Q2 2021 Slack Technologies Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the slot technologies second quarter, earning call. At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during recession, you'll need the press star one on your telephone if your quarter any further assistance. Please press star zero.
I'd now like to hand, the conference over to your Speaker today, Jesse Helsing, Vice President Finance and Investor Relations. Thank you. Please go ahead.
Good afternoon, and thank you for joining us on todays conference call discuss flocks second quarter fiscal 2021 financial results.
On the call we have Stewart Butterfield co founder and Chief Executive Officer, and Alan CIMB, Chief Financial Officer.
During the course of today's call, we may make forward looking statements, including but not limited to statements regarding our guidance and future financial performance market demand product development growth prospects business strategies and plans ability to attract retain customers and ability to compete effectively.
We will also make forward looking statements regarding the potential impact of the global Covre 19, pandemic on U.S. and global economies and our business.
These forward looking statements are based on management's current views and assumptions and should not be relied upon as of any subsequent date and we disclaim any obligation to update any forward looking statements.
Actual results may vary materially from today's statements.
Information concerning our risks uncertainties and other factors that could cause results to differ from these forward looking statements are contained in the company's FC filings.
Earnings press release, and supplemental information posted on the Investor section of the company's website.
Our discussion today will include certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to not as a substitute for or an isolation from GAAP measures.
Our non-GAAP measures exclude the effect of our GAAP results of stock based compensation and certain other items.
You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in our earnings release and on our Investor Relations website at Investor day, like HQ Dot com.
I'd now like to turn the conference call over to Flex co founder and Chief Executive Officer Stewart Butterfield Stuart.
Thank you everyone for joining.
Let me highlight three key areas of continued execution against our highest priorities. Those would you heard me talk about in the last two calls along with comments on macro related headwinds, you're seeing newly installed base and what we're doing about it.
I'll discuss slot connect where we're seeing the emergence of a genuine network effect, which is already impacting new customer acquisition, along with a continued success of our enterprise business as highlighted two recent customer wins.
But let me start with what I'm, most excited about and that's accelerating growth in new paid customers. This is the fundamental driver on the entire business from compounding expansion on the self serve side to the most valuable source of enterprise pipeline.
Net new paid customer ads grew at a faster rate in June and July compared to April may.
Net trade continued in August even after the typical vacation related slowdown for the month, indicating that paid customer additions are potentially finding a new baseline rate.
We attribute part of the uptick to work from home Griffin increase in the importance of the category, but we believe an even bigger portion of the impact comes from incremental product drivers.
Those are first continued improvements to the South Street experience renew team creators engineers, leading to more successful teams second improvements to pay conversion driven primarily by new trial offers and third the emergence of intercompany collaboration as a new path into the product by a slot connect.
The core product experience improves every quarter with a particular emphasis on simplifying and removing friction from the process of creating or joining a new team.
Our focus in this area has delivered results.
While changes create minor compounding tailwinds.
We continue to invest here and expect slack to get better and more obvious for new teams each quarter driving increased yield from our self service funnel.
It's worth noting that the full impact of this growth will show up overtime.
Historically has taken new cohorts of pay teams several years to hit their peak revenue contribution.
We expect the strength you saw in Q2 to materialize any more pronounced way at the end of this year and into the next moving on a quick update on slot CNET I mentioned it earlier as a driver if new paid customer acquisition. We also believe it serves as a key product differentiator and an important factor in retention.
Connect provides a very rare combination enterprise software a giant leap forward in both end user experience and security and compliance where so often customers are asked to trade off one for the other we can provide both.
In June after an extensive open beta period, we officially launched that connect and released Multiorgan share channels, which allow up to 20 organizations to share a single channel.
This enabled a large number of new use cases, and uptake was rapid marketing support and ongoing product improvements have adding even more fuel to the fire.
We measure network adoption by the number of connected endpoints in the graph and has the number of endpoints is increased growth has accelerated for 140% year on year growth in Q4, 260% in Q1 and to over 200% in Q2.
Many of you then points our teams that had not previously upgraded to a paid plan or even teams that are brand new to slack to encourage adoption and morality in late March we introduced 90 day trials for teams that are invited by paid customer, making a connection experienced seamless.
Those trials started to expire in late June and in just six weeks contributed over a thousand new paid customers out of the 8000 total paid customers added in the quarter.
Trial starts are increasing as a network grows so we expect slot connex contribution to paid customer growth to increase substantially in the second half. We further expect that trend to continue, especially as you drive increased utilization inside enterprises with the launch of compliance and security features such as Arthur aware encryption key management and share channels.
This product driven growth is very encouraging providing us with a scalable way to sustain customer growth.
Our pace of execution on a product side is accelerating the new user experience is going to improve further and in the second half will announce a number of new features for slot connect.
Stay tuned for more updates at slack Frontiers, our user conference October 7th Nate.
Our continuing product leadership with features that connect our extensible platform and workflow integrations and our significant architectural and scalability advantages are all propelling growth in the enterprise segment.
We added 17 new million dollar customers in the first half ending Q2 with 87 up 78% year on year.
New and expansion deals. This quarter include Sony Network Communications, Shopify, Iris Ohyama Kinda University peloton, LPL financial NTT data Corporation and Alnylam Pharmaceuticals.
Across industries, our value proposition is resonating with market leaders and companies at the forefront of digital transformation.
For example for of the sixth largest north American telecommunication providers are $9 million customers on slack.
This echoes the pattern, we see across many other industries, where the market leader chooses slack.
We're also achieving significant depth of adoption within verticals such as financial services.
For example, HSBC doubled its investment.
HSBC is one of the largest banking and financial services institutions in the world serving millions of customers.
After about work has accelerated HSBC slack adoption, providing them with a secure platform to drive internal alignment and deliver innovative solutions for their customers.
Northwestern mutual ranks number 111 of the Fortune 500, and offers life insurance disability insurance long term care insurance and financial advisory services across the United States.
After an extensive evaluation slackens competing products northwestern mutual show slack as its preferred collaboration tool.
With slacken enterprise wide tool northwestern mutual plans to streamline their processes for innovation and meeting clients financial needs.
Leading life accident and health insurer throughout the Americas Pan American Life Insurance group chose slack and accelerated its adoption when employees were transitioned to remote work.
That was able to meet Pan American's high standards of security and compliance streamline communications with vendors and partners and maximize their technology investments.
At American found slack to be the best tool to bring in 2000 plus employees together.
Also of note this quarter the successful completion of the largest initial deployment of slug ever to over 450000 users.
We continue to deliver on our company priorities outlined at the beginning of year accelerate paid customer growth grow the network and win in the enterprise.
