Zendesk, Inc.
Q2 2019 Earnings Call Transcript

Published: 30 Jul 2019

[Operator:]

Good afternoon. My name is Kelly, and I will be your conference operator today. At this time, I would like to welcome everyone to Zendesk Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I will now turn the call over to Marc Cabi. Please go ahead.

[Marc Cabi:]

Thank you, Kelly. Good afternoon, everybody and welcome to our second quarter 2019 earnings call. We are pleased to report our results. Joining me on the call today are Mikkel Svane, Founder, CEO and Chair of the Board; and Elena Gomez, our Chief Financial Officer.

[Mikkel Svane:]

Yes. Thank you so much, Mark, and good afternoon everyone. Thank you for joining us. Q2 was another quarter of high growth for us with revenue increasing 37% year-over-year. We continue to see strong demand for our products across both small and mid-size businesses and also in the enterprise. And we also believe that our rapid introduction of new products, new offerings since late last week – late last year has really set us up well for the future ambitions to be a multi-billion dollar revenue company. In the enterprise, we saw a good uptick in the percentage of our recurring revenue that comes from 100 plus seat implementations. As a reminder, this is our proxy for our enterprise progress. It rose to 42% in Q2 of 2019, up four points year-over-year and two points quarter-over-quarter. Momentum around the Zendesk suite really continues to play a key role in our growth. Our omni-channel offering, which brings together our core customer service products and channels has become a key differentiator for us and led to more strategic conversations with customers. We saw solid growth worldwide, but performance with some regional unevenness in performance. We had strong growth in our largest market in the U.S. and also in all of LATAM.

[Elena Gomez:]

Thank you, Mikkel. Good afternoon, everyone. As Mikkel stated, we delivered strong revenue growth of 37% in the second quarter. Our growth was driven by continued rising customer expectations, product innovation and improving sales and marketing initiatives. The Zendesk suite continued to perform very well and drove strong sales in SMB and mid-market customers, as well as strategic conversations with our enterprise customers. A few financial highlights for the quarter were, we had strong revenue growth in North America which grew 38% year-over-year. It’s important to note that U.S. is performing very well and represents over 50% of our revenues. Other regions including LATAM were up 53%. As Mikkel stated, EMEA and APAC had solid revenue growth in the quarter, up 33% and 31% respectively. However, in these two regions, we observe some pockets of sub-optimal execution. We will be focused on understanding the macro environment in these regions, as well as where our execution was below our expectations. We had continued success moving that market with our percentage of ARR from 100 plus Support suites advancing four points year-over-year.

[Marc Cabi:]

Thanks, Elena. Before we take your questions, just one reminder about customer count metrics. As we discussed in the last few calls, customers that purchase multiple products of Zendesk Connect cards are still counted as a customer for each product they purchase, whereas if they are purchasing the Zendesk suite, it is only counted as one paid customer count. And so that you continue to work with us as we move on those metrics. Finally, Zendesk Duet, which is our bundled Support and Sell we will be showing up in our Support product because that would be the lead product there. With that, I will turn the call back over to Kelly to pool for questions.

[Operator:]

Your first question comes from the line of Phil Winslow from Wells Fargo. Please go ahead. Your line is open.

[Phil Winslow:]

Hey guys. Thanks for taking my question and congrats on a great quarter. I just wanted to focus on Sunshine, Mikkel. Obviously, it’s still early days. But what sort of feedback that you are getting from some of your larger customers on Sunshine? Do you think it’s actually starting to influence some of the deals that you are seeing, some of that uptick in the larger transactions. Some more color there would be great.

[Mikkel Svane:]

It absolutely is, and I think there is a creating in the markets or an alternative kind of platform offering that is small open and more in line with kind of their platforming and kind of infrastructure investments and this is really why we see the doubling down on AWS and really becoming native to the platform using all the different services and being tightly tied to all the different services on the platform and on AWS it’s really playing to - it’s playing to how the market want to work with that.

[Phil Winslow:]

Got it. And then just one thought for Elena. Elena, you mentioned something extra CapEx on the real estate side accelerate payments. Why don’t if you could try to quantify that for us I mean, what the delta is in terms, like a one-time impact is here?

[Elena Gomez:]

I don’t want to quantify that because there are so many different elements to it. But obviously, meaningful enough that we shared that with you guys. But I think one important element of that to think about is, one of the decisions we are making is to try to densify some of our states all around the world and that will have long-term positive cash flow right, because we’ll be able to leverage the space we already have instead entering into new real estate, not that we won’t ever, but I think that will allow us to scale more quickly.

