Q2 2020 Earnings Call

This time I would like to welcome everyone to <unk> second quarter fiscal 2020, <unk> 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 and then one on your telephone keypad.

If youd like to withdraw your question. Please thank you.

I'll now turn the conference over to Aaron Turner head of Investor Relations.

Thank you Chris Good afternoon, and welcome everyone to spreadsheets second quarter of fiscal year 2020 earnings call. We will be discussing the results announced in our press release issued after the market closed today with me today are Smartid CEO Mark matter, our CFO , Jennifer Ceran, our Chief product Officer Gene Ferro will also be available during the Q and today's call is being webcast will also be available for replay on our Investor Relations Web site investors, that's murchie dot com.

There is a slide presentation that accompanies jennifers prepared remarks, which can be viewed in the events section of our Investor Relations website. During this call. We will make forward looking statements within the meaning of the federal Securities laws.

Well, we have based these forward looking statements largely on our current expectations and projections about future events and financial trends. These forward looking statements are subject to a number of risks and other factors, including but not limited to those described in our SEC filings available on our Investor Relations Web site and on the FCC website at Www Dot at T.C. Dot Gov, Although we believe that the expectations reflected in the forward looking statements are reasonable our actual results may differ materially and adversely.

All forward looking statements made during this call are based on information available to us as of today and we do not assume any obligation to update these statements as a result of new information or future events, except as required by law.

In addition to the U.S. GAAP financials, we will discuss certain non-GAAP financial measures reconciliation to the most directly comparable us GAAP measure is available in the presentation that accompanies this call, which can also be found on our Investor Relations website with that let me turn the call over to Mark.

Thanks, Adam Good afternoon, everyone and thank you for joining us for today's call.

We delivered another strong quarter by executing our strategy of providing high value solutions for enterprises, expanding smartrates presence in new and existing customers and driving international growth.

Our platform designed to accelerate individual and enterprise achievement enable teams and businesses of all sizes to move faster address significant challenges and drive innovation.

We posted revenue of $64.6 million in Q2, representing year over year growth of 53%.

And our annualized average contract value or ACB per domain based customer grew 48% year over year to 20 972.

The total number of all smartphone users across paid and collaborators is now over 5.4 million.

Expansion within our base during the quarter included 46 companies, increasing their annual recurring revenue or air or by more than $50000 and 13 customers increasing their air or by more than 100000.

Notable expansions of current customers such as Olympus Corporation, a global leader in electronics and optics, you hold them moving equipment and storage rental company and VCC P., a global creative and marketing firms, serving some of the world's largest brands.

Many of those expansions were driven by a record 750 unique customers that bought one or more capability based products in Q2.

With July seeing record bookings for our accelerator offerings.

In conversations with customers. This quarter I was repeatedly reminded of Smartreach mission critical role in their businesses from tracking for clinical trials intended to eradicate global diseases to managing the remodeling and reopening of hundreds of restaurants globally I heard house March it is driving high value automation and workflow consistency in areas such as project management research and development health care and media.

For example, Syngenta a Swiss based biotech company wanted to connect workers at research lab testing farms and product manufacturing facilities in more than 90 countries to ensure rapid and accurate decision, making and reporting across the organization.

With smart sheet research and field teams now use mobile devices and tablets to share information images quickly aligned for real time decisions about the next stages of their agricultural experiments more frequent reporting observed safety issues and increase transparency of information from the field to corporate leaders.

Providence Medical group, a healthcare organization with 60 clinics throughout Oregon, and Southern Washington, Leverages smartly to intake document and track clinic managers at the stations of compliance with constantly evolving medical practices mandated patient care requirements.

Smartreach Cross platform accessibility enables caregivers to input and access information from any device in any clinic location.

And Crane communications, a multi industry publishing conglomerate sought to implement a centralized work execution platform across its 24 brands, including at age auto, we and regional business publications by provisioning smart sheet and implementing our control center and dynamic few products Crane is able to build scalable automated workflows to have reduced time to market and duplicative work and increased visibility for both internal stakeholders and third party vendors.

Fueling these team and organizational achievements and Smartid wins, and a strong pipeline of product innovation, we're making significant investments focused on delivering a platform and the infrastructure required to support that platform that anyone can use to move faster meet challenges and achieve more.

