Pluralsight Inc
Q2 2019 Earnings Call Transcript

Published: 31 Jul 2019

[Operator:]

Good afternoon, ladies and gentlemen. And welcome to the Pluralsight Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time . As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Mark McReynolds, Director of Investor Relations. Sir, you may begin.

[Mark McReynolds:]

Thank you. Good afternoon, and welcome to Pluralsight's second quarter 2019 earnings conference call. With me today are Aaron Skonnard, Co-Founder and CEO and James Budge, CFO. Some of our remarks will include forward-looking statements within the meaning of the federal securities laws. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's press release and in our SEC filings. Any forward-looking statements that we make on this call are based on information and assumptions as of today, and we assume no obligation to update these statements. During this call, we may present both GAAP and non-GAAP financial measures. Except for revenue, balance sheet amounts, cash flow from operations and billings, all financial amounts discussed are non-GAAP, and growth rates are compared to the prior year comparable period, unless otherwise stated. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The press release is available on our Web site at investors.pluralsight.com. Before we hear from Aaron, a quick reminder about Pluralsight LIVE 2019. Our annual user conference will be held on August 27th through the 29th at the Grand America Hotel in Salt Lake City. Pluralsight LIVE provides an excellent opportunity for investors and analysts to hear from a wide range of our executives and leaders and connect with our customers and partners. We'll hold a half day session on August 28th specifically for investors and analysts we'd love to see there. Please send an e-mail to [e-mail] if you're interested in attending Pluralsight LIVE this year. And with that, I'll turn the call over to Aaron.

[Aaron Skonnard:]

Thanks Mark. Good afternoon, everyone. And thanks for joining our Q2 2019 earnings call. We beat our Q2 revenue and EPS guidance with revenue growing 42% and EPS growing by 71%. Our market, our product, our early successes with GitPrime and our second half pipeline, all give me line of sight to achieving our revenue guidance this year and $1 billion in billings in 2022. While we generated strong revenue and EPS in Q2, we experienced sales execution challenges, which impacted our billings. I'd like to share what we learned and what we're doing to strengthen and improve execution moving forward. We hired over 100 new sales reps in the last 12 months, which may seem like a lot, but that was not enough capacity in the system to sustain our high growth expectations as we entered the year. In addition, the type of fast growth we've enjoyed requires us to provide prescriptive and effective sales enablement. And we didn't invest enough in that area of our business.

[James Budge:]

Thanks, Aaron. Let me start today by reviewing some of our financial performance before moving to our outlook for the third quarter and remainder of the year. Q2 revenue grew by 42% to $75.9 million. Gross margin was 78%, up from 76% last year. And we see a clear path to further improving gross margin to over 80%. Non-GAAP net loss per share in Q2 was $0.06, a 71% improvement over our net loss per share in Q2 last year of $0.21. The sales execution challenges Aaron covered contributed to Q2 B2B billings growth of 27% to $69.1 million, short of the growth that we have been producing. We expect to reaccelerate our growth rates as we move beyond these temporary execution challenges. Our dollar based net retention rates for the trailing 12 month period remain strong at 126%. As our billings regain momentum in the second half of the year, we believe our net retention rate will go back into the high 120 or low 130. Operating cash flow is negative $7.2 million in Q2 and free cash flow is negative $11.1 million in the quarter. Our lower than expected billings in Q2 negatively impacted our cash flows. But we expect to return to being cash flow positive as we exit 2019. We closed the quarter with total cash and investments of $600 million. And our on balance sheet backlog, as expressed by our deferred revenue, was $186 million at the end of the quarter, up 45% from last year.

[Aaron Skonnard:]

