Zendesk, Inc.
Q1 2020 Earnings Call Transcript

Published: 30 Apr 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Zendesk Q1 2020 Earnings Conference Call. . I would now like to hand the conference over to your speaker today, Marc Cabi. Thank you. Please go ahead, sir.

[Marc Cabi:]

Thank you, David. Welcome to our first quarter 2020 earnings call. We are doing it virtually from our homes today. And we are pleased to report our results. Joining me on the call today are Mikkel Svane, our Founder, CEO and Chair of the Board; and Elena Gomez, our Chief Financial Officer.

[Mikkel Svane:]

Thanks so much Marc. I hope I come through here clear and loudly. I have asked the team to if we couldn't do this earnings call by Zoom, but apparently not. I thought that would have been very appropriate. This is how we spend most of our days now in leading on Zoom, so inviting our shareholders and inviting our investors into our home offices would have been great. Anyway, I can't start what I say, but of course the world has changed dramatically since we last talked. The pandemic as we disrupted day-to-day life also but everyone in the world. And clearly lot of uncertainty for every single business out there. We focus on Zendesk on immediately responding to the crisis and of course planning for the future in this new world. We initially responded by doubling by increase of calls helping our customers and helping our communities through this disruption. We moved immediately to remote work globally within a few days. We assembled a customer response team to help customer manage big shifts in their customer service needs and in the business challenges and we also launched a support, that were mention assist especially . So we ramped up on profit access to our products and expertise aid in notable kind of recovery and we also had a number of partners help us with these initiatives.

[Elena Gomez:]

All right thanks Mikkel. I'm going to discuss a few Q1 highlights and how we're managing Zendesk through the current economic crisis, setting us on a path to emerge as a stronger business. In the first quarter our revenue increased 31% year-over-year. Revenue growth in every region exceeded 30% as we're making good progress on our international leadership initiatives, also proud to say our new head of EMEA sales started in April. GAAP gross margin for the first quarter was 74.9%, up 560 basis points year-over-year. Non-GAAP gross margin was 78.3%, up 480 basis points year-over-year. Gross margin improvement was driven largely by customer success initiative and cloud optimization. GAAP operating margin for the quarter improved 680 basis points and non-GAAP operating margin improved 360 basis points. This includes $6.5 million expense consisting of a one-time stipend for our employees as they transitioned to working from home. The additional cost arising from cancellation of our flagship conference relate and increased bad debt expense driven by customer collection concerns due to COVID-19. Operating cash flow in the first quarter was negative $2.6 million. Free cash flow in the first quarter was negative $15.6 million. Free cash flow was impacted by the amount and timing of bookings, our partnering with customers facing business challenges in light of COVID-19 and the implementation of our new procedure to invoice customers on their renewal date instead of 30 days prior. This new policy started on March 1 and the cash flow related to those invoices will impact Q1 and Q2. Free cash flow was also impacted by the timing of vendor payments. And now quickly on our strategy moving forward and our view on our outlook. As you're well aware COVID-19 has caused massive global disruption. We're carefully monitoring leading indicators and performing scenario planning to help inform our forecasts and plans including demand generation, conversion, pace of booking, churn and contraction and product usage. We believe in the fundamental strength of our business model and the resiliency of our customer base. We have important and valued customers in industries that are facing significant pressure including airlines, retail, ride-sharing and travel and hospitality but overall our book of business is highly diversified and includes many customers and industries that are doing well in this environment including computer software and services, e-commerce and learning platforms and remote conferencing.

[Marc Cabi:]

Thanks Elena. David we're ready to begin the Q&A session.

[Operator:]

Certainly. Your first question comes from the line of Philip Winslow with Wells Fargo. Your line is open.

[Philip Winslow:]

Yes. Thanks guys for taking my question and glad to hear that you all are well and hope the same is true for your families. Question for Elena, obviously you flagged some factors here that'll impact reported billings obviously you already flagged the change in invoicing last quarter but also there's just the change in invoicing and subscription terms due to COVID. I was wonder if you could help us unpack that because obviously if we take the change in short-term RPO add that to revenue it looked like that short-term RPO bookings number is up 34%. So wondering if you kind of help us unpack those as far as what the impact was Q1 and how you think about those going forward? And I have one follow-up.

