Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing die and welcome to the Q1 2024 site earnings Conference call.
This time, all participants on I listen only mode.
After the speakers presentation, there would be a question answer session to ask the question doing the session you would need to press Star then one when your telephone.
Please be advised that today's conference is being recorded.
If you require any further systems. Please first thought is zero.
I'd now like to end the conference over to your speaker for today, Mark <unk> Director of Investor Relations you may begin.
[music].
Thanks, Towanda good afternoon, and welcome to parasites first quarter 2020 earnings conference call.
Joining me remotely or Aarons garnered co founder and CEO and James Budge Yeah.
Please forget any challenges and audio quality is we're all in their respective homes.
So walmarts will include forward looking statements within the meeting of the federal Securities laws actual results may differ materially from those contemplated by these forward looking statements.
Factors that could cause these results to differ materially are included in today's press release and.
For example, we're providing guidance based on the information available to US today after taking into account the impact of coated my team.
However, as you know the crisis that this pandemic has created this fluid and the situation is constantly evolving as such our actual results may differ from our guidance based on a variety of factors, including our ability to execute our business. During this crisis the impacts the Christ Center customers and partners and government action taken in response to cope with Mike.
Two other factors.
Any forward looking statements that we make in this color based on information assumption as of today and we assume no obligation to update you see.
During this call we may present, both GAAP and non-GAAP financial measures, except for revenue balance sheet amounts cash flow from operations at.
All right actually amounts discussed or non-GAAP and growth rates are compared to the prior year comparable period, it unless otherwise stated.
Reconciliation to GAAP to non-GAAP measures is included in todays earnings press release. The press release is available on our website investors dot feels like dot com.
Before we hear from Aaron I'd like to know that any James will be participating in federal virtual investor conferences marriage for.
For details please refer to the calendar and our IR site.
With that I'll turn the call over to air.
Thanks, Mark and thanks to everyone for joining our Q1 earnings call.
The first quarter handed the world unparalleled challenges and required us to focus on what we as a company could do to help our customers and need.
We are seeing an impact to our business from the global pandemic into short term and James and I will provide color on our quarterly financial results shortly.
But first I'd like to discuss what we're doing to take care of our team members to assist our customers and to help those who are most impacted by cobot 19.
We do this not only because it's the right thing to do but we also believe that in the long term. These measures will benefit all stakeholders.
Our top priority is protecting the safety and welfare up our people.
While continuing to be a strong global partner for all customers around the world drain this unprecedented time.
We acted quickly to transition our over 1700 employees around the world to work remotely in a matter a date.
I'm proud of how our teams have risen to the challenge to maintain continuity in our business operations, while continuing to support our customers.
As a company we serve many different types of organizations and the impact of covered 19 is manifesting in different ways across our customer base.
During times of uncertainty, we found that companies that invest in technology skills development.
Give themselves the opportunity that come out stronger.
We expect expects the seem to be true as we emerged from this pandemic.
We're seeing many cases in which our customers are using our platform to quickly mobilized upskilling opportunities for newly remote employees to ensure their productivity.
Companies like Broadcom Cox automotive Caterpillar CEOC, Chrysler home depot and for rising all increase their seat counts and push tech learning programs out to their employees through our platform.
These expansions are creating opportunities for us to build stronger and more strategic relationships with some of our largest customers.
Leaders are looking for better ways to gain insights into their software development process and bottleneck.
While managing newly remote distributed team.
Many of our customers see this amendment as had time to invest in technology that improves the efficiency and innovation.
Companies that do this are more likely to remain competitive and exit this crisis in a stronger position.
Remote work and restricted travel means that companies can no longer rely on traditional in person training that's it.
In person conferences and traditional instructor led training our two of our biggest competitors.
Right no work unrestricted travel mean close to zero current investment in those areas.
Our platform provides personalized skill development available anytime anywhere.
And it helps teams skill up faster and become more productive.
To help the record numbers of people working remotely as well as those who are currently unemployed.
We opened our tech conference content, making it available to anyone.
And we published courses and guides on working and managing remotely.
And because we know that building tech skilled keeps people productive and will accelerate their work their return to work and help businesses get back up and running.
We made our library of over 7000 courses available to anyone globally free of charge for the month of April.
We've seen a tremendous response to our free April campaign, encouraging people to stay home and skill up.
We've had over 1 million new users sign up across the globe.
