Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Zendesk Q3 2019 earnings calls at this time all participants are in a listen only mode. After the speakers presentation. There will be questionnaire for fashion to ask a question. During his section you will need to press star one.
Telephone I must advise you that the conference is being recorded today. If you require any further if they fit please press star zero.
The conference over to your speaker for today Mr. Marc Cabi. Please go ahead.
Thank you could be a this is Marc cabi, a welcome to our third quarter 2019 earnings call. We're pleased to report our quarterly results joining me on the call today or local Spain founder CEO ensure the board in Atlanta Gomez, Our Chief Financial Officer. During the course of today's call where you maybe.
Forward looking statements such as statements regarding our future financial performance product development growth prospects ability to attract to reaching customers and ability to compete effectively.
The assumptions risks and factors that could affect our actual results are contained in our earnings press release and in the risk factors section of our prior and subsequent filings with the Securities Exchange Commission, including or quarterly report on 10-Q, four the quarter ended June 30, 2019, and our upcoming quarterly report on.
Thank you for the quarter ended September 30, 2019, we undertake no obligation to update these statements after todays presentation or to conform. These statements the actual results or to changes in our expectations, except as required by law. Please refer to todays earnings release for more information regarding forward.
Looking statements. During this call we will present, both GAAP and non-GAAP financial measures. The non-GAAP financial measures should be considered in addition to not as a substitute for or in isolation from our GAAP financial information you can find additional disclosures regarding these non-GAAP financial measures, including reconciliations.
With the comparable GAAP financial measures in today's earnings press release, and shareholder letter and for certain non-GAAP financial measures for prior periods in the earnings press releases for such prior periods all of which are available on our investor website.
With that introduction I'd like to turn the call or with a nickel excellent. Thank you so much macondo.
Good afternoon, everyone. While we of course exciting Shao strongest sells for the quarter I want a first acknowledged that terrible wildfire, just north of San Francisco headquarters and in southern California that affecting so many of our colleagues Oh friends our families partner.
<unk>.
Even out customers the wildfires the consequences eye catching a solving shade on life in California, and these days.
And I thought up with everyone impacted.
Now going back to Q3.
Yes, we crossed two important milestones in the quarter that demonstrates our strong momentum we exceeded 800 million dollar in annual revenue in annual revenue run rate and we surpassed 150.
[laughter] and 50000 paid customer accounts.
That's all products continues to be strong as companies of all sizes seek to improve the customer experiences.
We delivered another quarter of high growth revenue increased 36% year over year in Q3 to 210.5 million and growth was broad based why we continue to see regional on even those in parts of the world with macroeconomic challenges to we.
Feel we are on a good possibly improve execution and manage those challenges moving forward.
A strong Q3 was all give us confidence that we will reach out billion dollar revenue goal in 2020.
And be a multi billion dollar revenue company over the long term.
I'm, particularly excited about the opportunities ahead of us as we prepare for 2020 and our annual user conference and that's good late that we are having in Miami in March of next year, It's where we kind of set the stage for the year on reveal our new product announcements and both map to our customers and to occur.
Units, he and I hope that older you guys can be that suit so before I turn the corner, what's really and I want to acknowledge that the great team that we have hinson desk. We now have 3500 employees and they all working very hot executing as we near the end of the I get ready for 2020. So thank you all think.
All of them for making these great results possible and I think with Adelene I want to turn over to you for the financial results great. Thank you Michael now, let's dive into the highlights for the quarter, we delivered strong revenue growth of 36% in the third quarter, our annual revenue run rate exceeding 800 million and we're well on our way to achieving a billion of revenue.
For 2020, as Michael said are paid customer account surpassed 150000 customers. Our net expansion rate was 116% and our enterprise business increased two percentage points year over year as a percentage of our air or the Zendesk suite, our omni channel bundle now has more than 5000 customers are.
