Q2 2020 Earnings Call

Stocks.

Good afternoon, My name is Chris and I'll be your conference operator today.

At this time I would like to welcome everyone to the they were a second quarter and fiscal 2020 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers remarks, there will be a question and answer session.

If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

If you would like to withdraw your question press the pound ski thank you.

I will now turn the call over to Jude VP of Investor Relations you may begin to comfort.

Thanks, Chris Good afternoon, and welcome to <unk> second quarter fiscal 2020 earnings Conference call. Joining me today are teens, though there's chief executive officer, and toddler slope as far as Chief Financial Officer. The purpose of today's calls for us to provide some color on our second quarter results as well as provide our financial outlook for our third quarter and the remainder of the year.

Some of our discussion and responses today will include forward looking statements. So as a reminder, our actual results could differ materially as a result of a variety of factors.

You can find information regarding those factors in the earnings release, we issued today.

At our most recent 10-Q filed with does he see.

Finally, we will be referring to several non-GAAP financial measures and reconciliations to the related GAAP measures are included in our earnings release.

For a copy of our earnings release links to our SEC filings a replay of today's call or to learn more about Laura Please visit our investor relations website at a desperate outdoor dot com and with that let me turn it over to Tim.

Thank you Jim and welcome welcome to our second quarter earnings call for fiscal 2020.

The headline is that we had a solid quarter, our second quarter financial results came in largely better than expectations. While we continue to focus on improving our operational metrics subscription revenue grew 24% while professional services increased 12%, resulting in total revenues was $69.7 million, representing a 21% year over year growth and we outperformed on operating income as we saw some savings in the quarter.

Tony will cover financials in greater detail later on the call.

In Q2, we continue to see signs that support our central thesis that our core market remains strong and that we are in the early stages of a broad shift to subscription business models. They shift that we believe will ripple through every industry.

At the needs of the companies in this new world cannot be met by traditional product centric ERP systems that are not designed for customer centric subscription based business models.

In Q2, we continue to sign on customers and of course, our technology vertical such a sequel absent omni tracks and Virtustream.

But we also continue to see strong demand outside of the technology vertical.

For example, this quarter, we signed one of the largest electronic manufacturers in Japan.

We signed a major manufacturer of ball bearings in Europe .

Yet another automotive services provider one of the largest global consulting firms and one of the top three educational publishers in the United States. So the shift to subscriptions remains strong.

We also saw susceptible live deployments for key customers, including Airbus Diamond Inc. Huddle, Penske media and poly the merger between Polycom in plantronics.

In Q2, we also shared some great stories like Calstock path a platform for secure edge services is taking advantage of our new central platform to build and automate key workflows, which we'll talk about later.

Or how we help the company Europe called Ooh, let's focus on the car sharing space to manage and support complex usage based pricing models and how we're powering Creed of book, It's a division a retailer joann fabrics to scale and on demand video content offering that enables them to better engage with their customers increase retail sales.

We also focus relentlessly on operational execution, we overhauled our go to market methodology. We completed the first version of the technical integration work between billing and Rep broker and we brought in new senior talent to help build a foundation for the next level of growth.

So for today's call I'd like to cover the following first I'll give an update on our sales operations in our go to market execution.

Next I'll provide a progress report on the product integration between billing and retro then I'll highlight key highlights I'll review key highlights and product innovations from the quarter and I'll close with some early thoughts of the platform strategy that we recently announced as described conference in June .

Let's start by talking about our plans to address the sales execution challenges we discussed on the last call.

We have worked on board specific initiatives over the quarter.

First as we mentioned on our last earnings call. We reorganized the sales team in order to better leverage our experienced leaders.

Since then we've also promoted some of our first line managers. So they are in a better position to coach a wider group of folks who are starting to see does pay off in terms of more momentum in our newer reps as we engage with our prospective customers.

Second we updated our sales formula.

Our old model involved a lot of educating and evangelize thing now the good news here is that the market has matured companies now understand the importance of subscriptions and less education is needed.

