Pluralsight Inc
Q2 2018 Earnings Call Transcript

Published: 6 Aug 2018

[Operator:]

Welcome to the Q2 2018 Pluralsight Earnings Call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to turn the call over to your host, Director of Investor Relations, Mr. Mark McReynolds. Sir, you may begin.

[Mark McReynolds:]

Thank you. Good afternoon and welcome to Pluralsight Second Quarter 2018 Earnings Conference Call. Joining me today to discuss our results are Aaron Skonnard, Co-founder and CEO and James Budge, CFO. Before we get started I would like to take this opportunity to remind you that our remarks today 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 final prospectus filed with the SEC. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events, except as required by law. During this call may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today’s earnings press release. The press release is available on our website at investors.pluralsight.com. And with that, I'll turn the call over to Aaron.

[Aaron Skonnard:]

Thanks Mark and thank you everyone for joining us on our first earnings call. For those of you we had a chance to connect with during the IPO road show thank you again for letting us share the Pluralsight story. This was our first quarter as a public company; we completed our IPO process early in the quarter and went on to deliver strong top line growth, as well as the year-over-year improvement in operating performance. We continue to disrupt the technology skill development market with a platform that enables industry leaders and their teams to keep up with the rapid pace of technology change and deliver key innovations on time and on budget. We had a lot of exciting accomplishments in Q2. Let's start by looking at the numbers. James.

[James Budge:]

Thanks Aaron. Before we dig into the numbers I would like to note that except for revenue, balance sheet amounts and cash flow from operations all financial amounts I discuss are non-GAAP and growth rates are compared to the prior year comparable period unless otherwise stated. New customers acquisition combined with strong expansion within our existing customers drove Q2 billings growth of 42% to 65.3 million and revenue growth of 38% to 53.6 million. Our B2B billings increased by 52% to 54.6 million, our fifth consecutive quarter of greater than 50% growth. Our land and expand strategy continues to be successful as evidenced by the growing number of customers with larger deal sizes, for example for the trailing 12 month, the number of customers with annual billing greater than 100,000 increased by 84%. In Q2, our B2B business represented 84% of total billings, up from 78% in Q2 last year. And our B2B dollar-based net retention grew to a 125% up from a 120% at the end of Q1 2018. Our Q2 gross margin was 76%, up from 74% and we see a clear path to further improving gross margins over the next one to two years. Our operating cost increased year-over-year as planned as we continued to invest in our platform and our go to market team to drive the top line growth opportunities we continue to see ahead of us. Net loss per share in Q2 was $0.21, a significant improvement over our net loss per share in Q2 last year of $0.29. We saw 35% improvement in operating cash flows with 5.8 million in cash used in Q2 compared to 8.9 million last year. Free cash flow was negative 9.2 million in the quarter compared to negative 11 million last year. Our improving earnings-per-share and cash flows are strong indicators of the operational efficiencies we are leveraging in our business as we grow. We closed the quarter with cash of 213.6 million after using a portion of the IPO proceeds to pay off all outstanding debt. And our on balance sheet backlog as expressed by our deferred revenue was 128.5 million as of June 30 up 58%. Turning now to guidance for Q3 2018, we expect revenue to be in the range of $57 million to $58 million, an increase of 33% at the midpoint of the range compared to Q3 last year, we expect Q3 net loss per share to be in the range of $0.13 to $0.14, assuming weighted average shares outstanding of approximately a 131 million. For the year 2018, we expect revenue to be in the range of 222 million to 225 million, an increase of 34% at the midpoint of the range compared to 2017, and we expect 2018 net loss per share to be in the range of $0.65 to $0.68, assuming weighted average shares outstanding of approximately a 101 million. To bridge from the expected third-quarter loss per share to the full year loss per share given a higher weighted share counts in the second half of the year post IPO we expect that the fourth quarter net loss per share will be in the range of $0.10 to $0.11 assuming weighted average shares outstanding of approximately a 133 million. And with that I’d like to turn the call back over to Aaron. Aaron?

