Pluralsight Inc
Q1 2020 Earnings Call Transcript

Published: 29 Apr 2020

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to the Q1 2020 Pluralsight Earnings Conference Call. At this time, all participants' are in a listen-only mode. Please be advised, that today’s conference is being recorded. I would now like to hand the conference over to your speaker for today, Mark McReynolds, Director of Investor Relations. You may begin.

[Mark McReynolds:]

Thanks, Towanda. Good afternoon. And welcome to Pluralsight's first quarter 2020 earnings conference call. Joining me remotely are Aaron Skonnard, Co-Founder and CEO and James Budge, CFO. Please forgive any challenges in audio quality as we’re all in our respective homes.

[Aaron Skonnard:]

Thanks, Mark. And thanks to everyone for joining our Q1 earnings call. The first quarter handed the world unparalleled challenges and required us to focus on what we as a company could do to help our customers in need. We are seeing an impact to our business from the global pandemic in the short term. And James and I will provide color on our quarterly financial results shortly. But first, I'd like to discuss what we're doing to take care of our team members, to assist our customers and to help those who are most impacted by COVID-19. We do this not only because it's the right thing to do, but we also believe that in the long-term these measures will benefit all stakeholders. Our top priority is protecting the safety and welfare of our people, while continuing to be a strong global partner for all customers around the world during this unprecedented time. We acted quickly to transition our over 1700 employees around the world to work remotely in a matter of days. And I'm proud of how our teams have risen to the challenge to maintain continuity in our business operations, while continuing to support our customers.

[James Budge:]

Thanks, Aaron. For the first two months of the first quarter of 2020 our performance was trending at the higher end of our expectations, meaning linearity of billings across the quarter and in our forecast were looking better than they have over the last several quarters. However during March a great deal of uncertainty was created in terms of how long the COVID-19 disruption will impact the economy, our market and our company. We have acted quickly to preserve our strong balance sheet, with a focus on protecting our people, continuing to support our customers and providing long-term value to our shareholders. We remain confident in the financial strength of the business and had over $556 million in cash and investments as of March 31. In addition, we don't have any principal payments required on our convertible bonds until 2024 and the annual interest payments are only $2.2 million. By mid-March we had already taken several steps to provide additional near-term liquidity and financial flexibility. These actions included a temporary freeze on hiring and restricting all employee travel and other non-essential operating costs. To date, we have already removed over $100 million in annualized costs from our 2020 plan and we are prepared for further actions if the business environment takes a material turn for the worse. Turning now to the numbers. Q1 revenue grew by 33% to $92.6. B2B Billings grew 20% to $80.5 million and total billings grew by 16% percent to $90.3 million. B2B customers now represent 89% of our total billings.

[Aaron Skonnard:]

Thanks, James. While we cannot predict how long this current situation will last, we remain deeply committed to supporting our customers and team members, while ensuring the long term success of the company for all our stakeholders. Our balance sheet gives us a lot of optionality and we have chosen to move aggressively with our cost structure to preserve that flexibility. We have products that the world needs now more than ever and we are using this time to accelerate innovation to make the products and experiences we delivered to our customers even more compelling. Working from home and adapting to change is a market we are well positioned for. We will make it through this unprecedented situation and are poised for long term success coming out the other side. With that, I'll turn the call back over to the operator for Q&A.

[Operator:]

Thank you. Our first question comes from the line of Saket Kalia with Barclays. Your line is open.

[Saket Kalia:]

Okay. Great. Thanks, guys. Hey, guys. How are you? Thanks for taking my questions here.

[Aaron Skonnard:]

You bet.

[Saket Kalia:]

Hey, Aaron maybe first for you, and I think you touched on this a little bit in your in your prepared remarks, but just to go a little deeper, now that most enterprises have to wait to get into a physical classroom. Do you feel like usage around the product could potentially make prospective customers maybe think about shifting away from the - from classroom-based training even faster after this pandemic? Meaning, could this actually help accelerate adoption of online tech learning after COVID?