Thanks, Jim. We're seeing positive momentum in the business. We saw success in Europe and Australia, as well as the government space, which is the segment we're just beginning to penetrate. And we continue to see growth across our largest customers. We have 343 customers with annual billings of over $100,000, a 62% increase year-over-year. We also have 61 customers with annual billings exceeding $500,000, a 103% increase from a year ago. And we have 21 customers with annual billings exceeding $1 million, a 91% increase from a year ago. As of Q2, our top 25 customers have now expanded 22 times from their initial purchase. This quarter, we saw four new customers join our $1 million in annual billing club, and we're proud to welcome Fujitsu, Intel, MasterCard and Ford into this group. All of this meaningful growth in our largest accounts clearly demonstrates the value we continue to provide since our customers keep coming back for more. We also saw early success with GitPrime, exceeding our internal Q2 billings expectations by more than 40%, resulting in year-over-year growth of over 100%. We're encouraged by the progress and excited by the early indicators we're seeing for our data driven engineering platform. Quantifying and engineering team's progress is something that tech leaders have never experienced, and they want more of it. We're actively building our unified offering that we plan to launch in Q1 2020. And we believe that this will create even more opportunity to penetrate our large and expanding TAM. On the partnership front, we continue to be encouraged by our progress with the three largest cloud providers, Microsoft, Google and Amazon. We're working with Google to finalize ingesting their courses into our library. And we're collaborating with GCP at large enterprise accounts around the world. We're excited to announce that Pluralsight is now available via the AWS marketplace, strengthening our co-selling motion with high potential target customers. Being on the AWS marketplace lets us leverage their existing agreements with customers, allowing us to quickly and move through procurement. Our cloud contents and our new partnerships with GCP and AWS has increased by over 135% over the last 12 months. We believe that our unmatched contents and strong partnerships set us apart as the unquestioned leader in cloud skills. These partner developments combined with the organizational and operational changes we've already made have strengthened our second half capacity such that we're able to maintain our revenue guidance for 2019.

[Operator:]

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

[Brad Sills:]

I wanted to just ask a little bit on the execution challenges that you've mentioned earlier. It sounds like it was primarily ramp of some of the new hires. Was there anything going on with existing reps that been around a little while longer? Maybe just little bit more color on just where you saw the execution in some of these more tenured reps, if you did see that?

[Aaron Skonnard:]

We didn't see anything specific around tenured reps. The gap of the experienced in Q2, as we said in the script, was focused specifically on the sales capacity challenges and ultimately ramping those new reps through sales enablement. So that's our focus.

[Brad Sills:]

And you mentioned that you're back for hiring. What was the target for headcount? And where did you come in, and maybe just little bit of color on where you there now?

[James Budge:]

Yeah, thanks, Brad. We're about 250 bearing reps right now. And that's about the number of bodies we want to have at this time of the year, but they didn't come into the year early enough in the year. So the ramp time to get them trained up and ready to go, be effective sellers is behind there, that's been the big impact. We're targeting about 330 as we exit the year and we see a clear line of sight to that, so it would have been about 303 to 310 naturally. And I think as we mentioned in the comments here, we're actually pulling some of those reps forward into 2019, so we get ahead 2020 because of the opportunity that we see.

[Brad Sills:]

And one more if I may, please. I mean, you're not the only software company that seen some pockets of weakness here. Is there anything you could point to that might be macro related that might be indicative of a slowdown in any way that you've seen from your customers, maybe some pause on some bigger deals, anything of that nature?

[Aaron Skonnard:]

No, Brad, we're not seeing any weakness around the market or the TAM specific to our space. In fact, we see the TAM growing. The addition of GitPrime adds even more to our TAM and the opportunity that exists there. And we're seeing strong demand from all of our enterprise customers, for both the core product and the new addition of GitPrime. Just in the last quarter, I've been in dozens of Fortune 500 level conversations, both speaking about the integration of our core product expanding at much higher scale. And so that doesn't look any different today than it did a quarter ago and we're seeing even more appetite for expanding into the new product line offered by GitPrime, so very promising.

[A - James Budge:]

I might just pile on that, Brad, just to reiterate a couple of points Aaron made in his remarks that typically that lengthening of the deal, you see even bigger deals. And we're not seeing that. In fact, you see that 51% growth in deals over $100,000 to 91% growth in deals over $1 million. We added four new to our million dollar club, and that's as many as we've ever added that have got over a million in annual billings. So despite the size of the deal, materially increasing our average deal size is growing, we're not seeing a material change in the timing of getting to the finish line.

[Operator:]

Thank you. And our next question comes from the line of Corey Greendale with First Analysis. Your line is open.

[Corey Greendale:]

So starting on a similar theme. I know you don't guide to billings, but it sounds like this was a relatively short term issue and you think it's resolved. So just directionally, do you think B2B billings growth in Q3 looks more like Q1 than the Q2 growth?