[Aaron Skonnard:]

Thanks James for sharing the results of our outstanding second quarter. Now let me share more context behind what's driving this performance. Every company is becoming more technology focused and this is particularly true in our existing customer base. We’ve added over 30 new Fortune 500 accounts in the first half of 2018 bringing our total penetration to 65%. As another indicator of our ability to significantly expand in our customer base, billings from our top 25 customers for the last 12 months increased by approximately 13 times from the billings we generated from those same customers in the year of their initial purchase. All of this has led to our strong and growing retention rate of a 125%. In addition to expansion we also saw strong performance in net new business during the quarter, as demonstrated by hundreds of new logo wins. Our new customers included a Big Three global management consulting firm, a large U.S. state government, a prominent firm providing subscription services for audio books, one of the largest associations of credit unions in North America, a Fortune 1000 Financial and Data Services company and a large home improvement chain. These new customer wins demonstrate that our platform works for any industry at scale. The combination of our acquisition of new customers and our ability to expand within our customer base resulted in a record second-quarter for Pluralsight. Another key element of our go to market strategy is our partnership motion with strategic technology companies. This quarter we expanded our relationship with Microsoft Azure in which we produce and host specific training content and experiences for various prominent Azure roles. This partnership continues to strengthen as we both see continued value in the content engine, the product experience and the measurable improvement in building an ecosystem of skilled Azure professionals. Our relationship with Google also continues to fluoresce as we partner to refill India's developer ecosystem. Our relationships with Microsoft and Google demonstrate our unique position to partner with major tech companies to strengthen their ecosystems and assist in rapid innovation at scale. We believe these types of partnerships will continue to expand our reach into the developer community, further monetize on our content production engine and decrease our go to market costs over time. In Q2, we continued to add tremendous value to our platform for the enterprise by integrating innovative capabilities to measure technology skills by providing the ability to align skill development to business objectives and by personalizing the learning journey. According to Gartner CIOs across the globe list the lack of skills and resources as the biggest barrier to success in their role. Pluralsight Iris, Pluralsight IQ and our skilled analytics help these leaders build tech skills as scale and address this barrier head on. Iris brings together the power of our assessment algorithm and recommendation engine to help quantify and develop skills across technologies. Those who complete our assessments receive an Iris Quotient or IQ. It’s a hard number from zero to 300 that indicates a technologist's proficiency level in a specific technology such as Angular, JavaScript or React. Pluralsight IQ provides technologists around the world with a free, easy and consistent way to quantify and verify their tech skills. In about five minutes and 20 questions technologists received their Pluralsight IQ with a verified-on date. So it's easy to see when the assessment was taken. With the launch of scale IQ in the second half of 2017, we have seen significant adoption with over 1 million assessments completed. Our field analytics pulling IQ data within an organization or team and creates a technology skills dashboard that can drill down to the individual level. This dashboard provides a deep understanding of where strength and gaps exist. Equipping leaders with the much needed information to inform their strategy and ensure success. It allows the intelligence and efficient mapping of people to projects. This unprecedented real-time visibility bypasses the outdated manual time intensive and expensive process of traditional benchmarking. In Q2 we launched the prototype technology index which raised the demand and growth rate of more than 300 technologies. The index equipped CIOs, CTOs and their teams with insights on growing and declining technology trends to inform their strategies and direct their personal skill development priorities. We pull from nearly 8 billing data points to calculate global popularity and trending growth rates. Not only does the index help our customers, it also informs our own internal content creation engine and allows us to use data science to drive our current and future content strategy leading to efficiencies and how we produce content to keep up with the pace of change. Early indicators demonstrate that the index has driven a significant amount of traffic to our site in the short period since launch. The rapid adoption of assessments, the dashboard insights for our tech buyers and the Pluralsight Technology Index has and will continue to increase adoption and usage of our platform across the enterprise. All of which increases retention and unit economics. We also continue our strong momentum and our global expansion. We recently appointed Sean Farrington as Senior Vice President of Sales for Europe, the Middle-East, India and Africa. With more than 17 years of experience Sean will lead the acceleration of growth and adoption of our platform in new and existing markets. Sean oversees the strategic direction, expansion and operations of our EMEA go-to-market motion and will further build and lead a team of sales professionals both on the ground and Pluralsight's Dublin office and throughout the region. In 2017, we created Pluralsight One which is our commitment to serving a larger purpose by equipping non-profits and educators with the technology skills they need to drive significant lasting social impact and in turn equip those they support with access to high quality learning resources and the technology skills to chart their own futures and strengthen their communities. We’ve recently completed a global lease assessment across 16 countries, which has informed the development of Pluralsight One's first set of product offerings for the non-profit and K-12 sectors, which we expect to release in the second half of 2018. As early evidence of Pluralsight One's growing influence we were invited to share our work during the special session on education at the United Nations. Our efforts have also led to our joining the National Computer Science and IT Advisory Council, led by code.org committed to advancing statewide and National Computer Science Standards and Acceptability. On August 28th through the 30th we'll be hosting our second annual Pluralsight live user conference in Salt Lake City, bringing together thousands of industry experts, business leaders and change makers. At the conference, we will discuss our latest platform updates and demonstrate how Pluralsight can help enterprises discover internal talent, close skills gaps and align learning to business objectives. All investors and analysts are invited to attend, where you'll have an opportunity to engage with customers, authors and partners and hear more about the business in our inaugural Investor Day, hope to see you there. To close, we are proud of the strong financial results, we've delivered in our first quarter as a public company. Big thanks to all our customers, our shareholders, our authors and our employees for your continued support. And with that, I'll turn the call back over the operator for some Q&A.