[Aaron Skonnard:]

Absolutely. In fact, that I think this is a moment that could dramatically and permanently shift the way most large enterprises think about classroom training investments in the future, because they're being forced to move so aggressively into this digital work from home environment. We are seeing that increase in engagement, the 3X factor I mentioned in my remarks and we're seeing a lot of interest from those customers to explore new ways of accomplishing those same objectives, digitally, in the cloud.

[Saket Kalia:]

Got it. That makes sense. Maybe for my follow up for you James. You spoke about it in the prepared remarks, the team decided to make access to the platform free for the month of April. I guess just thinking about it more broadly. Can you just talk about how that can potentially help the B2B pipeline and maybe what you've seen historically in terms of B2B leads that have come from, your B2C user base? Does that make sense?

[James Budge:]

Yeah, makes perfect sense. And frankly that's probably the thing we're most excited about here, out of the million new users that have – for folks that have - subscribers that have come on to the platform in April 200,000 of those have a business email attached to them. So the B2C2B motion that we've been talking about for at least two years since back to our IPO, we're learning a lot more about that now, we're learning how to do it on a cost effective way. The cost that it's taken us to acquire these lead to new subscribers in April is maybe about 10% to 15% of what they historically have been. And really giving us a lot of good capability and learnings on how we can move even more aggressively in converting some of our B2C customers into B2C2B kind of motions. Maybe a final point on that is, even beyond B2B, I think this is why we're getting a lot of good B2B motion here as well is that, the brand awareness that has come from Free April has been tremendous. Whether you look at press impressions, social media impressions, whatever metric you want to look at for brand awareness, it's roughly up about 7 to 10 times more than the norm for us. So pretty much every metric that we were hoping for has been wildly out produced in what we achieved with Free April.

[Saket Kalia:]

Got it. Makes sense. Thanks very much guys.

[James Budge:]

Yeah.

[Aaron Skonnard:]

You bet.

[Operator:]

Thank you. Our next question comes from the line of Terry Tillman with SunTrust. Your line is open.

[Terry Tillman:]

Hey, Aaron, James and Mark, thanks for taking my questions and appreciate the color, I appreciate you guys giving it your best in terms of full year guidance and it's going to be - planning assumptions are difficult for all of us, but I appreciate you trying that. My first question relates to you know, with two major products you have with different value props. I wanted to focus on developer productivity with Flow and I definitely could see how more light would be shed on what that product can do in this kind of new world of work we have with developers. So, I know originally you had guidance on Flow and what you thought it could do for the year, how well is that holding up? What will the resiliency of demand and how has it been so far versus your traditional, just skills learning product?

[Aaron Skonnard:]

Thanks for the question Terry. Look, you're hitting the nail on the head here with Flow and what it provides in a moment like this. In this in this new space of developer productivity and engineering management, leaders need a tool like Flow to understand what's happening in the daily work of their team, are they making progress, are they having impact, do we see productivity levels improving, decreasing, et cetera. And that - those are the answers that Flow provides. So we are very happy to see the interest and how we can fill that specific need inflow right now during this time. To your specific question about how Flow is doing? It's doing quite well. We had another strong quarter. It's well on its way to achieve the targets and expectations that we have for Flow for the year. And so we're very encouraged by what we're seeing there across the board and we see strong pipeline for Flow in future quarters.

[Terry Tillman:]

Got it. And then maybe my follow up is for James, in the Q we got an update on business customers in the quarter. It looks like the net – so it was actually down 112. As we're going through the rest of the year and again, I know it's a challenge to try to figure this out exactly. But how should we be thinking about customer additions and in different parts of your business, whether it's enterprise, mid-market or small business and how to think about this trend throughout the year? Thank you.

[James Budge:]

Yeah. Thanks, Terry. Look we love all of our customers and hope to keep them over time and we've definitely shifted a lot of our focus in our business over to retaining those customers. And as you noted at the low end of the market we have lost some of those customers as we moved through Q1. One of the things that we’re doing to stem that a little bit, as I mentioned is put a lot of resources over into the retention side. But I think important to remember that the lion's share of our billings and revenue come - well over 50% come from our enterprise customers. Those are holding steady the retention rates, whether it's logo or users, are similar to what they've been in the past. And we have lost a few at the lower end. But feel really good about where our retention is overall. And I think an important measure like we shared here in the prepared remarks is, our overall user counts are up to a 1.3 at this point, which is pretty good uptick from where they were three to six months ago and that's probably even the more important measure right now is how many users do we have as compared to the business customers that we have.