For example, the latest enhancements to our automated workflows enable users to automate multiple actions in scenarios in a single work flow.

This includes the ability to automate approvals with multiple stakeholders or to create a recurring workflow using a time based schedule.

By enabling users to automate more sophisticated work processes Smartid helps organizations save time and maintain data consistency.

In mid August we announced that Smartid Gov had received four fed ramp authorization now that we are authorized in the fed rep marketplace. We look forward to the chance to expand the use of smart sheet among federal employees as they seek to modernize workflows and processes drive the effectiveness and pace of intra and inter agency collaboration and to deliver better experiences for citizens.

We look forward to unveiling additional product offerings that our third annual engage Global Cup customer Conference September Thirtyth through October Threerd.

With registrations on track to outpace last year's total of 2500 engage 19 is set to be even bigger and better and we look forward to seeing many of you there.

Before I turn it over to Jenny I want to share a few thoughts on a national advertising campaign that we kicked off this morning with a full page AD in the print edition of the Wall Street Journal.

As you see the ads in the coming months across many different channels. You'll note that we are heavily focused on a message of achievement for both individuals and for companies of all sizes. It's time that the world hears about all that Smartid has to offer and I look forward to us telling that story more broadly.

To close I am pleased with our performance thus far in fiscal year 2000, and remain ever mindful of the degree to which we are an important part of our customers' businesses. Thank you to the Smartid team for your support of our customers and of one another thanks also to our customers partners and shareholders for your confidence in our service and in the future of our business.

Jenny.

Thank you Mark and welcome everyone as Marc mentioned, our second quarter revenue came in at $64.6 million up 53% versus a year ago.

Billings came in at $79.5 million up 52% versus a year ago. Our dollar based net retention rate was 134% and our average JCB per domain.

Based customer grew 48% year over year.

We also added approximately 1900 net new logos, a little over a third of which we obtained via the 10000 seat acquisition to end the quarter with over 80000 customers.

Second quarter non-GAAP operating loss was $10.8 million as we continue to make investments in our platform and go to market capabilities.

non-GAAP net loss per share was eight cents.

Operating cash flow was negative $2.7 million and free cash flow was negative $7.3 million and we ended the quarter with cash and short term investments of $561 million, which includes $380 million from our equity raise.

Let me dive more into the revenue for the quarter.

Over $64.6 million and total revenue subscription revenue was $58.3 million, a 56% increase versus a year ago.

Services revenue came in at $6.3 million up 29% versus a year ago and represented 10% of total revenue. The services revenue growth rate was tempered by the lapping of a large consulting engagement in Q2 of last year and by our ongoing sales of accelerators, which attached with the lower services component.

Let me move on to metrics.

We continue to see strong growth in our larger customers 7673 customers now pay us $5000 or more per year.

635, now pay us $50000 or more per year, and 226 now pay us $100000 on more per year.

These customer segments grew year over year by 55%, 113% and 128%, respectively, and now represent approximately 70%, 31% and 20% of total HCV.

As mentioned earlier, our average JCB per domain based customer increased to $2972 for the quarter and our dollar based net retention rate was 134% consistent with the prior quarter and three percentage points above the same quarter a year ago.

Next I'll provide color on the rest of our income statement and a few highlights from our balance sheet.

Unless otherwise stated all references to our expenses and operating results are on a non-GAAP basis and are reconciled to our GAAP results in the earnings release and presentation that was posted before the call.

In the second quarter overall gross margin was 82% subscription gross margin was 88% flat with the prior and year ago quarter.

As we make incremental investments in our infrastructure and migrate more of our services to the public cloud we expect our overall gross margin to come down towards our long term target overall margins, 78% to 80%.

Professional services margin was 31%, which was in line with prior quarters.

Turning to operating expenses.

General and administrative costs in the second quarter were $9.5 million, representing 15% of total revenue one percentage point below the prior quarter and two points below the year ago quarter, as we began to show Skout.

Research and development was $18.9 million or 29% of total revenue a decrease of three percentage points from the prior quarter and two percentage points from the year ago quarter as we realize some scale and saw increased capitalization of internal use software. We continue to invest in our product capabilities and added a record number of new developers to the team this quarter.