There's also still a wide range where companies are in the subscription maturity curve. Some companies. For example are looking to launch their very first offering they want something quick. We also won an experience partner to guide them through potential pitfalls.

Others, maybe outgrowing a homegrown system, perhaps a first putting when they launched years ago, but it's now holding them back.

And many of our bigger in enterprises are working with that size global system integrators on its entire quote to cash transformation. So these companies are coming to us at different points in their systems. Your subscription journey and that's why we updated our sales with formula So that our reps can intersect with our customers where they are in the range of maturity.

Third we overhauled our entire sales enablement and training process. We just finished boot camps in North America and a couple of weeks, we're headed to Europe to roll it out there as part of this Weve also tightened the definitions of each of our sales stages, leading to a cleaner instrumentation of our sales process. So that we can be a more analytics driven sales organization.

And finally, we've talked in previous calls about the importance of our global system integration partners.

And so weve realigned this team to focus more on our key partners, such as Deloitte Esensor, Ian why and Pwc.

In regards to our search for our new head of sales now I've been a lot of candidates over the last few months and the quality of people out there is truly really high we've narrowed down to a few high caliber candidates that I'm very excited about of course, we're going to take the time to find the right person, but this is one of my top priorities I mean, we're looking forward to having announcements soon.

So overall, we're making tangible progress on the sales front, but we know these type of organizational changes can take time to take hold we expect to make continued incremental improvements each quarter and we'll continue to keep you updated.

Now turning to the integration of our Rep pro product with billing.

I am pleased to say that our engineering team has completed and delivered the integration technology between our two flagship products billing and rep probe I'm incredibly proud of our entire technology organization for their dedication commitment and hard work.

So now we're actively working with the backlog of our billing customers with purchased our Rep Pro solution to help bring them live in fact, we've restarted with the number of previously pause implementations, including Liveperson Carbonite and view the space with the expectation that these customers will go live in the coming quarters and once we complete these implementations we plan to resume our cross sell motion of selling rep froch to our other billing customers.

Over the past quarter I've been truly inspired by the focus and dedication of our zero as we work to improve our operational execution. Our sales team added over 49 logos this quarter and our global services team helped over 50 customers go live on Zohr, we continue to attract great talent to our team across the board and sales product engineering as we build the team for the next leg of our journey.

We appointed Tom Franklin, our previously previous SVP of product to a new chief customer officer role. This is a key topic position to ensure that our customers are consistently successful in growing as a result of adopting zora products and to lead the product organization going forward, we hired a new chief product officer, Chris battles, who comes to us with a wealth of enterprise software experience will help us scale, our platform and products products to the next level of growth.

Our product team also made meaningful enhancements for our billing and payment suites, including the collect add on product now the click product. As a reminder, is one of our newer products and really really important for high volume BDC customers were managing payments and accounts receivables are critical and we now integrate with over 37 payment gateways worldwide. We believe this beat we believe this to be the most of any other cloud believe vendor there's help our customers improve revenue collection and reduce churn as a result, we've almost doubled our CLEC customer base to nearly 90 customers in the past two quarters and in June our product and marketing teams organized our largest subscribed conference ever in San Francisco, and we're gearing up to take subscribe to Europe and APAC in the fall.

Now speaking subscribers. This is where we made an announcement about our central platform that I'm really excited about let me take a couple of minutes to explain why.

As you know over the last decade, we have built the leading product that enable the best companies to compete and win in the subscription economy Weve focused that product on the industries that are leading the shift to subscriptions technology media increasingly manufacturing and a few emerging verticals like utilities.

No when we meet with investors would you tell US is our customers are echoing that we have the best product on the market.

But they also say that it doesn't do everything and it's been pretty hard to customize the solve that last mile of functionality.

Unlike other product areas for billing and revenue recognition that last mile of functionality can be pretty important, especially if you're using us to compete and win in the market.

And that's why our real competition remains home grown the do it yourself or D. I Y. systems, and this is where our zora central platform comes in a platform strategy is ultimately what enables our customers to customize and extend their zora billing or retro implementations to solve those last mile needs.