[Terry Tillman:]

That's helpful. Thank you.

[James Budge:]

Yeah.

[Operator:]

Thank you. Our next question comes from the line of Scott Berg with Needham. Your line is open.

[Scott Berg:]

I guess lots to talk about. Why don't we start with the linearity of last quarter. James, think you made the comment that or do you see any continued pressure from the macro environment that might make it even maybe more back-end weighted than what we're simply used to?

[James Budge:]

Yeah, I think I got – you’re breaking up a little bit, Scott, but I think I got the question, let me take a stab at it and if I didn't hit the mark please come back again. So I believe the question was around linearity, we - and to the point you raised we were seeing very strong linearity in the first couple of months of the first quarter January and February, probably as good a linearity as we've seen in the last six quarters. And then obviously COVID hit in March and things went a little bit awry. April actually surprised - a little bit surprising to me anyway even with Free April and access that a lot of people now have on a free basis in the month of April we actually had a good business, happen in the first month. Probably as to your point I think you said in there should we expect a little bit more back end loadedness in the second quarter. Yes I would say yes to that, but I don't think it will be meaningfully worse. A little bit a little bit more loaded in June than we might have normally expected in the past, but still fairly well spread out across the quarter. Did that cover the question Scott or did I miss something in there.

[Scott Berg:]

James, helpful. Thank you. And I guess from a follow up perspective, you took $100 million worth of annualized cost out of the model. How should we think about your ability to react to an improving environment in the second half, without knowing exactly where those cost cuts came into play, whether with sales and marketing, G&A, et cetera? How do you feel positioned for what - I think a lot of hope to be at least a recovering economy here, maybe Q3 or Q4?

[James Budge:]

Yeah. Look the majority of the cost came from really tamping down on the hiring, like two thirds of it came from the hiring freeze and not hiring hundreds of people that we otherwise would have hired over the next nine months. And that's just reflecting the reality of where we believe our billings will shake out for the year on the sales and marketing end, and then everything else adjusting down from there. So we feel with 1700 employees we have a really great base of employees to achieve the expectations that we have. We have plenty of capacity in the system, with our sales reps we actually have more capacity relative to our lowered expectations than we had pre-COVID when we were thinking of a different plant. I think it gives us plenty of capacity even as we roll into 2021, as we think about kind of getting through the first, even second quarter of ’21, we have really great capacity right now. And one of the things we've been able to avoid so far because of the strong balance sheet we have and the good pipeline and prospects and some of the good momentum we're seeing from Free April, we have not had to exercise any layoffs in our company at this point and that to your point about how can we come out of this quickly, I think keeping our employees that are really productive and as we split out the, there'll be still with us. So we're not letting productive employees go and then having to rehire them three months from now. I think being in that kind of a position with the strength that we have in the business will enable us to accelerate even faster as we come out the other end.

[Scott Berg:]

Very helpful. Thanks, guys. Good luck.

[Aaron Skonnard:]

You bet.

[Operator:]

Thank you. Our next question comes from the line of Brian Peterson with Raymond James. Your line is open.

[Brian Peterson:]

Thanks, gentlemen. And I hope you and your families are safe. I know these are these are crazy times for all of us here. But James maybe you wanted to start with you. Obviously the Free April promotion, it sounds like the engagement there has gone pretty well. This may be an unfair question, so apologies on this. But how are you thinking about potentially monetizing that base in 2020. Is there a significant contribution in the guidance there or would that potentially be upside to the numbers?

[James Budge:]

Yeah, great question. Just probably more upside than baked in. We are assuming that there will be some conversions of those Free April users, probably as you might expect a little bit less than our normal conversion, but still really strong conversion rates as we could be proud of. And I think if we manage to get that conversion rate up even a little bit closer to what our normal historical conversion rate has been, there's even more upside in the models. So some of it baked in, a little bit of upside that we've left ourselves. I'll probably just leave it at that.