[James Budge:]

Definitely looks more like Q1 than Q2 for sure. They'll probably be, as Aaron mentioned, we're on a great path towards a new leader, a new sales leader but we'll take a little bit of time. It probably won't be up to the 50% B2B growth that we've historically had. But there is a path to get there. But in any case, it will look a lot better than the second quarter and by the end of the year as we move to the fourth quarter, which is always our biggest quarter we feel confident about that one.

[Aaron Skonnard:]

And Corey, the reason we're more confident in driving better results in Q3 is because of the ramp capacity. We have our best closing event of the year in Q3, which is Pluralsight LIVE late August, and the strong momentum we're seeing with GitPrime, so all those things will help strengthen Q3 even further.

[Corey Greendale:]

And longer term as you accelerate some of the new rep hiring. Is -- all else equal, I would have expected productivity per rep on like-to-like basis go up in 2020 just because they'd have the addition of the GitPrime portfolio. Do you still -- and maybe I'm putting words in your mouth. Do you still expect that productivity per rep kind of on a like maturity basis will be higher, or should be higher in 2020 than 2019?

[A - James Budge:]

Yes, absolutely. We're seeing really great momentum in GetPrime. It's quite a big higher than what we expected at cross selling. It's happening between the accounts into big accounts is pretty fantastic of course, right now it's definitely one of the highlights for the quarter. And as you pointed out, we'll absolutely add to the capacity, capability and ultimately more productivity out of the sales reps on board as we roll into 2020. So we definitely feel that.

[Corey Greendale:]

And just to -- one more point on the model. I understand where net retention is expected to go. Can you just comment on the gross retention, whether you saw any hits to that?

[James Budge:]

Yeah, we did. It came off a couple of points. We've been in the high 80s, it came into the mid to slightly higher than mid. We came up a couple of percentage points similar to in that retention. And we definitely see visibility to gain that right back up into the high 120 to 130, which implies that the gross retention moves back at the high 80s.

[Q - Corey Greendale:]

And not to -- it take over a couple of 100 bps, but that doesn't sound like a sales productivity issue. So what do think caused that?

[James Budge:]

Well, some of it is expressed in some of the renewal that came up that did have implications as they were tried to expand to just pushed out a quarter or -- well, a few months, I should say. But some of those have even closed in July. And then some things that Aaron mentioned where we're investing in customer success and adding more resources there that we need to drive those higher rates.

[Operator:]

Thank you. Our next question is form Brian Peterson with Raymond James. Your line is open.

[Brian Peterson:]

So I know we had some price increases that started earlier this year. I'm curious if those had any impact on what we're seeing from the sales side? And anything you can share on what we're seeing related to price increases?

[James Budge:]

Yes, we did have price increases. Thanks Brian. Those happened into the beginning part of the year, and as January to February timeframe. Have there been pull forward around that, you would actually seen that in the fourth quarter with an impact in the first quarter. And yet we saw really solid results in the first quarter. So summary of that is we don't -- I'm sure there is some pockets of resistance around that, like it would happen anytime you have a price raise. So we don't see that as a reason for why we didn't hit the billings that we had. Our customers, they see the value in the products that we're delivering. They see the relative cost compared to their cost of learning that they're paying for right now, and they see tremendous value not regardless of process, small increase wasn't anything that we would feel would be impactful.

[Brian Peterson:]

And maybe just one on GitPrime. If you look at maybe your joint customers, or I don't know the right way to think about this. But I'm trying to get a sense for what the penetration currently is into the user base of GitPrime? And how that might look versus existing Pluralsight relationships?

[A - James Budge:]

We inherited just over 300 in accounts from GitPrime, and we have almost 18,000 customers, so very little overlap but some. And certainly the low hanging fruit right out of the gate is going into the common customer and driving incremental value, whether it'd be traditional Pluralsight capability or GitPrime. But where the real value is going to come overtime is taking that GitPrime technology into our 18,000 business accounts and driving the value through that. So there's tremendous amount of opportunity. I think in past calls, we've shared the growth rate and we expected to come from GitPrime, and we saw that. And we've only had it for 60 days. And we saw all of the growth we expected and then some. As Aaron mentioned, 40% more than what we expected and we were pretty optimistic about what we expected. So it's going fantastic.