[Marc Cabi:]

And then on the vendor payments, Phil, I would just say that we have an opportunity for better terms as we extend payment terms. So we will work out what’s right for the company from a vendor relationship perspective with some of our key vendors.

[Phil Winslow:]

Got it. Thanks.

[Operator:]

Your next question comes from the line of Michael Turrin from Deutsche Bank. Please go ahead. Your line is open.

[Michael Turrin:]

Hey there. Thanks and good afternoon. In terms of market progress, long-term RPO and MRR from more than a 100 agents, both picked up nicely. But revenue upside for the quarter was less pronounced. It sounds like most of that was related to some what you saw overseas and we know the first half is historically more velocity-focused, but can you maybe talk more about what you are seeing in terms of what market progress as we head into the back half of the year?

[Elena Gomez:]

Sure, I mean, I think we are obviously very encouraged by our RPO and I think, one thing that sometimes gets locked is, not every – not our entire business is in RPO. So don’t forget that that really RPO is reflective mostly of our enterprise customers. So when you are trying to look at the delta between RPO and revenue, just keep that in mind. But yes, I think, for me, as I have reflected on guidance, it was really important for me to a bit more prudent until we understand the dynamics of the regions a bit more. And also because as you guys know, towards the back half of the year, will more Enterprise heavy. And so, we typically put a lower probability on those deals and with the uneven performance that I did want to change that philosophy.

[Michael Turrin:]

That’s helpful. Appreciate that, the transparency there. And in terms of suite, you mentioned 3500 customers in Q1 were lapping its introduction last summer. Is there anything we should be cognizant at all in terms of growth impacts there or does a continued ramp in adoption and some of the additional bundling efforts we are seeing leave this being potentially more of a sustainable trend as we anniversary this intro?

[Marc Cabi:]

Yes, so, since we’ve anniversaried Suite we continue to see very strong uptake and it serves itself in two ways. It serves itself in terms of the type of customer we are landing. Those customers tend to be typically a higher edge deal size than our traditional customers were and presumably, now we will start measuring this as we go through the rest of this year, there are stickier customer because they are multi-product customers for us.

[Michael Turrin:]

Thanks. Appreciate the color.

[Operator:]

Your next question comes from the line of Bhavan Suri from William Blair. Please go ahead. Your line is open.

[Arjun Bhatia:]

Hey guys, it’s actually Arjun Bhatia on for Bhavan. First maybe on the product side, just wanted to touch on the AI announcements. I know there were several announcements with answer bot and the knowledge base over the past few months. Can you maybe just help us understand where you are in your AI roadmap and what your investment priorities there are on that front going forward? And then, just some color on what role this is playing in customer conversations especially on the enterprise side would be helpful?

[Mikkel Svane:]

So, I definitely see our AI investments as our long play. We have the privilege of having – working with a lot of customer data and really helping building ability to really create patterns in all this data that we are working with. And by products I think kind of the algorithm, so it help our customers build better customer experiences for their customers and automating a lot of these things that we – nobody wants to spend time on, neither our customers or their customers, we believe that we can really provide a fantastic experience. Self-service, automated service is the future. We don’t want to – if we can avoid it, we don’t want to talk to people, but at the same time the demand for engaging with customer service is growing exponentially. So we see it very much as an opportunity to help our customers, help them scale at a more kind of measured way and like we will continue to invest in the products to provide our customers with the best solution for scaling the operations.

[Arjun Bhatia:]

Thanks, that’s helpful. And then, maybe a follow-up for Elena. As you move up market into the enterprise, obviously some of your operational national metrics are going to change. I'm just wondering, is there any way you can quantify the evolution of new customer ACV over the past year, so and then related to that, should we expect a more exaggerated land and expand motion with the larger enterprise customer base?

[Elena Gomez:]

Yes, let me take the first part of the question which is, do our operational or basically cost of acquisition change effectively is I think what you are asking as we move up market. And we don’t disclose obviously segment information, but absolutely the way we think about our business is really sort of the SMB and enterprise business and mid-market as well. And as we move up, obviously the cost of acquisition increases, but you also get a stickier longer term customer. So as you think about lifetime value which is how we think about it, that’s absolutely the right investment. Obviously, more tools across more people to talk to close that deal. The flip side is, we are trying really hard as Mikkel suggested to make sure that we make it super easy to onboard the rest of the customers and that cost of acquisition is lower. And so, as we think about our investment choices, we are very much aware of that dynamic and making those trade-offs. And that's inclusive of all of our sales and marketing investments. That's the first question. And I think the second question you did a two-part question, what’s your second question.