[Brian Peterson:]

Got it. Thanks, James. Aaron, maybe a follow up for you. When we talked to some customers or IT leaders, they're clearly seeing that they obviously can't do in classroom training now. I think when I talked to them they still have specific programs and things they want to complete for their employees. Does that offer an opportunity for you to have more of a consultative or proserv role with some of these enterprise customers down the road. Just curious your thoughts on that?

[Aaron Skonnard:]

That's right. That's exactly right. This offers us the opportunity to go in and develop deeper partnerships around how we can take those very specific programs and map them to a digital solution, powered by our platform, our content and all of our digital learning experiences. So we're doing that with several of our large enterprise customers today and see ample opportunity for more of that down the road. And that's ultimately that tailwind I spoke of earlier. I think we'll see even more of that as we continue to move through this crisis and come out on the other side.

[Brian Peterson:]

Great, thanks.

[Aaron Skonnard:]

You bet.

[Operator:]

Thank you. Our next question comes from the line of Sterling Auty with JPMorgan. Your line is open.

[Sterling Auty:]

Yeah, thanks. Hi, guys. James and one of the earlier questions you gave some qualitative commentary to the gross renewal rates at the high end, low end. Can you just give us a kind of a summary? What - when you look across all of your business customers. How did the gross renewal rate actually fare versus the last couple of quarters and what did you bake in, in terms of the outlook?

[James Budge:]

Yeah, let me first to speak to the aggregate. And I'll break down a couple of components to your question. So where - started from your basis of 120 where we were at the end of Q1, that probably trend throughout the year and our implied assumptions in the kind of mid to high teens and then starts to tick back up as we roll into 2021, so that's at the macro level. And as you might expect at the gross retention - that retention number, at the gross retention level on the enterprise side you would expect - we expect that our gross retention is a fair bit higher than the commercial side of our business, specifically a low end of the commercial business for us. So historically that's been in the high 80s low 90s gross retention for enterprise customers and sort of low 80s for our commercial business. And just if you take the - tick down on the net retention, apply that to gross retention, you can probably knock off about 3 to 5 percentage points or more in the mid to high 80s for enterprise and in the high 70s to low 80s for the commercial side. That's about what we expect on the retention side going forward, a little bit of deterioration, but still fairly strong moving forward.

[Sterling Auty:]

And in terms that net retention that you gave, obviously one of the questions I get frequently from investors is you are driven by the headcount of your customers and in light of the current situation unemployment rates how should we think about, how much of that is factored in versus anything that might just be pricing adjustments as customers come up for renewal?

[James Budge:]

Yeah, I mean, look we took a fairly good whack from our billings expectations. That's implied in that - in that growth, where the reduction in growth on the revenue side. So we'd like to believe that it's factored in. And then we actually have done some pretty interesting things to help our customers during this interim time. I think as you noted, we do have - many of our customers that are furloughing some of their tech employees or letting them go. But maybe with an expectation when they come out of this that they hire them right back and we want to help enable those customers. So we're giving some innovative pricing on a temporary basis to many of our customers or some of our customers that are facing those kind of challenges, so that when they bring those furloughed employees or even some that they like go back into the fold then that increases, our user count even higher and we can bring them right back up to the higher price points.

[Aaron Skonnard:]

And Sterling and I would just add, remember that with our large Fortune 500 customers on average we're only penetrated right now at about 8% or 9% of their tech organizations and they typically give the Pluralsight licenses to their most valuable players within those organizations. So I think we're somewhat shielded from some of those headcount reductions that those customers might be facing.

[Sterling Auty:]

Understood. Thank you.

[James Budge:]

Thank you, Sterling.

[Operator:]

Thank you. Our next question comes from the line of Brad Sills with Bank of America Securities. Your line is open.

[Brad Sills:]

Great, thank you. Hey, guys. I wanted to ask about maybe just a follow on question there, in the Fortune 500, what are you seeing there. I think you're seeing an acceleration in the back on billings. Is there any color you can provide and some of the big accounts, maybe you've had conversations when they say, well, maybe this expansion deal we'll still keep in the pipeline, but we'll come back later, right now we're just focusing on stabilizing the business or how the conversation has gone particularly in that enterprise sector with some of your larger Fortune 500 accounts?