And we're already seeing signs early signs that this is working so for example, let's take the customer stockpile, a fast growing technology company with a market leading edge computing platform aimed at powering the $200 billion hardware as a service market.

They've been a customer since 2016, but this year they were able to use the work flow capabilities in the platform and the central platform to quickly build custom provisioning flows integrations with other systems like Salesforce and automate customer.

Sleep prior to the central platform would have been too difficult or time consuming to do.

This area is going to be a big focus for us you're going you're going to hear a lot more about it in the coming quarters as we continue to add more platform capabilities. We show the impact it's having on our business in terms of faster deployments increased win rates against DIY decisions for being able to cover a greater footprint with our within our customers in terms of number of processes handle.

So in conclusion I continue to be incredibly optimistic of our future.

Early on we intentionally decided to tackle a really hard problem.

We learn from our early experience at the SAP at the early SAS leaders about the importance of billing and scaling this new business model.

And we wanted to build a solution that will allow the best companies in the world to compete and win in this new subscription economy, and we wanted to be there when there will be.

We start to drive their industry shift to subscriptions and so today, we have a solution that not only works for technology companies, but it also works for streaming media companies and industrial manufacturers retailers and telecom companies publishers and car makers and this is what we believe is foundational to building a company for durable long term growth. We've been doing this for a decade now we plan on doing it for many decades to come.

Now, let me turn it over to Tyler.

Thanks, Tim.

This past quarter, we made a lot of progress to improve our operational execution, which is reflected in our Q2 financial results.

So let me start my comments today by reviewing our key operating metrics and cover our financial results and finish with our outlook for the third quarter and the remainder of the fiscal year.

Beginning with our customers we ended the quarter with 566 customers over 100000 acres.

Which reflects a net add of 20 customers over the quarter and 19% year over year growth.

As Tim mentioned, we've made changes to our go to market methodology.

And updated our sales approach.

We're optimistic about these changes.

I will take time to realize the benefits in terms of landing new logos and expanding with existing customers. The good news is that we continue to see a steady trend of increasing average GTV within this customer base.

Which means our customers are growing on our platform and placing more value on our products.

Customers over 100000, ACB now represents 88% of our annual recurring revenue in Q2.

Our second key operating metrics dollar based retention ended at 107% down from the prior quarter.

Keep in mind. This metric is measured on a trailing 12 month basis, so retro product integration challenges over the past two quarters of limited the cross selling motion in port ceilings customer base and impacted expansion opportunities.

Additionally, we saw a slight increase in churn percentage driven mostly by downsizing some customers renewed with lower transaction volume in the quarter.

We've historically talked about a range of 108% to 112% per dollar based retention.

But this metric may see fluctuations for the next couple of quarters, given the strong comparison last year and as we continue working to improve our overall sales motion.

Longer term and as we talked about during our Investor session. In June we expect dollar based retention trend higher as our platform innovations help make our products more mission critical and stickier for customers.

Turning to transaction volume, we processed over $10.1 billion in transaction volume to our billing platform last quarter, which represents 35% year over year growth.

Transaction volume continues to be the largest contributor to our upsell motion as I mentioned on prior calls there can be quarterly movements in this metric due to their customer billing practices locks or large customer go lives in a specific quarter.

Given these movements is often helpful to look at transaction volume on a trailing 12 month basis.

When you do that results in 40% growth.

Now, let's talk about how all these operating metrics translate to our financial results.

Starting with revenue.

Subscription revenue grew 24% to $50.6 million in the quarter professional services revenue grew 12% compared to last year to 19.1 million sequentially professional services revenue, representing a 14% increase from the prior quarter services revenue benefited from seasonality in our business, including three additional days compared to Q1.

This led to total revenue growth of 21% year over year to 69.7 million and ahead of our guidance expectations.