[Elena Gomez:]

Yes. Sure. So first of all we're really encouraged by RPO overall. It just demonstrates the commitment of our customers, our enterprise and commercial customers to do business with us but the other more important thing we're seeing is shorter invoice durations even from some of our larger customers. So that's really what's driving that sort of difference between RPO and billing that was your question right.

[Philip Winslow:]

Yes. Maybe help us kind of maybe think about the impact there that delta, what's coming from where yes. So how much is the 30-day later invoicing versus call it the COVID related changes.

[Elena Gomez:]

We're not going to share the impact of the billings but I can tell you that it's going to impact us over two quarters.

[Philip Winslow:]

Got it. And just a follow-up for Mikkel. Obviously you talked about working with your customers. One thing that Zendesk has been known for has been an extremely high renewal rate. What do you have in place to maybe you reach out to customers early that are potentially impact verticals kind of work with them and sort of on a sort of front footed versus waiting for the renewals?

[Mikkel Svane:]

That's a really good question. We are being really proactive with our customers and try to help them through this situation so that they also -- so we can help them come out on the other side stronger too and like I can just say that we are still very proud about the renewal rate but we are helping customers in any other aspect that we can of course. Does that make sense?

[Philip Winslow:]

Got it. Thanks and stay safe.

[Operator:]

Your next question comes from the line of Ken Wong with Guggenheim Securities. Your line is open.

[Ken Wong:]

Great. I wanted to touch a little bit on what Phil was asking earlier perhaps just on the larger customers you mentioned I think we understand you are adjusting invoicing but in terms of subscription terms what does that look like? Is that a temporary price reduction? Is that dialing back on maybe multi-year commitments? Help us understand kind of what you guys are doing there to bridge the gap.

[Elena Gomez:]

Yes. So it's really where -- it's unique to different customers. Some of them want extended payment terms. Some of them want perhaps one-time discount. It's all different flavors. But the important thing is we're trying to retain and do everything we can to show empathy and make sure that we keep these customers for the long haul.

[Ken Wong:]

Got it. And then there may be one follow-up in the prepared remarks you guys touched on kind of going through a variety of scenarios. Any color on how you guys are bookending those scenarios in terms of potential best and worst case outcomes for kind of magnitude and duration of this impact?

[Elena Gomez:]

Yes. No, we are running various scenarios. We even started with a quick recovery which we all appreciate has not happened but without being an economist I think we're basically evaluating a couple of scenarios one which is a longer recovery into 2020 and another one which is a longer recovery into 2021. That's sort of the time frame we're thinking about but I just want to make sure to clarify it's a super fluid situation and continues to evolve.

[Ken Wong:]

Great. Thanks a lot.

[Operator:]

Your next question comes from the line of Kirk Materne with Evercore ISI. Your line is open.

[Kirk Materne:]

Yes. Thanks very much. I was wondering Mikkel if you could talk about sort of the need, sort of thread the needle these days with managing expenses but not want to sort of shift the car into neutral per se meaning obviously the beauty of the SaaS model is that you don't feel it serve as much on the upfront but a year from now when things are clearing up if you don't make investments and say sales and R&D today takes you a little bit longer to sort of get back into motion. So how are you thinking about that in terms of just balancing that and I'm sure Elena some thoughts on that but I'd be just kind of curious about how you think about hiring and those kind of things in this kind of environment? Thanks.

[Mikkel Svane:]

If I'm starting, one of the principles we started with in our response to this is that we need to make the organizations very, very agile like and that means that I really focus on some things with true impacting kind of. There's some other things where we can kind of where we don't need to give things the same progress. It's exactly to give the organization agility so we can quickly scale up and down given kind of the conditions in the market and I think that's very important because as you say, as you know it's a very fluid situation, it's a very volatile market and we have to constantly adapt to kind of what we see and the signals we are getting from everywhere in the world. So we're really focusing on giving the organization as much agility as possible so we can be very fluid in our motion and accelerate investments where we think it makes sense but also be ready to move those investments over to other areas. Does that make sense?

[Kirk Materne:]

Yes. It does. Thanks very much.

[Mikkel Svane:]

All right. Elena do you want to add anything?