[James Budge:]

Yeah, with those Fortune 500 accounts, Brad, we are being more creative around how we can partner with these large customers to deploy even more licenses in the near term to solve some of their immediate needs, aiming for longer term deals in Q3, Q4. So exactly what you're pointing to is what's playing out, we're being super creative. True sense of partners – that were partners in these customer relationships and it's really working to our advantage. I would say many of those large customers have increased the number of licenses in the thousands or even tens of thousands. To learn more about how they can use our platform again to solve some of those ILT specific use cases and to reach more people to drive improved engagement and productivity across their tech works, especially in the work from home scenario. So, we're seeing some very interesting things play out and are excited by it.

[Brad Sills:]

That's great, thanks. And then and then one more if I may. Any noticeable change in technologies that you're seeing more active on the platform, given the COVID situation, I guess since mid-April, anything you'd call out in terms of you know technologies that are getting more interest and more usage on training versus others? Thank you so much.

[Aaron Skonnard:]

You bet. Yeah, it's a little early to tell on that right now, but we are seeing some increase in the cloud space, specifically. I think we'll see cloud adoption speed up not slow down. Infrastructure related topics, like VPNs and how companies work remotely, more effectively to still get access to the applications and data that they need. That's also had a big uptick. And I think I think there's a set of technologies that could decrease in popularity, but it's still early to tell what those trends will play out to be at this point. But I do think we'll see some changes. And so in another month or two or three we'll have more to share on that.

[Brad Sills:]

Great. Thanks, Aaron.

[Aaron Skonnard:]

You bet.

[Operator:]

Thank you. Our next question comes from the line of Stephen Sheldon with William Blair. Your line is open.

[Stephen Sheldon:]

Hi, thanks. In the first 2 months of the year, it sounds like things were trending at the high end of what you were originally expecting. So can you talk some about how sales execution have maybe trended or improved in the earlier parts of the quarter? And specifically, did some of the changes that you put in place in the second half of 2019, did that seem to have a bigger impact in the go-to-market efficiency, at least earlier in the quarter?

[James Budge:]

Yeah, thanks. Yeah, absolutely I think for those that have been with us and by everybody here. We moved all in this year into a hunter. farmer model or new acquisition, account manager type model. Ross was super helpful and architecting that and then has been really impactful and driving that motion for us, as well as all the training and enablement activities to get our sales teams even more focused in their respective areas. So yeah, what we are seeing in January in February was really great signs of life and all areas of our business. I think as you might expect, as we moved into March some of those areas in the new acquisitions were becoming a little more challenged, quite a bit easier to go back to customers that have been delighted with our service in the past and ask them to renew and maybe even up sell and add more licenses into the account. But we do still see really good activity in our new acquisitions motion and expect goodness out of that this year and as we jump out of COVID hopefully towards the end of this year, maybe early next year, we think the structure and model we have will be really beneficial for us long term.

[Stephen Sheldon:]

Got it. And then as a follow up, just I guess an update on how conversations are progressing with systems integrators in terms of go to market partnerships. Does the current environment maybe push out expectations to see some SI partnerships announced, I guess just any detail on the potential there looking at the remainder of 2020 and into 2021?

[Aaron Skonnard:]

Yeah. Great question. We are we are making a lot of progress with the systems integrators and are encouraged by what's happening with each of them. But as you can imagine with the impact of the last six weeks, we have pushed out the priority of some of those conversations, both because they need it, and we need it in this moment of time. But there's still strong interest and we're very focused on building out strong long term channels with a few of the biggest ones. And some more to come on that, but nothing has changed in terms of the nature of those relationships. The interest level it's really just a slight pause as we digest COVID-19.

[Stephen Sheldon:]

Great. Thank you.

[Aaron Skonnard:]

You bet.

[Operator:]

Our next question comes from the line of Brett Knoblauch with Berenberg Capital. Your line is open.

[Brett Knoblauch:]

Hi, guys. Thanks for taking my questions. The first one is on the new literacy product that you guys launched in the quarter. I don't know if you spent much time talking about that already. But maybe just initial thoughts on how that launch went and maybe early adoption indications.