Looking at our margins, we saw improvements in our gross margin and operating efficiency metrics over the past quarter.

non-GAAP subscription gross margins remained at 78% as we continue to maintain healthy rates. We saw good improvement on non-GAAP professional services gross margin compared to Q1, reaching breakeven levels for the quarter.

This is this a sequential improvement was the result of some seasonal benefits combined with improved management oversight of the services business in Q2.

Our non-GAAP operating margin was negative 14% for Q2 coming in well ahead of expectations. In addition to revenue outperformance, we realize meaningful cost savings in the quarter, while we had some expense shift to the second half of the year most of the savings in the quarter came from improved productivity and efficiency.

We've said all along it's important for us to invest for future growth.

What we want to do it in a prudent.

And scalable manner in growing the business.

Turning to our sales efficiency.

We measure this through our CEO .

Or growth efficiency index is calculated by dividing our trailing 12 months non-GAAP sales and marketing expense of 93.2 million by the year over year increase in trailing 12 month subscription revenue of 43.6 million.

A lower number means we're spending less to acquire each incremental dollars.

We maintained our G., yes, 2.1 for Q2 similar to Q1.

Our long term expectations are to maintain or improve that as our business grows but as I mentioned before the sufficient this efficiency metric may see movements as we work through our sales execution changes.

Let me now turn to our billings of free cash flow.

As you know quarterly billings can fluctuate due to a number of factors and we saw this play out over the last couple of quarters.

We noted on the Q1 call that we saw a higher rate of early renewal activity.

We need to have benefit in Q1 billings that up with a possible detriment to Q2 buildings as we expected Q2 billings was impacted by these renewals in Q1.

Resulting in calculate subscription billings growth of 14% year over year to 48.5 million.

The calculated total billings of 67.6 million.

Additionally, we saw lower mix percentage for annual billing terms compared to the historical average, which further impacted the growth rate.

In order to normalize for these quarter to quarter factors, we drove generally look at billings growth over a longer period of time.

So looking on a trailing six month basis calculated subscription billings grew 22%.

We know that there will be continued quarterly billings fluctuations so looking over the full year, we estimate.

Our fiscal 2000 subscription billings growth to be slightly lower than our subscription revenue growth rate for the year.

Beyond that and longer term, we expect 12 month trailing subscription billings for trucks, similarly, with our longer term revenue growth its.

Moving to cash flow Q2 free cash flow was negative 11.5 million compared to negative $7.3 million for the same quarter a year ago.

Most of the difference resulted from our SPP plan that reduced free cash flow by approximately 2.6 million in the quarter and had a similar impact in Q4 of last year as we move forward. We can expect to see a negative free cash flow impact in Q2, and Q4 had a positive impact in Q1 and Q3 each year.

Resulting from stock issuances from the plant.

For the full year, we expect free cash flow to be modestly better than a negative 40 million we targeted on the Q1 call.

Excluding the 9 million of facility spend expected for HQ move free cash flow for the year will be better than negative 31 million, reflecting an improvement of more than 6 million compared to last year.

We expect the majority of the facility spend to happen. This quarter. So Q4 free cash flow should be better than Q3.

Lastly, we ended the quarter with 174.6 million in cash and cash equivalents remained fully funded against our current operating plan.

Another item to note for your models.

Our fully diluted share count as of July 31st was 126 million using the treasury stock method.

Before we move to our forward looking guidance a couple of quick comments.

As you can see we're making meaningful changes to improve our execution and have been working hard to put the issues. We described in our Q1 call behind us.

I hope you can see that we're making good progress, but as we have said it will take some time for changes to take hold.

Second we are confident in our operating model and our ability to invest prudently increased leverage as we grow the business.

We know that managing Dennis the balance between operating margin improvement and sustainable growth. It's how we deliver long term value to our shareholders and we're focused on doing just that.

Let me close out with our guidance numbers.

For Q3, we are currently expecting total revenue of 69 million to 71.

Subscription revenue of 51.9 to 52.5 million.

non-GAAP operating loss of 10.5 million to 9.5 million and non-GAAP net loss per share of 10 cents to nine cents, assuming weighted average shares outstanding approximately 111.8 million.