[Arjun Bhatia:]

Yes, second part was on the land and expand. Should we should just expect that to be more exaggerated and play out maybe over a multiyear timeframe here as the enterprise base gains more prominence?

[Elena Gomez:]

Yes, there is not sort of a black and white there to be honest because, a couple of reasons. There is many dimensions to that, but as we think about our Suite products we are having a higher land earlier and so we're just a year into that and understanding that dynamic. And then, a lot of our enterprise customers as you know they grow with us. So that that philosophy of landing customers and expanding hasn't changed. Do we sometimes have larger expansions. Yes, but that’s not – it’s not always an arm. Sometimes we start very small. We attach with a department. And then over time, you'll see that build up versus necessarily always just a huge expansion. So, it really depends and it really depends on the complexity of the used case they want, et cetera.

[Arjun Bhatia:]

Got it. That’s very helpful. Thanks for taking the questions.

[Elena Gomez:]

Yes.

[Operator:]

Your next question comes from the line of Jennifer Lowe from UBS. Please go ahead. Your line is open.

[Jennifer Lowe:]

Great. Thank you. First I just wanted to touch on through the commentary around geography and some of the challenges you’ve seen there. And I guess, part one of that is, can you sort of isolate what’s macro versus execution? Because it seems like both of those concepts came up in the prepared remarks. And then, two, there is a lot of real estate that falls under EMEA and APAC. Is there anymore specificity there in particular countries that were outliers in terms of the weakness?

[Marc Cabi:]

So when you look at the regions, we are – again, they delivered good growth, but there were pockets. So it’s not a region-wide phenomenon for either. But within specific countries, we’ve seen some feedback that there is some uncertainty on the behalf of customers. Deals are taking some of longer to close in certain instances. For example, out of Australia, which is a large trading partner to China, we've heard that. And I think some of the stuff that the UK might suggest that there is some longer deal cycles there. But it’s really difficult to discern the macro fundamentals from execution fundamentals. We will be looking very closely at that over this next couple quarters to get better views on that. But overall, the demand profile for our products is strong. But we’ve seen these low pockets here and there that we wanted to point out and be transparent about.

[Jennifer Lowe:]

Okay, great. And just one more for me and this is another detailed one. But, as I was going through the shareholder letter and looking at some of the commentary around the cash flow, the guidance there, there was a comment that t some of it is due to increased acquisition activity and the associated acquisition-related expenses. And I know we've seen you be more acquisitive lately with Smooch and with Base. So is that really what that's referring to? I know Base is last year. But is that what's referring to? Or are you a more broadly beefing up to have a more proactive acquisition? I mean, is M&A the right way to think of acquisition or is it customer acquisition? If you could just give a little more on what exactly that meant, that would be super helpful.

[Elena Gomez:]

Yes I know, you exactly nailed it. It’s really Smooch and some payments related to that acquisition that really drove that. There is nothing obviously that right now that we are thinking about, but that doesn’t mean it will never happen. But right now, what we are really talking about is Smooch.

[Jennifer Lowe:]

That’s it for me. Thanks.

[Operator:]

Your next question comes from the line of Samad Samana from Jefferies. Please go ahead. Your line is open.

[Samad Samana:]

Hi, good afternoon and thanks for taking my questions. So, if I could ask a follow-up on the geography question, actually. Is the mix between Enterprise and Velocity different in the U.S. versus international? In other words, should we think about the sort of mixed performance in APAC, EMEA having a less or more pronounced impact on Enterprise MRR? And then I have one follow-up.

[Marc Cabi:]

I don’t think any region is all that different in sort of to their complexion. So, it’s hard for me to discern their big difference that would account for that. APAC has landed some very large opportunities over t here historically. So, we are doing some work around there. And again, we just want to be very transparent that we are watching market conditions in both EMEA and in APAC.

[Samad Samana:]

That’s helpful. And then, maybe, just a follow-up on Duet. I know that the company announced the new package. I am curious maybe what the initial response from customer has been and maybe what early traction looks like? And how we should think about Duet factoring into what you expected for Base CRM to contribute in 2019? Thanks again for taking my questions.

