Q2 2020 Pluralsight Inc Earnings Call
I'm also depends on what's coming out later, we'll conduct a question answer session and instructions will follow at the time, it's like a bunch with with our systems during the conference. Please.
It's the recorded.
Well the New York.
Sure Mark.
First of Investor Relations. Please go ahead.
Thanks, Sarah Good afternoon, and welcome to pull site second quarter 2020, <unk> earnings Conference call joining me remotely our airing scattered co founder and CEO James Bunch CFO.
Our remarks today may include forward looking statements about guidance and future results of operations. Our actual results could differ materially based on a variety of factors, including our ability to execute our business. During the cobot 19 pandemic the impact to the crisis center customers and partners and government action taken in response to cobot, Nike and among other factors for looking state.
And involve risks and uncertainties and assumptions that are described in our 60 filings. These forward looking statements are based on beliefs and assumptions today and we assume no obligation to update any forward looking statements.
During this call we present, both GAAP and non-GAAP financial measures, except for revenue balance sheet amounts cash flow from operations and billings, often actual amounts discussed or not.
A reconciliation of these measures is included in todays earnings release, which you can find on our Investor Relations website.
Unless otherwise stated growth comparisons are measured against the same period of the prior year.
And with that I'll turn the call over to Aaron.
Thanks, Mark Hello, everyone and thank you for joining up.
The last several months have presented incredible challenges to the world and our thoughts go out to all those impacted by the global pandemic.
I, just especially like to thank our team members for their responsiveness and flexibility as we continue to problem solved and serve our customers remotely.
Our teams continue to perform and execute in the midst of all these challenges.
I'm, especially pleased with how the skills in flow teams are adapting to the new market dynamic.
And I'm excited to share that we're in the final stages of our CTO search and we look forward to bringing on a new CTO, who will extend the technology advantage is created by Nate.
Weve interview candidates from a diverse pool across the globe and we have some outstanding leaders to choose from.
We expect to formalize a decision and make an announcement soon.
We remain focused as we continue to work with the tech community and our customers to create digital solutions that enhance tech skills development strategy.
And provide the fastest path to skills transformation.
Our team's commitment to each other and to our customers has never been stronger. Despite these extraordinary circumstances.
I'm proud that this commitment is reflected in our financial performance for the quarter.
Since the onset of the pandemic, our customers and partners have relied on the fast deployment of our platform.
Upskill engage technologists as they respond and adjust to the new normal.
An excellent example of this came in Q2 as we closed our largest slowed deal to date.
Seven figure deal with the oldest bank in New York.
This bank a long time skills customer depends on its global workforce of software engineers to deliver new products and stay competitive.
As this critical team with transitioning into a remote work environment. The tech leaders ran a flow pilot to identify metrics work patterns and best practices to ensure productivity.
The bank saw the value and synergy of complementing their already existing skills program with flow.
They used to flow to quantify the impact of their skills development efforts and then use that data to more effectively leveraged skills to close their technology yeah.
Flow is also helping these tech leaders increase productivity.
And more effectively manage their disperse team.
Flow provides a data driven view of their development processes.
So they can identify bottlenecks and improve engineering workflows.
By using data to optimize their engineering development processes. They are shifting their culture from having easily based conversation.
Two fact based conversations about engineering effectiveness and productivity.
The improvement slow identified allow these tech leaders to demonstrate more impact for left investment.
It's created confidence that flow will materially improved the productivity of their organization as early as the second half a 2020.
This is one of many examples that demonstrates the importance of our platform for tech team now more than ever.
During the pandemic, we have seen enterprises increased scrutiny on all discretionary spending.
And despite that we executed better than expected and we remain committed to strong execution in order to capture our long term market opportunity.
Now I'd like to turn the call over to James and then I'll come back with some brief final thought Jane.
Thanks, Aaron and Hello to everybody turning it to again.
In the face of a full quarter of cobot impact on the business I'm pleased that we were able to deliver better than expected results on all of our key metrics, including billings revenue cash flow and bps.
B to B billings grew 12% to 77.7 million and total billings grew by 11% to 89 million.
And we continue to expand deeper into our largest customers.
Ending Q2 was 67% more customers with annual billings greater than $1 million.
Q2 revenue grew by 25% to 94.8 million.
Well above the high end of the range, we provided last quarter.
Allowing us to increase the midpoint of the rain revenue range for 2020, which I will speak to later.
Despite operating in a cobot impacted business climate, the entire quarter, our net revenue retention remains strong in the high teens at 118%.
Our Q2 gross margin increased to 81% up from 78%.
And net loss per share in Q2 was two cents.
A significant improvement compared to a loss of six cents last year and meaningfully better than the guidance we provided for Q2.
Our gross margin and EPS continue to Overperform and give us even more confidence that we will trend towards sustainable earnings and cash flow profitability earlier than we previously expected.