[Aaron Skonnard:]

We did -- I'll just add on here that we focus on GitPrime quite a bit as Pluralsight LIVE Europe earlier in the quarter, and drove a lot of strong pipeline at that event. I was in a lot of those top customer conversations during LIVE, and it was all very promising and lot of interest. So we're really excited. We think there's a tremendous amount of synergy but not a lot of direct overlap, like James just spoke to, which creates opportunity.

[Operator:]

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

[Eric Lemus:]

This is Eric Lemus on for Terry, thanks for taking the question. Two metrics you guys talked about, the dollar based net retention rate coming down by 2 percentage point and then also the business customers, it was versus last quarter, but certainly down year-over-year. When I look at the billings for business customers, splitting out from what you said. What had more of an impact? It seemed like it was -- new net adds, was lower than expected. But what is the split between the impact of the lower net retention rate versus the net adds?

[James Budge:]

The lower net adds it's probably about 60/40. Good question. Probably about 50% related to lower net adds than we expected and then about 40% coming from those 2 percentage points. But we could have done better on a few on our expand, our new and our retention, so definitely all areas that with the extra capacity. The capacity we'll now have that now actually exists in the system now is chasing all three of those types of billings. And we expect all of those have significant improvements over the next six months.

[Eric Lemus:]

And then looking at the quite a good bearing sales reps. Was there any churn that you witnessed in quarter -- different than previous quarters?

[James Budge:]

No. We have benchmarks that we look out regularly for what happens in the software industry. Where we've historically been much better than those benchmarks, and that's continued through the first six months. We would prefer none of our top performing reps to leave us, but occasionally do further opportunities, it's like any company. But our overall retention for our sales reps we are super comfortable there.

[Operator:]

Thank you. Our next question is from Saket Kalia with Barclays. Your line is open.

[Saket Kalia:]

Hey guys, thanks for taking my questions here. Hey, James and Aaron -- Aaron maybe for you. We talked about the sales execution issues and we're making changes accordingly. But can you just talk about any analysis that you've seen from the sales team on competitive win rates? I guess the question is what gives you the confidence that the shortfall of this magnitude on billings wasn't related to any sort of more intense competition, or any other issues around the competitive landscape?

[Aaron Skonnard:]

We're not seeing anything significant in terms of decreases in macro win rates. Ultimately, what we're seeing in the data is our primary competition remains classroom training, that's where the big dollars are. But with our sales execution issues that we described, we're simply not moving through the sequence of events fast enough at this scale to get to the finish line. When we look at why the Fortune 500 customers end up choosing us in the end, it goes back to our content advantage; how far ahead we are of the competition, which really puts us in a unique place; the author community that we've built over the last 10 years; the confidence in our product and our platform and all the data sciences investments we've made with Skill IQ and Role IQ; and now GitPrime, which allows us to take these customers all the way to the finish line of how those tech skills are translating into better productivity, better performance and ultimately, the outcomes they care about. So all that's to say, we're highly differentiated from other learning types of companies that are not really in the SaaS tech field development space that we sit in. So we just don't see that showing up in the data as the main reason why we didn't get the deal done.

[Saket Kalia:]

James, maybe for my follow up for you. It sounds like the pipeline here for the second half remain strong. So given the shortfall in the quarter, feels like close rates were a little bit lower than what we expected. And of course we talked about net retention here as well but as you look forward, as you adjust the guide, at least on billings. How have you contemplated some of those new assumptions to make sure that we set ourselves up for success, if you will, going forward?

[James Budge:]

I think in its simplest form, we've taken a hybrid between what we saw in Q2 and what we've historically seen for Q1, where we use Q2 as a momentary point in time where we have some improvements to make. But now that we're caught up around sales capacity, we're submitted to our investments and putting investments into sales enablement and showing that up. We do see us eventually getting back to where we were rolling through Q1.So I'd say there's a healthy amount of conservatism still built into our numbers, but less conservatism maybe then we had a couple of months ago.

[Operator:]

Thank you. And our next question is from Sterling Auty with JPMorgan. Your line is open.