For context, we had 1.3 million total pain b to B users as of March 31st.
For our new users from free April 88% I'd be initial engagement came through a mobile device.
This demonstrates the power of our product to meet learners, where they are there but would it need on any device.
Free April has made one thing clear individuals are hungry protect skills and a better future.
Our efforts are creating a positive impact for paying users, where we've seen significant increases in engagement and usage on our platform.
Since the cover 19 prices started impacting us about six weeks ago.
The average time spent in our platform and the number of skill assessments taken were about three act the norm.
We expect these trends to create improve retention metrics overtime.
Additionally, during these times of increase remote work.
Developer productivity is top of mind for engineering leaders.
Our flow product is well positioned to help these leaders and their teams stay on track and productive while away from the office.
We are seeing an impact to our business from cover 19 in the short term, but we remain committed to strong execution in order to capture our long term market opportunity.
At this point I'd like to turn the call over to James and then I'll come back with some final thought.
James.
Thanks Aaron.
For the first two months of the first quarter 2020.
Our performance was trending at the higher end of our expectations.
Meaning linearity of billings across the quarter in our forecast, we're looking better than they have over the last several quarters.
However, during March a great deal of uncertainty was created in terms of how long the cobot 19 disruption will impact the economy.
Our market and our company.
We have acted quickly to preserve our strong balance sheet with a focus on protecting our people continuing to support our customers and providing long term value to our shareholders.
We remain confident in the financial strength of the business and had over $556 million in cash and investments as of March 31.
In addition, we don't have any principal payments required on our convertible bonds until 2024 and the annual interest payments are only 2.2 million.
By mid March we had already taken several steps to provide additional near term liquidity and financial flexibility.
These actions included a temporary freeze on hiring.
And restricting all employee travel and other non essential operating costs.
Today, we have already removed over $100 million in annualized cost from our 2020 plant.
And we are prepared for further actions if the business environment takes a material turn for the worse.
Turning now to the numbers Q1 revenue grew by 33% to 92.6 million.
B to B billings grew 20% to 80.5 million.
In total billings grew by 16% to 90.3 million.
VTB customers now represents.
89% of our total billings.
Despite the challenges near the end of Q1, our net revenue retention remains strong at 120% on a trailing four quarter average.
Our Q1 gross margin increased to 81%.
Up from 77% last year.
Our gross margin continues to Overperform and it gives us even more confidence that we will quickly trend towards sustainable earnings and cash flow profitability as we exit this near term challenge.
Net loss per share in Q1 was nine cents compared to seven cents.
Cash provided by operations was 18.3 million compared to 5.5 million last year.
And free cash flow, even with 10 million spend towards our new campus was 2.7 million for Q1 compared to 2.5 million last year.
We are pleased with our cash flow in Q1 and want to remind you that in Q2 in Q3, we are in the completion phase for our new headquarters.
As a result, we do not expect to be cash flow positive in Q2.
Before I discuss our guidance I'd like to provide some background into our process of attempting to quantify the impact of cobot 19 on our business.
Given we are a SaaS company with highly visible near term revenue.
We are still providing Q2 and full year guidance, albeit with wider ranges.
Like most organizations our operations have been have already been impacted by the slow down in global economic activity.
The current and rapidly evolving global reality, let us to update our forecast.
Our current assumption is that the disruption caused by cobot 19 will impact Q2 revenues by approximately $6 million to $7 million.
And 2020 revenues by approximately $15 million to $25 million.
Due to weaker than expected previously expected billings in the first half a year.
We expect the headwinds will abate somewhat in the second half of the year.
Obviously the situation regarding covered 19 is changing rapidly and we will continue to evaluate its impact on our business and provide updates and future quarterly calls.
With respect to Q2, we expect revenue to be in the range of 87.5 to 89 billion.
An increase of 16% at the midpoint of the range.
Our core subscription revenue has been growing and we expect a our will continue to grow sequentially in Q2.
But due to onetime items, primarily related to our free April campaign, we expect there will be an impact on our ability to grow total revenues sequentially from Q1 to Q2.
We expect Q2 net loss per share to be on the range of 11 to 13 cents, assuming weighted average shares outstanding of approximately 142 million.
For the full year 2020, we are widening our expected revenue range to between 365 and 390 million.
An increase of 19% at the midpoint of the range.