Cash used in operations was 9.3 million and free cash flow was negative 18 billion.
Both cash flow measures were meaningfully better than we expected.
As a reminder, we are in the completion phase of our new headquarters and in the first half of 2020, we spent almost $15 million on related capital expenditures with another 10 million or so to calm in the second half of the year.
Our operating cash flow for the first half of 2020 was over 9 million positive.
And our free cash flow for the first off with 2020 wasn't nearly breakeven if we exclude the onetime expenditures related to the net new headquarters Bill.
Both cash flow measures demonstrate our accelerating path to profitability.
Turning now to guidance.
For Q3, we expect revenue to be in the range of 95 to 96 million.
An increase of 16% at the midpoint of the range.
To assist in your model building, we expect Q4 revenue to be in a range of 98 and 101 billion.
When taking into account the first half actual results with these second half quarterly expectations.
The result is they tightened full year 2020 revenue range of between 375 and 390 million.
This updated revenue range represents an increase of 21% at the midpoint.
As we covered last quarter the success of our free April campaign exceeded our expectations.
Despite the free month, we were able to maintain or b to C billings that improve our revenue year over year.
And not to beat a beside our pipeline continues to build from these users.
We anticipate over the coming quarters. These individuals will continue to open doors for us in their organizations and help us engage in dialogue with B to B buyers.
The three April contribution to Q2, B to B billings was small, but our pipelines for the next two to three quarters have increased more effectively and efficiently then from typical campaign. We believe as a result of heightened demand for our product and increased opportunities produced from the free April campaign.
On the bottom line, we expect Q3 net loss per share to be in the range of five to six that assuming weighted average shares outstanding of approximately a 144 million.
And we expect a net loss per share range of six to seven cents in Q4, assuming the same a weighted average shares outstanding.
The expected increase in net loss per share compared to Q2 is primarily related to the expenses associated with our new campus lease costs coming online in August and some growth in our quota bearing sales force towards the end of the year as we hire ahead of 2021.
As a reminder, we currently have enough quota bearing sales rep capacity to see us through at least mid 2021.
That said, we see value in hiring ahead of the year to ensure all our sales teams are as trained have enabled as possible for the year to come.
We expect full year 2020, net loss per share to be in the range of 19 to 27 cents.
Assuming weighted average shares outstanding of approximately a 144 million.
At the midpoint. This full year EPS range is a 14 and a half cents improvement over the midpoint of the range, we gave three months ago.
And reflects our accelerating progress towards P.L. profitability.
Our cash breakeven expectations remain the same as before we expect to breakeven in Q4 and continue improving our cash based profits as we move through 2021.
To summarize we delivered solid results in the second quarter or ability to focus and execute a served us and our customers well in a difficult environment.
And our Q2 performance gives us confidence that will be in a strong position when economic conditions improve.
Our collections on the timing of those collections are coming in ahead of our expectation.
And we remain focused and well capitalized with over $550 million in cash and investments on our balance sheet to continue to support our customers and partners through this tough period.
And with that I'd like to turn the call back over to Aaron Aaron.
Thanks James.
We're pleased with our Q2 performance in the midst of a challenging period for the world.
This isn't the first difficulty we face as a company.
Every time, we go through a moment like this it helps us learn evolve and emerged as a stronger company and I believe this time will be no different.
We've never seen a more pressing need for our product and we know from experience that enterprises that take advantage of this window to upskill and re skill will rebound faster and stronger than their competitors.
I'd like to thank our customers our partners and our community of expert authors and our team members for their continued support.
And with that I'll turn the call back over to the operator for acuity.
Ladies and gentlemen, if you have a question at this time. Please press star and then the number one key on your touched on par with its a question has been answered or you wish to do something you. Please press the pound.
Your first question comes from line ups, you're Lucky from JP Morgan. Please go ahead.
Yeah. Thanks, Hi, guys really appreciate it apologies bouncing around through multiple calls, but I would say probably the number one question on my mind has to be around the strength of free April and what you learned in terms of that marketing and promotion not only in terms of the conversion rates that that you may have seen or what it's done.
Driven but also what that might motivate you to do in terms your sales and marketing plans for the rest of the year.
Yes, Great question, we definitely learned a lot through the free April campaign, and we're continuing to learn as we watch the lead than the new accounts.
Come in through that promotion.
We've definitely seen that that campaign was more cost effective and efficient and a way to bring in and.
A significant amount of new leads into our database and be able to market to those leads or more effectively. So we're taking those learnings into our strategy work for 2021 and will continue to refine our pricing and freemium strategies and different types of promotions that we use a into next year.
Sure and beyond.
But more to come more to learn and things will continue to take shape as we as we finish that work.