Mr business continues to perform well delivering north of 40% growth year on year as we did more large strategic implementations without midmarket and enterprise customers. Additionally, our partner business expanded to include more than 1200 partners, which is more than 60% one year ago.
Our RPL continue to have strong growth as we sign larger longer term contracts with RPL.
Our appeal up 55% year on your current RPL up 39% and long term RPF over 100% year over year.
Demand fundamentals continue to be robust across all regions. We delivered very strong growth in the U.S. and lot of town, which grew 41 and 45% respectively year over year. Despite uneven performance in some countries. A me any talk also delivered good revenue growth in the quarter of 29, and 20% 27% respectively last.
We delivered non-GAAP gross margin expansion of a 270 basis points and non-GAAP operating margin expansion of 260 basis point, we're committed to driving high revenue growth and operating margin expansion our revenue guidance for the full year 2019 is raised to 813 to 815 million which were.
Presents 36% year over year growth at the midpoint, our non-GAAP operating income guidance for the full year is raised to eight to 10 million. Thank you and operator, we'd now like to open up the call for questions.
And at this time, if you like to ask your question. Please press star one or your telephone keypad and again that Star Wars ask a question.
First question comes from field, Phil Winslow with Wells Fargo.
Yes, Thanks, guys for taking my question I, just wanted to double click on one of the comments you made in the shareholder letter about a pack in Europe , obviously made some commentary.
On last quarter's calls about some but the trends you're seeing there one of your provided an update what you saw in Q3 kind of relative to Q2, and how you're thinking about your.
Q4.
Sure I think you know I think one thing that's really important is as a whole the regions are performing well, but we are seeing some pockets in some countries that are not doing well, but I think one thing that's really important is to make sure that we focus on our own execution.
And so so that's something that we can control right. We can't control for the macro climate. So we're not going to try to do that but we're going to focus on making sure. We have the right leadership in place that we're hiring on time that were religious about making sure. We're hiring quickly in ahead, if we can and more importantly to make sure that we have leader.
As in all of our regions given the size it will become even given that as a reminder, international regions represent almost 50% of our business.
In our next question comes from Kirk Materne with Evercore ISI.
Hi, Thanks, very much Olin I was wondering if you could just talk a little bit about or the ARPU.
Theres, obviously, a really strong results for you all I think sort of helps demonstrate some of your traction in the enterprise markets and can you just maybe also touch upon how we should think about those numbers relative to sort of the calculated billings numbers that people put up.
And how maybe.
You all what we're thinking about that because obviously aren't peer numbers really strong, whereas calculated billings were perhaps a little bit softer than someone of expected. So could you maybe just I guess just touch on that subject I might be helpful. Thanks.
Yeah, no definitely its a good questions fair question. So at the highest level, we definitely look at RPL and a proxy for the growth of our enterprise business and one thing that you guys should remember as we still have a considerable amount of our business in monthly terms, so don't lose or the other thing is we did have certain bill.
Means that timing of those billing.
Closed in Q4, and so we're paying very close attention to make sure that we don't lose sight of those buildings that we thought would come in in Q3 that actually closed now in Q4, a and then of course, we've been dealing with tough compares all year and Q3 was no different.
Okay, and then if I just that's one actually one fall, but on financial side, just margins, obviously, a nice pop on a year basis did I guess was that in sort of in line with what you're thinking or was any of your spending plans pushed out it's just kind of curious.
There is anything surprising to you on the out margin line. Thanks.
Yeah, No surprise I mean, I think for US one of the things that we've been really a religious and focused on is feeling or infrastructure operations. We committed to as you know when we migrated awesome data centers into 100% cloud environment.
We are continuing continuously looking at that to make sure that we're doing everything we can to just focus on our cost structure, there and scale as we grow and kudos to the engineering team who's really.
Focused on this at a no new level I would say in terms of looking at budgets across the entire engineering organization changing the DNA of how we think there and that's really starting to pay off.
Thank you.