We expect full year 2020, net loss per share to be in the range of 31 to 44 cents, assuming weighted average shares outstanding of approximately 143 million.
Worth, noting here that with the operating cost reductions we've already action.
We expect our 2020 operating costs to be roughly equivalent to our reduced expectations in 2020 billings based gross profit.
Which should put us in a profitable cash position heading into 2021 and on a solid path toward our long term operating margin objectives.
To close we entered this crisis in a position of strength.
And we remain well capitalized with total cash and investment resources of over 556 million.
We remain resilient and well positioned to support our customers partners and employees through this tough period and with that I'd like to turn the call back over to air there.
Thanks James.
While we cannot predict how long. This current situation will last we remain deeply committed to supporting our customers and team members, while ensuring the long term success with the company for all our stakeholders.
Our balance sheet gives us a lot of Optionality and we have chosen to move aggressively with our cost structure to preserve flexibility.
We have products that the world needs now more than ever.
And we are using this time to accelerate innovation to make the products and experiences we delivered to our customers even more compelling.
Working from home and adapting to change is a market we are well positioned for.
We will make it through this unprecedented situation and are poised for long term success coming out the other side.
With that I'll turn the call back over to the operator for acuity.
Thank you, ladies and gentlemen, as a reminder to ask the question you would need to press Star then one on your telephone.
To withdraw your question first the pankey.
Again, it's style once asked the question.
My first question comes from the line of Saket Kalia with Barclays. Your line is open.
Okay, great. Thanks, guys, Hey, guys, how worried thanks for taking my questions here.
You bet.
Oh, Hey, Eric maybe first for you and I think you touched on this a little bit in your in your prepared remarks, but just took a little deeper.
Now that most enterprises have to wait to get into a physical classroom.
Do you feel like usage around the product could potentially make perspective customers, maybe think about shifting away from the from from classroom based training even faster. After this pandemic meeting could this actually help accelerate adoption of online tech learning after coated.
Oh, absolutely Saket I think this is a moment that could dramatically and permanently shift the way. Most large enterprise is think about classroom training investments in the future.
Because they're being forced to move so aggressively into this digital work from home environment on we are seeing the increase in engagement that three X factor I mentioned in my remarks, and we're seeing a lot of interest from those customers to explore new ways of accomplishing.
So seen objected digitally in the cloud I mean, I'd remind you that I L. T. The spend on aisle Ti represents nearly 70% of our overall Pam today.
So it does create for a very strong tailwind as we come out of this crisis onto the other side.
Got it that makes sense maybe for my follow up for you. James You don't you. You are you spoke about it in the prepared remarks, the team I've decided to make access the platform free for the month of April I guess, just thinking about up more broadly can you just talk about how.
With that can potentially help the the b to B pipeline.
And maybe what you've seen historically in terms of B to B leads that have come from you know your your your B to C user base because it makes sense.
Yeah makes perfect sense, and and frankly, that's probably the thing. We're most excited about here out of the million a new users that up for a folks that have subscribers that have come onto the platform in April 200000 of those have.
Business email attached to them so the b to C to be motion.
We've been talking about for at least two years since back to our IPO. We're learning a lot more about that now we're learning how to do it on a cost effective way the.
Cost that it's taken us to acquire these lead to new subscribers in April is maybe about 10% to 15% of what they historically have but have been.
And really giving us a lot of good capability and learnings on how we can move even more aggressively in converting some of our b to C customers into into B to C to be kind of motions.
Maybe a final point on that is even beyond b to B I think this is why we're getting a lot of good beautifully emotion here as well is.
The the brand awareness that has come from three April has been tremendous whether you look at press impressions social media impressions whatever metric you want to look out for brand awareness, it's roughly up about seven to 10 times more than the norm for us so pretty much every metric and we were hoping for has been a wild.
Our produced in what we achieved with free April.
Got it makes sense, thanks, very much guys.
You bet.
Thank you.
Our next question comes from a lot of Terry Tillman Suntrust. Your line is open.
[laughter] parent Jameson, a mark thanks for taking my questions and I appreciate the color I appreciate you guys.
Given that your best in terms of a full year guidance and gonna be does planning assumptions are all difficult for all of us, but I appreciate you try and that's.
My first question relates to you know with two major products you have with different value props I wanted to focus on developer productivity with flow and you know I I definitely could see how more light will be set on what that product can do in this kind of new world.