[Operator:]

[Operator Instructions] Our first question comes from the line of Brian Essex of Morgan Stanley. Your line is open.

[Brian Essex:]

I guess I was wondering if we can maybe first talk about really strong results on both margin and revenue. Maybe talk about your initiatives on enterprise sales side. If we can talk about the efficiency of the sales force as it matures and how you measure that.

[James Budge:]

Thanks Brian this is James. Right we did actually have some really good efficiencies in the quarter, couple things I just draw your attention to in the release, if you look at the non GAAP results which are the cash results and cash impact of the expenses we had our sales and marketing growth in the quarter was about 50 plus percent compared to a year ago. And our B2B motion our B2B results and billings were also plus 50%. So we've now caught up, you note from our past conversations that the last couple years we been in heavy investing mode in sales and marketing from the opportunity we saw in the enterprise and commercial segment. And you're now seeing the results of some of the tenured sales reps that we in the seat for the last couple years with the output we continue to create in our B2B billings with our fifth consecutive quarter of 50% growth. So you are spot on, as far as seeing where those efficiencies have come in. Thanks.

[Brian Essex:]

And maybe I can sneak in a follow up on B2B versus B2C momentum, one of the questions I had through the process was the sustainability of B2C obviously, B2B very robust to some extent the B2C is a funnel for that but how should we think about the sustainability of B2C line item as we -- as we evaluate growth going forward.

[James Budge:]

So you’re right, B2C is mostly a funnel for us into B2B and still continues to do that and despite that as main purpose of B2C we did see 7% growth in the second quarter in B2C even though we’ve generally modeled flat growth. I'd probably still suggest like low to mid single-digits growth in B2C, we’re seeing some green shoots and that's starting to grow. Still highly focused on our B2B segment and we continue to see great growth there as well, so I think you're thinking about it right on the B2C side.

[Operator:]

Thank you. Our next question comes from Sterling Auty of J.P. Morgan. Your line is open.

[Sterling Auty:]

Wanted to follow on the line of questioning on the B2B side, you mentioned a couple of stats and case studies in terms of some large companies coming onto the platform, curious what you're seeing in terms of pace of adoption, meaning how quickly are the newer large companies expanding the use of Pluralsight within their base.

[James Budge:]

Maybe I'll just hit some numbers around that and if Aaron wants to layer any thoughts because he's actually, now that the IPO is behind, he's actually been able to go out and spend a bunch of time with customers, which is fantastic, we love spending time with investors as well but customers is also key. Look we’re seeing the initial deals with new customers are a bit bigger than they've been in the past, if you worked through the economics in the 10-Q and the press release and other things that we put out just in the last hour, you'd see that our average selling price has gone up by about 30% to 40% relative to where it was the year ago, so we’re seeing that growth in the initial sale. So bigger deals, more license counts right out of the gate and you're seeing that continue to flow through and expand as well. I mentioned a stat that we had 84% growth in customers now paying us over $100,000 a year, so that’s a combination of new and expand, the bigger deals are always going to come in that expand motion. There's not really too many where we get thousands of seats out of the gate, although it's not unheard but we’re getting bigger new deals and bigger expand deal.