And our next question comes from Samad Samana with Jefferies.
Hi, good afternoon. Thanks for taking my questions, maybe first one on on the U.S. it looks like growth accelerated to 41% from the prior quarter or so a nice little uptick maybe if you could you help us understand what in particular drove the uptick in that region and maybe what standing out in terms of strengthened I've a follow up question.
You know the the Americas region has consistently performed we're seeing good demand for our products like I said the suite has been doing incredibly well. So there's nothing unique weve stuck to our playbook, we did hire nams a year over year ago feels like and those are continuing.
To do well so we're seeing strengthened in that market and we're not seeing what we're seeing in some of the other mark. So you have a few countries have an uneven performance.
Great and then maybe just for the Ted to follow up to Kirks question around some of the deals that you said might have pledged to fourq versus Threeq you were there any similar characteristics I, you, where they're on a larger ended the spectrum.
Maybe you could give us more clarity on kind of what country specific way you were seeing those deals slipping and and I guess have all of the deals that date that moved from Threeq into Fourq you closed at this point or is there. So there's still some.
Concern around let it as a clause or not.
I don't think would you give you all the details you just asked for Subodh, but.
We did see some deals.
In Q3 that closed in very early Q4. So there were as we noted some timing issues there, but you know for us they were of larger size in nature and some of them. We're expansion deals some were new accounts. So there was a mix of both.
Sometimes things outside of the deal decision getting the way of closing by the end of the quarters. So it's hard to characterize other then we're very satisfied those deals closed in October .
Great I appreciate you, taking my questions and bought back in the Q.
[laughter].
And our next question comes from Alex Zukin with RBC capital markets.
Hey, guys. Thanks for taking the question. So maybe just sticking with the theme of deferred revenue.
Is it.
Our did these deals did the buildings slip or did the actual signing of the deals slip. The reason I asked things if I look at your current Rpmtwo a this sequential add a 14 million for the third quarter is pretty meaningfully below a this time last year, where it was 24 million. So just trying to understand and may.
Maybe if you can just help quantify a little bit of the just seasonal tailwinds for Fourq, you deferred and how that flows through.
Yes, so Alex the same.
These were deals of larger variety.
The same impact on billings also showed up in current or PEO. How would you just talked about so those deals or closing in October most of them out and so that's kind of what I can say at this point as far as seasonality. You know Q4 is a heavy large deal quarter in terms.
Both midmarket and enterprise customers and we'll continue to try to execute against that mandate.
Perfect and then maybe just in terms of the the those deals I guess is there anything you know we're sales cycles lengthening was that the inclusion of more products or any any trend that you can highlight that you know you're confident that.
You know that that it's temporary trend you are you work pass that are you've identified something just any help there would be helpful.
So new customers is generally something to do with terms and conditions and.
Making sure that all of the those are tackled before customer closes in his invoice with expansions you know I think those are just a you know natural timing that happens from time to time.
You know when I I don't have any.
Common theme to site here.
Got it thank you.
And our next question comes from our John Bhatia with William Blair.
Hey, guys. Thanks for taking my questions.
Maybe just wanted to start off with a partner channel and the partner strategy I saw you announced a more formal.
Partner program this quarter.
Just as you're thinking of building out the partner channel, how you're thinking about maybe prioritizing the breadth of the channel in terms of getting as many partners signed on as possible versus maybe going deeper with with a handful of a handful of partners and maybe maybe even at the larger.
Hi level.
Yeah, So I'll start and you guys jump in but I think you're absolutely right. It's not just about the number of partners that making sure that we understand the quality of the partner. So that's very much top of mind for norm and Ricardo who runs that business.
We have already had experience with partners as you know on implementation partners in the regions as well as a little bit of bps, though and we are thinking bigger than that and obviously want to think about larger system integrators, but as as you guys. All know with a partner ecosystem. It's a journey.
It's not something that you can move the needle on in a couple of quarters, we're talking a couple of years.