I'm proud of our ability to execute especially against the backdrop of complex set of changes in the environment.
As I mentioned earlier in Q2, we felt some macro related headwinds in the installed base.
We price on a per seat basis, and when our customers downsized freeze hiring or hire more slowly net dollar retention has negatively impacted.
That impact is direct and because of our fair billing policies and the substantial number of smaller customers on monthly plans. It shows up much more quickly than it would for others in our industry.
On the enterprise side. There was also more budget scrutiny, especially for new categories with longer adoption curves, even when leaders understand the deep impact of slacken have for them. The urgency at the moment favor short term solutions to solve immediate problems Ceos have a lot on their place right now.
The pandemic has obviously had both positive and negative effects on our business.
We believe the positive changes will have greater impact and will persist as part of as permanent structural shift in the way that we work.
On the other hand, the negative effects will dissipate as we emerge from the pandemic and related economic uncertainty in the meantime, we have rapidly adapted our go to market tactics to the current environment leaning into our product leadership as well as ROI based use case specific selling and marketing oriented around distributed in remote work. We're also investing in CIO outreach and using slackening.
As a lever to drive Brock.
The longer term strategic priorities, we see these messages resonating.
The sales efforts are complemented with new trial programs and new distribution partnerships, including the recently announced deepening of our partnership with as last year.
Historically, where we focus we see results and this is certainly an area of focus.
To wrap up I want to reiterate that the core driver of long term growth paid customer additions accelerated meaningfully in the first half.
We believe there are drivers in place that will sustain this momentum, including a rapidly growing network for intercompany collaboration Soc connect which is accelerating as it scales.
Finally, I'd like to welcome to remember team to the slack family. The completion of the acquisition this quarter sets us up for some exciting future opportunities, especially for slack connect and the platform.
We see huge potential and re imagining the enterprise directory and look forward to sharing updates on future calls.
I'll turn it over to Alan.
Thank you Stewart and thanks again, everyone for joining us I will go through our fiscal second quarter results then discuss in more detail the impact from the cobot 19 pandemic on new customer and existing customer business and close with guidance for the third quarter and full year fiscal 21.
Total revenues in the second quarter or $216 million growing 49% year over year.
Calculated billings were $218 million growing 25% year over year as discussed last quarter to support the stress customers. We've continued to offer credits installment billings and billing duration of less than one year.
In Q2 calculated billings were impacted by approximately $4 million of covered related concessions and contract duration related headwinds. This brings the total concessions related billings headwind in the first half two approximately $11 million.
Although we've seen a slowdown and concession request over the past couple of months, it's still not possible forecast the effects of the pandemic on our customer base over the next few quarters. We plan to continue to help customers manage through this unique time and expect calculated billings to be negatively impacted and less useful as a measure underlying growth during the call. The 19 crisis.
Trailing 12 month calculated billings were $865 million and grew 38% year over year.
Remaining performance obligations were $388 million up 80% year over year.
Net dollar retention was 125% versus 132% in Q1.
We ended the quarter with 985 customers with more than $100000, an annual recurring revenue up 37% year over year. We also ended the quarter with 87 customers with more than $1 million annual recurring revenue up 78% year over year.
We continue to show improved operating leverage in the quarter with non-GAAP operating margins and negative, 3% and free cash flow of $11 million.
I'll now provide more detail on the business will focus on what we're seeing from new customer growth and what we're seeing in our existing customer base.
We continue to see healthy growth in paid customers as of the end of Q2, we surpassed 130000 paid customers up 30% year over year and representing an addition of over 8000 paid customers quarter over quarter up substantially from the 5000 paid customers added in the second quarter fiscal 2000.
The shape of paid customer additions in the quarter was encouraging with June and July accelerating versus April and May This acceleration continued in August.
Some of the acceleration and paid customer growth this quarter as likely due to work from home growth is also due to some emerging product related drivers that we believe will be more sustainable as the work from home Tailwinds normalizes.
Birth in late June we started to see the results of the 90 days like connect trial, we launched in Q1. These trials conversions contributed significantly to paid customer growth in the last month of the quarter conduct provides us with another driver of adoption as our existing customers are starting to pull their vendors partners and customers into flock for intercompany collaboration.
We have historically had to funnels for our business the self service funnel and the direct sales funnel with flat connect a third funnels emerging and disconnect grows we expect this contribution to paid customers to also grow.
Second as we've discussed on the last two calls we've been very focus on the self service funnel and the new user experience, we are making significant progress here and that is driving better conversion rates.
Reaccelerating paid customer growth has been our biggest focus this year as customer growth. The is the business over the longer term, we're very encouraged by the progress absorbed in the first half notwithstanding recovered impact.
Due to this progress we expect paid customer additions in the second half of this year to exceed additions in the second half of fiscal 20.
Ill now provide some additional color on what we're seeing in the base of existing customers as discussed last quarter, our customer base looks a lot like the broader economy with representation from businesses of all sizes in nearly all geographies and all verticals, we estimate less than 20% of our business is from industry is most directly impacted by the cobot 19 pandemic.
While these represent a minority of our business is higher risk industry is grew significantly slower in the first half versus non impacted industries.
We also price on a per seat basis, and many of our customers on a pricing model tied to usage with fair billing.
So recessionary dynamics, such as reductions in force hiring freezes and slower hiring are directed immediate headwinds of growth within our installed base.
In the mix of those headwinds customer retention remains very healthy with retention for customer spending greater than $100000 annually remaining flat from the mid to high ninetys retention of our customer spending between $1000 on $100000 was in the low ninetys and move downward slightly.
Engagement also remains very high.
Customer churn has also largely stabilized over the last couple of months.
On the other hand 100000 dollar customer contraction provides a good example of how headwinds like headcount reductions in our customer base impact metrics. In Q2, we had 50 customers moved from the 100000 dollar to $150000 bucket to the 50000 dollar to $100000 bucket. This compares to only 10 in the second quarter fiscal 20.
Net dollar retention was similarly impacted contraction was approximately three percentage points above normal in Q2. Some of the contraction Q2 was due to what might be described as a hangover effect from the Q1 surge in Q2 growth in many of our customers contracted or flatten versus normal seasonal trends in August growth began to trend of more.
Typical seasonal levels.
In general there was more budget scrutiny, particularly for incremental investments that we've seen sales cycles length and with some customers accordingly.
This is particularly true in the Americas region.
Those rates in geographies less impacted by cobot are similar to pre cobot levels.
Ill now provide some direction a modeling Q3 calculated billings as discussed many of the headwinds we have observed in Q2 have stabilized and some parts of our business are beginning to accelerate at the same time the macroeconomic environment has created more uncertainty for our customers. Given this backdrop, we expect similar quarter over quarter percentage growth from Q2.