Finally sales and marketing expense was $35.7 million or 55% of revenue versus 59% of revenue in the prior quarter and 54% in the year ago quarter.

We expect our sales and marketing as a percentage of total revenue to increase in the back half of this year as we hold our third annual engage conference in October launch brand advertising campaign and add more reps to support our global expansion plans.

Turning to operating and free cash flow operating loss was $10.8 million, representing a negative operating margin of 17%.

Approximately 70% of our total expenses were head count related and we ended the quarter with over 1300 50 employees.

Free cash flow was negative $7.3 million, which includes capex spend capitalized internal use software and principal payments on leases totaling 7% of revenue.

Now turning to billings.

Our second quarter billings were $79.5 million up 52% versus a year ago, approximately 90% of our subscription billings were annual with 9% monthly quarterly and multiyear billings represented about 1% of the total.

I'll now provide our guidance for the third quarter and the full year fiscal year 2020.

For the third quarter, we expect total revenue of $69 million to $70 million representing year over year growth of 47% to 49%.

We expect non-GAAP operating loss to come in between 23, and $22 million and non-GAAP net loss per share to be between 19 cents and 18 cents based on weighted average shares outstanding of 116.5 million.

We also expect our free cash flow in Q3 to be up to negative $4 million, both our operating loss and free cash flow reflect expenses related to engage conference brand advertising and market expansion plans.

For the full fiscal year, we expect total revenue to be in the range of $265 million to $268 million representing growth of 49% to 51%. We expect non-GAAP operating loss to be between 70 and $66 million and non-GAAP net loss per share of between 58 and 54 cents for the year based on approximately 112.5 million weighted average shares outstanding.

We expect billings to be in the range of $320 million to $324 million for the full fiscal year, representing growth of 48% to 50% versus last year and for modeling purposes. Please assume historical trends for quarterly billings for the remaining quarters.

Regarding free cash flow, our success, extending our chief presence into new markets such as the UK has given us the confidence to invest faster in our international expansion and accelerate our migration to the public cloud. Accordingly, we are increasing our full year free cash flow guidance by negative $5 million to a total of negative $25 million for the year with that we will now turn it back to the operator to take your questions.

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

And your first question is from Devon, Suri with William Blair. Your line is open.

Hey, guys. Thanks for taking my question and nice job, but that's our retention rate was just amazing.

I guess I want to touch maybe first for Mark here you look at these accelerators in those capability based solutions are contributing nicely to the results I guess help us understand how customers decide to adopt these and then are you seeing new customers land with these solutions or is it something gets adopted by more advanced marching use is definitely customers for some time and I got a quick follow up.

Hey, Bob I think the accelerators are really serving serving a nice role in helping people understand how to deploy smart she to solve something that matters within their business. So when you look at the seven accelerators rehab.

These are common issues that we see a challenge that we see across business and rather than.

Choosing a platform, which requires configuration to achieve an outcome.

They can choose something which is more turnkey where they can say we want to take an M&A accelerator or we want to do a joint selling accelerator and it's a great way to on board now as I've said in prior calls whether they choose to deploy the accelerator or go with a non accelerator based approach that education in that grounding has served us very well to get people onside.

When we look at whether it's influencing new and expansion business. We have sold accelerators into both given the distribution of our sales reps being over weighted to expansion clearly that group has an advantage because we have many more quota carrying reps there, but we are starting to see signal, where the new business structure feel uncomfortable in presenting those.

Great Thats really helpful. Then a quick follow up for Jenny Jenny you know given sort of the mix of the business globally I love to understand if you saw any currency impact this quarter and if you could quantify what that was in the numbers on what you might have modeled into guidance given to that we've seen some pretty big currency moves all globally. Thank you.

Yes, Hey, Brian So currency is still relatively small for us compared to some other companies, we build roughly 7% of our subscription billings are in non U.S. dollars. I mean, if you look at the impact. However in Q2, because there has been a relatively big move.

We did see a headwind of roughly $300000 on our billing because we invoice.

At the current spot rate and that's basically what goes into our billings number on the revenue side. It was minimal impact just because of how we allocate revenues throughout the year and it's based on historical rate of one of the things we did notice though on dollar net retention rate.