But there's definitely a strategy around not only what partners are bringing to us in terms of value. But then also how we treat partners. We have a tiered system, which was announced that said our relate conference or other at our showcase in San Francisco, So that's incredibly important and making sure. We understand also the ethanol.
Thanks, both side.
Operator, we project a nickel question.
I do want to just the I think when we read out the guidance I just want to make sure. It's clear our revenue guidance for the full year 2019 was raised to eat 13, 850 million, which represents a 36 a year over year growth. Our non-GAAP operating income for the full year I think we gave you the quarterly number is raise to 23% to.
25 million per quarter is eight to 10 million so apologies for that misstatement.
And our next question comes from Chris Merwin with Goldman Sachs.
Okay, great. Thanks very much.
So maybe just a follow up on to a question about the partner program. I think you talked about 60% year on year growth is that something that could actually help with with the international business to a degree and yes.
And I guess more many more broadly like what do you see it some of the main catalysts that that could actually is for a a recovering growth for that region that I said a follow up thanks.
Yeah partners are already part of our our regions and have been and I don't view that as only a regional thing, it's really a global investment including in the Americas. So I do believe that they will begin to have more meaningful impact over the next couple of years and that's the focus and we've been making sure.
Sure our investment support.
So it's a it's good healthy growth and I'm encouraged by the fact that partners are reaching out to us as well so.
Sensitive all the way around.
Got it and then maybe just one on Sunshine.
I think you mentioned in the shareholder letter that it's getting some.
Continues to get somewhat positive feedback from customers, but is there anything you can share about.
Milestones for this price you either from customer count or that you talked about potentially monetizing and 2020, but what are some of that maybe they should looking to see before you decide to pull that monetization lever.
So I think we launched an important extension of the Sunshine platform at all showcase event in San Francisco, but sonnenschein conversations which is this whole <unk> first platform for the buildup of conversational business and it's really really excited what you can do with that.
And we really being at the forefront of customer experiences here. So it was important step for us and really getting that as part of the Sunshine story and getting it integrated well.
But beyond that I, just want to say you know relayed 2020 in Miami in much kinda talk a lot about sunshine and we kind of having a lot of interesting stuff to show.
Okay. Thank you.
Our next question comes from Stan Zlotsky Morgan Stanley .
Perfect. Thank you so much guys for taking my question.
Going back to the to the numbers.
We look at your full year guidance. The high end of your revenue guidance bump up by 4 million versus after Q2, you only bumped it up by million.
And I'm talking to just specifically that the high end of the revenue guidance range, which which to me signifies that you're feeling pretty good about the full year and how Q4 is looking because when you increase but just a million after Q2 versus 4 million now the those those numbers matter right.
What gives you the confidence to bump up full year guidance by by that amount.
Versus if we just look at just very pure billings, which ticked down to about 25% issue.
What gives you the confidence for that reason your guidance because so much for the full year and they have a quick follow thank you.
Well I think there are three things stand first as late as stated earlier, we had you know we we've managed through some of the things that we wanted to manage through in Q2 that we referred to around uneven performance. We're not done there's more to be done there, but we have a better visibility around the things we need to do.
We're up leveling some of the positions that are coming open that like.
With the sales leader and so forth second thing is we have.
Again close some deals in early Q4 that would have been traditionally a Q3 deals. So we have obvious visibility there.
And then you know we feel good about our opportunities both for this year and into 2020 around customer demand for our general product offering.
Okay very helpful. Thank you and just going back to EMEA and APAC.
Last quarter, you mentioned, the specifically within those geographies the weakness was around.
UK and Australia is that still where are you seeing some of those unevenness or whereas it may be spread out beyond that or is this still coming up contained to those two countries. Thank you thats it for me.
Yeah. Those are the two major countries you pointed out and I'm a after this quarter were probably not going to go country by country.
But that said we saw a nice recovery in Australia, one quarter does that make a trend.