[Aaron Skonnard:]

And what I will add to that is we’re seeing a lot of those big customers expand within the first six months I would say the majority of the base where we land, six months in they're experiencing the value and we have an immediate expansion opportunity even before the first year of contract is up, and we’re also landing the bigger deal sizes. We’re getting into very senior conversations faster with the Head of Technology along with their HR business partner.

[Sterling Auty:]

That makes sense, and then just one follow-up. You have the tools that if I'm a manager within one of your customers I can see kind of the progress within my workers as they’re kind of gaining knowledge, using the platform. Is there a correlation between how much usage you see by the manager side versus expansion deals and if that's the case, how have those usage statistics trended?

[Aaron Skonnard:]

I think in general the more engagement we see by the technology leaders in the platform, the stronger correlation with expansion and up sell. They’re the ones who are leveraging the full capability of the platform beyond the content in being able to see the capabilities of their organization, identifying the skills gap, and then being able to use custom channels to align learning with those objectives, and then they can actually measure and see the ROI. So, any time we’re in that experience with the technology leader who is also influential with the buyer we’re going to see expansion.

[Operator:]

Thank you. Our next question comes from the line of Saket Kalia of Barclays Capital. Your question please.

[Saket Kalia:]

Maybe first for you James, as you said north of 50% growth in B2B billings, can you just talk qualitatively of course about how you feel about the pipeline in that segment going forward and again, any color that you could put on just sales cycles and how those have trended over the last few quarters, exiting Q2?

[James Budge:]

Yes great. So, I’d say we feel really good about our pipeline; it has the same kind of standard metrics you would expect to be in there to support some of the forecasts that we’re putting out there. So we feel really good. There's a lot of deals that are sizable but we continue to win based on excuse the baseball analogy but a lot of doubles and triples here and that we don’t need the home runs to be able to get to our targets although we have several of those kind of big deals in the hopper so the pipeline looks great and we feel really good about that for the next couple of quarters. As far as the -- what was the other question..?

[Aaron Skonnard:]

Deals cycle.

[James Budge:]

The deal cycle, the deal cycle I’d actually say it’s not materially different than maybe we spoke to over the last three months it’s not long to begin with so we’re not the traditional enterprise deals cycle of 9 to 12 months we’re probably measured more in 5 to 6 months and we have deals in our midmarket segment that close as quickly as a month. So I’d say that's the same or similar as it’s been for the last several quarters, we’re seeing the same kind of velocity there.

[Saket Kalia:]

Got it, that's helpful. Maybe for my follow-up for you Aaron you talked about some of the new customer wins, can you just talk about what solution you’re replacing at some of these customers? I guess -- are most of these customers winging it with corporate IT education with things like conferences and such or do you see customers actively moving away from class -- classroom-based training in favor of a SaaS solution like Pluralsight.

[Aaron Skonnard:]

Yes, the main thing we are replacing is classroom training instructor led models and conference spend. It's really those human based investments that are very expensive and don’t scale. When we show up and we can demonstrate the capability of our expansive content library coupled with the capabilities of the learning platform Pluralsight IQ and the dashboard analytics that allows them to take control of their learning strategy and actually see the ROI - it's an easy win, because they see an immediate cost reduction between classroom training spend and our Pluralsight cloud spend. And they see these additional capabilities along with the ability to reach their entire population of technology professionals. So it’s a big win, win, win all around and that's really where we are winning taking market share. That classroom training market is also very fragmented. If you're a CIL and if you are going after a very specialized AI training or data science training or something real deep software technology you go find a very best in that particular field and you contract a small company to come in to do a classroom training event. And if you think about what Pluralsight really represents that the big picture we're the consolidation of all of those small fragmented classroom training providers into one cloud based solution that reaches economies of scale in a cost efficient way.

[Operator:]

Our next question comes from Corey Greendale of First Analysis. Your line is open.