[Elena Gomez:]

No, I think you covered it Mikkel. I think the key is obviously we're benefiting from some of the natural savings we have, in our employee base traveling so we get some of that natural tailwind and then as we're looking at hires we're making sure we're putting those hires into areas that will drive, will position us first strength as we come out of this and then the last thing I would say we were really good at hiring sales and in Q1, so I'm not super worried about what I have in terms of quota on the street. So feel good about that.

[Kirk Materne:]

That's very helpful. Thanks a lot.

[Operator:]

Your next question comes from the line of Samad Samana with Jefferies. Your line is open.

[Samad Samana:]

Hi, good evening and thanks for taking my questions. I hope everybody is staying safe and doing as well as you can in this environment. First may be one for you Mikkel. On Sunshine that was obviously a big release and in relay it was moved to virtual. I'm just curious if you've seen any unique used cases during COVID and if customers are still adopting Sunshine or how we should think about maybe the ramp cycle for Sunshine and then I have a follow-up.

[Mikkel Svane:]

Yes. We definitely can platform. We are also trying to really help our customers making it much faster for them to use Sunshine and we have some really good capabilities and features there and some really good interesting things on our roadmap. I guess that's definitely what our customers need right now; quick solutions they need, time to value very, very quickly and so some of the things we've seen outside of U.S. we really see that in the U.S. now like this really time to focus on time to value and helping customers see that potential and see that value in such. The conversation platform that is part of Sunshine has really seemed very, very strong demand like this is a point in time where everybody sees the potential in better using these messaging channels over traditional much more convenient for us as consumers being tracked home rather than having to sit on the phone waiting for a long time on these very asynchronous conversations over Email like this kind of very intimate relations, this very internet conversation that works in your terms has turn out to be very, very convenient for the environment right now and we're seeing uptake of that and really believe that this is a real time for the business relevantly of the messaging platforms.

[Samad Samana:]

That's helpful and then Elena maybe if I think about the framework for 2Q guidance, it's 24% is impressive all things considering what's going on. I guess I'm curious when you think about the slight slowdown how much of that is as a result of gross retention declining versus less new bookings activity? Can you maybe parse out those two factors?

[Elena Gomez:]

Yes, definitely. I think I would say it's more oriented to the contraction we're seeing in our business which continues to be very fluid but that's definitely a key part of what's included in that guidance and so I would orient it more to that.

[Samad Samana:]

Okay. Great. I was going to apologize let me squeeze the third one end and then just as follow-up. So when you think about new bookings activity is that more with your, with larger customers or with smaller customers? Just trying to think about where new business activity is still happening. Thanks again for taking my questions.

[Elena Gomez:]

I think we're seeing new business across different segments really. We're seeing some larger customers that wants something up and running very quickly and we're seeing still the usual self-service. I wouldn't say that it's not been impacted by COVID. Definitely some of our really large customers may say, I need a little bit more time. I need to double click before I commit but the new businesses coming in from different segments as well as always the expansion of our existing customers is a big driver of bookings for us.

[Operator:]

Your next question comes from the line of Arjun Bhatia with William Blair. Your line is open.

[Arjun Bhatia:]

Hello guys, thanks for taking my questions. First, on the go to market. I was wondering if you could maybe just walk through how that strategy has shifted to kind of adapt to this environment? What are you doing from a messaging perspective? Are you leading with perhaps different products and your customers see maybe a faster time to value a little more need? And then to pack on to that do you think this is kind of coming out of this environment they will accelerate your new up market at SMBs and become a little bit more cash-strapped? I know you've been going in that direction a lot but some color there would be great.

[Mikkel Svane:]

Yes. Let me give an answer to that. So I would say that like we definitely double down on our unique strengths and that is that we can, we think there's large complex organizations all been running very, very quickly and we can give them like we can decrease their time to value and really help them get results out of the gates and that is incredibly relevant by now, like some of our largest deals these days have very short cycles and customers basically are almost up and running before we had negotiated the deal. So we definitely kind of, we definitely responding to the environment and like we definitely focus on the qualities that are – that’s always been part our vocabulary that is really-really relevant right now and we believe that these things are going to define the business in the future you are not going to have time for all these big complicated anchors in our IT infrastructure. We need to be more agile as not just in our IT systems but as a population to come probably through this and to make sure we can get the economy up and running again and to make sure that we can come out of this stronger not just as companies but as a population as a world and like Zendesk is 100% behind this and we believe that's where we need to bring the world. So we don't hold each other back and so we can add correctly, so we can be agile, so we can keep up and live up to the expectations in the world around us and our customers have to us. Makes sense?