UK stabilize so what we want to do is continue to work internally to do and execute through any type of macroeconomic conditions presented to us.
Got it thank you.
And our next question comes from Pat Walravens.
JP Morgan.
Oh.
Thank you at JMP [laughter] the.
Yes.
Were you paid [laughter] [laughter].
All right. So I guess my question, Michael you talk about.
All the things you're doing to move up market and and my question is can you compete effectively up market.
As you do in the SMB.
And don't you run into Salesforce, a lot more market and isn't that isn't that a bad things I'd love to understand how you [laughter] and so.
I don't think anything material has changed about the like how we compete how well we are doing and who would've meeting in the market.
We do see an overall trends that the values and the quantities that sandisk is all about the ease of use the quickly go up and running the agility of the platform that the quick time to resolves all of these things.
Kato's for why don't wider audience that.
Increasingly you know.
Urgent and keeping up with customer expectations. They know they need agility from that platform. So that is exactly what we provide them with and the Sunshine platform isn't even you know stressing that concept even more because it's so familiar falling out of our customers. If you very comfortable in about the agility off that.
Platform, So I'm very confident about both our current and especially our future.
Tentative muscles Andean surprise region.
Alright, great. Thank you.
[laughter].
And our next question comes from Derrick Wood with Cowen and company.
Great. Thanks, So you just touched on a little bit but just.
Last quarter, you you talked about macro and done kind of internal execution and what I'm hearing this quarter. It on the macro is what it is internal execution. There's things that you can do to improve it and I'm just trying to get a sense for you know it sounds like maybe theres new leadership at any other color you can give in terms of what initiatives, you're trying to do and.
And lifting up the execution and maybe just a sense for how long you think that will take to to have an impact on the business and then I've a follow up.
Yeah, I mean, I think the the key for US is is getting in the right leadership and in terms of operationally I think we need to make sure. We're on top of our hiring and at times and markets. You know hiring can can not be as fast as you want it but at the at the highest level I think we need to focus on it and we have.
Then have had really good results with that so but hiring and bringing in new leadership does take time. So I don't want to assume that that's gonna have impact right away.
You know is it a quarter or too you know that that.
But we're going to figure out, but our hope is that we begin to see some traction in those countries, where we have a uneven performance as early as Q4 and into Q1 and our focus right. Now frankly is to start strong in 2020.
Okay, and then I guess on the macro side now that you've had a little bit more time to digest. The main any other a detailed the gap in terms of what behavioral changes you're seeing internationally and whether it's more just about kind of longer sales cycles for expansion or you know if anything.
It's kind of change competitively.
<unk>.
Yeah, I mean, it's hard to put a specific theme on any of this because you know where where we're focused a lot on our internal execution that said you know is the tone of 2019 different than the tone of 2018 absolutely.
But it's not going to preclude us from focusing on strong execution, regardless of the macro around us and so.
And our next question comes from Tom Roderick from Stifel.
Hi, It's actually Parker Lane and for Tom. Thanks for taking my question I was wondering if you could give us a stronger sense in the composition of the 5000 plus suite customers do you have in the full today just in terms of what percentage of those customers have come from the existing base, so far versus net new customers that are just start.
Zendesk.
Okay, one moment.
Just one moment.
Operator can you hear US now, yes, we can hear you now.
Hi, sorry for the difficulty we are dropping or line. So Derek I'm not sure how much of that answer you heard from Atlanta.
But just quickly just to recap I'm not sure where we dropped off but.
It's very difficult.
To kind of have one single answer for your for your question.
But we're working very hard to kind of go through Q4 and continue to improve on execution and have a strong starting point 20.
I think next question. Okay. Next question comes from Tom Roderick with Stifel.
Hi, it's actually part filling in for Tom.
If you could give us a sense of the 5000 suite customers you out today, what percentage of those came from the existing installed base versus net new customers that have been attracted isn't desk from the combined offering. Thanks.