We did see a little bit of a headwind there and it wasn't anything too.

Wasn't a significant impact, but you know several basis points based on the fact that the math is creating a headwind there.

Helpful. Thank you guys nice job thanks, taking my questions.

Thank you. Your next question comes from John Difucci with Jefferies. Your line is open.

Thank you and I'm, sorry, I was having some.

So.

So until a phone technology issues. There. So hopefully you didn't hit these issues, but these questions I guess to follow up on both those questions first on the international business I think last quarter. Jenny you said you had 11 salespeople in the UK can you give us.

Any any other.

Any other data.

On international and how that's doing it either as far as your presence there or even even I'm not.

Did you get cut off a couple of times, but if you've given the revenue.

That that's come from international that'd be great too.

Right well, so we started the year with 15 folks in the UK and we now have 30 and nearly half of them are quota carrying reps and we are planning to invest more in the UK. This year because for the first half of the year.

In terms of our internal targets. The UK team has exceeded those expectations. So we feel really good about their performance to date and investing more in that business.

Okay, great, Okay and have you ever given did you say anything about.

What kind of contribution it realizing you had an international business prior to even putting people in the UK. The kidney did you give that information that how much business came internationally this quarter.

The 21% of our revenue this quarter was from international Okay. Okay great.

And I guess just on the on the accelerators and maybe maybe Jean if you can talk to this you know are there mark.

It sounds really interesting right and it sounds like its actually spring business, even if the accelerators and bought but.

So should we continue to see you're at seven now I think Mark said should we continue to see other areas is there anything any other accelerators you can talk about that are on the comm I'm not sure if you want to.

Pre announce them, but maybe talk about some areas that might be interesting.

Yes, Hi, John Thanks for the question, Yes, as you stated you we have seven today.

We continue to develop new accelerators based on where we see customers signal and my team would shoot me if I gave away the.

Okay announcements that we're likely willing or we're going to be playing to make it to engage conference at the end of the month.

But I would tell you that we continue to look at areas, where we think we can bring customers.

More out of the box solutions to solve meaningful problems for their business and I think that.

Well talk about after the engage conference.

Okay. We can we can we can wait a month and look forward to it and nice job here, it's great to see a company actually continue at the same kind of momentum that you've been out now for just over a year. So thanks.

Thanks, John .

Your next question is from Stan Zlotsky with Morgan Stanley . Your line is open.

Yes. Thank you so much for taking my question and nice job on the quarter. So from my end.

Certain sounds of accelerators are doing very well.

How are you thinking about accelerators and yet what kind of contribution that could have to your financials. As we go into the back half of the year and as much as accelerated having amazing adoption.

How do you think about.

What that does to your pro services growth.

As we go back out for this year and potentially entering into next year and I have a quick follow up.

Okay, Hi stand this is Jenny well with respect to the second part of your question in terms of our pro services growth, we guided 9% to 11% in Q1, we were at 10% in Q2, and I would continue with that guidance Theres no change.

Pro services is still really important to us, it's just price differently than it was a year ago.

Then with respect to the first question around accelerators and their contribution we're seeing our capabilities based products increase as a percentage of total subscription revenue. So last quarter was 9% this quarter it was 10% and.

You know as we create new solutions in this area I would expect that we could see that that trend continue.

Got it. Thank you and just a quick follow up what was the inorganic contribution in the quarter.

From the from the acquisition of 10000 feet.

Yes, so we're not breaking out 10000 feet is it as it's really not material to the overall results, but what I can remind you of is last quarter. We said that we expect to 10000 feet to generate $2 million of revenue and $4 million billings for the full year to over three quarters and I would tell you that you know there are performing well and they kind of met our expectations for the quarter.

Okay perfect. Thank you so much.

Your next question is from Richard Davis with Canaccord. Your line is open.

Hey, thanks.

Mark you are kind of a student of the.

Evolution of markets and things like that and I'm wondering I know we're right at the foothills in this space, but are you have you seen any evidence inside some of your companies where they may have had multiple vendors beyond that using excel.

And you guys have kind of.

Sounds those vendors out are we even or is that just so far.

As in like years before that's really an issue I'm just trying to think about how this market is evolving and stopped because as you know there's other companies in different swim lanes and I'm just kind of thinking about these.