[Mikkel Svane:]

It is of course something we are very bullish about. But, honestly, it’s very early days. We launched it like, very late in June. So we had very little data to work with so far. This is the beginning of a journey like there is a lot of things that we planning for being able to do next year and are excited about that. And this is really to kind of assess and test the market, get a better understanding of it and so far we are very happy about what we see.

[Operator:]

Your next question comes from the line of Stan Zlotsky from Morgan Stanley. Please go ahead. Your line is open.

[Stan Zlotsky:]

Perfect. Thank you so much for taking my question. Maybe just at a high-level if I could just follow-up on Samad’s question on Duet. What has the initial feedback been like, in the sense that, do you often see your customers the customer service agents also wearing a sales hat in their day-to-day functions? And if so, is that – the identity of that potential buyer is that more on the Enterprise side, more on the SMB side and then I have a quick follow-up.

[Mikkel Svane:]

Stan, just think about this as really like, that way of thinking initially being very much catering for the small businesses where like roles are much less like well defined where it’s all about like doing what’s right for the customer. But like, we definitely also see the big opportunity in where kind of where a new generation of high velocity, low touch sales is touching kind of the advocacy and the post-sales experience in a much more fluent way. And I think that’s what we are – that’s what we have our eyes on as we start to get experimenting with this and start to getting some initial feedback from the market. And there is no doubt like, smaller businesses or even like smaller teens, like they see a big benefit in like, that they can fluently have people move from one function to the other and that they are not tied to like, oh, I can only do this, or I can only do that. So, we are already seeing that validated in the market.

[Stan Zlotsky:]

Got it. Perfect. And then, a quick follow-up on the EMEA and APAC, some of the unevenness that you saw. You mentioned that some of it was just the longer sales cycles and some of it is execution. How are you guys approaching the execution part of that as opposed to maybe just the overall customer prospect hesitancy? What can you do to, kind of streamline your motion there, especially as you head into the back half of the year, the big Enterprise back half? Thank you.

[Elena Gomez:]

Yes I mean, I think, there is a lot of different things. It’s not just one playbook here. But I think it starts with understanding to your point the pipeline in the back half of the year understanding close rates, understanding the productivity of all those reps in that region and as well, obviously we are having success in North America. So we are doing some comparisons on what’s working here and are there certain things that we can bring to the region that makes sense for that region. Typically, we try to do uniform things, but there are definitely localized practices that just make more sense. And we are just evaluating this from many different angles.

[Stan Zlotsky:]

Got it. Thank you so much.

[Operator:]

Your next question comes from the line of Kirk Materne from Evercore ISI. Please go ahead. Your line is open.

[Kirk Materne:]

Thanks very much. I guess, I have a question for Elena just around the RPO metrics. Obviously, the long-term RPO clearly signifies your customers are willing to make longer term bets on you all. I was wondering if you just talk a little bit, it’s little bit accelerated this quarter and frankly last two quarters. One of you just talk about is that’s something your go-to-market field force is trying to do, meaning get into longer term deals with the customers and I assume most of that relates to sort of expansion deals, not necessarily net new, but could you just provide I guess a little bit more color on that metric as that obviously speaks very well of sort of the longer term strategic relationship you are building up with a lot of your customers. Thanks.

[Elena Gomez:]

Sure. So good question. So, absolutely, we are – Norm is definitely and that his leadership team are focused on longer term deals that was very much intentional. Started probably late last year, really thinking about building a longer term relationship with our customers. And it’s not really just accelerated to expansion deals actually, it’s really both deals. So, we are seeing success in both new deals that are coming to us having larger customers commit to us for a longer period of time. But also upon renewal getting some of those expansions to commit longer term.

[Kirk Materne:]

And if I could just dovetail my follow-up back into the question around international, I assume the go to market playbook is pretty similar across all the regions being, I guess, do you think any of the execution choppiness perhaps internationally is about doing longer term deals with customers and maybe the U.S. customers are more used to that. I guess, does that play into any of your earlier commentary on to Asia and Europe at all? Thanks.

[Elena Gomez:]

No, no, actually don’t think that’s true. We definitely have international customers committing to us longer term. So that’s not a – that’s not really speaking to that uneven performance.

[Kirk Materne:]

Okay. Great. Thanks so much.