Of work, we have with developers. So you know I know originally you all had guidance on flow and what you thought it would could do for the year, how was that holding up what will the resiliency of demand and how's that been so far versus your traditional just still flowing product.
Yeah. Thanks to the question Terry look you're hitting the nail on the head here with flow and what it provides in a moment like this.
In this in this new space, a developer productivity and engineering management leaders need a tool like slowed to understand what's happening in the daily work of their teams are they making progress are they having an impact do we see product that productivity levels.
In improving decreasing et cetera, and that those are the answers that flow provides so we are are very happy to see the interest and how we can build that specific need in slow right now during this time.
To your specific question about outflows doing it's doing quite well we had another strong quarter, it's well on its way to achieve the targets and expectations that we have for low for the year and so we're very encouraged by what we're seeing there across the board and we see strong pipeline for flow in.
Sure quarters.
Got it and maybe my follow up is for James a in the queue. We got an update on the business customers into quarter.
And it looks like the <unk>. So it was actually down 112 euros, we're going through the rest of your and again I know, it's a challenge to try to figure this out exactly but how should we be thinking about customer additions and you know.
Different parts of your business, whether its enterprise mid market or small business and how to think about you know this trend throughout the year. Thank you.
Yeah. Thanks, Terry I'm like we love all of our customers and hope to keep them over time, and we've definitely shifted a lot of our focus in our business over to retaining those customers.
And as you noted at the low end of the market. We have lost some of those customers as we moved through Q1.
One of the things that were.
Doing to send out a little bit as I mentioned is put a lot of resources over into the retention side, but I think important to remember that the lions share of our billings and revenue come well over 50% come from our enterprise customers those are holding.
Study the retention rates, whether its logo our users are similar to what they've been in the past.
And and we have lost a few at the lower it but I feel really good about where our retention is overall and I think it important measure like we shared here in the prepared remarks is our overall user counts are up to a million three at this point, which is pretty good uptick from where they were three to six months ago, and that's probably even more important measure right now.
How many users do we have as compared to the business customers that we have.
Got it it's helpful. Thank you.
Yep.
Thank you.
Well I can come from the amount of Scott Berg with Needham Your line is open.
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There are no lux during its not something done.
Ah yes.
All right.
Why don't we start with.
Oh.
Sure.
James.
That.
Very little bit help them before it so.
We track light touch.
But don't religion.
But.
For the second quarter you're for them.
<unk>.
Bar or do you see continued pressure from the macro environment it might make it even maybe back end weighted than what we're completing its true.
Yeah, I I think I got a you're breaking up a little bit Scott, but I think I got the question, let me take a stab at it and if I didn't hit the Mark Please come back again.
I believe the question was around linearity.
We and to the point you raise we were seeing.
Very strong linearity in the first couple of months of the first quarter January and February probably as good a linear as we've seen in the last six quarters.
And then obviously cobot hit in margin and things went up a little bit right.
April actually some surprise Olympic surprising to me anyway, even with a free April.
And access that a lot of people know have on a free basis in the month of April we actually had a good business.
Happen in the first month, probably as to your point I think he said in there should we expect a little bit more backend loaded notes in the second quarter, Yes, I would say, yes to that but I don't think it will be up meaningfully worse, a little bit a little bit more loaded in June that we might have.
Normally expected in the past, but still fairly well spread out across the quarter.
That cover the question Scott or we did I Miss something in there James helpful. Thank you and I guess for any follow up perspective, you took $100 million with annualized cost out of the model how should we think about your ability to react to an improving environment. The second half yeah without knowing exactly where those cost cuts came into play whether it was sales.
Marketing it et cetera, how do you feel position for you know what I think a lot hope to be at least a recovering economy here, yeah, maybe Q3 or Q4.
Yeah look the majority of the cost came from really tamping down on the hiring is like two thirds of it came from the hiring freeze and not not hiring hundreds of people than we otherwise would have hired over the next nine but and that's just reflecting the reality of where we believe.
Our billings will shake out for the year on the sales marketing and and then everything else adjusting down from there. So we feel like 1700 boys never really great base of employees to achieve.
Expectations that we have we have plenty of capacity in the system with our sales reps, we actually have more capacity relative to our lowered expectations than we had pre coven. When we're thinking of the different plant I think it gives us plenty of capacity, even as we roll into 2021, as we think about kind of getting through the first even second quarter 2021, we haven't really great.