Uh huh.
I didn't I need to I need to reenter re ask that question. Please.
Destructive for second sorry, I meant so I'd say the question is how many of the sweet customers came from current customers. We have a we have a higher mix of new customers and sweet than our traditional business. Those you know I'm generally we're kind of it.
20, 530%, new customers and the Sweet Oaktree has a higher new customer rate.
And it's mix.
Got it and in terms of the gather product the gather products aegis offered.
How much of that as a play at the lower end of the velocity part of the business today versus the enterprise portion of the business and what does the initial demand just look like right now.
So we know that there's a lot of like.
Empowering you community to help each other empowering youre uses and your customers to help each other without necessarily having to reach out to you as a brand is is it is a big on big on more and more important part of company strategy is to date like if you look at your own behavior. That's typically how you.
Find solutions to the most common problem is to fit asks payload uses fellow.
Customers out there that's how I use the internet loss [laughter] and so it's part of its becoming part more and more part of the part of the ingredients in managing your Youre your customer base and that questions and like this feature wise, we can definitely go deeper onsite.
Some of them more advanced kind of enterprise stuff with the current version that you will see more of that stuff coming along but like the product as his wife now Quito's fall I would say relatively big part of the segment we in right now.
The answer your question.
Yeah, that's it thank you.
Thank you.
And our next question comes from Koji I Quito with Oppenheimer.
Hi, Thanks for taking my question guys I have two questions on the Sunshine platform.
Sounds like there's a lot of early interest and traction from customers and prospects. This is really great and.
I guess the question is how the introduction of conversations earlier. This month helped increase the momentum out there for the Sunshine platform and then the second question is around profiles on them and that I.
I believe those two products are still early access so what is the right way to think about how profiles and events are progressing and maybe if you could could you talk about the role process the customers for a path products from beta early access generally available you get a better understanding on how the rollout.
Profiles and that could shape. Thank you.
Sure I am so.
As I said before you're going to hear a lot more about sunshine at our event under the Sun in Miami in March next Yeah. We're very excited to talk about that like conversations essentially conversations is one of the elements that we bring to the platform. It just like the that that that that.
That broadens the scope and how you can think about how you can think about the platform. The types of decent consult for you say it it has definitely put more attention on the platform and its solidifying the story of out of so we can feel much more comfort with our customers around it.
We do like those about customer set of working with some of the elements in the Sunshine platform that I still developing our typically customers and understand that premise very well and understand that things are still moving we're working very closely with them and they appreciate kind of how they get access to a lot of these things very early on and can do some really interesting.
So if they really interested in kind of the advantage and the time to market that that gives them if other customers of cost like than not super comfortable about moving a working on stuff that is progressing quickly, but we kind of make that tradeoff.
Very visible to all across the most and again like Sunshine likely first announced Sunshine like a year ago. We are very excited about can talk im talking much more about it in a in March next year under the Sun Miami.
Great. Thank you for that and just if I could one follow up I I didn't notice of lot boast about a security breach a month ago. I mean is there any update on that was that resolved and I guess the real question is what does that have any negative impact on selling.
More customer retention. Thank you for taking my questions.
And fab I think Mark has some details around kind of the customer indication here, we have been in touch with all the cost of must have been directly affected about it and had have presented to them, but all the findings along the way as we also been working with the relevant authorities as part of this because that seems to be investigation that it is.
Like Weve.
Like we feel Talbot with these things take happen and.
You know our commitment to our customers is that they understand that we take full ownership for this and by doing everything we possibly can some clarity to trying to adjust to own and give them the fullest possible picture.
It is something that happened one for years ago right. So it's of course or something that happens when send us within a dip maybe different state of security than we are today and also so have working with our key customers bought walking them through just the development that has happened inside the company and without security profile.