[Aaron Skonnard:]

Yeah, we launched the digital literacy SKU right as the crisis hit during our Pluralsight LIVE EMEA event. And so we're not being very aggressive with that at the moment, given the impact on new acquisition, new billings at the time. And it's really too early to tell or speak to the impact that product's going to have. So I'd say look, we're having conversations with customers around that and there's a lot of interest in it, but most of the conversations are really focused on how do we help the customer through this crisis in the most effective way. How do we ensure the renewals of what's already in place and then how do we bring things like digital literacy into the picture for the future quarters in Q3, Q4 and into 2021. So that's where the conversations are right now. Lots of conversations happening, but still too early to tell what the impact will look like.

[Brett Knoblauch:]

Great. And then just one more on the $100 million in annualized cost savings. Could you break out, I guess, where that's coming from? And I guess, what are those actual initiatives in place?

[James Budge:]

Yeah. The biggest by far, and I want to emphasize -- I know you just said it, but I just want to emphasize, that's $100 million annualized. So not all that will be realized in 2020, but it does lower the base for sure going forward in the 2021. The biggest impact by far is from not hiring will probably the current plan right now is to exit the year with about as many headcount as we have right now. So there's hundreds of additional positions in the company that we would have hired under our original plan that we're now not planning to hire. So that's probably at least 60%, two thirds of the cost, the balance comes from reductions of non-essential services with many of our vendors we're scaling those back or cutting them out completely. Travel and entertainment massively down as you might expect and cutting out several of the amenities that we had planned to put into our new campus. Those are the positive four big ones that I would highlight.

[Aaron Skonnard:]

And I'll just add on this point that one of the reasons we were able to do that and execute that type of plan was because we entered the year ahead of plan on sales capacity and we had made significant improvements on overall sales execution entering the year. So that that gave us a lot more flexibility and optionality to absorb some of the COVID impact in the way that James just described.

[Brett Knoblauch:]

Great. Thanks, guys. I appreciate it.

[Aaron Skonnard:]

You bet.

[Operator:]

Thank you. Our next question comes from the line of Josh Baer with Morgan Stanley. Your line is open.

[Josh Baer:]

Thanks for the question and hope you guys are well. Aaron I'm wondering if you're having conversations with customers or seeing increased demand from customers who are looking to rescale or upscale their existing personnel in an effort to reduce spend on like external IT consultants or outsourcing?

[Aaron Skonnard:]

That's a fairly common scenario for us Josh. I mean that's something that happens most quarters where large enterprises are looking to make significant digital transformation initiatives come to come to be. And the way they do that is through tech skills transformation investments. And so I would say in general that's one of the underlying themes behind our business in the Fortune 500 is our ability to help them accomplish that. I think in COVID we have seen - we have seen some increase in the interest around those things, but that's also tempered by the company's ability to spend more. And deal with the impact hitting that.

[Josh Baer:]

That's helpful. And one for James, I'm just wondering if there's any framework for thinking about how margins or these cost savings could trend if the state of the - of the world gets materially better or worse than the current environment. Like would we expect to see that OpEx expense flex up if things got much better or could we see additional cost savings in the reverse scenario? Thanks.

[James Budge:]

Yeah. Good. Well, I mean on the reverse scenario definitely that we still have a few a few arrows to fire there if you will, if things materially turn for the worse, so really – that we've planned really well around that. On the on the other end of that spectrum, yeah, look if things start to move in a more positive direction, we're always looking for opportunities to increase the amount of top line that we have. And if that means adding some more capabilities to create more product or more skews, more capabilities for our customers, more sales reps that might be able to go drive more billings and we'd be interested in that. But one of those - I don't know if there's too many silver linings in this COVID world we're in right now, but one of the one of the silver linings from a financial modeling perspective is when we've taken a fresh look at our planning as we go through the year and move into 2021, it's demonstrated a clear picture for us and how we're going to move to our long longer term profit margins. And we feel really good about even with the reduced expectations we haven't billings and revenue with what we've done on the cost side that I actually think on the bottom line where we might be in a better position going to 2021 now than we than we would have been in our previous plan.

[Josh Baer:]

That's helpful. Thanks.