Thanks.

Hi, Richard what I'm, what I'm hearing from a I had a really interesting conversation with the C. O week before last and he was on a mission to help his large scale Mega cap company go from 13 providers in one category down to three so the charter wasn't too too to jettison or bounce out 12, or 13, but to try and get efficiencies by being a little bit more choiceful. So I would say.

What did it surprise me learned that one of our largest customers had over 4000 apps. They're deployed that did surprise me that's a lot of house.

And I do think People's intent is to.

Really put energy behind the ones that are working best for them.

I think in terms of the flight to sort of find a single that works for everything and every category. That's not what we're seeing today. So I think because the user preferences and desires and needs are being incorporated into buy decisions and renewal decisions.

There is a very healthy balance right now between the business units and IP.

But I do think that overtime People's intent is to.

Is to not have sprawl.

But again I don't think the pendulum is going to swing back to having a single provider within each category for these large companies.

Got it thank you very much.

Yep.

Your next question is from Terry Tillman with Suntrust. Your line is open.

Hey, Mark Geneone Aaron.

Sorry for a horrible cold here, but I guess the first question just relates to it sounds like sales and marketing investments are ramping in the second half maybe even more than we expected I think part of it like advertising I know you haven't as CMO, but maybe you could pinpoint some of the other areas where those incremental investments and then how do we when we're talking to investors what are some of the proof points or ROI, you would see next year, which I'm, assuming that's when you'd see benefits whether its just net new customers or 100000 k. per your customers just a little bit more about the investments and then how we watch the metrics around that.

And I had a follow up thanks.

Thanks, Terry I'll take the first half of that and then he will take the second in terms of the in terms of the investments that are incremental we we knew when we bought Ana into our team that we were gonna be deploying campaign dollars in the second half of this year.

What we have been pleased to see is how our team our composite in the UK has come together and clarity around quota carrying reps customer success support how that whole group is jelling.

We now want to pull our our Asia Pac investment forward and we feel like we're organizationally ready to do that.

Heading into the year, we really anticipated that not hitting in F. Y 20, So I think one of the things that's slightly different about how we're going to approach that than what we did in the UK I would say we were more.

As we approach the you kind of more phased manner first we said we're going to have a sales leader then some quota carrying reps and over the course of quite a few months. We built that composite we now have confidence and what that structure looks like and we're going to be a more assertive in getting that getting that group in place quickly.

Yeah, and with respect to sales and marketing kind of in the back half.

If you kind of look at what happened last year between Q2 in Q3 side jump up in sales and marketing and that was seven.

Heavily by our engage conference to several million dollars of incremental investment there and on top of that.

Expansion into these international markets is that brand advertising. So I think the increase in sales and marketing as a percentage of revenue into Q3 will be more pronounced.

A year ago.

And what kind of returns on our investments you know we continue to monitor LTV to CAC payback.

Magic number and we look at these every every quarter and right now we still feel really good about it we still feel like theres room to make incremental investments.

Okay, and I technically view that as just one question, even though it's two parts could ask a second question just a follow up.

Yes, Sir Terry.

All right I don't know I asked if I could ask your question.

So anyways.

So you gave a perspective on billing.

You all had a couple of years now this great and engage conference what I'm curious about is what are you baking into in terms of potential sales activity I know part of its education networking et cetera, and just kind of at least all the new innovation, but as you've done a couple of years in a row like how much are you banking on actually getting a lot of new sales activity coming out of it. Thank you.

Well.

We lead generation opportunity, we get to engage with customers there's business that's done and so we factor.

Our best estimate of what that might look like for Q3 and Q4.

Without going into too much detail of what it is when we do feel like there is a good return from engage.

Your next question comes from Yutai Kidron with Oppenheimer. Your line is open.

Hi, guys good quarter.

I guess a couple from me first Mark.

I guess I'm trying to kind of look at the pattern of of your results over the past few quarters and can help seeing that.

The magnitude of the beat over the top range of your guidance is shrinking is shrinking from one quarter to another and under the assumption that the methodology by which you give guidance has not changed.

What is changing in that business.

Or perhaps maybe could talk about what you were not happy with.

During the quarter.