And then one follow up but I can in terms of sales resourcing yeah. As we think about you know what happened in 2019 baby falling a little bit behind the curve on hiring then catching up but as you came into this year you were managing expenses much let's say in a tighter fashion, where do you stand now are you.
Happy with the sales resources that you have on board where are you in your hiring plans and how does that impact the margin outlook.
Yeah. Thanks, Darren this is James.
So we have about 360, just over 360 quota bearing sales reps.
As we move through our forecast some 2020 and even through 2021, that's enough sales capacity to get us through at least mid 2021.
And we likely depending on continuing strength in the business will hire a few more as we move to the end of the year to be trapped and even more ready to go into 2021. So we feel relative to where we were a year ago, we feel really good about where we are right now.
Great. Thank you.
Your next question comes from line Saket Kalia from Barclays. Please go ahead.
Okay, Great Hey, guys. Thanks for taking my questions here.
Hey, Eric maybe just to start with you listen on obviously a lot of debate about customers willingness to spend in this environment just in general, but perhaps you can touch on the competitive landscape a bit and what you're seeing from other players out there like coursera like linked and learning and other platform.
As in sort of the core enterprise space.
Yeah socket cobot has definitely impacted customers willingness to spend in the near term and we're not exempt from that and that's what's.
You know.
That's why we're experiencing some of the near near term headwinds.
We reference.
But we do remain laser focused on our core enterprise space, that's where we're highly differentiated that's where we provide a strategic skills transformation solution that goes well beyond content with analytics and other capabilities to drive that kind of transformation and that's where we see the highest win rates and the strongest.
Tension rate.
And we're confident in our competitive position in that course space.
We do see some of that competition in the smaller accounts segments, where their discounting very aggressively right now to win short term opportunities, but that's not our focus nor our priority longer term. We're focused on the accounts that want to use this window to to significantly transformed their talent and their business.
Through a strategic relationship with us and that that's really our our big opportunity long term.
Got it makes a lot of fence James maybe maybe for you for my follow up a little a little bit of of the during the question that was asked earlier, but maybe from a sales planning perspective.
Definitely sounds like it sounds like you and the team or thinking about 2021 or outdoor the out year earlier and I don't want to look too far back on their rearview mirror, but but maybe you could compare and contrast about how that's different than last year and maybe just anecdotally talk about how the planning process for this year might be a little different with.
Ross Meyercord and his team sort of now more fully ingrained the doesn't make sense.
Yeah, Yeah. It does great question.
And maybe other spin it into numbers, if we go back a year ago.
We Oh, we got started late in planning as you mentioned, we and as a result, we ended Q2 about 40 head count shy of where we needed to be to deliver on expectations, which suggests the Q1 of 2019 were just.
Overperforming with the head count we had and then it caught up to us in the second quarter relative to this year. We are we came in strong we had as high as 360, we have about 365 reps now.
And relative to our expectations for the year the ramped capacity, we have in our plan, we actually have built up some overcapacity in our system over the last couple of months to deliver on the new co bit expectations that we have if you will so we feel like we're in a great spot relative to the shortfalls, we had last year.
We're ahead of the game now or even ahead of the game to the point you raised about getting ahead of him of 2021 and that's the pace, we're going to stay on the were or we're not going to stop we're gonna get towards the end of the year and even higher it had some more as we think about the latter part of 2021 and always try to stay between two and four key.
Orders ahead of the pace, where we see ourselves going so quite a quite a bit different than what we where we were a year ago.
Absolutely great to hear thanks, guys.
[music].
Your next question comes online I'm Fine Peterson from Raymond James. Please go ahead.
Hi, gentlemen, thanks for taking the questions. So higher level question for Erin I know you've mentioned in the past that in classroom training I was still a much bigger spend area for a lot of your customers I think that the idea of in classroom training training has changed so I'm curious.
What are your customers doing to react to that easy too soon to see any meaningful change in how do you see that move away from in classroom training changing going forward.
Yeah. Thanks, Brian.
We were paying very close attention to this dynamic as is playing out.
The instructor led training or classroom training market is largely frozen at the moment across our customer base.
Meaning that if they had budget allocated to it before they've frozen those budgets and may not have reallocated them to other types of equivalent solutions quite yet.
And that often happens in the classroom training world They get frozen temporarily during the crisis. During a period of time and then they they get thought or on frozen or at some point beyond but what we're seeing here is a different type of conversation this time, where a lot of those large enterprise customer.
As our re imagining and rethinking how how they're going to solve those same jobs to be done that they'd be solved with classroom training in a post cobot environment.
And I believe we're well positioned to take advantage of that opportunity.
Both through our digital solutions that we offered today, along with some new and improved professional services offering that we can also bring to the table like our workshops offering that you may have heard up before.
That's something we can execute on right now today.