[Sterling Auty:]

I want to hit on the capacity and productivity of sales again, but from this perspective, because I thought I heard a couple of different items. Is the productivity of your sales reps different today than it was six months ago, because of some factor?

[James Budge:]

No, I think there was a question around the tenured reps the productivity we're seeing out with tenured reps is the same as it historically has been. Simply but, there were dozens of reps that we needed to bring on board at the end of last year beginning into this year, so that they would ramp and become fully productive in the second quarter. And there was, for a number of reasons, delays in bringing them on-board until early to mid second quarter. The nice thing is they'll be fully ramped as we move into the third quarter and certainly, well ramped as we move in the fourth quarter. But we just didn't have enough ramp capacity in our system in the really the first and second quarter and then it expressed itself with the outcome you saw in the second quarter. The good news is with where we are we're caught up to some extent. For the most part still, we're up by a few heads but not a material amount like we were through Q2. So we feel like we're in a great spot going in the second half.

[Q - Sterling Auty:]

So I know I'm playing Monday morning quarterback on this. But why this -- when we were hearing it, why didn't we hear this on last quarter's call?

[James Budge:]

Well, we were still hitting our numbers. And we felt like we had things broke right. We're still realizing what we needed with on our -- what we needed on our retention rates with our expand opportunities and we were seeing an accelerated productivity out of reps that was not sustainable in the second quarter. We just needed more bodies to soak that up.

[Sterling Auty:]

And then one more follow up. When you haven't changed the head of sales, a lot of times they want to come in and make changes to structure some of the sales leadership, maybe even some of the sales reps. And it usually takes a couple of quarters. Is that what we should expect, or are you going to hire somebody with the mandate that you're looking for tweaks but you're not looking for major overhauls to the go-to-market function?

[Aaron Skonnard:]

Yes, no, we -- I know what you're talking about there. We've seen that before. We do not intent to have it happen that way in this particular day. I mean I think it's primarily because of how evolved and well structured our model is today. We do see refinement that we can continue to make and we're planning on making those with the direction of our future CRL. But our strategy is solid. We're confident in the direction we're heading with coverage and global expansion. And we think what the new CRL brings will be additive to that, and will not be something that highly disrupts our motion.

[Operator:]

Our next question is from Jeff Meuler with Baird and Company. Your line is open.

[Jeff Meuler:]

So is this -- was it mostly about recruiting resources, or did you changed something on wage or comp plans? Or just what were the keys to addressing the issue to get caught out?

[Aaron Skonnard:]

Yes, a lot of points to that if you could point to. I would say on the comp plans are richer this year than they were last year, and richer last year than they were the year before. So the amount and the size of opportunity that we provide to our sales reps continue to grow each year. I mean I think it really comes now -- I think it does come straight down to, if you can, bring the body in early enough in the year or even into last year ahead of '19 and decision about where the body should go, what regulatory they should be in. So it's just too long to be make and we think we suffered from that in the first half and we're committed to making sure that doesn't happen again as we roll into 2020.

[Jeff Meuler:]

And any way you can update us what the timing of when they came on board, like was it a lot of June catch-up? Just wondering as we think through typical sales productivity ramps, roughly what the timing we should be contemplating is?

[James Budge:]

Yes, there's probably about 50 reps that should have -- 50 more reps that should have been with us in the December-January timeframe that on average didn't start as an average rep, they didn't start until the April-May timeframe. There is a good four to five months of impact from a sizable amount of reps.

[Operator:]

And our next question is from Arvind Ramnani with KeyBanc. Your line is open.

[Arvind Ramnani:]

I just wanted to get your view on customer appetite for sustained price increases in the near to medium-term. And what are some of the factors that allow for price increases?

[Aaron Skonnard:]

Yes, I mean, look, if you go back to the last couple of years, just as examples. We had some pretty major capability, we added into the platform in mid-2017 that resulted in creating the enterprise view in early 2018 with all the analytics that came along with that. That created tremendous amount of value to our customers and allowed us to create that higher price view. And then when you rolled into mid-2018 with all the capabilities we added there with Role IQ, interactive courses, projects and other capabilities in the platform in addition to incremental world class content, we felt like there was another incremental amount of value that we provided that could help us raise prices again. And allow us to show even more value to our customers. So we did that at the beginning of '19. And I think what will happen here as we roll into Pluralsight LIVE here in a few weeks, we'll have a lot of really incredible things to talk about. The integrated product offering with GitPrime is going to be fantastic. And we're thinking through whether that merits an increase or not. I'd say nothing is determined at this point. But we do a lot of testing around that and see where the elasticity there is in our price. And if the market can bear it then we increase it. And we'll see how that goes as we roll through the rest of 2019 and into 2020.