Capacity right now and one of the things we've been able to avoid so far.
Because of the strong balance sheet, we haven't had good pipeline and prospects in some of the good momentum were seeing from three April we have not had to exercise any layoffs in our company at this point.
And that to your point about how can we come out of those quickly I think keeping our employees that are really productive and as we spit out the they'll be still with us. So we're not letting productive employees go and then having to retire them three months from now I think being in that kind of a position with the strength that we have in the business will enable us to access.
While the rate even faster as we come out the other.
Very helpful. Thanks, guys. Good luck.
You bet.
Thank you. My next question comes from a lot of Brian Peterson with Raymond James Your line is open.
Oh, Thanks, gentlemen, and I hope you in your your families are are safe I know. These are these are crazy times for all of US here, but James maybe wanted to start with you obviously the free April promotion it sounds like engagement, there, it's gone up pretty well.
This may be an unfair question. So apologies on this but but how are you thinking about potentially monetizing that base in 2020. He's there were significant contribution in the guidance, there or would that potentially be upside to the numbers.
Yeah, Great question, it's it's probably more upside than baked in we are assuming that.
There will be some conversion of those three April users, probably as you might expect a little bit less than our normal conversion, but still really strong conversion rates as we can be proud of and I think if we managed to get that conversion rate up even a little bit closer to what our normal historical conversion rate has been there was even more upside in the model.
So some of that baked in a little bit of upside that we've left ourselves Oh, probably just leave it at that.
Got it thanks, James eight air and maybe a follow up for you. When we talk to some customers are I think meters. You know there clearly seeing that they obviously can't do in classroom training now I think when I talked to them. They still have specific programs and things. They they want to a complete for their employees does that also an opportune.
Under the for you to have more of a consultative approach sort of roll with some of these enterprise customers down the road just curious your thoughts on that.
That's right that's exactly right.
This this offers us the opportunity to go in and develop deeper partnerships around how we can take those very specific programs can map them to a digital solution powered by our our platform our content and all of our digital learning experiences. So we're doing that with several of our large enterprise customers today.
Again see ample opportunity for more of that down the road and that's ultimately that tailwind I spoke of earlier I think we'll see even more of that as we continue to move through this crisis and come out on the other side.
Great. Thanks, guys.
Yeah. Thank you.
Thank you.
Our next question comes from the line of Sterling often with JP Morgan Your line is open.
Yeah, Thanks, Hi, guys, James and one of the earlier questions. You gave some qualitative commentary to the gross renewal rates at the high and low end can you just give us a kind of a summary, what when you look across all of your business customers. How did the gross renewal rate actually there versus the last couple of quarters and what did you bake.
And you know in terms of the outlook.
Yeah, Let me first to speak to the aggregate they'll break down a couple of components to your question. So where it started from your basis of 120, where we were at the end of Q1.
Probably trends throughout the year in or implied assumptions in the kind of mid to high teens, and then starts to tick back up as we roll into 2021. So that's at the macro level and as you might expect at the grocery tension that did not retention number at the grocery tension level on the enterprise side, you would expect weeks.
Back that our gross retention is a fair bit higher than the commercial side of our business specifically in the low end of the commercial business for us so.
Historically, that's been in the high Eightys low ninetys gross retention for enterprise customers and sort of low eightys for our commercial business and just if you take the tick down on the net retention apply that to gross retention you can probably knock off about three to five percentage points to more in the mid to high Eightys for enterprise and.
And.
Hi, Seventys to low eightys for the commercial side, that's about where we expect on retention side going for a little bit of deterioration, but still fairly strong moving forward.
And in terms that net retention that you gave obviously one of the questions I get frequently for investors is you know you are driven by the head count of your customers and lighted the current situation on unemployment rates.
How should we think about how much of that is factored in versus anything that might just be pricing adjustments as customers come up for renewal.
Yeah, I mean look we took a fairly good walk from our billings expectations. That's implied in that are in that a growth where the reduction in growth on the revenue side. So we'd like to believe that it's factored in there we actually have done some pretty interesting things to help our customers. During this interim type.
I think as you noted we do have many of our customers that are furloughing. Some other tech employees or letting them go, but maybe with an expectation when they come out of those that they hire them right back and we want to help enable those customers, so where we're getting some innovative pricing on a temporary basis to many of our customers are some of our customers that are facing those kind of.