For the full year fiscal 20, we're currently expecting total revenue of 273.59 to 278 million.

Subscription revenue totaled 2.5 million to 206 million.

non-GAAP operating loss of $44 million for 42 million. This includes 1.3 million of additional temporary rent expense associated with our associated with HQ move expected in the second half of this year.

And non-GAAP net loss per share 40 cents to 38 cents, assuming weighted average shares outstanding of approximately how 11.1.

And with that we're happy to take your questions operator.

At this time in order to ask a question press Star and then the number one on your telephone keypad well pause for just a moment to compile kuni roster.

And your first question is from John Difucci with Jefferies. Your line is open.

Hi, This is love soda on for John Difucci.

Thank you for taking my questions.

I just had two quick questions. So one was on the not net dollar retention.

You mentioned that that fell to 107%.

Could you provide some additional color 'cause transaction volumes seem to have increased impressively this quarter.

So was there any.

Change in like renewal rates or anything else.

Yeah, I can take that Hey look this is Tyler.

So we said there is really two things that impacted the net dollar retention.

The cross sell Moshe between billings and revenue growth, we would kind of we've talked about that after our Q1 call that we kind of pause that until we can get a bunch of our backlog customers are successful and because of that that slows down your upsell motion right and we talked about the transaction volume as a reminder, the purchases of transaction volume precedes the actual volume that flows through our system size report each quarter right. That's probably reflective of something that's already been purchased and what we mentioned in the call just now that sometimes as customers get to the end of their contract terms, they renew for something less than what they would have had so we did see some down so which pushes down your dollar net net retention a little bit.

Yeah, it's or just add some color to that they just visualize some customers will sign a three year contract with expectations of perhaps even something they launched being able to generate a certain amount of revenue some percent of those customers are going away exceed their launch expectations right and that results in upsells, but this quarter. We did see a few the renewals where they did not.

Hit their launch expectations and resulted in a reduction of the transaction volume and so we're going to see some quarter to quarter fluctuations, depending on the mix of that specific quarter.

But as a reminder, the the transaction volume we process is not really a correlation for upsells in that quarter.

Good.

Thank you for that and just one quick follow up if I may so thank you for the comments on the sales you know the changes that you made to the sales execution.

I just had two you mentioned an updated sales formula I'm just wanted to ask a little bit further on that.

As the go to market motion change.

You know dramatically or.

How how has the conversations that you have with customers changed.

Yeah, I wouldn't say, it's changed dramatically I think the what I was trying to highlight was if you think four years ago.

Certainly some of the company mixes are a little bit different we see lumber manufacturing companies, we see utility companies, but the bigger change I think is four years ago, we had to do a lot more work convincing people that building was important.

Now these companies are coming to us and like I mentioned the good news is they're looking for a billing solution right. We don't have to do as much work.

But there is still a mix of maturity and so some companies we'd be a four motions. If you will to simplify down companies might be coming to us, saying, we want to launch something companies might be coming to us, saying look we put in a commercial billing system rebuilds are home grown billing system years ago, and it's no longer working.

It might be coming to us, saying, we're doing more and more revenue recognition spreadsheets.

Because of all these new business models, and that's killing us or size might be saying look as part of your digital transformation you got to do a complete full to cost transformation.

And so so honing down on these four types and updating our sales formula to more match all customers are buying today.

Was was was part of what we were doing but the conversations are still the same conversation.

Perfect. Thank you again.

You bet.

Your next question comes from Scott Berg with Needham Your line is open.

Hi, Scott.

Hi, Thanks for taking my questions.

Hi, I guess team will start off with that with the sales changes in the quarter and then roll that forward to.

Comments on your overall pipeline with the changes that you made in the quarter, how did sales trend relative to your expectations. When you started the.

The journey around the side.

Changes to sales or.

[noise] friends, Evan haven't changed significantly one of the things that we do we didn't touch on because we work was really done really was we did have a much tighter forecasting a much more disciplined forecasting process as well.