Yeah, I think it's over the course of 13 years Ittai, a if you'd wake me up or two in the morning, I would say I want most things sooner than we get them right on almost all dimensions.

This will be a nice long answer for you.

So we did two acquisitions in the first half of the year.

The t. the way in which those teams those team members have folded into our community has been really strong.

I would have loved to have on a product integration side had those day. One. So you do the acquisition. The next day you come to the office and the products are fully integrated and we're excited about about showing our customer base. It engage some of the progress on that front.

But that is something where as we go to market, we want to have sort of a hand in glove.

You know unified offering across all those dimensions. So that is one that.

You know, we're pushing on very hard and only until you embark on that work do you really understand whats entailed.

And we believe the details matter so the difference between shipping somebody out to market quickly and putting jazz hands around and telling customers by saying that's not ready that's not how we run our business.

So that's one very specific thing, which as we look at additional acquisitions over time, we're going to apply those learnings and further refine our models.

Fed ramps another one we had given multiple progress reports and passed passed our quarterly reports.

I would have loved that to have in a 90 day process. We are one of the fastest companies ever through that process in just about a year that seems like an eternity to me and now we have earned the right to engage on RFP processes with federal agencies, I will probably be disappointed with the length of time it takes to execute those but again. These are opportunities right. So those are two concrete things, which I would say represent new opportunities that simply need some time to bake and unfortunately, I don't get to control all the variables there, but I'm very excited about both of those fronts.

Excellent.

And then as a follow up journey, you've talked about how you expect the gross margins to kind of drift down over time.

What is it that really we need to see either from a revenue standpoint, or some sort of scale standpoint that will actually make you get there because you seem to be doing far better than your long term target for a long time and you are holding up quite steady.

Yeah, I think that relates predominantly to the timing of our migration to the cloud and as we mentioned on the call that we are accelerating that migration. Originally we were thinking 18 months and now are we thinking more like six months. So to the extent that that happens faster you should expect our subscription gross margin to tick down percentage.

Just to clarify that are you all are you already in that process. So you'll started in six months I'm a bit confused we've already started it but we're taking a much slower process.

And now we have decided we're going to accelerate that in so we'll start seeing more cloud based expenses versus the depreciation that we have on on equipment, there to be some overlap, which would bring that down a bit.

Got it okay. Thank you very much good luck guys.

Thanks.

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

Hi, everyone, congrats and good quarter.

Mark I wanted to expand on the federal ramp.

Opportunity to start I guess is.

Do you mind, just how much of your business comes from federal in General right. Now My guess is really really small, but how should we view this opportunity in terms of what your longer term opportunity looks like here.

Yes, I think we know what at what efforts got over the years from people who have sold into the agencies is that.

There is no formulaic playbook that works for all companies equally so.

I am in many respects and experiential learner and where were starting on this process now we do have.

I would say a very very small percentage of our revenue today.

Low low low single digits comes from this world today.

The degree to which people make decisions on somewhat of a tactical temporary authorization to operate approach is different than a full on agency RFP process, we have not gone through that process yet.

Two two closer so as we understand that we will have a greater sense for the magnitude of the opportunity. What we do know is that agencies have real needs. What we do know is that it's a very small number of vendors who are authorized to sell to them. So I like that dynamic, but until we start posting wins and we started seeing agency successfully utilizing our product.

It's there's really no evidence to draw from.

Got it helpful. And then a quick follow up for Jenny on free cash flow I get the additional investments this year given the success. What's your view on 21 I believe you discussed.

Roughly cash flow neutral for the year at fiscal 21 are you still holding that expectation.

True or does that maybe change.

Well to your point, we are very mindful of our path to profitability, but at the same time, we're looking at growth opportunities that are pretty significant and investments that we may want to make related to those so we are finishing off this year. We still got another five months to go we're kicking off our planning process as we speak right now and I'll give everyone an update when we guide for the next year.

A couple of quarters.

Got it thanks again, congrats on a good quarter.

Thank you. Our next question is from Mark Murphy with JP Morgan Your line is open.

Hey, guys first engine them on behalf of Marc Thanks for taking my questions and congrats on the quarter.

Back to the capability based offerings.

Can you talk about the uptake of control center and dynamic view, how those are doing and then.