Challenges so the when they bring those furloughed employees or even some that they let go back into the fall then that increases our user count even higher and we can bring them back up to the higher price points.
In sternly and I'd, just add remember that with our large fortune 500 customers on average were only penetrated right now at about eight or 9% of their tech organizations.
And they they typically give the pleural site licenses to their most valuable players within those organizations. So I think were somewhat shielded from some of those read a head count reductions that those customers might be facing.
Understood. Thank you.
Thank you Sir.
Thank you next question comes from the line up right field with Bank of America Securities. Your line is open.
Oh, great. Thank you hey, guys.
I wanted to ask about maybe just a follow on question there in the Fortune 500.
What are you seeing there I hear your I think your somebody had acceleration in the back I believe.
Is there any color you could provide some of the bigger accounts, maybe you've had conversations them. They say well its expansion deal will still keeping the pipeline, but it will come back later, we're right now we're just focusing on stabilizing the business or.
Conversations gone, particularly in that enterprise sector with some of your larger you know fortune 500 accounts.
Yeah with those fortune 500 accounts, Brad we are being more creative around how weekend or partner with these large customers to deploy even more licenses in the near term to solve some of their immediate needs.
Aiming for longer term deals in Q3, Q4, so exactly what you're pointing to is what's playing out were being super creative.
True sense of of partners. The word partners you know in these customer relationships and.
And it's really working to our advantage I would say you know many of those large customers have have increased the number of licenses in the thousands or even tens of thousands.
ER to learn more about how they can use our platform again to solve some of those I L.P. specific use cases.
And to reach more people to drive improved engagement in productivity across their tech works, especially in there and that work from home scenario. So you know we're seeing some very interesting things play out and are excited by it.
That's great. Thanks, and then and then one more if I may any noticeable change in technologies that you're seeing more active yeah on on the platform I'm you know given the current situation I guess since you know mid April anything you'd call out in terms of technologies that are getting.
More interest in more usage on training versus others. Thank you so much.
You bet, Yeah, it's a little early to tell on that right now, but we are seen sun. Some increase in the cloud space, specifically I think we'll see cloud adoption.
You know speed up not slowed down.
You know infrastructure related topics like VP hands in you know, how how companies work remotely and more effectively to its still get access to the applications and data that they need that's also had a big uptick.
And I think I think there's a set of technologies that could decrease in popularity, but it's still early to tell what what those trends will will play out could be at this point, but I do think we'll see some changes and so in another month or two or three we'll have we'll have more to share on that.
Great. Thanks Aaron.
Yes. Thank you.
Our next question comes from the line of Stephen Sheldon with William Blair. Your line is open.
Hi, Thanks.
In the first two month of the year sounds like things are trending at the high end of what you were originally expecting so can you talk some about how sales execution and maybe trended or improved in the earlier parts the quarter and specifically to some of the changes that you put in place in the second half 2019 did that have a bigger impact and the.
And they go to market efficiency at least earlier in the quarter.
Yeah. Thanks, Yeah, absolutely I think for those at a bit with us in spite everybody here Oh, we moved so all in this year into 100 farmer model or new acquisition account manager type model.
Ross was a super helpful. In Architecting, nothing has been really impactful and.
Driving that motion for us as well as all the training and enablement activities to get our sales teams are even more focused in their respective area. So yeah. We're seeing in January and February was really great signs of life and all areas of our business I think.
As you might expect.
As we moved into March some of those are areas in the new acquisitions, we're becoming a little more challenged quite a bit easier to go back to customers that had been delighted with our service in the past and asked them to renew and maybe even upselling and add more licenses into account, but we do still see really good activity in our.
New acquisitions motion and expect a expect goodness out of that this year and as we jump out of coded.
Hopefully towards the end of this year, maybe early next year, we think the structure a model we have will be a really beneficial for us long term.
Got it.
And then as a follow up just I guess, an update on how conversations are progressing with systems integrators in terms of go to market partnerships does the current environment, maybe push out expectations defeat ESI partnerships and now I guess, just any thoughts central they're looking at the remainder of 22000 and it's only 21.
Yeah. Great question. We are we are making a lot of progress with ER with the systems integrators and are encouraged by what's happening with each of them, but as you can imagine with a with the impact of the last six we we have pushed out the priority.