[Arjun Bhatia:]

Yes. It’s very helpful and Elena, a quick follow-up for you, I remember reading the shareholder letter that interactions are increasing and volumes are increasing and people are maybe scaling up their service operations. One of the things I want to ask and I know a portion of your business is usage based. It might be small but answer that in conversations -- that really fit in that category. I'm wondering are you seeing a revenue impact than that or is that not without that core usage increases coming in?

[Elena Gomez:]

Actually what's interesting is we're seeing some customers increased their usage during this time to be honest. We are seeing both. We're really seeing encouraged by seeing some customers who actually are needing Zendesk more and increasing their usage. So it's not, I'm not seeing a dampening as much there. I would say in our pro serve revenue to the extent they're attached to very large enterprise deals that's definitely a place we are paying attention to because that has slowed a little bit but in terms of our usage I would say it's quite the contrary. We're actually seeing more uptake.

[Arjun Bhatia:]

Got it. Thank you for taking the questions.

[Operator:]

Your next question comes from the line of Aleksandr Zukin with RBC Capital Markets. Your line is open.

[Aleksandr Zukin:]

Hey guys. Thanks for taking my questions and I'm glad to hear you're staying safe. Maybe just a couple ,Elena maybe can you talk on what -- go through maybe the exposure that you guys seek to have to trouble sectors versus healthier sectors of the economy if you can give us a sizing? Is it 20% of the business? Is it 50% of the business? And then I got a quick follow-up.

[Elena Gomez:]

Yes. When we look at our numbers we include all of the typical ones people talk about whether it's travel, rideshare, I’m forgetting some -- some what they are, but it's in that 20% range for us. And it's across all of our segments too. It's not just in the SMB or in enterprise. It's really across, when I say that it's across our entire book of business.

[Aleksandr Zukin:]

Understood. And I guess so if you could help us understand where you're seeing most of the degradation in the, not maybe the dollar renewal rate or is it in the SMB part? Is it in the enterprise? And if you can help us understand where those rates are trending because on the one hand it sounds like current RPO bookings or billing is a better grade of kind of some of that new ACV behavior versus billings but yet you're pulling the guide. So I just want to understand, is that the retention or the turn spike that's driving that or so if you could help us understand that?

[Elena Gomez:]

Yes. I mean it's a fair question Alex. The market conditions are super volatile and fluid. I think the key for me as I was setting guidance was really thinking about the contraction we're seeing in our customer base and just being thoughtful about that but the impact we're seeing in terms of the highly impacted industries is across both SMB and enterprise. It's not only SMB customers but the contraction we're seeing like I said it's mostly oriented to be highly impacted industries.

[Mikkel Svane:]

Yes, Alex let me, yes, I just want to clarify that most of that is contraction oriented. You think about many travel related companies they have, their business is down 80% or more sometimes and so we've been working with those customers to make sure that we can keep them in a place where they come back to us when travel conditions and hospitality industry conditions comeback.

[Aleksandr Zukin:]

Understand, maybe just that if I could sneak one more in it, can you talk about it, I mean contractually, are these customers with multi-year contracts that you're proactively going in and changing their contracts or how is that working exactly? Is that on renewal?

[Mikkel Svane:]

Alex on the shareholder letter you'll see that we made a statement. There are times when we will work with companies on their subscription terms to help them manage through this period especially if they're in one of those heavily impacted industries.

[Aleksandr Zukin:]

Got it. Thank you.

[Operator:]

Your next question comes from the line of Christopher Merwin with Goldman Sachs. Your line is open.

[Christopher Merwin:]

Thanks so much for taking my question. I just wanted to ask about the product portfolio and particularly I guess in these conditions, where are you seeing more resilient demand? Is that in core support just given the importance of companies engaging with customers sometimes through online channels for the very first time or maybe with analytics as customers try to think through some new challenges they're facing. Just curious in general you've been positively surprised with the resilience of certain products and perhaps other areas where it's been more of a temporary challenge.