And we're also looking at how to further extend that capability to further maximize our ability to take advantage of that that transition opportunity and we think it'll it'll be something that plays out over many years to calm and we wanted to help our customers accomplish that.
Understood and maybe just a follow up just on how things are trending in the pandemic in terms of usage of the platform and a lot of people working from home or anything that you can say in the overall usage of the platform or any stats on the role like you were skill like you tests. Thanks guys.
Yeah, Thanks, Brian James Here I'll, just limited to the usage, we're up roughly two x.
In minutes viewed compared to just a quarter ago. So we had a pretty good pop well in the month of later part of March as we were getting creative with.
With some of our customers and adding more users and we continued to extend through Q2 to the point, where we now have a can happy to report that we had two acts more usage time on our platform and.
The June quarter than we had in the March quarter.
That's great to hear that's it.
Yep.
Your next question comes from the line of Scott Berg from Needham Your line is open.
Hi, everyone. Thanks for taking my questions I guess I've got two here.
Why do we start on sales pipelines I know this is the time of year, we would normally start talking about why which had been an August last couple of years that was a great tool for sales generation for bringing in potential new customers, obviously as shown on the platform.
But how do you all can pipelines today versus last year, knowing that that that offense is probably at least limiting or could limit somebody opportunities here the short term.
Thanks, Scott live is definitely different this year than it was last year and it's always the big Hi generation event for us.
And though we are moving forward with lives as a virtual event I'd just like we did in March with our live Europe of that right as coded was getting.
On and so we're optimistic based on what we saw friend live Europe that live North America in October could be even bigger and better from this perspective.
There's a lot a lot left to do and to see as we move through this event, but that one of the benefits of virtual event as we can actually scale to a much larger audience.
And attract people that wouldn't typically traveled to the event to be part of it.
So weve reorganized our strategy, we've recalibrated and we're looking to do everything we possibly can to produce even more pipeline. This year at like North America than we did last year and that's that's our objective and I think we have a great opportunity to produce though.
Maybe as a side note there Scott we would anticipate also having.
Our usual investor and analyst day wrapped around that and hope.
Everybody can come and join the virtual conference that we haven't see the messaging that we're giving to our customers and partners and and then share a few hours with us as we as we talk about the future of our of our financials.
Maybe one last one last point on that Scott you know journey live we have all the main stage presentations that we have breakout tracks where people are speaking to large groups, but we also do a lot of customer one on ones and interactions that are more intimate behind the scenes and all the all the various conference rooms that we used during that three in that.
Yeah.
We're basically replicating that in the virtual environment. So in addition to the virtual presentations that we get we also are really focused on creating all does internet customer ria interactions during that virtually all of that and that's where we'll get some of that that deeper customer engagement you're talking about.
Great Super helpful. And then for my follow up perspective, Aaron wanted to maybe see if you can comment on the sales that are coming through you know over the last 90 days plus or minus on this call that environment.
Our the deals any different whether it's in terms of sizing S.P. pricing.
Relative to maybe what you saw a pre call that you mentioned the large flow deals. So did know up yeah, yeah, I guess with any of those modules, you're seeing maybe more demand versus others.
Yes, we're definitely seen a strong demand from flow like we mentioned given the unique characteristic that brings to the cobot World. We're also seeing you know it's an interesting scenarios on the skill side of the business customers that are wanting to move faster on their classroom training shift.
But in general I would say you know the the thing that's been most impacted in the last quarter.
Was the smaller account segment.
That that's where there's much more price that sensitivity, that's where there's more competition and very aggressive discounting and that's where we saw more of the churn in the quarter, but are ours are large strategic enterprise deals looked just as strong and sort of simple.
Our characteristics as quarters path.
And that's really where we're staying focused where we're we're you know investing the most deeply and want to maintain the strength of those accounts overtime.
Great Super helpful. Thanks, and congrats again on the good quarter.
Thanks.
Your next question comes from line of Jeff Miller from Baird. Your line is open.
Yeah. Thank you so you called out the sizable revenue beat on the quarter, but.
Being heavily subscription business that usually it's pretty good predictability, it's not clear to be what drove that so maybe some more detail there.
Yeah, Yeah, Jeff I'm happy to share. So I think if we take you back three months, we were in a world where.
The vast majority of customers or vast majority of companies were not providing any guidance.
Given the somewhat predictability of our model and the strength we saw in the business. We thought it was appropriate for us to give guidance.
And the Middle ground. We found is that we gave a little bit more conservative guidance than we normally would have so there is a function of conservativism in there.
And there is a function of just I think really good.
Really good execution in the quarter, we had.
Our customers continue to pay us. So we didn't have any giant reserves, we had to take again I'm paying customers, which would have been a negative hit revenue. We continued to execute through giving a three month of April to a big chunk of our BDC and continue to execute there and we continue to deliver value to our customers a lot of to continue to revenue.