[Arvind Ramnani:]

And certainly, this Pluralsight LIVE has a big event, it's like -- and as you mentioned earlier in the call, like close to a big trigger point to -- from a sales perspective. Can you just give us a little bit more color on what we should expect? Because I mean I would imagine this is a multi quarter planning effort you have in terms of like making sure you highlight some of the things. So are you able to highlight some of the things we may be able to expect on, at the event next month?

[Aaron Skonnard:]

The main focus area is going to be GitPrime and the integration in our core product lines with GitPrime, and the new value that creates for our customers. That's all we can say right now today. And it's those capabilities, along with a few new personalized learning experiences for the individual that will take most of the stage. And there are some things that will be very exciting to our to our enterprise customers. So we'd invite all of you to come, to participate. We'll have an Analyst Day as part of Pluralsight LIVE, where we'll go even deeper with all of you about those new capabilities and how it will impact your models for 2020.

[A - James Budge:]

If I could just add there, Arvind, maybe just a comment on top of that. I mean, ultimately, the success of a big customer event like that is measured in terms of pipeline creation and close deal. And when you compare our first live event in 2017 to '18, to now mid-2019, the amount of pipeline that is already signed up to come into the room in three weeks is already close to double what it was last year. So seeing really great opportunities for pipeline coming in. As Aaron mentioned, we did our first Pluralsight LIVE event in Europe. And it was roughly twice what we expected as far as pipeline in the room, we had close to $40 million to $50 million of pipeline in the room for that event. And we expect quite a bit more than that in the room for our event here in Utah.

[Arvind Ramnani:]

That's exciting, just last question for me, just either from a macro perspective or from just from intake perspective. Is any change in the market you are seeing now versus six months back, or one year back either positive or negative?

[Aaron Skonnard:]

No. No changes that we're seeing in the macro environment. This is all about sales capacity and enablement.

[Operator:]

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

[Scott Berg:]

Hi, everyone. Thanks for taking my questions. I guess I got two brief ones. First of all, Aaron, can you comment on the impact GitPrime is having, maybe on the sales cycle of the core Pluralsight solutions?

[Aaron Skonnard:]

Today, it's not having any impact on the core Pluralsight sales cycles, because we're continuing to run that team independently. The core sales team, the sales team covering the core product line. We have started in the -- with -- since the acquisition date through the end of this year with a referral motion between the two. So any customers that our core team has, that are interested in GitPrime get referred over to the GitPrime team to keep that focus the same through the end of this year. As we move into 2020 with the unified offering, the new coverage model for 2020 will then allow us to leverage all 300 plus sales reps selling both products. And we're working, right now today, to enable all of those reps in the second half of the year to ensure they're prepared for that.

[Q - Scott Berg:]

And then a quick follow up on the sales execution. I know it's been spoken about often here. But is the simple solution just a new Chief Revenue Officer, or do you think there's more scalable there? I think you addressed upon it a little bit. But trying to understand how much infrastructure is really required to scale the business appropriately to reach your $100 billion goal, which I assume you all have?

[Aaron Skonnard:]

The new CRO is not a silver bullet. It's obviously the leadership that sits on top of the entire motion and the entire sales team. So it is significant but it's not all inclusive. In addition, we're adding key hires in the core sales operations teams that do play into -- that's where the systems and the data live and all the processes that sit around the sales force. And we're also adding key hires in customer success and sales enablement, which we've mentioned several times. So the plans we're executing on are very comprehensive of all the things that are at play, and this new CRO will be a big part of helping fit all of that together in the second half once that person is here.

[Scott Berg:]

Got it, thanks, very helpful.

[A - Aaron Skonnard:]

And I'll add, in the interim, I'm digging in deep here myself along with a few other members of my executive team. And I'm going to be dedicating a large portion of my time until the new CRO is here playing the interim CRO role.