Over those three years have been a big important part of it and we really appreciate kind of the trust our customers as shown in the US and have you know come together also to share that practices and I'm out of them. We have gone from the same way that a lot of them have work then for Ross.
And Oh, let's say a is that from a block point of view. The blog is the best location that is a lie blog. So as we do get updates through this process, we will be updating up long site.
Around this but we do believe that we have.
Communicated with every customer that had potential impact.
And again transparency has been very important to us through this process if you.
Thanks for taking my question.
And our next question comes from Brad Sills with Bank of America Merrill Lynch.
Oh, great. Thanks, guys wanted to ask one also on the global aside shall I know it's early but.
Any color you could you can provide on what you're working with Accenture wipro assemblies level last izod and developing the pipeline is this more around sunshine or is it some of these bigger expansion deals I'm sure you know that plus new all the above but any color on that and when when you might expect that to contribute.
So I think you know.
The port partner development around the G.S. size is still what I consider it it's early days with.
That's a good opportunities being developed the availability of our platform I think really expands partners opportunity to work with Zendesk. So that's kind of what we're targeting I think there'll be a a big part of our relate conversation in March.
What I what I do have is a list of the next layer of partners that have already done work with us and when you look in Europe . When you look in.
Asia.
And in Latam, we have a fairly good presence of those next layer of partners already doing business with us and I think that will translate into the accenture is of the world.
As we continue to expand our capabilities around platform.
Great. Thanks, Mark and then one more if I may on Sunshine any any use cases or application verticals any color you can provide on.
Where you're seeing some early traction there. Thanks, so much [laughter], yes, again I want to say, we look forward to talking a lot more about sunshine at olive and under the Sun in Miami [laughter], but we do have I think we already in kind of the shallow that'll be shed a few goodstart yeah I think the shareholder letter covers the early.
Stories, you know as we create more capabilities around events.
In addition to objects I think there will be much more excitement around net spread around the corner.
Yes.
Great. Thanks, guys.
And our next question comes from Steve Co need with Wedbush Securities.
Hi, Zendesk.
For taking my questions, maybe one quick one and then a follow up the slipped deals can you give us any color on where the concentrate wherever they are concentrated in terms of geography.
You know they were actually across.
In many of the different geographies I'd say that are the ones that kind of stick out to me, where Americas, but I think there were a couple in Europe as well lets him a performed extremely well they didn't see anything slip there.
Got it okay. Thanks Mark.
And then just for the fall off here maybe.
The grid if you can give me some color on your.
Sales capacity additions.
Yeah, maybe not so much the Emilia separately, you talk a little bit about but.
Got it your rank and file sales capacity, how do you.
Alan.
Enterprise versus SMB and how are you, making sure you maintain focus on SMB.
As you grow they're gonna seismic and drive cross selling that SMB market. Because you have a lot of products you can bring to bear and SMB.
Yeah, I know that are definitely at the forefront of our planning a very long planning process, but but at the highest altitude. We're always looking for overall improving of our cost of acquisition. So it's not only what you put on the street per sales capacity, but also a the marketing and pipeline.
And that's generated from that so you kind of have to look at the whole thing, but we're always constantly balancing if we can make the SMB segment more efficient it allows us to invest obviously up market and that there's a healthy tension in the organization about let's just make sure we're not.
Over rotating anyone segment, because we view them both has really important and one as you know, it's a very predictable revenue stream and the other ones a bit more lumpy, but our investments have to support growth and though.
Yeah Lane at just quickly any any changes in retention rates. So differences I mean, SMB and general and software has a has a lower retention rate, but any any changes in your trends.
No no not really I mean, I'm I'm really.
Encouraged that since I've been here and actually even before I got here, our churn and contraction rates have remained relatively steady within a band on occasion, we'll see some quarters that do a little bit better because we have some say programs and so on but nothing that's moving the needle that's concerning at all.
Got it great. Thank you very much.
Sure.
[noise] and our next question comes from Jeff Van Rhee with Craig Hallum.