[Corey Greendale:]

Just a couple of questions. Interested in if you could comment on the extent to which the new SKU the Enterprise X99 SKU is getting a traction. How much of the growth that might have driven and just any initial feedback from customers on the value of that SKU?

[James Budge:]

Yes, I’d say that we are about 15% even as I have 20% in the last quarter of our business customers are moving to the enterprise SKU. That’s where the bigger customers are almost exclusively using that. Some of the lower ended customers with fewer users are still in the professional SKU which is still really outstanding value proposition, but definitely getting a lot of good traction in enterprise. And it has had an impact in a good way on the pricing that we have seen. Our average unit economics have risen across the board depending on regardless, really, which one you want to look at. And you are seeing that expressed in the billings growth.

[Aaron Skonnard:]

And the reason that that’s so exciting for us is because now in each of the accounts where we have landed and they're still on the pro SKU we have two avenues for growth. One is upgrade from Pro to enterprise and the other is expansion by adding more licenses. And a key feature differentiator between Pro and enterprise are the advanced analytics that give them the ability to realize larger levels of ROI. And there is a strong motivation to go there in these large enterprise accounts.

[Corey Greendale:]

Excellent, and then my follow up sort of the cost side of the CAC. You mentioned the traction you are getting with the IQ, the tech index I would imagine that’s all helpful for B2C to B motion. Are you starting to see the impact of that? Any sort of shifts towards the C2B versus the straight B2B.

[James Budge:]

Well, I’d say it's the same motion we have had but I think definitely the features that we've added in to our product capability and the platform particularly like Aaron just mentioned in the event that analytics are definitely getting individuals to move more quickly over into the enterprise or the professorial SKU. I would also say that in addition to our new enterprise SKU to have the higher list price point we also in the last couple of months have raised our individual license pricing from 299 to 349 and the results of that is also moving some of our individual customers or B2C into the professional and enterprise SKU.

[Operator:]

Our next question comes from Brian Peterson of Raymond James. Your line is open.

[Brian Peterson:]

So I wanted to hit on the 1 million assessments that you mentioned from the launch last year for IQ. I'm curious if there is any commonality in what you're seeing between people taking those assessments either in B2B or B2C and what the usage patterns are for those that have taken the assessment.

[Aaron Skonnard:]

The dynamics around the 1 million assessments that we've seen so far, they're spread across both of those segments B2C and B2B and I would say today heavier B2B then B2C because of the additional capabilities and value proposition that our B2B customers derive from them. So there is more motivation for a business to encourage their employees to take those assessments which drives more of that activity within the B2B accounts. On the B2C however, were also seeing a lot of traction where individuals really want to prove and then highlight the skills that they have relative to the rest the marketplace, and so were seeing of them proactively promoting those credentials on Facebook, on LinkedIn and other social outlets, as evidence of their capability. So the promising thing about the dynamic is we're seeing businesses use it as a way to qualify talent fit for a role and we're seeing individuals once they highlight it as a demonstration of their capability and that's why we believe Pluralsight IQ is emerging as a new credential in the marketplace. And it's a benefit to individuals around the world tying back into our Pluralsight One initiative because it's absolutely free for them. It's a way for them to demonstrate a skill and create a new opportunity for themselves with all these open tech jobs without having the pay for access to the platform and companies that we serve on the enterprise that need these people, so for them it's a really great thing too.

[Brian Peterson:]

Got it, and maybe one follow-up from me just on Pluralsight live I know the conference had its first year last year I'm curious was that a big bookings or billings tailwind for you last year and how should we think about that in terms of new customers logos a potential expansion coming up this year?

[James Budge:]

As far as the event itself we actually net revenue and the cost of that into the sales and marketing line but as far as pipeline created from Pluralsight live, yes we measured it at well north of 30 even north of $50 million as far as new billings pipeline opportunities that came out of that and we would expect to be even higher than that coming out of this year.

[Operator:]

Thank you. And next question comes from Terry Tillman of SunTrust. Your question please.

[Terry Tillman:]

Congratulations as well on the great results and the strong billings, I guess the first question for you James is the net retention on the B2B side a 125% it’s a strong trajectory, what are you assuming in the back half of the year, is that higher level or do you conservatively assume it’s a more like what we saw in the prior quarter. Just how do you think about net revenue retention from B2B in the back half?