And what we're seeing really is.

The learning of the new reps right now that the.

Does the change in the structure that we've done.

Right.

Allowing our newer reps to roll into more experienced reps, giving them a more specific sales formula or recipe that matches, our customers want to buy.

Right. These are the things that just just general focus on operational execution.

And.

We're definitely seeing early signs of this when I talk to the reps ready when I joined deals and I see how their how they are doing but we just want to also caution that typically these things do take several quarters to play out and really crystallized inside right organizational change does take time.

Okay.

Fair enough and then how would you characterize the sales pipelines today relative to a year ago.

We still see strong demand.

You can view it read you can feel it when you look at all these news reports companies are continue to to move aggressively into launching subscription services.

We're finding that their subscription services are doing really really well and looking to scale. The subscription services and so I don't think there's any change in the market. This is really.

Our own execution.

Got it and then a quick follow up for Tyler Tyler on the professional services. The did break at a breakeven level in the quarter as you mentioned, how should we feel the market how should we view the margins on that business going forward is this kind of a new level that you can sustain or should we just need to kind of fall back into that.

Low burn rate that you've seen over the last the last couple of years.

Yes, I do think there's going to be some quarter to quarter fluctuation there Scott, we and I think we could shift to some low burn our goal is to run that business on a non-GAAP breakeven basis.

We are experiencing some really positive things on the services side this quarter in terms of utilization rates and things like that you know compared to Q1, we benefit from a couple of extra days, but I could see US you know.

We could see some fluctuations, especially as we kick in hiring and you have people ramping and things like that as well.

So I wouldn't expect it to just be a breakeven it could it could fluctuate slightly but again the goal is to right at breakeven from a non-GAAP perspective.

I'm really happy with the operational discipline, we have enough part of the business. So of course, there's always going to be some quarter to quarter fluctuations, but the discipline the rigor and how we manage that businesses is fairly solid.

So I have thanks for taking my questions.

Thanks Scott.

Your next question is from Chris Merwin with Goldman Sachs. Your line is open.

Hey, guys. Thanks for taking my questions. So just wondering what its Paul its real quick on on a net retention.

As I understand it just in terms the way it works because the customers who pay kind of a problem feed them, if they get volume blocks and to the extent that they bought bigger blocks and they thought initially was that just a function then overestimating kind of the pace of their growth just wanted to see if I could better understand just the those down so that that you saw in the quarter. If that's something that that should probably correct in time and then I had a follow up. Thank you yeah. That's right that's right and it really speaks to just the range of customers. We have right. So if you're if you're talking to a company that's they're well on their way their subscription journey, perhaps 100% of the businesses subscriptions, maybe the $100 million company, maybe they're a billion dollar company, you're obviously not going to see that big a range right because they can they can estimate, but we do sell a lot of situations to a launch.

Or an early stage subscription offering where you just going to see a lot of variation right, they're committed to the offering they might sign a two or three year contract with a set of expected volume that does not necessarily materialize.

You are the other factors we sometime see is is some of our customers will get acquired into a bigger company.

And you see both effects you will see the bigger companies able to accelerate that division's revenue you also see not a surprise rate you guys to see there's other companies where.

The bigger company actually slows down the acquired companies revenues and so you're going to see some level of variation just given given it is I mean, what we believe is as we get bigger as the industry matures rate as we get continue to get bigger and bigger levels of scale that that variation will reduce over time.

But for now you are going to see some quarter to quarter fluctuations on it.

Okay great.

And maybe one more for you just on them.

The platform I mean, just just curious any feedback that you've gotten from customers or for you are there any initial deployments out there and just curious like what type of customers are taking this product what they're using it for and.

Kind of how we think about this building into the model in time.

Turning their attention or any others that are keep you guys. Thanks.

We we just announced the softer than June certainly it's been in a more of a living availability before that and so this is a fairly new product.

And the early signs are that the early signs are well call. These last mile customization is a lot of it is around things like orchestrating the customer experiences right, where where you see a lot of variation in terms of how companies want to operate from from one company. You know every company has a very specific experience, they're showing two to two to create for their customers whether it's.