[Mikkel Svane:]

I think it's a little bit across the board and I would say that you look at a quarter like this, like there's too many different signals for us to point anything out. I do want to say that like one of the overall trends that we've seen and that it's truly being accelerated right now is the adoption of kind of the newer messaging oriented channels. That has turned out to be very convenient for a lot of customers. It’s very convenient for lot ok like end users/consumers, so this is definitely where we see, we definitely see a trend there like there's interest for our products across the board.

[Christopher Merwin:]

Great. Thank you and just one quick follow-up on RPO obviously sort of been asked about the RPO growth or current RPO growth which was just really strong. Long-term RPO growth decelerate a little bit, still very strong growth rate and was up a little bit sequentially. I mean anything you can say just about the divergence in trend for those current and long-term RPO?

[Elena Gomez:]

So we're continuing, I mean we're really encouraged by our RPO and really proud of it especially in this time. I mean I think the fact that customers are still continuing to commit to us something we're encouraged by for multi-year contracts and we're seeing that even during this sort of stressful COVID times. So I think it's important to be proud of that for us and I think that it's a testament to what the sales organization has done in terms of making sure they share the full value and us. So I'm pretty proud of that. I think in terms of how it relates to billing and so on. I think it really goes back to during this time we're also working with customers to make sure that if they need different payment terms, etc. we really helping them through that and this is coming from even larger customers.

[Christopher Merwin:]

Got it. Thank you.

[Operator:]

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

[Stan Zlotsky:]

Hey guys, thank you so much for taking my questions and I hope everybody is staying safe and healthy obviously. Maybe just help us characterize what you're seeing through the first, let's call it four weeks of the current quarter and what you're seeing through April because obviously I'm sure March -- end of March was pretty terrible but what are you seeing a quarter to-date? And then I have a quick follow-up.

[Elena Gomez:]

Yes. So we're like I said on the script ,we're still seeing contraction mostly especially with our SMB customers. I'm encouraged that we're not seeing as much churn but more contraction and I think that's really important sign for us because we believe if the economy comes back we'll start to see some of these customers come back and I think we talked about it earlier but also a lot of that is coming from customers in these industries that are highly distressed at the moment and so we're really trying to work with them. We'll see and we're looking at these signal daily, weekly and if that changes obviously that would be a positive right now, we're seeing still the same kind of tone we saw the late part of March into early April.

[Stan Zlotsky:]

Okay. Perfect. And then maybe just to change the tone a little bit because there's so much negativity overall but looking at the positives. So you guys are giving away this remote working bundle and you are also giving away product the start-ups working on COVID-19, could there be when we were all coming out on the other end of this, an increased uptake of things like the Explorer product or maybe just greater adoption of Zendesk within some of these newer startups popping up that we could start to see the benefits as we get into maybe the second half of the year and into 2021.

[Mikkel Svane:]

Let me answer, I will try to answer, yes. I don't want to, I wanted to be very realistic about the situation and uncertainty about the global market but-- and we have kind of being very humble to what's going on with our customers in the situation they're in right now because it's across everyone – that are impacted but I do want to say that, I do believe that we as a company we have a responsibility to kind of help customers through this and come out stronger on the other side. That also we're doing that because we want to based in our relations and trust with these companies and we have as a business we've always been the kind of company that got up every morning and try to earn the trust of our customers and this is a defining moment for us in churn that we can really do that and that will without speculating in the future that will lead to -- from our – our belief is that he no need to bear the cost of relationships and more trust in us and in our products and understanding of the value that our products bring to that businesses. There's a high level, yes you're right even though that we're not trying to take advantage of the bad situations. Does that make sense Stan?

[Stan Zlotsky:]

Yes. Of course. Makes a lot of sense. Thank you so much.

[Mikkel Svane:]

Thank you.

[Operator:]

Your next question comes from the line of Brad Sills with BofA Securities. Your line is open.

[Brad Sills:]

Hey guys. Thanks for taking my question. I wanted to ask about net revenue retention held in that kind of 115 level this quarter and I'm hearing that there's some increased activity at customers which could lead to more seats I would imagine but on other hand you're seeing obviously contraction in other areas of the business. So I guess what's your expectation or what have you seen even in the first month here, the quarter with regarding to net revenue retention kind of the growth side and then the upsell and where do you think that could trend over the year?