Q3, as we observed in fiscal 2000.
Now on the guidance for the third quarter, we expect revenue in a range of $222 million to $225 million representing year over year growth of 32% at the midpoint.
We expect non-GAAP operating loss in a range of negative $27 million to negative $23 million driven by higher investments in our R&D and sales organizations.
Expect non-GAAP EPS in a range of negative six cents to negative five cents. We're modeling Q3 basic shares outstanding of approximately 571 million.
For the full year, we're raising our revenue guidance to a range of $870 million to $876 million representing growth of 38% at the midpoint.
We expect full year non-GAAP operating loss guidance range of negative $75 million to negative $70 million, we expect full year non-GAAP EPS range of negative 14 cents to near 13 cents. We're modeling full year weighted average basic shares outstanding of approximately 567 million.
Finally, we continue made substantial progress on our growth phase leverage targets and now expect to be free cash flow breakeven for the year with that I'll turn it over to the operator for questions.
As a reminder to ask this question you will need to press star one on new telephone to withdraw your question principal pounder how sticky please standby Billy compiling culinary roster.
Our first question comes from Alex in with RBC. Your line is open.
Hey, guys. Thanks for taking my questions.
Maybe just the first one steward for you.
Loved the net add.
The first half of this year are greater than the entirety of last year and you're commenting that you have lot of confidence in the back half trends being higher than last year's second half. So maybe talk to US now that were two quarters the way through the year and Theres better understanding of some of the engagement dynamics and from the top the funnel.
Yeah conversion dynamics, what's giving you that contracts and when I realize that growth is longer term, but given that billings dynamics and the retention and celebrate that expansion dynamics. When do you expect that growth to present and what's the best way to think about you are durable growth trajectory.
All great question so.
Theres if theres a couple of factors that give us confidence about the second half when it comes to new customer acquisition.
Part of that is just like a higher baseline rate.
And obviously this is something that we model really carefully and do a lot of analysis on.
So thats kind of a background trend and presumably at just the increased relevance important to the category.
Work from home World.
But the fact connect stuff is pretty easy to directly model and has not sun flaky Metrovation model, it's pretty much direct you can see people, who got the invite beam starting to trial the trial inspired many upgraded.
And I mentioned to those at about 1000 net of 8000 added for the quarter that one.
Got about half of the quarter and all of the numbers are going up there should we expect that to be a bigger driver and finally I think we'll just kind of.
In a good space now with the team is working on the new user experience and pay conversion and all that just continued progress because they're just making a lot changes again, sorry, one last factor.
Yes, it's traditionally slower bonds.
Especially in the with the holidays, but.
Same thing is true in North America, and we're not seeing.
As much slow down as you might have thoughts I think all of those seem to be sustainable I'll, let Alan speak to the when it really presents.
Hi, Alex lastly, on the paid customer adds jobs. The momentum is very good right now we'd like to based on the we're building off of from here Q4. Adjusted mine is very seasonal but the holiday. So that may distort the numbers up or down just given those for that particular quarter, but we'd like the progress Sarah and although it's early days the momentum is very encouraging in terms of what to expect for.
The impact.
These cohorts.
Take time to expand over many quarters, if not more like two to three years in on a cumulative basis. So I expect to see some contribution probably starting as early as end of this year, if not more into the beginning of next year, but that will be an ongoing tailwind for us just given the Atlanta expand dynamic that we have.
Understood and then maybe just on the other side of the equation. If you think about the dynamics around their buildings and the impact that having in kind of this year on on dollar based net expansion walk us through how does that present on the other side what is the when will you start.
Is it fair that it drops and then starts to kind of go up if some of the cyclical dynamics around certain economies are certain sectors economy improves or one there is a net new kind of baseline around building do we have to wait until a new renewal term or contractor Americas be great to walk through that.
Yeah, I think are under fair billing front, Alex I think I think both our true so when economies start improving and you start to see normal expansion. Our resume you will expect to see that but but keep in mind over this impact is which you need a kind of anniversary Ed to really see the full benefit of it. So I would expect that to take multiple quarters to play out, but you're right for our.
Our larger customers that are more L.A. based that's typically driven by the renewal timing.
Great. Thank you guys.
Our next question comes from.
And we'll Len Barclays. Your line is open.
Hey, Thank you.
Could we kinda talk one more time into Dolan net retention to 125.
If you think about I'd like you mentioned some of the components are ready, but like how how much of this is like a sustainable kind of new level versus something that could come back can you can mean to discuss that doesn't give more detail again.
Yeah Remotes Alan.
So I think notably we called out the contraction piece because that is a really big deviation from trend oxy churn was higher in the period as well. So I think let we ever land and expand model here, we know that expansion will continue.
As customers adopt side, they will continue to grow within and expand over time, but you are seeing more pronounced impact. This particular quarter just given the the workforce reductions that we believe are playing out into into the into the numbers just given our fair billion turbine dynamic. So I think long term, we sold believe it's 100 into 120% plus range.
But there's obviously some volatility that we sold in Q2 here by coming out of Q2 into Q3, we do feel like the trying to stabilizing if not improving.
Okay, and then one follow up for Stuart So the if you think about I'd like.
Yes people hostile we think over you mentioned how they work.
And thats kind of like going through you know should probably putting a help you Andrew we see somewhat that already in some of the discussions we have if I T cells.
With our T. buyers the like how do you think in terms of timeframe. How does this is going to play out like at the moment. We're still in seems like very much. We're still in crisis mode like what sort of kind of early stage discussions do you see about people are re imagining how the operating et cetera.
Okay.
Let's.
Great question, and I think theres, probably we'd like to different things going on one more and enterprise world and one just like with the broader good companies that might use lock in enterprise land. It's a period of digestion. So a lot of IP leaders are going through almost like a series and pricing is with managing the network to end security.
Hi to deliver laptops to new employees had a fixed assets broken just lack of that kind of the whole transition to work from home in the operational side for them.
And with that there is.
Only enough capacity to fix things it seemed like will fires and emergencies and.
Yes, so whether it's Grafton Isaac Soc is viewed more as an elective and thank.
Good news is I mentioned this on the call. It that capacity is starting to free up a little bit.
[music].
Looking a little bit more broadly don't you think the most effective driver of all new team acquisition and changing People's minds have not been our press activity and thought band our marketing has not been our website that had been on people who use slack at one company coming to new company and advocating 14 storm water from.
Advocating for it so.
Perfect slot connect as a great replacement driver for that and.
Well I don't know, we've always said slack is something that people don't know that they want but once they have it they can't live without it.