Recognize the revenue there and so I think it's a combination of just being conservative 90 days ago to your point Fairpoint and also executing really well in the quarter.
Okay, Great and then maybe Aaron on.
Evolution of the content if you could just speak to it just how important are kind of the is the interactive content the interactive courses and projects in terms of.
Minutes viewed or you're sure viewership at this point and just any other kind of evolution up the content like what percentage is kind of the content from the big Cthree cloud providers.
Just anything you call on the content demand.
Solution.
Yeah from a content perspective, we definitely see the most demand in areas like cloud.
Data science machine learning AI and cyber security.
As well as our core sort of software development languages frameworks.
You know that are sort of bread and butter for us.
And the big three are obviously very focused on the cloud today and so we're very focused there with them that remains a top priority for us as a business.
We also see new opportunities in space and the other spaces I mentioned like AI data science machine learning cyber [noise].
And you also mentioned the interactive pieces or what we'd like to called the hand gone learning components of our platform.
Like our interactive courses and project experiences.
Those does remain a very high priority for us today, and we're intending to invest even more deeply in this hands on domain in the quarters ahead, and it will be a big theme for us in 2021.
Stay tuned we'll have more to share at live in October.
And I'm really excited about what those developments will mean for our customers.
Got it thank you.
Right.
Your next question comes online.
Im jumping from William Blair. Please go ahead.
Hi, Thanks first wanted to ask about that I get the progress of B to b billing throughout the quarter and into early July did anything change materially throughout the quarter either in terms of a pick up or slowdown in year over year growth and based upon what you can see at this point can you talk about updated b to b billings growth expectations over the rest of the here.
Yeah, so on the on the progression through the quarter I'd say.
The nice thing was it didn't fall apart on us in the third month like the beginning of March when cobot started to hit so that's I'll call contrasted to that quarter.
Relative to kind of any other quarter. It felt the progression of billings through month, one month to month three didn't feel that much different than any other quoted that we've had we we always have a heavy amount of our beauty business happen in the third month, roughly about 50% happens in the third month with about 25 25 in the first couple of them on.
And that's about what we saw in the second quarter as well so nothing nothing new are unique to report on their flurry of activity towards the end like we always have.
As for the rest of the year, we expect incremental improvement I think is about as far as we want to go on billings at this point, we're happy to give revenue and EPS guidance I think if you back that into billings that would translate into a little bit of improvement on year over year growth in Q3 over Q2, and the same thing in Q4 over.
Q3 emphasis on just a little bit.
Got it that's helpful and then.
I think you gave some commentary on usage I can get to actually increase in many if any can provide on.
The trends you're seeing in terms of per user.
Engagement relative to the prior peak orders is that kind of continue to trend higher here I'm going into Q.
Yeah, I think if you're working through we had a tremendous amount of users come in in the first quarter second quarter. We also had a lot of users come into our platform. It was our second highest a user had in the history of our company after the first quarter.
And when you kind of work that through its slightly less than two X. The increase on a user per or a time per user basis, but still right around right around two X, maybe a little bit above two X in March and then it kind of trended to around two X for throughout the throughout the entirety of this.
Second quarter.
Great. Thank you.
Yep.
Your next question comes from one of Arvind Ramnani from Piper Jaffray. Please go ahead.
Uh huh.
Congrats on great what.
I just had a cup enough a couple of quick question, you know just venue I'm thinking with the demand environment or.
Let's see this kind of pandemic lifting over on demand environment. They expect kind of secular trends to be behind you and you guys or do you think that you think it's most likely come this.
And you know in order to mind.
Yeah Arvind good question I, you know I would say that.
You know what we're seeing overall is the is an increase in focus and opportunity around that will create much more demand host coated.
I think where it we're experiencing some near term headwinds because of the budget constraints and.
And cost containment efforts, but a lot of our customers are employing but given the the re imagining and the read reinventing of how they intend to solve this job to be done longer term that is I think creating a rising tide for this entire space on the entire town.
So I believe we're going to see an overall list in demand across the sector.
And I believe that will lend itself to US you know emerging from this as a much stronger company.
Than even what we looked like book for.
The question is around timing, how long will that whole transition take to play out and that's the thing that we're very focused on.
And paying attention to and we'll hopefully have more clarity on as over the next few quarters as things unfold.
Great. Thanks, and you know just a fun follow up question.
Last year.
I can't event, you know you're not talking but you know fairly good.
Kind of pricing pricing strength predict, particularly even to get crime and on offense and <unk>.
Well you didn't kind of.
Kind of particularly outline a kind of pricing strength you know your doctor between Eattwenty seem like a you know a mid to.
Hi single digits or kind of pricing threes.
You know for 2020 and no no that were midway into the year.