[Elena Gomez:]

So I won't comment on the full year obviously because the situation so fluid but consistent with what I just talked about we're definitely seeing contraction across these industries where we have, we are seeing distress. The pace of our bookings is in start of the quarter is pacing okay but I think we obviously look at everything holistically and so we have to look at those together and right now we're seeing contraction. That said this could change very quickly. As quickly as it came it could change and so I don't want to predict what this will be that we factored what the trend will be for the full quarter but we took all of that into consideration in our guidance.

[Brad Sills:]

Got it. Thanks very much and then just one on the global SI channel. I know that was a big that was an increasing focus here and developing some of these global SI partnerships. How does this situation impact that? I know that you mentioned that some of the bigger expand deals you've seen a little bit of a pause there. I assume that's focused a lot in the global SI channel. Just any update on how that's progressing in the midst of all this? Thank you.

[Mikkel Svane:]

My partners, partners are proven to be really, really important part of our ecosystem and they're going to continue to be increasingly important part of ecosystem. What kind of partners like -- it's not like the big global Sis that are the most agile right now like I think they will also accommodate to the new world order and be better at that but like our panel is a big part of ecosystem. Hey, Marc add some color?

[Marc Cabi:]

Yes. I think Fred, our partners will be an important part of our ecosystem. In this most recent quarter, we actually saw some partners bring in these quick win deals where companies were looking to make adaptations to what they were doing. We were able to serve that and so I think in the near term that's what you should expect from our partner activity and then as market conditions improve we have a product I think that people will want to work with over time.

[Brad Sills:]

Thanks guys.

[Operator:]

Your next question comes from the line of Steven Koenig with Wedbush Securities. Your line is open.

[Steven Koenig:]

Hey. Thanks for taking my question. So you talked a little bit about the impact to your financials. You're expecting it to be over the short and medium term. You're obviously appropriately uncertain because the environment is uncertain. I'd like to try to understand a little better though how the contraction plays out with respect to the mechanics of your billing terms and your total contract duration. So you know if I have it right I know that you've got mix of shorter than annual and annual multi-year contracts in your billings terms have been moving more towards annual I think with a goal of getting 70% annual. Does the contraction happen only when a customer renews or is that happening, are they asking for concessions when a bill hits them and you can't collect and then is this going to extend into multi-year contracts as well? So kind of help me understand how that plays out with respect to these contracts getting renewed and the building's periods as well.

[Elena Gomez:]

Yes so if I understand, that's complex question but I think if I understand you correctly you're asking when do these contractions happen, do that happen at renewal or do they happen off cycle? And so it's important to understand we have both annual and monthly customers obviously and so a monthly customer theoretically could every month renew but some of it is happening off cycle but typically you're seeing it and it depends on the size of the customer. The customers that have annual contracts. If they're in a distressed industry there may be a handful of those that are coming before their renewal to look for different payment terms. In other cases it's at renewal. So it's a little bit of both. It's not one or the other.

[Steven Koenig:]

And just a quick follow-up Elena, you do have some multi-year contracts I believe and would you expect that -- the concessions you're granting them then stabilize when you get to another year of the contract or could use medium term, could it be longer than a year or does it just totally depend on the environment?

[Elena Gomez:]

It depends on the environment. It depends on the customer and what their needs are. With larger customers everyone's needs are a little different in terms of their cash position and whatnot but we're trying to think about what is this customer look like over the long haul over a multi-year contract. We're trying to avoid obviously changing contract terms. That's something we prefer not to do but rather really think about how can we help them in the short and if they come out of it as they grow then we're back in a good position with them.

[Steven Koenig:]

Got it. Okay great. Thank you very much.

[Elena Gomez:]

Sure.

[Operator:]

Your next question comes from the line of Derek Wood with Cowan & Company. Your line is open.

[Unidentified Analyst:]

Great. Thanks this is Andrew on for Derek. Hope you are all well. You locked down business travel pretty early in the COVID cycle. Any color and how this has affected closed rates and rep behavior and how are EPS adjusting selling virtually?

[Elena Gomez:]

I've actually been really encouraged and impressed with our sales team and actually with all of our employees to pivot almost overnight to working from home and Zendesk time to value and all the things that we talked about, I think will do well in this environment. I don't see that necessarily being challenged unless it's a really huge deal of course some of that is potentially slipping but not in a material way I think we can still do business and continue to close deals and we've proven that in Q1 and continuing to prove that through Q2 in a virtual environment.