That dynamic I think can start to happen a little bit quicker one last just kind of more bank debt diversified.
Just a conduit our VP of customer experience.
On a run programs for how we should be changing the way that we work at flat at the company.
Given the headwinds now working from home in one of the first thing. She said walls that 500, Howard is no longer headquarters, our headquarters and slot and that was great and then.
It's funny to attributed to say, but someone pointed out a.
Seeking alpha post we posted on Yahoo message financed boards.
That was someone described is not going exactly those trip it is that the physical.
Maybe just a digital advice and for the fiscal office.
And.
As we get more and more PPA as reengaged in the process. That's an interesting line of argument because it's the replacement for the conferencing, where the Brainstorms happy effect for the intimate enough for the wondering what happens for all hands at events.
And for organizations that are using that they really experienced that as a true center of gravity for the operations of the organization.
I don't think that people, who don't have that know that they're missing it yet, but we're doing our best.
Yes, okay.
Okay. Thank you.
Our next question comes from Brent Bracelin with December your line is open.
Thank you a one pursuant to follow up for Alan If I could Stuart roughly 45 days ago, you filed a complaint against Microsoft you could you walk through the logic of the why now regarding the timing of the filing in that maybe what you saw competitively this quarter.
Yes, sure so no correlation between the timing of the filing and anything else is going on and off its apparent from the outset or not but this is something that is.
Literally years in the in the works from initial conversations with.
We've been asked about this over and over again, we've had to be a little bit circumspect in our our answers we decided to pull the trigger.
A little while ago, but even that process has settled some spend up to actually submit the complaint there's going to point out that those are separate and then just about the complaint more broadly.
We genuinely believe to that.
This is almost textbook definition of what the regulations are trying to prevent it's illegal anti competitive behavior.
It's doing that for us and we're doing it for the.
Innovation of our competition for the broader ecosystem.
And ultimately for customers.
But this is attack this is not a strategy. This is not something I'm paying very much attention to all right now because this is conversation train and lawyers and regulators, we feel very confident as I said that Tom.
At this matches the definition, which also feel confident that the commission will agree they will initiate investigation and automate that will find in our favor.
So with that having been separated.
On top of just and generally the Tam is just so bad that is I don't think.
Anything even if it was very segments going to show up for us in a significant way for awhile, but theres nothing thats, indicating increased pressure there when rates are the same we're now in quarter 14 of competing with Microsoft.
One over and over again and artistry 65 using customers.
So well no doubt that it causes some friction mantra that are.
For us to overcome it doesn't make a ceiling or the net or on our growth.
Lastly, I point out is.
We have different visions, there's a different roadmap the products are used and fundamentally different ways today.
And thats, becoming increasingly apparent to customers.
Got it Thats helpful color and then Alan just as a follow up.
You mentioned head count several several times here is one of the the new kind of impacts as we think about the that that cohort of $100000, our customers and I think 50 of them slipping below as you look through the installed base and as you look through the.
The reset right of headcount.
Is that largely now behind US has an impact do you still think there could be more of an impact across your existing customer base as a drag next quarter, just kind of walk us through what you what you're seeing from just a head count.
Pete drag based on some of the.
The layoffs that to have occurred here.
I think thats right, Brian what we saw was pretty pronounced impact in Q2, and just given what's happening in the world I think the timing is not coincidental.
But we don't expect to see that kind of sequential change again going forward here as I look here and kind of a second week of September the early trends coming out of our August and into September are more encouraging and even in Q2, just as a reminder, we added the same on a gross 100 key customers as the year prior Im really the only difference.
It was the folks hunk falling below the line, which we highlighted in Q3, we're seeing the ongoing momentum there on 100 as without the same kind of drag on the contraction side.
Got it helpful color. Thank you.
Our next question comes from Brad Zelnick with credit your line is open.
Excellent. Thank you so much for taking my questions, maybe one for steward and one for Alan for Stuart It's great to see the number slack connect customers and endpoints continue to grow but are there any additional metrics you can share about penetration within customers average number of other organizations. They connect with it ultimately any observations that you have around.
Renewal and expansion trends or even daily usage of this cohort.
[noise] those are all great questions and I don't have any numbers to share didn't prepare anybody else I just don't have any at my.
Finger tips.
Yeah.
Intuitively this is going to be it a great driver retention over the long run back when we first proposed this has been put on the road map, we would say inside the company that this is.
That goes to the center of here if that is filled with.
Bolton led and nickel just like the Earth's core.
And I still think that that's going to be the case over the long island.
While we have seen.
Kind of building the right tools for administrators to allow for.
Rapid spread inside of those companies.
All of those are trending encouraging ways and I think there's also a lot of stuff on the roadmap, which is going to make it again.
The two that I would point out.
One is ads b M connect or the ability for any slack uses to create at the end connection outside of the context of a share channel channels are already have big driver new direct message conversations across company boundaries, but this is more like our card.
And.
The second one is.
Let me call managed connections, which is the comprehensive reporting and policy setting the organization alone for their relationship with other companies and this is something that I would actually love to have I guess theoretically you could do.
With with E mail, although you wouldnt get to seeing policies.
This is for us as a partner and vendor to Salesforce.
All the share channels that we have within all the direct method conversation just kind of reporting on the activity and usage seem that trend over time.
With professional services firms that we use our customers.
And the ability to set policy because what we're selling on the enterprise side of the stock connect is hey, this is a big step forward improvement you're going to support your customers better your head get more value vendors.
But also big steps forward in security compliance. He has the competition here is largely tech messages whatsapp and other out a band communication methods. So I think that that's beginning to resonate and we have customer advisory board just kind of early preview of lot of these features to on the champions within Soc using organizations and people got it and I think thats a message that's really going to resonate.
So big drivers, there and on and we'll look at.
Broader set of metrics beyond endpoints, we want to start Sharon.
Awesome. Thank you steward and maybe just for Alan Alan It's encouraging to hear your comments, suggesting a return to more normal billing seasonality next quarter. How would you characterize the visibility you have perhaps in terms of via lay renewals or we're just tangible pipeline that really drives your confidence in and what are the upside or downside risk to that especially just given.
Some of the uncertainty in the World and for example, some of the things that you said about what you're seeing in the Americas. Thanks.
Yes, Brad I think it's a balancing act you know we still we pull billings guidance last quarter, because we expect to more volatility you did see that show up here in Q2, and I think we will socio falls environment going into the second half now having said that Q3 in Q4 more of the pipeline there, but you on the larger deal side as renewal base.
And those are generally higher closer at opportunities for us and so we expect again improving trying to somebody that I think is working in our favor the quality of the pipeline. If you will the composition of the pipeline is working in our favor, but I think there's volatility which we saw in Q2, we don't expect that to recur again here, but at the same time the world's pretty.