Those two along with accelerators, Reg where do you see the most opportunity among those three and the third part of that Lovely question is what is the average ASP.

Realizing from these products today.

You talked a lot in there.

So.

So controls are dynamic view and data uploader.

Our three areas in addition to sell or three or three premium products. In addition to accelerate it can make up the bundle of where most of the demand is I would actually tell you that.

All of those are quite healthy data offload or is probably been the one that is the fastest growing for us.

And.

Well, we don't we don't breakout ASP for each of our four our premium based offerings I would tell you that varies pretty widely across our portfolio based on the size of the you know the size of the solution. We are building for the customer.

Okay, and then is it fair to say that a controls under maybe being being the oldest is the largest among those all of those.

Yes.

Yeah controls there has been around the globe.

And it's the largest represents the largest revenue of that group.

Understood, Okay and generate the dollar based metric function, obviously has been holding up pretty steadily that's great to see is there any improvement in gross redemption.

Our.

Karen you called out there.

Yeah, So last quarter I mentioned that our.

Loss rate was.

Above 9%, but rounded down to nine this quarter, it's below 9%, but it rounds up to nine still so we have the 40 basis point improvement and in total loss rate for the quarter.

Excellent. Thank you so much.

Your next question is from Alex Zukin with RBC. Your line is open.

Hey, guys. Thanks for taking my question and congrats.

On a on a solid report I guess, maybe just first on the dollar based net expansion metric that another great posting at 134, what's the right way to think about that for the back half of this year.

Is this kind of the the right the right balance.

Sure do you see it picking up or.

Is it at the right range at this point.

Hey, Alex.

Nice to be working with you again.

On the net retention rate, we are modeling a high twentys.

By the end of the fiscal year, So high 120 percentages.

We don't we don't typically ordering it up that that would be very aggressive on Andrea.

But we're very happy with the number.

Perfect and then maybe for Mark can you. It seems like you've got a lot of growth opportunities ahead of you and you're investing ahead of that growth. So it can you stack rank by maybe your enthusiasm level or where you see the lowest hanging fruit between the UK, a pack and federal and where do you feel like you are still under investing.

From that perspective.

Yes, one thing I'd like to remind our employees is low hanging fruit still needs to be picked.

And when it's falling on the ground is typically rotted.

So each of these things takes effort and I think the thing that were organizationally focused on right now there are such a plethora of things to pursue.

But the things you pursue how do you view those really really well so the UK we learned some lessons.

In terms of what we are going to be applying to our next region. We will be deploying people differently to the next region. The team did a heroic effort in the UK holding it together as we phase people in and out and it's it's a again, we're going to apply that so I think it is in terms of excitement I get excited about things that we learn and apply more effectively next time around I talked about that in the context of acquisitions I'll talk about in the context of new territory.

Our presence and federal is no different right. So as we go to.

Deploying our sales professionals, who are dedicated to that space as we learn how to best respond to inquiries how to respond to authentic inquiries versus inquiries, there, where they're just sort of kicking the tires, we will learn from that as well.

The things that I'm most excited about.

You know at the core of it we're a software company, we build stuff, we build stuff that people should love and I'm fired up for engage I'm fired up that we're going to be bringing stuff to market that is differentiated. So I mean, it's one thing to talk about are you better than someone else do you look a little different and someone else do you feel like the sound of your offering better know if you have stuff that is not possible elsewhere that is a very concrete thing to talk about with people in a sales call I love those things. So as we think about our roadmap, it's not just improving certain things getting into new markets. It brings stuff to market for which there is a need that other people don't have.

I Love that Union. So Thats my number one hopefully you come to engage you can learn about some of it.

Thank you guys appreciate it.

Thanks.

Your next question is from Steve Koenig with Wedbush Securities. Your line is open.

Hi, Mark Thanks for taking my question.

So one quick one on one follow up.

The.

When.

Your subscription revenue.

Hardly decelerated at all very impressive results.

You did mention you had the heart proserv top and we don't really care about proserv revenues to enable or its not strategic driver of the business but.

But but it does get mixed up mixed and when people look at headline result, so.

I'm curious on how should.

How should people kind of think about or model out.

Pro Serv.

Are you looking at that to decelerate in the future.

You know it at a greater pace, it's just not as important to you all.