Can you can you just kind of give us an update on how you have seen pricing pricing trends improve.
Yeah look I'd say, a arvind James here, consistent with last quarter, where favoring.
Incremental users over maximizing price right now I think if you compare that to the last few years, we definitely had probably more of our growth coming from price increase this year, you're definitely up more of our growth coming from user ship increase.
And we think Thats the right approach right now in the Middle of Cobot is just is just the aggregate Nick and attract as many users to our platform as possible. We're still a premium products. So we do price accordingly, but we're not trying to maximize on price right now.
Right. Thank you very much good luck for them in there for you.
Yeah. Thanks.
Your next question comes mine them, Jason So nothing Keybanc capital markets. Please go ahead.
Hey, guys. Thanks for taking my question I can hear me all right.
Yes, yes.
So I actually had a follow up question on the competitive front it looks like one of your legacy.
LTV competitors might have filed for bankruptcy last month.
Do you think this is more reflective of the headwind that's something in classroom training or or was this maybe more company specific.
Ah, Yes, I think I think that one in particular was likely more company and strategy specific given that you know is it sort of played out leading into coated.
I think the.
The the shifting trends over the last couple of years is something that that is obviously working against large scale classroom I'll keep providers.
And companies are looking for more hybrid digital approaches, which is which is where were more position today.
So I don't think it I do think coated exacerbated it an accelerated the issue and I think it it's playing out on other fronts as well and so we are watching watching these these situations play out and looking for whatever opportunities exist in them.
You know for our customers and so I think we're I think we're going to see a a massive transformation overall.
A route how those those high LTV flash classroom companies have evolved through killed. It. This is one of this is a very transformational moment for that entire.
Sector of companies and I think I think it's going to be really good for the customer base as well to the how does happen.
Great now that's thanks, that's a great color and then we've talked a little bit about somebody usage trends across the entire platform, but maybe can you just speak to the some of the usage trends.
I think for April a cohort.
Yes. So you said there are you want to take against go ahead.
Yes, well I just give a couple of things and then feel free to jump and also the ER.
The number of.
Unique visitors to our site in April was around 900000 on the B to C side and a couple of hundred thousand unique visitors that had a b to b tag attached to them.
And a lot of those b to C customers have converted in are still continuing to evaluate our platform and that are coming from a lot of different places of the globe that.
Maybe we hadn't touched before so that's all good for us to expand our reach a b to b side as I mentioned in some of the remarks the.
We're still in the phase of discovering.
Where they are in the organization how they can influence decisions and includes some of their colleagues in on.
On the decision making to move to a purchase decision so super bullish on on how that's going to play out over the coming two to three quarters and.
And I'd say, it's a you know the echo some of the comments I had before it's it's by far better most successful campaign that we've ever had public I'll pause there.
And just a little more color on that we were concerned with such a large number of individuals coming in that maybe usage wouldn't be as Rob.
On that free April cohort, but we actually saw you know that cohort have really strong individual engagement and it was able to help lift the usage across the entire learner base by that two X factor. So we're very pleased overall with the usage of the free April cohorts specifically.
Great I appreciate the time thank you.
You bet.
Your next question comes from line of Josh <unk> from Morgan Stanley. Your line is open.
Thanks for the question congrats on the quarter I'd like to double click on maybe some of the opportunities and potential competition with Microsoft So they recently announced an initiative combining linked in learning get hub learn Microsoft learned I think to initially focus on Upskilling non tech workers so not.
Your target user potentially an area for an opportunity for you as a third party content.
Provide are tied into their platform plus your existing partnership with Microsoft and then on the other hand, they have all these technical assets enterprise focus and ambition I think and to to get.
To become a bigger player and scaling so I'm just wondering how you think about the future of Microsoft as both a partner and a competitor in the space.
You bet, Yeah, Microsoft remains a very strong partner of ours, and one of our largest customers to date.
And none of that has changed or is changing in the moment.
And the specific opportunity you're pointing to is a really good development in my opinion, it's about like you said, creating more technologists more developers and bringing them into the space. It's a much more consumer focused initiative than a beat it be focused initiative.
And it's something that that's necessary that I with all of our partners would do to help create a more customers for us because ultimately that initiative will create more software developers that then further expands our market opportunity as the professional enterprise solution.
And and that's that's how we see things continuing to play out today, we don't see any changes to that trajectory.
Thanks for the inside.
But.
Your next question comes from lineup so from Bank of America.
Oh, Hey, guys. Thanks for taking my question I.
I guess I'll ask the environment question little differently in those larger account expansion deals.
How's the environment impacted you know a willingness to add more users.
Yeah, I'll make a commitment to learning one hand, you would you would think.
You mentioned earlier that you know this is discretionary you fared well during that kind of discretionary spend review.