Dynamic right half the harvest read I never now.
Totally got it. Thank you so much guys, we're taking the questions.
Our next question comes from Michael turn with Wells Fargo Securities. Your line is open.
Hey, Thanks, good afternoon, you've touched on the influence of slacken Exxon new customer adds a couple of times it sounded like from the prepared remarks, you're suggesting customer ads can continue to roll on it at a better cadence for at least the rest of this year I was hoping to dig into that a bit more what is it that helps that trend persists versus this being more of a onetime product.
Drivers. It just continued rolling adoption trends, maybe just help us and calibrating wrap around were flat connect is today versus where it can ultimately end up.
Not yet so.
The.
The confidence in that that's kind of trend continuing is just looking at the number of invites being sent out the number of new trials being started.
And those are all encouraging and point to continued growth on top of that wondering they didnt mention is the difference in user experience, if you're a brand new user to slack and you're coming in via share channel versus you just went to the website incentive to team yourself. So in the latter case, it's a real cold start you got to invite people you got to convince them to use that you got to show them, how you've got.
Figure everything out.
But if youre.
Asia, it's coming in through a slot connect invitation.
You already have people to talk to you already have stuff to talk about the hurry like a business use for this and so I think people will wrap their heads around slack.
And in a fundamentally different and much better way. So all of those and features I mentioned in previous questions.
All of those I think we'll be continued drivers for the growth of the network and continuing to see that network effect and there is just.
A lot more users behind and there's a lot of people bringing in vendors.
Whenever that was I think Q4.
Revenue for started talking about flat connect mentioned that one Little example of the star shape in that network graph that was someone.
Who believes that the experience for their customers with so much better when they were able to support their customers and share channels that actually when creative Soc instances paid for then got them all set up invited their customers.
The customers running.
[laughter].
Well, that's not going to happen.
As of today.
That kind of dynamic in that impulses definitely timing and we can capture harness and start to direct energy.
Well I think it's fair when we did intentionally call out that we think this is a third file for US and this is very early days in terms of how we have leveraged trials in particular in Soc and not as a growth driver. So we're in a country to optimize on I think that's where we're hearing that the conviction in the belief and an opportunity here.
That's helpful. Appreciate that and then on Romano you briefly mentioned it sure sure we'll hear more frontiers can you expand a bit more here as well around what that brings in terms of richness of profile data and how that helps expand on what you're building out with those connections across your user base. Thanks.
Yeah Okay.
So I'm going to take a little bit more in the short term just because the long term starts to get a little involved.
First of all it's just a great products were up and running and using it now and I am getting utility out of it every single day and it's one of the maybe kind of Lifelock. Another thing that if you don't have it you don't know you need it but once you get it you can't live without it.
Okay.
So we're excited to start delivering into more and more customers.
Applications on our side, but can you make any material difference to the business in the short term because that's not the.
The goal in the short term.
We want to improve the.
The profile features inside of slack itself, but generally if you have a better user interface for browsing profiles and spine to link out just like we have all kinds of integrations all kinds of services, we don't need to build a CRM inside effect with Theres salesforce money outside.
And the same thing is true for Metro. So last thing I'll mention I think what you were getting at is on.
Its ability to kind of share profile details in the context of other applications, where either profile details organizational structure details would be important irrelevant so for us the.
Obvious simple one is plot connect when I mentioned before this I'll cart DM connection between two individuals it's a little bit like Blackberry message and if you remember that from good old days, where I share. My pen you can send the message I still have to except it's kind of like a double pen shake.
And.
Well remember profiled information is available that's what we'll show and as we start to build bigger and bigger directories more of these multi or share channels and kind of eventually spinning that off into its own feature from letting people create networks and associations.
Another application for profiles, there and then finally just a useful.
Repository of data not just for profile information and not just for the kind of organizational structure you typically see in these tools, which is based on reporting lines, but for the.
Fuller sense of what teams people belong to what groups and how they relate to one another which can be used in all kinds of applications.
Increase the power of the integrations with slack or anywhere else.
Thank you.
Okay.
Our next question comes from our LTL with William Blair. Your line is open.
Hi, guys.
Alan first ones for you, maybe you know not to do that horse, but on the net dollar retention headwinds can you just maybe give us a sense for how much of that is from customers that are just basing head count reductions versus gross expansions being at a slower slower rate or or.
True churn that you're seeing whether that be India, SMB section of your business or or or elsewhere, where customers are turning slack off off completely just between kind of those those three buckets, where youre seeing the biggest headwinds.
Yes arch I'd say.
The expansion front that was more or less on trend for us.
Really the normal wants contraction, which we called out but also turn was elevated in the quarter. Although that we did see that start to stabilize coming out of the quarter and into Q3. So I think Q2 was a pretty unique quarter. We saw these impacts and very pronounced way, but we don't expect them to recur definitely on this magnitude notwithstanding kind of the economic environment in the volatility that we we believe.
So present, there, but the trends are encouraging from here and we think we're at a better baseline.
Yes as conditions start to normalize from here.
Got it Thats helpful.
And Stuart.
One for you it's great to hear that slight connect is launching your you're seeing a lot of interest.
And it's driving paid customer adds just when we think about this at a higher level can you just help us understand the technical sophistication, maybe that's required and building an offering like this that can support multiple organizations with Adam control.
And the rest of it and are there barriers here that would prevent.
Competitor for building something so similar or maybe one that's that's sure point based.
[laughter]. Good so great question, I'm I'm going to try and I'll be little light on that on the technical details, but I think the easiest way to think about it is.
If there are no interactions that cross organizational boundaries, then all of that data insights that can be tightly divided by organization. So we only need to.
Support to scale, the largest organization as opposed to all of that users in the network.
All the users in the network is a much bigger problem batsmen Facebook.
It was pretty incredible and their ability to support that nearly days of switch support a lot of their growth.
So if you have 10000 people your company.
The Youre software client used to only have to now at most about 9999. Other people. If you can have a connection to literally any others like user than potentially up to know about millions and millions of people.
That's a bit of the commentary ill explosion. There. So we have pretty new technology, I mean literally broke ground started development in 2013.
We've done a number of fundamental factors head upgrades along the way.
It took us a long time to bring slot connector market, just because of those challenges that I mentioned and.
From there the challenges.
Our.
That's.
A new line. The challenge is introduced in addition to scalability, which is things like what do you do when they have different message retention policies. What he do if they are using different encryption keys and they both on we can plans. So a lot of innovation, we're doing there with mark author aware became.
I read it as.
If not a 10 out of 10, and maybe a nine out of 10 and technical difficulty I think the challenge will be incorporating legacy technologies or kind of.