Great. Thanks, Thanks for taking my questions couple from me just briefly I want to jump back to the push outs, if I kind of stuck in in North America have you seen anything like this before to give you conviction confidence that it's not the start of trend I'm sure you've taken a close look at the ones that have push to just just two questions or have you seen anything like that before what gives you conviction that it's not part.
Have a broader trend.
So we've always mentioned that these larger deals timing is always something difficult to predict sometime and we've seen this throughout our history as we move up market, we're still establishing the patterns of Ah both landing and closing larger deals and this is not that different this quarter there happened to be.
A few of them at the same time that did close in October . So I think you know from a timing perspective, one of the reasons, we provide the guidance. The way we do is to protect ourselves against those kind of a factors.
Okay, and and then on the customer counts, maybe just the 50% your growth and total customers contrasted with the number of customers for dollar based not expansion being down 3%. I think you had suggested the dollar based net number was a better proxy if I recall for uniques and I know, there's some variables and there was this with the suite.
In the field things like distorts that but can you just touch on the discrepancy between those two numbers, which is the better Reid.
So the dollar base that expansion is kind of more of a unique logo view the customer count there and that does reflect if you recall over the last few quarters, we've talked about at the very low end of our chat business that we have attrition in that customer base.
And that's reflected in the net logo count for you.
Okay.
Then I guess just lastly.
Realizing I guess, we've got the commentary about the 20 guide being that you're.
Comfortable with a billion dollar model with the with the deferred billings numbers and the RPL deceleration is there any chance you give us a little finer point around that I mean, the consensus is 1.06 might you go out and say that you're at least comfortable to consensus.
We're not going to guide to 2020, I know people are eager for that but I will comment on that in 90 days.
Okay.
And our next question comes from Jennifer Lowe, we can you be asked.
Great. Thank you I know there there's already been a bunch of questions on this I don't want to belabor it but I'm just looking at you know what we talked about 90 days ago regarding execution versus macro it seemed like there the mindset wise, we think its execution, we're going to explore before you really figure out what's going on there now it seems like.
Little bit more of a waiting on macro and adjusting how you execute for the macro but I guess I just went to be Chris. If you think about you know what you've discovered over the past 90 days, how do you sort of parse out whats macro versus execution and is it misexecution or you just need to change how you execute to adapt.
So it new macroeconomic backdrop.
So you know I'm not going to comment on what percentages macro and what percentages execution, a it's not productive for us, but I think the most important thing we can control our internal execution, we need to do better we need to focus on our regional leadership, we need to make sure we have hiring in place and most importantly, we need to make sure we start 2026.
Along and have the capacity and leadership in place to get started with a strong 2020.
Started the year.
And maybe just to finish out so you know if I I look at you know Australia being one of the countries that was called out last quarter in Australia, you have a company like it last seen which doesn't think very different than send us that maybe not as differently Jira service desk Im just curious if there's anything new competitively you're seeing there or if this is it purely surf within your control I mean.
I guess competence within your control to but is there a competitive element that they discovered there.
No what we're doing research in Q2, we identified that you know Australia, Australia has a large trading pattern with China's so but.
What's interesting is in Q3 again, one quarter does it make a trend, but we saw nice recovery in Australia. So I think you know there are a combination of factors in any one country, it's really hard for us to talk about anyone country. When we have 160 to monitor but you know for purposes of transparency last quarter, we did highlight those because.
As you know again that uneven performance was a region why there was country specific and the future you know will probably refine how we kinda disclose that but when it warrants will be transparent as we can be with you guys.
Okay, great. Thank you.
And there are no further questions at this time I'll now turn the conference back over to Mr. Marc Cabi.
I think you can be to again I'd like to thank everyone for joining us today for our third quarter conference call and we look forward to speaking with you.
At year end after we close our Q4 in February Thank you so much.
Thank you for your participation that does conclude today's conference call you may now disconnect.