[James Budge:]

I think you can expect more or the same. I don’t think we can go up 5% every quarter that would be extraordinary levels fairly quickly if we did that. In indicator we have internally is not a number we share externally but our net billings retention is higher than our net revenue retention. Which means we will grow into that net billings retention you seen that as we grow from 120 to 125. We feel good about 125 for the balance of the year.

[Terry Tillman:]

Okay and Aaron a quick question terms of Microsoft, they’re an important partner, I’m curious are they an influence from business for you guys around Azure or just the broader business and your perspective on GitHub and what that could mean.

[Aaron Skonnard:]

The Microsoft partnership is a very strategic one for us and one that does influence future customers and brand awareness around Pluralsight. The way it works is we partner with them to produce content that they need to go create more skilled Azure professionals in their ecosystem. So we create very tailored content for that purpose. They then push it out through their channels, which is driving Pluralsight brand awareness and top of funnel demand gen for our B2B. Every one of those individuals they reach through that likely work for one of our target enterprise customers. So we see lots of tailwind from that. We believe that we'll see more of that in the future and really love those kinds of partnerships like we have with Microsoft and Google today. Now to your question about that GitHub we think that acquisition signals a growing trend across the marketplace, which we like to describe as the rise of the developer, developers are becoming more prominent, more strategic, a key capability for all these enterprises to really win in the future as every tech company strives to become, sorry every company in the world strives to become more of a tech company regardless of what industry they are in, they can’t do that without developers. I think that’s a big reason why Microsoft made the move that they made and it bodes well for Pluralsight because we sit right at the center of that megatrend. Our target customer are these developers, they're the ones we serve and we are actively creating more of those skills that all of those big companies need.

[Terry Tillman:]

Okay and maybe because you guys are just flying through this call, so I don’t want to have you all get off too soon, maybe I can just throw in one last one. No rest for the weary, but one of the ideas of your businesses is this flywheel effect, you've gone public that was an important milestone. What I haven’t heard a lot on the call, I know you mentioned content a couple of times but maybe Aaron an update on your authors. How you’re engaging with them what the IPO meant for them and any kind of quantification on just the stickiness and the relationships you have with your authors. Thank you.

[Aaron Skonnard:]

Yeah, you bet. Authors, I’m glad you asked the question, this is a key part of our current and ongoing future strategy. Our authors are incredible. And they're really core to all of our success to date and our success in the future. The IPO is an incredible event for them as well as us we actually had our top, half a dozen authors from our ecosystem there with us at Times Square celebrating with us as we rang the bell and for them it was big of a deal as it was for Pluralsight the company because they’re part of that, they’re part of what created it and so as we move into the future we're increasing our investment in content, we’re working to strengthen our relationship with our authors around the world and we’re actively attracting new authors to our ecosystem. We want to continue to increase the pace at which we can produce content to cover all of these emerging and very critical skills in new areas like data science, machine learning, AI and our authors our key to that, so you'll see that investment continue and it’s very much part of the long-term strategy.

[Operator:]

Thank you. Our next question comes from Brad Sills of Bank of America Merrill Lynch. Your question please.

[Brad Sills:]

I guess my question is really around I think follow-up on the enterprise SKU question earlier, I guess where are you guys do you think in terms of that, your premium mix shift potentially today and then if you look forward some of the things you can add to these enterprise offerings that you think could drive enterprise -- mix shift -- premium mix shift if you will as a more of a contributing factor?

[James Budge:]

I’d say to continue my baseball analogy from earlier we’re probably in the first or second inning on the shift to the enterprise SKU we’ve got a lot of opportunity to go with not just more users on the enterprise SKU but moving a lot of our customers from professional to enterprise and getting all the value that’s inherent therein. There is a lot of capabilities in there today and hopefully for anybody on the phone here that’s able to make it to the PS Live here in a few weeks there’s going to be a lot more, you’re going to hear from main stage from me, and Aaron and others during that week so we’re super excited for getting prepped for we’re going to have a lot of our best customers out there and really excited for the energy that’s going to come from that; we’d love to have anybody here come and join us to hear about all the new great stuff going into the platform.