Getting a bunch of legacy technologies to operate in this way.
Yes, Hi had never say never and it's kind of its kind of hard to predict.
Well, we don't see any one being able to replicate what we're doing.
Any faster than we did it.
Okay.
Got it thank you very much.
Our next question comes from key slate with Morgan Stanley. Your line is open.
Hi, This is Josh bound for Keith.
Thanks for the question a couple on on engagement and just wondering if fan engagement per day as far as time connected to flack in active use has that remained elevated over the last three months compared to.
Prior quarter commentary.
Yes it has.
So I hope we.
No. We don't reported regulates I haven't looked in the hospital I'll bet on it is so over 10 hours a day connected and 100 minutes of active usage.
I'm not sure how it's trending but I think it's fair to say that where.
We kind of set new baseline and new features May drive increased usage.
I would point out that in some cases, we want to add features that help people spend five and it's less.
Inactive usage, but generally.
The engagement incentive like people realizing the utility the value slack.
In the center of gravity for their their work life and kind of replacing that physical office, that's definitely still there and that heightened engagement is something to be expected continue.
Got it and then thinking about the 12000, new paid customers last quarter and then all the momentum this quarter.
Thinking about engagement are they.
Still using the using slack is kind of the solution to the immediate work from home collaboration needs at this point or have those new customers. So platform really starting to fully embrace the potential of the solutions as far as building automating workflows and integrating with other software. Thanks.
Yeah, I think it's a great question and let me say on the early stages was I think because the incremental demand was driven by the increased importance and this time.
It's kind of correlate edge.
Increase in the.
I don't know to call it that.
The amount of Gumption people had big ticket is set up and it really sophisticated way.
Higher success rates at different points, along the funnel.
That's still there not less pronounced over the last week at March of course.
But.
It's still a.
So a lot of work I think for us.
We have a lot of work to do I guess I'm trying to say.
To help customers get realized the full value there.
The workflows are very popular and we see usage increasing on.
But.
It takes a while to get to where we end up and where we end up by the way is.
94% of paid customers using at least one custom integration I don't mean third party software I mean, a custom integration.
90.
Specific 99.8% of our $100000 plus customers and using at least one and 100% of 2 million plus customers embracing using at least one the average there is I don't have in front of me, but it's in the in the hundreds.
So.
That kind of usage takes awhile for people to kind of wrap their heads around and undertake we have.
Our commitment to making that easier and simpler the workflows stuff and that the road map around that are big driver there and I think beyond that we're also looking at kind of that.
[laughter] a broader platform 2.0.
We factor of the approached applications really trying to make it a simple as possible really trying to make any interaction you have a painting a link to tune objects and third party application being the starting point for building those integrations.
Got it thank you.
Our next question comes from Derrick literally Cowen and company. Your line is open.
Great. Thanks for taking my questions I guess, one for Stuart one for Alan.
First one.
You guys on the partnership side, you guys announced I'm kind of a strike we partnership with a W. asked last quarter. Stuart you briefly mentioned new things you're doing a little bit last year in this quarter, we still hoping you could double click on on what's new with new aperture coming out of these partnerships and how you're thinking about helping drive market.
Average or market advantage.
Vandalizing the market as you look at them or the next six to 12 months.
Yeah, So I kind of divide the work into two two halves. There one is more or less purely commercial it's how can we help each other out.
Those are obviously important I don't have a lot to two announced right now our board members to share, but we are seeing.
We're doing more and more experiments around distribution and offers and things like that and I think that we will continue to make progress there.
On the other side I think it's really.
I just spoke about.
What what we need to do to bridge more usage from kind of normal people to this world of integrations because the normal people are using hundreds of different software tools at their company and they're spending more and more minutes median software everyday and their companies just pay more and more dollars on there used to software overtime. So.
Exit the best thing that we can all and I think we.
Software vendors can I'll do for each other and for our customers is to increase the degree of and profitability and I think when you look at the last in Eutelsat, obviously huge overlapped with slack.
We talk about lack of a lightweight fabric for systems integration in the broad sense, but you are companies like adapting and look at stock as a lightweight fabric for integration of their own product suites for their their customers and that's something that's really attractive.
Are you. This example, a lot but it is still my favorite I piece to linked to a Google dot into a channel in stock and it will say hey, seven of 13 people in the channel don't have access to block would you like to give it to them and I could just press a button and all of it is automatically taking care of and the only way you can do that is if you did users our map a cost of systems and you.
You understand who's who and you can control all the access controls.
That's a level of convenience that.
I think we all can collaborate to bring to customers to remove friction to get more value out of software and that's really the thing at the heart of the relationship with Avastin when I talk to to Mike Cambrex.
That is the number one thing that we talk about how can we make that easier how can a simpler afternoon, helping me streamline it.
So.
It's not just avastin and of course, but Todd.
A lot of uptake in a lot of interest among the independent software vendors that we talk to more or less every week and expect more progress there.
Well thanks, Thanks for the color on now and.
80% growth and ARPO is a big delta versus the 30 for 34% growth in deferred revenue can you remind us why.
Such a big Delta and when we should expect that to converge a little bit more and then.
Thanks for the Colorado on billing directional thoughts on billings in Q3 or are you at a point, where you could share directional thoughts in Q4's too early.
Yeah. So on Rpls, Eric as a reminder, our appeal is only the value of our multiyear deals and so you saw that notably increase in Q1 with some some larger deals are which which we talked about in Q2, we talked about some of those sales cycles lengthening and I did have an impact on fewer bigger deals being closed in the quarter.
So that's really the disconnect is our definition of how we're using our IPO.
Overall on the billing side of things I think Q twos right baseline to build off of here I think the bought the the second out at the same time sole there's pretty limited visibility beyond this quarter. So I think that's why you're hearing us provide more color on Q3, but I think it's too early to call Q4 at this point.
Okay. Thank you.
Our next question comes from Willpower with Baird. Your line is open.
Okay, great yeah. Thanks.
I'll try to figure out a couple of questions I guess, maybe Allen first for you just maybe just to come back to the seat count pressures you alluded to earlier.
And maybe I missed this but are you able to can't quantify what percent of the seat count pressure or some sort of qualification was tied to the hardest hit industries versus something broader base and I guess.
Stepping back just remind us again, what gives you confidence so that doesn't persist as you move to the second half of the year.
Yeah, well I think what we what we see is that those impacted industries are growing slower I don't have a more specific attribution of that for you at right now we can follow up on that but specifically what we're talking about going forward from here is I think the takeaway is acute you saw this more pronounced impact I think as we look at expectations are going.