Yeah. So so just curious kind of what you're what you saw there what are the conversations like in some of the larger accounts in terms of willingness to expand you know given given the pressure that I'm sure. These guys are saying.
Yeah. The willingness to expand is is the area, where we've seen the most hesitation or the most impact.
Expansion is usually where we.
Russia. It every quarter on you know because we have this land and expand model. That's worked so well for us over the last 16 years.
And so you know.
That's why we believe this is a temporary depression co the induced on and that's that's where we see the most hesitation. If we had customers that were thinking before about expanding from you know maybe a couple of thousand licenses to 10000 licenses that conversation in many cases or is it slowed down.
And that's why we have lean Dan so heavily with more aggressive and flexible.
But co vivid relief options that make it easier for those customers to expand temporarily.
Before we finalize some of the commercials I think I mentioned on the last earnings call. An example of a big Bank, where we did that.
He was in that exact scenario I'm, describing going from a few thousand to over 10000 and and through that flexible structuring posture that we brought to the market. That's actually allowed that deal to move forward and we're weeks away from that one closing now just a quarter later.
And that'll be another seven figure deal ACB.
So ultimately you like we there's definitely more risk more hesitation around large scale expansion and that's directly related to the companys overall posture on all forms of expansion all forms of additional spend in the bulk of it.
But I think through our creativity, we're able to work through some of that now and we believe that once we're past.
This cost containment frenzy things will really turn for us again.
Got it. Thanks. Thanks Thats helpful that and then just on flow sounds like you're seeing some really traction there I guess, how how pervasive is flow now in the in the pipeline is it would you say you're hitting their stride in terms of interest level for attach.
Some of the renewals and and maybe new deals.
And you know any any thoughts on kind of what ASP uplift could look like for that or pricing.
Yeah, you bet I'll start and James can can add on here, we're really pleased with what we're seeing around flow right now the business as a whole is pacing on track for our original started the year target for flow so that hasn't that hasn't changed through this coated this code.
But cycle.
So it speaks to the overall strength and health and position that we have in that particular space and the pipeline for flow continue to develop very nicely. We've been very pleased with the pipeline levels that we've been able to generate going into both Q2 and now into Q3 and you know it's looking good.
Like there's definitely still the overarching trend I just spoke to in your prior question impacting a company's overall willingness to spend but if they want to maximize the productivity of their remote now fully remotes engineering teams.
This is a this is a direct solution to that so I think that that's helping counteract some of those adverse.
Cobot effect, James anything you'd add.
Yeah, maybe the only thing I'd add is just a reminder.
That flow or get prime on its own the average deal size was around 150000, which was.
Quite a bit bigger than the average skills deal.
It has we have more and more flow deals as it becomes a bigger percentage of our overall business. It's it it should have and will have likely are very meaningful impact on our average deal size. So we would have seen it. This year. We're confident we want to see if this year if not for some of the favorable economics were giving to maximize user counts in the face of code.
But as we get into more normalized environment I think you'll see that average deal size go up quite a bit on the back of CLO.
Got it great. Thanks, guys.
You bet.
Your next question comes more hormone rebel from some of them.
Hi, guys. Thanks for taking my questions today I'm, just first what assumptions do you have around the conversion of for April users built into guidance and are you doing anything out of the ordinary or planning to do anything or the ordinary to help incentivizes customers to convert since it is such a big opportunity for you.
Yeah, I'd say on the B to C side, our typical conversion from a free campaign is in the mid single digits and that's about what we saw and are continuing to see from three April on the B to C side, a b to B, it's still a bit of an unknown.
We haven't had a campaign in the past Thats produced the kind of output that we just created with the B to B side of free April.
So definitely the the pipelines are significantly expanded from where they were before free April that gives us a lot of strength and I'd say the conversion rates that incremental pipeline should should mirror. There's no reason why shouldn't mirror similar conversion rates to any other lead that we bring into the business. So it's really more.
The function that we just have a lot more leads than a lot more pipeline flowed now than we had before free up or which is all oh goodness from us and I think can I forgot you had a final question there that I did not write down would you mind, Oh I see that for me yeah.
I was just wondering if you were planning to do anything out of the ordinaries incentivize the conversion.
Yeah, I guess it depends what I would say nothing out of the cobot ordinary which I think as Weve talked about we've we've offered up some favorable pricing to bring in customers and more users. During his time and we would expect to do that with any.
Leads we had from our free April campaign, so more more similar to the other strategies, we have with any fee to be customer to bring them into the to the company and use our platform.
Alright, great that makes sense and then are you seeing any indication that there's been some pulling forward projects are of IP budgets from the back half of this year into the first huh.
I have a we have not seen any.
If anything I think to some of the comments there and made.
Some of these dollars are still waiting to be have been a little bit frozen are still buying out in our waiting to be unlocked in the second half. So if anything I think we see the opposite way that there'd be more opportunity in the second half.