[Unidentified Analyst:]

Great and then Elena, maybe what percentage of your revenue or billings come from new versus existing customers and what are you assuming around growth in each cohort for the year?

[Elena Gomez:]

So we don't really give distinct, we don't break out our bookings or billings between new and expansion but obviously the expansion motion is a big part of our growth and looking at our net expansion rate but we are to deliver on both new and expansion bookings but we don't break those out.

[Unidentified Analyst:]

Great. Thanks. Take care.

[Operator:]

Your next question comes from the line of Jeffrey Van Rhee with Craig-Hallum. Your line is open.

[Jeffrey Van Rhee:]

Great. Thanks. Just a couple for me. I think from a geographic standpoint can you just talk to, I guess two aspects churn variance by geography, if you've noticed any and then also within the selling motion the ability to get cycles over the finish line if you will, maybe just talk to things sort of through the geographic lens if you can call out any notable differences?

[Elena Gomez:]

We haven't. So in terms of contraction, I haven't noticed any particular trend that's such an outlier that's something we would mention here but of course, every region is experiencing this differently. So we may see pockets of countries come back sooner than others. We are paying attention to that but I wouldn't say that there's a stark complete difference between say, Emera or EMEA or APAC at this point.

[Jeffrey Van Rhee:]

Okay. And then on the cycles, I think Mikkel called out some scenes emergency some cycles have been fairly large and come in with great urgency. When you look at the deals that have come in with urgency what’s the makeup of the deals in terms of what feature function capabilities they were most focused on? What were the drivers there?

[Mikkel Svane:]

I think there was a similar question on that before. It's really across the board here like it's really about ensuring that a business can engage and respond to the customers, to the communities, to the stakeholders. And as I said earlier we definitely see a drive towards like more like the thing like the messaging and chat channels over the traditional channels but really the demand is across the board and even across some high sales products, the demand is built across the board.

[Jeffrey Van Rhee:]

Yes. Good enough. Okay, great. Thank you.

[Operator:]

Your next question comes from the line of Jennifer Lowe with UBS. Your line is open.

[Jennifer Lowe:]

Great. Thank you. I wanted to Elena, just to circle back quickly to hit on some of the things that have kind of gotten discussed earlier. As we're talking about some of the adjustments and the concessions that are being made to customers to help them through challenging times, is it fair to think that that will be a billings impact but shouldn't be something that affects RPO or CRPO or could it be CRPO but not a RPO, can you just help us understand so what's cash versus contract?

[Elena Gomez:]

Yes. I mean, I think, most of the orientation has been on payment terms so far but it's early to tell. We're still going through and talking our customers actively -- I definitely say that payment terms has been a big, big topic with customers. I am not going to say that we won't change contract terms but definitely the orientation has been payment terms and in some cases as customers are needing fewer agents in this time we're seeing that come through but the flip side as we expect that to come back as the economy starts to revive.

[Jennifer Lowe:]

Great and then just looking at the puts and takes on billings in the quarter and again you mentioned there was the invoicing change, there's these payment concessions I think you said that you expect this to last for two quarters but just thinking of sort of the magnitude there because it seems like the invoicing component would be, the invoicing change would be relatively contained in Q1 as kind of a one-time event. Would you expect a similar degree of headwinds in Q2 billings, just any kind of qualification that would be helpful as we try to think about what’s --?

[Elena Gomez:]

Sure. I think the one thing to just think about is even though we bill we don't always, so the billing impact is we effectively had two months of billings instead of three. So that's sort of the impact there. What I mean is we should expect cash flow for Q2 to have that same impact as well simply because obviously we're collecting some of that billing in Q2 if that makes sense.

[Jennifer Lowe:]

Yes. That makes sense. Great. Thank you.

[Operator:]

There are no further questions at this time. I will turn the call back over to the presenters.

[Marc Cabi:]

Well, we'd like to thank you for joining us on our virtual call and we will look forward to speaking to you next quarter. Have a great day and stay safe.

[Operator:]

Ladies and gentlemen this concludes today's conference call. You can now disconnect.