Forward, that's where we talk about Q2 as a baseline because I think we've absorbed a lot of what we think will happen at least on a sequential basis here. It's obviously that they will continue to grow for a grocer going forward, but I think we've baked that into where again, calling Q2 the baseline so.
Base off of that I think those expectation have been built into how we're looking at the remainder of the year.
But broadly speaking I think the trends are improving.
Hi from those affected industries.
Okay, Great and then Stuart I guess, one for you as you look at slack snack.
Yes of growth and overall slack connect.
Endpoints and sounds like.
Overall traffic I Wonder if you could just share with US you know what would you view some of them more excited use cases, what are you seeing out there now that you've got a much broader expansion opportunity what endpoints and.
What gets you're most excited about what can be replicated there across different industry groups.
Yeah. So there's I guess two different answers here and the one for me personally has been the kind of magical power of multi aren't share channels to create private networks. We have talked about that example.
Ceos of all the different sounds companies that so.
Vibrant source of activity on that so a great way to kind of do you have an avenue for conversations that literally couldn't have been done any otherwise they wouldn't work and what that would work. So that that's me as a user me as.
Business person.
Okay. So that im most excited about our sales related.
Yes, Hey, it's actually just really good I mean, it's great to have a complex.
Sales process, which can involve legal negotiations and security of using the vendor approval process and commercials and all that stuff to have the the leaders in the managers on the sell side and the buy side, both kind of have oversight of the conversation that are happening that's a lot less duplicative work, it's much easier bringing someone in all the reason that that channels.
Better, but the other reason why I like to escape is you can that's an argument for.
By Slash get revenue, which is which is different than by slot get productivity.
I.
I am 100% sure that the ROI on that productivity sale is massive scale like 100 exercise that we don't actually charge that much and again scheme of things but of course, you know that's always a harder sale to make whereas by our product getting revenue is a lot easier.
That's great. Thank you.
Our next question comes from Heather Bellini with Goldman Sachs. Your line is open.
Great. Thank you so much gentlemen, I'm most of mine have been answered, but I just wanted to go back to Stuart maybe getting you mentioned that customer additions. We think are finding a new baseline what do you think about the customer towns of over 100000 then.
You signed 22, and I know some of those kind of drop down from over 100 to less than 100 in the quarter. How do we think about but it's not what you're referring to you when you're talking about the baseline them, how do we think about.
End of the papers that number kind of growing from here given the.
Big lay signings that that typically happen in Q3, and I guess Q4 in particular I just kind of follow up. Thank you sure sure and I think I've just a clarification there I'm talking about just that the total number of net new customer adds all shapes and sizes all around the world.
So that's the number I think we hit a new baseline on and there are just in the last two and half million businesses that have five or more employees all of them are.
Built to use slot, but a lot of them are so there's a lot more room. Then just 5000 8000 10000, new customers in the quarter.
The representation of 100 future hundred thousand class a million plus customers.
Yes, it naturally will.
Diminish over time, just because there's only so many of us.
And a lot of and are already in the system.
The maturation process can take.
Take longer anything the accelerated I'll, let Alan add some color there, but I was talking about that the 8000 not the one hundreds yeah I would just quick on the hunger K I think what we saw in Q2 was the folks as you mentioned dropping below that I don't expect got to recurrent nearly definitely not that magnitude of going forward here and the early visibility.
The trends we're seeing in August into September suggest that no we will be.
You will see an improving I figure there for for Q3.
Okay and then just another follow up just again just looking at the deferred revenue trends I know you had maybe slight benefit from the acquisition, but it looks like on the cash flow statement. It was roughly flat sequentially I'm, just wondering and I and I know you gave a little bit of color on on billings for Q3, but is there anything you can share with us.
How the cobot impact that concessions that you just got impacted you know this sequential change in deferred revenue in the quarter.
And then the last question I had was just the true ups on the L.A.'s I mean, given given those typically happen in Q4 do you think the worst is behind that's from a net expansion rate perspective.
Hi, there so first on the uncovered related 4 million in coated related concessions. This quarter alone 11 million for the first six months of the or it's somebody that well or is that differ.
On the billing.
Yeah, so billing so it's going to impact on the deferred side yeah.
Well I guess, what specific revenue, what's the balance what's the split between deferred revenue I guess, if that's what I'm trying guys are out Oh, sorry, so all deferred.
Okay.
Okay. So it all makes it was all deferred and then just break that true ups on yelling.
Yeah on the law aside from public funding our.
Yes, Q3 Q4.
More L.A.'s more renewals just given they think of enterprise shape and seasonality of those quarters.
But I think overall nothing more to report there I think the.
The current thinking as those renewals are going to be higher quality opportunities for us and we believe that we're continue to add a lot of value for these larger customers in particular, so I think there's that's a an encouraging change in trend from the Q2 accomplished on future pipeline.
Okay, great. Thank you.
Our next question comes from Walter Pritchard with Citi. Your line is open.
Hi, Thanks, just Ellen clarification here on the on the 100 K type business I mean, I guess I'm under the assumption most those customers will be on like annual deals and they would be would upside or downside, especially downsize at the time of a renewal or maybe even a payment period that is if that many of those are on monthly or is this just.
Customers, who had something up for renewal or up prepayment the quarter and renegotiated.
Yes, it will alter a couple of points are so not everyone is on the niella. So it's not all tied to renew but probably more importantly, it's an EMR based metric so thats, what you're seeing more movement, there any given quarter.
I mean, they actually have rights to downgrade mid contract.
What I'm just trying to understand because of our favorite South company, who has a three year deal one year deal only a portion of yields becoming up it is one time and actually seems like it quite a large percentage of those big number that 100 gig customer great.
Yeah, I know, it's really a reflection of the seats. So as we're tracking usage. We're we're as we've been saying real real time tracking that and then we're taking the risk reflect now they are we're tracking for that for that customer.
So even if the renewal hasn't happened yet it is when he's yeah. We're on yeah.
Oh I see okay, alright, thanks to the clarification.
The problem.
Our next question comes from Mark Hello.
Bernstein Research your line is open.
Thank you for taking my questions.
This will out of them have been asked already answered I. Appreciate that if you don't want I'm going ask to reasonably short ones on the Q3 in Q4 or implied Q4 guidance just wanted to confirm or you modeling similar or larger impact from the cobot 19 concessions or the other factors that you add.
Decline in here in Q3 in Q4 guidance that may have been were positive or negative then you hadn't asking them to follow.
Yeah, just on the shape of the guidance there I think a similar impact right now based on what we saw here in Q2.
So so no real change on expectations.
Okay, Perfect and then Stuart on the integrations.
How long.
Do you see customers, taking until they start picking up.