Some of those conversations bolt.
Because.
They need it and we need it in this moment of time, but there's still strong interest and we're very focused on building out strong long term channels with with the fueled the biggest ones and.
So more to more to come on that but nothing has changed in terms of the nature of those relationships. The interest level. It is it's really just a slight pause as we digest covert 19.
Great. Thank you.
You bet.
Thank you.
Our next question comes from a lot of Britain no blocked they're in their capital. Your line is open.
Hi, guys. Thanks for taking my questions. The first one is on the new literacy product are you guys launch in the quarter on Oxy spent much time talking about that already but maybe just you know initial thoughts on how that launch when and maybe early adoption in the case.
Yeah, you know we launched the digital literacy skew right as the crisis hit during our third <unk> live AMEA events are and so are you know, we're not being very aggressive with that at the moment given the impact on online or on new.
New acquisition, new billings at the at the time.
And it's really too early to tell or speak to that the impact that product is going to have so I'd say look we're having conversations with customers around that and it's it there's a lot of interest in it.
But most of the conversations are really focused on how do we helped the customer through this crisis in the most effective way how do we ensure the renewals of what's already in place and then how do we bring things like digital literacy ended the picture for the future quarters in in Q3 Q4 and into Htwo.
The 21, so that's where the conversations are right now lots of conversations happening, but still too early to tell what the impact will look like.
Okay, and then just one more on the hundred million an annualized cost savings could you break out I guess, where that's coming from and I guess you know what are those actual initiatives in place.
Yeah, but the biggest by far in <unk> I want to emphasize I know you to set up I just went up to 500 million annualized so not all that will be.
Realized in 2020.
But it does lower the base for sure going forward into 2021, but the biggest impact by far is from not hiring will probably the current plan right now is to exit the year with about as many head count as we have right now.
So there's hundreds of additional positions in the company that we would have hired under our original plan, we're now not planning to higher.
That's probably at least.
60% two thirds of the cost.
The balance comes from reductions of non essential services with many of our vendors were scaling those back or cutting them out completely travel and entertainment massively down as you might expect and sit and cutting.
Several of the amenities and we had planned to put into our new campus. Those are the those are the four big ones that I would I would highlight.
And I'll just I'll just add on this point that one of the reasons, we were able to do that.
And execute that type of plan was because we entered the year ahead of plan on sales capacity.
And we had made significant improvements on overall sales execution entering the year. So that gave us a lot more flexibility and optionality to absorb some of the code that impact in the way that James just described.
Okay, great. Thanks, guys really appreciate it.
You bet. Thank you.
Thank you next question comes from a lot of Josh Bear with Morgan Stanley. Your line is open.
Thanks for the question and Hope you guys are well air and I'm wondering if you're having conversations with customers spot, we're seeing increased demand from customers, who or looking to reschedule or upskill their existing personnel in an effort to reduce spend on like external I T consultants are outsourcing.
You know that's a fairly common scenario for us Josh I mean, that's something that happens most quarters, where large enterprises are looking to make significant digital transformation.
Initiatives come to come to be and on the way. They do that is through tech skills transformation investments. It's I'd say in general that's one of the underlying themes behind our business in the Fortune 500 is our ability to help them accomplish that I think in coded we have seen on we have seen found.
Increase in the interest around those things, but that's also tempered by the company's ability to spend more and you know and deal with that the impact any now.
That's helpful and one for James.
Just wondering if there's.
Any framework for thinking about how margins or were these cost savings could trend if the state of though of the world gets materially better or worse than the current environment.
Like would we expect to see.
The the Opex spend flex up if if things got much better or could we see additional divisional cost savings and the reverse scenario. Thanks.
Yeah, good well I mean on the reverse scenario definitely that we still have a few a few arrows to fire. There. If you will if things materially turn for the worse. So feel really we plan really well around that on the on the other end of that spectrum.
Yeah look if things start to move in a more positive direction, we're always looking for opportunities to increase the amount of top line that we have.
And if that means adding some more capabilities create more product or more skews more capabilities for our customers more sales reps that might be able to go to drive more billings and we'd be interested enough, but one of those I don't know if there's too many silver linings and those Kobin World run right now the one of the one of the silver linings from a financial modeling perspective as well.
We've taken a fresh look at our planning as we go through the year and move into 2021.