[Brad Sills:]

That's great, thanks James. And then maybe one on the content side, obviously you guys have a very rich library across the different technologies, are there any technologies content if you will that you are excited about that are kind of more on the comp -- that are more in development that you think could be a potential catalyst for more users coming in, or maybe it’s even beefing up what you have in the library for us, popular coursework like Amazon Web services or Angular?

[Aaron Skonnard:]

Yes there are three big areas that we’re really excited about on the content side that we’re making deep investments in, in the back half of ‘18 and into ‘19. Those include AI, data and data science and security. And if you think about the big things are happening across the industry, both positive and negative they sort of center around those three trends, these are board level conversations happening across every major business. So we’re really going deep in those three areas and believe that’s going to produce a lot of value for our customers.

[Brad Sills:]

That's great, thanks Aaron. And then one more if I may on IQ, now that the engine has been out for almost a year, what impact have you noticed that it’s had on uptake if you will, or usage from the user base?

[Aaron Skonnard:]

Look it’s -- we’re feeling really good about it, it is still early and we’re getting a lot of excitement and a lot of movement across the platform and we’re -- there’s still the challenge of getting them aware of it that is there and those sort of educational pieces, as they discover it and as they start engaging with it we see the engagement level increase with those users. They stay on the platform for longer. And they get more value out of the learning experience because we are able to adapt the experience to them more appropriately, through the data that we have. We have some examples of some large enterprise customers who are actively using the data that comes from IQ to improve and create cost efficiencies in some of their current normal processes. As one example, we have a large bank who has been using IQ to refine their developer interviewing process. And in that in the short amount of time that they have been doing it they have been able to reduce the number of interviews needed to hire developer by half which is a large number of hours when you multiply it times the number of developers they are hiring every year. So that’s an immediate cost savings a list that’s created by simply having access to this data within the platform around IQ.

[Operator:]

[Operator Instructions] Our next question comes from the line of Scott Berg of Needham. Your line is open.

[Scott Berg:]

I have a lot of questions but Terry and Brad unfortunately took them all. Just the two I wanted to follow up on is one on the net dollar retention. Could you help us unpack the improvements you have seen over the last year? I know you have talked about that being 117 number last year went to 120 and now 125. Is the driver of that just more customers are coming back and buying more and quickly we're also having some improvements maybe around retention rates on a gross basis? And maybe the customers that are buying more of the platforms that are just the content from the shoot.

[James Budge:]

Yes, good, I’d say it's a combination of all of the above and the all of the above includes higher price points from the higher SKUs that we have. So obviously you are moving somebody from a 499 list price SKU to 699 enterprise list price SKU that’s going to drive the price up which is going to help the net retention; more users so as we talked about how we are still less than 5% penetrated in the Fortune 500 that we have, there is still lots of room for growth, there is a whole bunch of more seats in licenses that we are selling within that. And then our gross retention has also come up quite a bit. So the churn, the seat churn, the logo churn is still almost nonexistent. But the seat churn has actually improved significantly over the last 12 to 18 months. We typically like to live in a world we -- our goal is to live in a world of four-and-a-half to six on an LTV to CAC ratio. And we are solidly in that range. And it's improving every quarter.

[Scott Berg:]

Got it, helpful and then my follow up question here would be around the partnerships. Just in general, I know you have been really excited about them in our prior conversations. But how should we think about them in terms of a contributor to bookings from a longer-term perspective? Could these be 5% of new bookings 10% at some point once you are able to expand those partnerships outside of just Microsoft and Google today?

[Aaron Skonnard:]

Yes, look we think they're very -- these partnerships are very strategic for us because of the top of the funnel activity they produce for the business, very similar to how we think about B2C in the big picture. So I wouldn't think about partnerships producing a big piece of the ongoing revenue stream but they will be a contributor at a small-scale and really drive our B2B enterprise motion and that's what we're most excited about with them.

[Operator:]

And as there are no further questions in queue. I'd like to turn the call back over to CEO, Aaron Skonnard for any closing remarks.

[Aaron Skonnard:]

Thanks everyone for joining us today and for all the great questions. We really appreciate your support and hope to see you soon at Pluralsight Live at the end of August. Utah is a great place come visit us and will talk to you again next quarter.

[Operator:]

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.