What does that what does that revenue enable for you.

Yes so.

My expectation our expectation rather is that services revenue will continue to be a very important part of our business on and we're guiding the year to 9% to 11% so won't necessarily decelerate more I think if you just within your modeling takes somewhere between 9% to 11% of your total revenue.

Yeah that will be consistent with what we're looking at internally with our business.

And I think one thing to add to that when we think about professional services. It's one part configuration and deployment assistance. Another part is training and enablement and that part of services is alive and well we are adding capacity to all aspects of professional services and I don't think we don't foresee a slowdown on that type of investment at all from our customers.

Got it thanks, I appreciate that and.

I apologize if I'm duplicating a question I did get on the call late.

The one follow up what I would have would be.

Your domain based customer acquisition activity was very good even on an organic basis.

Maybe could you comment a little bit on on what drove that and how we should think about that going forward.

Well I mean, it's the same motions that we've been doing every quarter, but we just saw a few more domains. This quarter joining on sign up for smart cheap and you know we're going to continue to invest in awareness of our product on and hope that we will continue to see growth in that front.

Terrific, great well, thanks, and congrats on a good quarter.

Thank you thanks.

Our last question is from Ryan Mcwilliams with Stephens, Inc. Your line is open.

Hi, guys. Thanks for squeezing me in.

On your data point that 750 unique customers bought one or more capability products in the quarter.

How should we think about this maybe on a year over year basis or compared to the prior quarter.

[noise] well certainly its more I don't have the exact data point from a year ago, but you think about accelerators have been around for about a year now dynamic view has been around for about a year now prior to that we add Mercury control center and it does a few other things so it's definitely up.

Yes, I think as we look at the the penetration of capabilities based products into our customer base and now exceeds 80000 adversely we need to be reminded that a very small percentage of our customers have bought them today.

So as we think about how we package them, how we bundle them, how we price them. What we develop next we think its still again very early innings on this front, but we were pleased to see that we have evidenced now some customers buying multiple capabilities from us. So we apply those learnings and hopefully we again see that pattern is being an important complement to the standard license.

And Ryan this is Eric the only thing I would add is for data points in Q4, we referenced 700 unique customers buying capabilities at one or more in the quarter and this quarter. We're putting 750. So if you're looking for concrete data points. Those are the ones I would point to.

Perfect and then previously mentioned, 90% of your product roadmap comes from customer feedback.

What things are customers asking for maybe you are seeing any particular interest from a particular industry and have there been any recent enhancements from an AI standpoint on the platform.

Yes, so I would say so.

We still base, 90% of our road map on customer feedback and we have a number of different mechanisms mechanisms, we use to drive that and that's critically important I would say that we don't see there a lot of very specific use cases that are that kind of.

Create any kind of a central tendency would see really broad USIS marshy across a number of different functions and.

And industries, what we do find though is customers are looking for things that make the platform do more work for them, whether that's things like automation, which we've invested in pretty aggressively.

Things that make it easier to get real time insights into what's happening in work.

Where where the status of work within their organizations have dashboards are growing very rapidly and are kind of a key area of value.

And then you'll see some things that were going to be announcing it engage some capabilities that we think are.

Our differentiated and really addressing some customer needs that we've been hearing for a little while.

And so I think it's fairly broad based.

And then I forgot the last part of your question was lost.

Just any I'm sorry. Thank you I was reminded AI, yes, I would say that we we believe the AI and ml are going to be important underpinning to.

Where many are almost most end user applications are going to be.

Over the next 10 years and so we.

Our continuing to invest in building our capabilities and you'll start to see.

Some of our user capabilities powered by things like.

How we prioritize notifications for users how we suggest ways for users to configure their work that will just make it easier in many cases will do will actually perform those configurations for them.

And so I'd say, we're still super early though the technology is.

It's still really emerging.

And so but we're very committed to ensuring that we're leveraging those technologies to make our platform better for customers.

Perfect. Thanks for the detail. Thanks, a lot for taking my question.

Great. Thanks.

This does conclude the Q and a period I will now turn it back to Aaron Turner for any closing remarks.

Great well. Thank you all for joining US today, we look forward to speaking with you again next quarter and hopefully seeing many of you engage.

This concludes today's conference call you may now disconnect.