It's it's demonstrated a clearer picture for us on how we're going to move to our long longer term profit margins.
And we feel really good about even with the reduced expectations, we haven't billings and revenue with what we've done in the cost side that are actually think on the bottom line, where we might be in a better position going into 2021 now than we then we would have been in our previous plan.
That's helpful. Thanks.
Yep.
Thank you next question comes from the line up Alex Paris, with Barrington Research Linafelter.
Good afternoon, everyone. This is Chris I'll sitting in for Alex Thanks for taking my questions.
Tim you compare and contrast kind of what you're seeing in this environment. When it comes to existing accounts versus new accounts has there been any material shifts or do the current optics, that's out there and as we looked at some of the comments that you made.
In regard to free April.
And the growth prospects that's out there it would seem once we get back into a more normalized environment and on our path to recovery a that this could lead to.
A long runway for growth within your existing account base a longer term a once we get to this environment.
Yeah. Great question ended we picked back up again or yeah I'm back in apologies [laughter] did you did you hear the question or do you want me to John I Didnt hear the question.
Okay. Let me, let me take a stab I think the question.
Was around.
You know theres, some near term impact and.
Sure with me if you don't think of captured this right, but if there's some near near term impact on the.
New areas of our business as opposed to the the renewals in existing customers does that with some of the things Aarons already mentioned around our penetration the fortune 500 hours still only 9%.
Does that suggest that when we come out the other end whenever that is that there's some longer term or even mid term upsides in them in the model you expectations that we would have so hopefully I characterize that somewhat accurately but tell me, what's wrong and I'll just give a short answer American entering can jump in and with whatever he'd like to say.
I'd say the short answer is yes, absolutely we do we do still see lots of runway in our particularly our largest enterprise customers with new lots of new users still available to us.
And maybe some temporary setbacks and some new logos and new accounts that we might have added otherwise without kind of good but certainly we expect that to spin up and we have all the capacity we need to go chase that down as the world kind of turns back to the positive again.
I'll, probably that's right James I I agree hundred percent with all of that and and do believe that we have upside as we work through that there's there's still a tremendous amount of uncertainty.
And we are managing to that and uncertainty as best we possibly can.
And so depending on what happens with co bid and and you know some of the industries that are most impacted that we sell into.
You know and how quickly those things recover I think there there is upside here between now and and the ended the year.
Depending on multiple factors and multiple assumptions I would say, we've been fairly conservative and most of our assumptions.
And so time will tell you know, it's really hard to its really hard to predict but I think we're in good shape.
That's very helpful. In what must follow up if I may you had mentioned a the exposure and if we look at that in consideration of the conservatism. That's been placed on guidance and it's called the 19 environment. There, perhaps an additional way to think about this as.
Particular to certain industries or a certain size of the count that's most at risk. During this time or has already been at risk during the first half of this year.
Yeah, I think that the industry exposure is the most significant factor of all I'm, obviously and in the travel industry and you know.
Right.
Food in entertainment some of those areas you know, there's a clear impact on in.
You know, we did a big pipeline analysis to see how much of our current open pipeline was exposed to those industries and it wasn't very significant.
So overall, we're feeling pretty.
Pretty optimistic about being shielded from from the most impacted industries that are at a global level.
But you know it's like things are changing every day and so you know we're having to review those calculations pretty frequently and and you know things can change. So I just want to caveat it with that but at a hot high level I would say, we're feeling pretty pretty optimistic that were not overly exposed to the most impacted industries.
Yeah, I mean, maybe just to put a finer point on that you industries that Aaron mentioned are probably less than 5% to 7% over overall billing stream.
And if you extended it out to our smallest customers just as a broad buckets about 10% to 12% of our entire businesses in the SMB kind of space. The vast majority of our business is in the enterprise segment for us in high end commercial segment.
And a very small portion of that is in the industries that have been most heavily impacted during this time.
[noise] okay.
The clarity in the additional color appreciate it as always and I'll hop back in queue. Thanks, everyone.
Thank you.
I'm not showing any further questions at this time I would now like to turn the call over to earn Konark CEO for closing remarks.
All right. Thank you nothing further to out at this point thanks for joining our call. Thanks for the great questions on we'll talk to you again next quarter. Thanks, everyone.
Thanks, everyone.
Ladies and gentlemen, this concludes todays conference. Thank you for your participation you may now disconnect everyone have a wonderful day.
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