[Operator:]

And our next question comes from the line of Alex Paris with Barrington Research. Your line is open.

[Chris Howe:]

Good afternoon. This is Chris Howe sitting in for Alex. I had two topics I wanted to touch on, one you can probably guess, the sales execution. Just digging further into this. As we look at the recent new hires in your sales force. Have there been -- how should we look at the mix between high performers and low performers within the recent new hires? And of these high performers, how can we transition this to the other new hires in the base?

[Aaron Skonnard:]

I mean, a lot of people that come on have been, come on in last four to six months. We continue to grow the company of up to 1,400 all in, and a lot of that growth also comes in our sales force. So it's mixed right now, but there are most of them. We're hitting our metrics around how quickly sales rep was ramped, how much they sell within the first three months, the first six months, the first nine months. We feel very confident about the number and percentage of our new reps that are hitting those numbers. And that's easily enough to sustain us as we push forward to our second half targets of maybe 2020.

[Chris Howe:]

And then on the second topic is just around what you're seeing as far as growth, whether it'd be between existing accounts or new adds. Previously you had mentioned a penetration rate in relation to your Fortune 500 customers. And you've mentioned on this call the different growth that you're seeing with different size accounts. How should we look at the financial impact as you start to grow, either penetration rates within these different size accounts? And how does this relates to up-selling in renewals and the different opportunities you see there as we look forward?

[James Budge:]

Yes, great series of questions there. I'd say the penetration rate continues to slightly uptick with our Fortune 500 accounts where we went public just over a year ago we said 5% of our Fortune 500 TAM was penetrated with billings to us on annual basis. That number a quarter ago was about 7%. We're up to about 8% now, so it continues to grow. It's one of the key reasons why Aaron was able to say that our top 25 customers of course, would all be Fortune 500, but our top 25 customers have grown 22 times since their initial land deal with us. That has grown from -- I think that number was around 9 to 11 times at the time that we went public. So the expansions continue to grow in our biggest accounts, but we don't see that changing overtime. It's still massive opportunity in the Fortune 500, the top 25, whatever direction you want to cut it. And at the same time, we added 500 new logos this quarter, some really big names and some really little names. But 500 new accounts in a quarter is excellent, and we're super happy about that. And while we would always like to have even more, it's a great number and pretty consistent with the 500 to 600 that we had on any given quarter. So we see the momentum there. We see the opportunity is in front of us. There's always opportunities and room for improvement clearly coming off of this quarter. And we see the path to that improvement as we roll through the rest of the year.

[Chris Howe:]

And is there any way to parse out, or break out the 8% penetration rate as to what logos or perhaps what sectors are having more of the drive towards this increase in share wallet?

[James Budge:]

Not really, it's pretty -- I mean, there's no concentration in any industry. Our biggest industry, just by size, but it's not really all that much bigger than the number two industry; with financial services as our number one vertical; tax, you might think would be number one, but that's number three actually; financials are a consulting services and shops like that are number two. And then as you just heard Aaron mention, we've got Ford as a $1 million pair right now; MasterCard, I guess that would sit in the financial services, but a lot of good breath across all the verticals. So hard to break that out, there's no -- given there is no concentration the way we think of a TAM is the 8% roughly equates to about $80 million a year coming in from our roughly 350 Fortune 500 accounts. And we see an opportunity with a clear line of sight to a $1 billion plus in total tech TAM. We're just talking about the tech TAM inside of those Fortune 500 accounts. And when you extend the Fortune 500 up to the global 2,000, it's roughly double again, if not more. So several -- the TAM in front of us with accounts we've already landed is measured in -- already measured in billions.

[Aaron Skonnard:]

And let me add, the best targets for us or these companies that are striving to become more tech enabled, more tech savvy, make tech a bigger part of their strategy and like James says, that's happening everywhere in every industry.

[Operator:]

Thank you. And I'm not showing any further questions.

[Aaron Skonnard:]

All right. Well, I'll close with a big thank to our customers, our shareholders, our authors and of course, all of our team members here at Pluralsight for your continued support. And we look forward to speaking with you again next quarter. Thanks, everyone.

[Operator:]

Ladies and gentlemen, this does conclude the program. You may now disconnect. Everyone, have a great day.