Great. Thank you guys.
Yeah that.
Your next question comes from one I've never been Burton.
Congrats on a quarter or just a couple of questions for me.
Could you elaborate on the announcement with the HW as deep racer, and then I guess what.
Go with that is at a part of what you're talking about earlier with the more interactive I guess projects and then just speaking on Amazon and maybe Google Microsoft How has those partners lead generation look through the pandemic, maybe relative to last year.
Yeah, you bet. The eight up you as deep rates or partnership is is really focused on providing machine learning specific skills development to those participants that are engaging in there in there that deep race or a learning campaign. This is a very broad.
Slide at scale campaign that they run to to effectively drive more motivation around learning machine learning skills across their community an ecosystem as is a perfect place for us to participate in partner with them to enable those skills.
While those participants are engaging in the competition, it's really a comp gamified experience for those learners, where they compete with each other to build the best machine learning models.
That will essentially race against each other so.
So we're partnering with them in there that that helped get us more brand awareness and exposure into the accounts, where these participants work and that's how we think about this particular opportunity. It. It's one of many different examples of things that we do with Microsoft Google and ADW S.
And all three of those relationships continue to mature and develop more deeply.
As the quarters Roland.
Okay. Thanks, maybe just one follow up I think I've talked about favorable pricing a lot I mean, just for your James has the deep level that favorable pricing reduced or I guess is at a discount held steady throughout the first several months of the pandemic or is that.
Level of discounting kind of improving.
I'd say slightly improving it mostly held steady since middle of March through June, but slightly improving as we get as we moved through the second quarter.
Alright, perfect. Thanks, guys appreciate it.
Yep.
Your next question comes from line of necklace.
Suntrust.
Hey, guys. Thanks for taking my questions.
The first one's focusing where someone authors so how are authors doing them at the covenant in certain your disruption and are you guys think holes with others and keeping them engaged.
And also it is there anything you can potentially say directionally about royalties. Thank you.
You bet.
Yeah, our author community remains a very strong through all of this.
Just to ensure a full context on how our author network operates we have 1500 of them all over the all over the globe. So our author network has always been and will always be a remote author network. So in this work from home environment are.
Authors out of all of our constituents, we're likely the least impacted.
In terms of how they would continue to engage with us through this this time.
And in addition to that we have a model where every author receives what we call an author success manager, which as a point of contact kind of tenda like a customer success manager in a typical CSM motion.
That that you know is consistently engaged and monitoring and helping coaching guiding the authors through their their coursework their project that they do for us and they're also keeping tabs on the health and psychology of our offer community and overall I would say that remains very strong.
On our author NTS, which is a metric we track very closely has remained steady through all of this roughly around that 60 level on and.
We haven't noticed any material changes to that.
And if anything I think our authors or are seeing even more we're seeing even more appetite from him to want to do more with us. During this time because it isn't activity. They can do effectively in this work from home environment to monetize on their expertise.
Yeah, I might just jumping on the royalty piece there Nick.
I think you've seen our our target model was to get to 80% gross margins a big by far the biggest chunk of our cost of goods sold or the royalties. We just produced 81% in second quarter, we produced 81% the first quarter, we're clearly tracking ahead of 80%.
Target and that's largely a result of the average royalty fees coming down overtime.
While at the same time to the benefit of our authors, we're actually producing bigger paychex for them since it's a function of our increasing revenue.
So authors, making more money that's a big component that goes into the high author NPS that Aaron mentioned, it's a great platform for them.
And the benefit for us in some of those declining average royalties is we're seeing it show up in a bigger way in our gross margin so super happy about that.
Got it that's helpful and I guess, just as a follow up how was a partner engagement has been tracking over the past few months.
That's a few months and housing agent then with some of the larger size. How many you guys called out some larger partner led deals a quarter too. So just wondering can get an update there. Thank you yeah. The the ESI partners, specifically continues to trend in a very positive direction.
We're continuing to work closely with Accenture.
Who we have a big initiatives underway with right now in the quarter.
And.
Fujitsu, who we've mentioned on past calls that relationship continues strong and just in Q2, we signed Pwc.
And we were really excited about the work, we're going to be dealing with them over the next few quarters.
So overall, the ESI relationships continue to strengthen.
We're excited about what it means in terms of future shared deals and shared account opportunities and we see in <unk>, we see longer term doing more and more with them at the bottom line.
Got it okay. Thanks, guys.
Thank you.
[laughter].
I'm showing no further questions at this time.
Alright.
Wonderful well. Thank you everyone I want to thank everyone for joining our call again, and we look forward to speaking with you again next quarter take care and be safe and tell them.
Ladies and gentlemen, this concludes todays conference you bring your participation have a wonderful day.
Yes.
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