In adding integration is creating integrations of their own and is it any different from the people companies that have joined says work from home started versus those historically.
Yeah, I don't have any hard numbers for you on the use of integration, specifically, but as I mentioned before a lot of people coming in this environment at Pike, <unk> interest and importance relevant to the category.
Mean with slightly more sophisticated ideas or maybe another way of saying is just on the probably the pay more attention on.
Ted everything and trying to get the most of it.
I don't have any specific figures on on adoption I mentioned earlier that 94% of all paid customers are using custom integrations I don't know what the comparable figure would be for all integrations, including third party abutting I assume that it's going to be very very close to 100%.
So everyone get there at some point and that might be.
Yeah popular tools like.
Google Docs or top box or outlet calendar.
Things like that and there may be relatively simple.
And over time as the idea is to try to build their sophistication.
Helped and net all these systems together in a way to make sense for them.
Very helpful and I appreciate it thank you.
Huh.
Our next question comes from Ryan Mcwilliams with your line is open.
Thanks for taking my questions a solid step towards profitability this quarter on a significant reduction until the marketing expenses as a percentage of revenue.
A little more color on this line item for the quarter and then how you think about sales investment going forward and it's uncertain macro environment.
Yeah. Ryan this is Alan just broadly speaking.
Sales and marketing R&D continue to be a focus of investment for us both and.
Accelerating our growth on the customer side customer acquisition and expansion side of things and not on their on on the R&D side on the innovation side.
So specific on sales marketing.
Added more salespeople continued increase sales capacity.
You did see some benefit here from obviously lower t. any given this environment.
And also the timing of some one of our marketing programs at the piano.
Great and then would you my probably more color on the paid customer cohort added during cold the last quarter. So still early innings, but you mentioned that these customers landed larger and we're engaging more so any additional detail on how these customers have matured so far and are these costs more more likely to be monthly paying users then.
Yeah.
Yes. The overall the covert covered if you on call. It that has performed pretty much in line with prior trend, especially as time more time is pasture.
So nothing more to report there in terms of.
Deviations in that particular cohort.
Great. Thanks.
Our next question comes from Daniel begin with Canaccord Genuity. Your line is open.
Hey, Thanks, guys, it's actually DJ I must have downturn as my associates.
Stuart one for you as we speak about how can that could evolve I'm curious how you think about CX like are there ways do you envision ways for brands to open up slack channels to the consumer to solicit feedback and manage common service inquiries that kind of stuff. It would be great to hear how you think about that.
Yeah. It's.
So maybe and the reason I say I say, maybe it could.
100% for sure on the business to business I'd.
The BDC side is a little bit more thought because the user accounts are always tied to the customer who is the employer as opposed to the individual right.
If you are going to want to use their workplace slack that get their air conditioner fixed or something like that but there are a lot of business business opportunities and there are a lot of communities and we see this.
Splunk and shopify come to mind, whether it's a huge amount of have anyway, it's kind of individuals inside the company that are the champions that are the administrators that are the evangelists.
So there's there's a lot of TX.
Happening in doesn't I listen we knew that kit we have.
Whole workspace just for share channels with our customers and a lot of.
The cost or advisory boards champion networks.
I'll kind of stuff like that that's a really important use case and I think it's also a longer term.
An important opportunity to combine the power of slot connect with the power of the platform.
For 70 service tickets and giving reports activity purchase orders invoices like all of that kind of transactional stuff being conducted there as well so.
Yeah.
Yes, that's helpful longer term, maybe maybe on the BDC stuff, it's just that's a distant future.
Yes that makes sense and then Alan maybe a follow up for you can you help us think about the yield for the Connex free trial. So you set a thousand paid conversions and a half a quarter, which is awesome can you give us a sense for what the denominator isn't that equation right like a thousand of how many you'd be it'd be super helpful to get a sense of how powerful the lead Gen. Two.
Connect us.
Yes.
We're not sharing specifics on the right now as you Jay but I think suffice to say, it's a much higher yield than the average trial I think given the pull effect that you're getting from.
Obviously, the existing customer that has a a value partner our vendor that their play into the network. There no thats clear much more compelling offer then kind of a cold start open.
Pay trial.
Invitation.
Yes, okay, great. Thanks for the color guys.
Our next question comes from Jeff evolved with Wolfe Research. Your line is open.
Yes. Thank you very much for taking the question I appreciate that.
It looked as though some of your usage metrics were down a little bit from an exceptionally high quarter last quarter. I'm wondering if you could parse that for us and tell us why.
Why that might be maybe its new users just take a while to ramp up.
Then secondly, if you could perhaps help us on translate that into the correlation to.
Closure and usage and revenue should be low, but if you could help us I think that drew a little bit I would appreciate it.
Hi, just to clarify Jeff you're talking about that engagement metric that number of minutes of active usage.
Yes.
Okay.
So, yes down a little bit, but that's not indicative of a trend that you did that it's up compared to the baseline the historical average.
Q1, just yeah. It's so one of a kind that it's hard to draw any useful comparison there.
The thing I'm. Most excited about is kind of further up funnel I think we can really do a lot to increase the yields from that people are just interested in stock and come to the web site and all that.
The down funnel part to pay conversion.
A lot of progress.
Got a lot of success, there and that's to be clear outside of the context of stock connect as well. That's just trial programs that are around the time that you create reflecting.
So.
Positive changes on paid conversion across the board.
Engagement up compared to the historical average.
No no correlation that would be at alarming in fact, just generally encouraging.
Yeah Okay.
Thank you and then secondly, maybe for out of it seems a lot of your commentary was I'm talking about how encouraging the last month for the quarter are you going into the current quarter have been.
It seems to me obviously on the loan story most it seems to be the guidance is actually read is reasonably seasonal.
So.
Seems as though there might be a little you much offers some conservative assumptions could you could you help us understand so the assumptions that you've made in the guidance versus maybe last year or into this quarter.
Well I think you know the seasonal pattern from Q2 as a base I think is the right expectation from here notwithstanding some again extended volatility that we see out there but a.
A lot of what happened in Q2 was was pretty pronounced.
Given the conditions of the nature of our model.
And the impact and we're adapting to that I think just to be clear both kind of tyco level, but I think also overtime our model benefits from the fact that we're adding more and more of these customers over the first half of this year and that will also play out over the coming quarters and years even.
Okay. Thank you all very much.
Thank you.
Ladies and gentlemen, we have reached the end of the amount of time for the question and answer session I will turn back the call over to the company for closing remarks.
Thank you all for joining.
Nothing more to add to appreciate the time and.
Next quarter.
This concludes today's conference call you may now disconnect.
Thank you Hank.
[music].