[Operator:]

Thank you. Our next question comes from the line of Alex Paris with Barrington Research. Your line is open.

[Chris Howe:]

Good afternoon, everyone. This is Chris Howe sitting in for Alex. Thanks for taking my questions. Can you compare and contrast kind of what you're seeing in this environment when it comes to existing accounts versus new accounts. Has there been any material shift due to the current optics that's out there. And as we look at some of the comments that you made in regard to Free April and the growth prospects that's out there, it would seem once we get back into a more normalized environment and on our path to recovery that this could lead to a long runway for growth within your existing account base longer term once we get to this environment?

[James Budge:]

Yeah. Great question. Aaron did we pick you back up again or.

[Aaron Skonnard:]

Yeah, I'm back in, apologies.

[James Budge:]

Did you hear the question or you were muted.

[Aaron Skonnard:]

I did not hear the question.

[James Budge:]

Okay. Let me let me take a stab. I think the question was around if there's some near-term impact and share with me if you don't think I've captured this right, but if this is to near near-term impact on the new areas of our business as opposed to the renewals and existing customers, do that - with some of the things Aaron's already mentioned around our penetration the Fortune 500, our still only 9%. Does that suggest that when we come out the other end whenever that is that there's some longer term or even mid-term upsides in the in the model and the expectations that we would have. So hopefully I characterize that somewhat accurately, but tell me if wrong. And I'll just give a short answer and Aaron can jump in with whatever he'd like to share. But I'd say the short answer is yes, absolutely we do still see lots of runway in our - particularly our largest enterprise customers with new - lots of new users still available to us. And maybe some temporary setbacks and some new logos and new accounts that we might have out and otherwise without kind of it. But certainly we expect that to spin up and we have all the capacity we need to go chase that down as the world kind of turns back to the positive again.

[Aaron Skonnard:]

Yeah, that's right James. I agree a 100% with all of that and I do believe that we have upside as we work through this. There's still a tremendous amount of uncertainty and we are managing that uncertainty as best we possibly can. And so depending on what happens with COVID and some of the industries that are most impacted that we sell into, and how quickly those things recover. I think there is upside here between now and the end of the year depending on multiple factors and multiple assumptions. I would say we've been fairly conservative in most of our assumptions. And so time will tell. It's really hard it's really hard to predict. But I think we're in good shape.

[Chris Howe:]

That's very helpful and one follow up if I may. You had mentioned the exposure and if we look at that in consideration of the conservatism that's been placed on guidance and this COVID-19 environment, is there perhaps an additional way to think about this as particular to certain industries or a certain size of account that's most at risk during this time or has already been at risk during the first half of this year?

[Aaron Skonnard:]

I think that the industry exposure is the most significant factor of all. Obviously and in the travel industry and food and entertainment some of those areas, there is a clear impact and we did a big pipeline analysis to see how much of our current open pipeline was exposed to those industries and it wasn't very significant. So overall we're feeling pretty optimistic about being shielded from the most impacted industries that are at a global level. But things are changing every day and so we're having to redo those calculations pretty frequently. And things can change. So I just want to caveat it with that. But at a hot high level I would say we're feeling pretty optimistic that we're not overly exposed to the most impacted industry.

[James Budge:]

Yeah, I mean maybe just to put a finer point on that. The industries that Aaron mentioned are probably less than 5% to 7% of our overall billings stream. And if you extended it out to our smallest customers just as a broad bucket about 10% to 12% of our entire business is in that SMB kind of space, the vast majority of our business is in the enterprise segment for us and high end commercial segment and very small portion of that is in the industries that have been most heavily impacted during this time.

[Chris Howe:]

Okay. Thanks for the clarity and the additional color, appreciate it as always and I’ll hop back in queue. Thanks, everyone.

[Operator:]

Thank you. I'm not showing any further questions at this time. I would now like to turn the call over to Aaron Skonnard, CEO for closing remarks.

[Aaron Skonnard:]

All right. Thank you. Nothing further to add at this point. Thanks for joining our call. Thanks for the great questions and we'll talk to you again next quarter. Thanks everyone.

[James Budge:]

Thanks, everyone

[Operator:]

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.