Change in account profile are signing on a new customer or linear customer cheese or add on products and in the platform specifically the workflow tool really allows them to do those last mile customization without a lot of work and so previously they would have to build a lot of these things with custom code find a place to host it right you know do a whole bunch of calls back to our enterprise.

Now they could do it in platform if you will and so the early signs are that the amount of work. It takes to do any specific say flow is being cut down by 70 80, 90% right again. This really early signs of the customers that are there that are using it so you're seeing them be able to to to customize our overall billing system right down that that last mile because of customization to their their specific needs.

I I flagged a couple of metrics on on earlier conversation of okay, well, how does that translate so that should translate into faster deployments right that should translate into.

Easier last mile customization and that should translate into a wider footprint that we have if you measure that say by the number of processes that we cover inside the application itself.

That ultimately hopefully translate into it so yeah, a stickier product in and faster growth.

Perfect. Thank you.

Thanks, Chris.

And ladies and gentlemen of the Star and then one. Thank you for your question. Your next question is from a stance Lasky with Morgan Stanley . Your line is open.

Hey, guys, Marc Benioff for Sands Laski here. Thanks for taking my question. So there's a press release out you actually note on your script from a from a move and Italian car sharing company. So about that I mean have you guys seen any any any traction outside of western Europe , where you've been seeing a lot of traction I'm like maybe a pack or I'm, just kind of more on the international opportunity.

Yeah.

Well, we do see this as Houston economy, certainly is not limited to any specific countries.

We continue to see you know call it 30% of our business is coming from other international regions.

You just this past quarter for example, our Nordic region is really starting to come on strong the ball bearings company that we talked about is is in that part of the world and and so so international becomes is still remains really really important we still think there is a lot of growth opportunity in the countries that were already in right. So this is gonna be western Europe . This we'd be Japan. This can be Australia, New Zealand and and so right now I wouldn't say that we're focused on on on expanding beyond the countries that we're already in.

Awesome. Thank you and then maybe one quick follow up I'm I think customers over 100 K. in HCV. It grew 19% year over year. This quarter I think that's like compared to 28% a year ago and 24% last quarter.

Anything in particular for this any like large deals kind of slip in or out of the quarter and you know how should we think about those moving forward. That's it for me thanks guys.

No. Let me just remember we continue to obviously the clothes companies that are 700 K, we see this as.

The the the startup Tech community and our goal is if you close 10 companies. There are two of them will become the next Zendesk read the next box and explore site.

And we certainly see that happening we also flagged on the last in our Investor day back in June that.

If we're at a billion dollars call. It four times Fourx growth, we wouldn't expect fourx growth in our customer base and so we would expect that that our footprint within our existing customers continues to grow as well.

And so and you're going to continue to see that effect, but I wouldn't say, there's anything to call out with that.

Got it thank you.

And your next question is from Scott Berg with Needham Your line is open.

[noise] 18, just a quick follow up I forgot to ask about this Nike deal that you guys.

It looks like you maybe you signed in the quarter of the prior quarter can you help us understand maybe I'll make is using your software.

Yeah, I think you're talking about a a commentary that we did on nikes announcement and so we are working with a number of fitness companies I would say right, but we don't have any specific announcement of a specific company. We're just seeing that the fitness sector. If you will.

Is on is very much in motion and we took nikes announcement of their offering as a as it is a chance to comment on that broader trend that we see we're really excited about fitness I mean, the bigger picture is if you're a consumer and you have call. It $20 $50 to spend every month, where do you spend it Rick do you spend it on a gym membership do you spend it on peloton right do you spend it on on on one of these fitness applications.

Do you spend it on one of these boot camp places right and we're seeing this all really come to a head.

And there's a lot of disruption innovation happening the entire sector.

Got it helpful. Thank you.

Ladies and gentlemen, this concludes Q and a period end today's call. Thank you for joining and at this time you may now disconnect.