, mutual funds that you all interact with on a daily basis. When you're putting millions -- tens of millions, billion of dollars of worth people are spending a percentage on due diligence, and SurveyMonkey can deliver the kind of market research on the finely grained basis.

That's why we disclosed that from [Inaudible] small business index today. That's why I shared the real tidbit on what men and women think of Uber or Pinterest are able to deliver via market research incredible intel and finance and CPG are obviously two huge pockets that companies go after. So the new sales team will expand and take down other verticals over time and likely fill the other solutions you just mentioned.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Great. And then one more on please on the Teams conversion. There is the account verification activation and then there is the enforcement. I mean, what do you we expect the shape of the adoption, if you will, or migration to Teams after accounts have been verified over time? I mean, what have you seen so far in terms of that conversion?

Tom Hale -- President

Yeah. It -- hi, it's Tom. The way to think about is it is a steady built. And so what happens is a return on our pool of users for account verification and they log-some of them log in right away, some of them don't log in for another month.

And then they run into the sort of friction and we give them sort of one pass, two pass, skip this dialogue, three pass. It's a time series between when we turn it on and when they adopt. And then after that, they have to make a purchase. And so we've seen the time period to be varied from a week to a month to a quarter.

But in the aggregate, what we've seen is a slow, steady build over time as that cohort starts to purchase. And so it's a great sort of, if you will, tailwind for us because it just continues to be a steady build over the course of the year. So we are really encouraged about it with [Inaudible] being Phase 1. And then Phase 2, is once we to start looking all the behavior that we see it will be about expanding Teams, about identifying places where maybe they are not adopting as quickly as we would like and want to apply a salesperson.

So we're really only in Phase 1, and we feel very confident on the tailwinds for the second half of the year.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Great. Thanks, Tom.


Thank you. And our next question comes from Stephen Ju of Credit Suisse. You may proceed with your question.

Stephen Ju -- Credit Suisse -- Analyst

Thank you. So Zander, I guess, the takeaways from what Usabilla adds are mostly toward what they can do to help you expand internationally. But looking at this in another way, what can you do for Usabilla to help them accelerate their growth? Any perspective you can add in terms of about product cores, I guess, SurveyMonkey can help them so that sales people are more effective? Just looking for scenarios where the product synergies can result in something greater than down the line pieces?

Zander Lurie -- Chief Executive Officer and Interim Chief Financial Officer

Great question, Steve. And I had answered that question before from the Usabilla team, and it's a good one. I think you highlighted the first from an obvious perspective as a shareholder. There is no regeneration flow like SurveyMonkey's.

When you look at the volume of customers we have in our ability to use that Customer 360 to identify targeted accounts plus where we have significant relationship even on the Salesforce side or Enterprise side, I think we can fill the marketing funnel and demand gen for Usabilla sales team for a long time. Second, we have a world-class CTO in Robin Ducot and chief product officer in Ross Moser, and we have a team that can help that products and engineering group scale, integrate closer to our solution for marketers. As I mentioned, this is a product that we didn't have in our portfolio, and I think over time, we'll pull that closer into the family so we can go-to-market with the more integrated offering. So I think we can help them on the sales and marketing.

I think we're going to help them on product and technology. And I think this is a team that we did a lot of diligence on culture, and we feel like we have a team that's a great fit. So I'm looking forward to a lot productivity out of the combined entity.

Stephen Ju -- Credit Suisse -- Analyst

Thank you.


Thank you. And I'm not showing any further questions at this time. I would now turn the call back to over to Zander for any further remarks.

Zander Lurie -- Chief Executive Officer and Interim Chief Financial Officer

I just want to thank you all for your continued interest in SurveyMonkey and your support. We are on a journey and am thrilled with our team's performance over the last several quarters and being vigilant about pursuing paying user growth, consistent revenue growth and really focused on building a long-term very profitable business. So appreciate your ongoing support and look forward to talking to you in 90 days and many of you in the interim. Have a great day.


[Operator signoff]

Duration: 43 minutes

Call participants:

Karim Damji -- Vice President of Investor Relations

Zander Lurie -- Chief Executive Officer and Interim Chief Financial Officer

Tom Hale -- President

Mark Murphy -- J.P. Morgan -- Analyst

Unknown speaker

Eric Sheridan -- UBS -- Analyst

Youssef Squali -- SunTrust Robinson Humphrey -- Analyst

James Rutherford -- Stephens Inc. -- Analyst

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Stephen Ju -- Credit Suisse -- Analyst

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