[Elena Gomez:]

Your next question comes from the line of Derrick Wood from Cowen and Company. Please go ahead. Your line is open.

[Derrick Wood:]

Thanks. So you guys hired a new Head of Channel, I guess roughly nine months ago. Can you give us an update on what new initiatives or efforts are taking hold? And now that maybe you’ve seen some progress kind of where you think that can go in a year from now in terms of broadening the SI engagement?

[Marc Cabi:]

No, I think, do you want to take that?

[Mikkel Svane:]

Well, I think we are seeing like – I think we are seeing really good relationships with – we have some record numbers, like we are working with a lot of partners. Now we are seeing really good traction in going with partners together to customers and we are seeing, especially I would say like regional kind of excellence around these things. We have some areas where we are doing – like where we really have the playbook mailed. Other areas where we believe we still have some more work to do. But like nine months and we are very happy with where we are and there is no doubt that this will get more and more significance in our business over the years.

[Marc Cabi:]

Yes, I think what Ricardo has done a really good job of is, just like when you enable your sales people to sell your product, you also have to do a lot of things around partner enablement in building those programs, really building those relationships with the partners has been the first go around here and that is starting to result in good feedback and good customer activity from the partner network. There is still a lot more to be done. And over time, we’ll move from these regional to more global SIs as an important factor of moving into bigger enterprise deals.

[Elena Gomez:]

Yes, and I would just add that we are encouraged by the fact that we are getting inbound interest which I would say when I got here that was not what I would hear. And I think Sunshine has really opened up the conversations.

[Derrick Wood:]

Great. And then a follow-up on Smooch and I suspect you are not expecting much incremental revenue near-term. But I guess, from a long-term perspective, do you see this is being like a meaningful revenue line item for you? Or is it more about kind of creating stickiness in differentiation with the kind of full platform and making the products not Smooch is a standalone per se?

[Mikkel Svane:]

What I would say there is like, there is several elements to this. In parts of the world, we are already seeing massive shifts away from the traditional channels to the messaging channels and like to keep innovating and to keep being the premier provider in those regions like we are, like we have a commitment to our customers to ensure that they have the great theme, experience with these in channels as they can have with the channels that we have historically supported. So, and that’s why this kind of tied up this acquisition of Smooch was so important for us, because it is really, really strategic to be on the forefront of all these messaging channels. And I think that there is a lot of revenue kind of opportunity in that and we are already exploring different ways of thinking about that and customers are also more used to paying for these channels over like, email for example that everybody considers like free channel. So, there is definitely a play there and that’s not only in customer service and customer support. Like we are seeing these messaging channels taking over everything in like, sales, marketing, et cetera, et cetera. So very excited about that. And this is really where we have our big play. At the same time, we are going to continue to invest in the platform business like really helping businesses as part of the Sunshine story, as part of the Sunshine platform, helping businesses really build innovative solutions that saturate the entire business in that total customer engagement and we can be a partner for them in that entire life cycle in managing the customer relationships. And there is huge monetization opportunities in that too.

[Derrick Wood:]

Great. It’s great color. Thank you.

[Operator:]

Your next question comes from the line of Koji Ikeda from Oppenheimer. Please go ahead. Your line is now open.

[Koji Ikeda:]

Hi, thanks for taking my questions and congrats on the quarter. So, just quick question here on that 100 plus agent percent of MRR taking up the 42%. That’s really great and it’s really demonstrating that the strategy and the go-to-market investments are working. I guess, just taking a deeper look there into the leverage that drive that metric, was there anything particular to point out that was maybe contributing more and maybe less to that uptick in the MRR?

[Marc Cabi:]

I think it’s really a good indicator of a successful strategy that Norm is employing of hiring a more enterprise-level strategic reps and really upleveling this organization to go after larger opportunities. We are also making sure we engage with the customers that already are in Zendesk to make sure that they are growing with us. And so, I think a combination and that’s what’s helped that number move up.

[Koji Ikeda:]

Okay great. Thanks for that. And just one quick follow-up for Elena. The Relate 2020, just for modeling purposes, is there – could you help us out maybe with what sort of expense we might be putting into our models for the first quarter of next year?

[Elena Gomez:]

Well, I don’t comment on individual expenses. So, yes, the answer is no.

[Mikkel Svane:]

Yes, we haven’t guided to 2020, but that is obviously a marketing expense in Q1 rather than in other quarter.

[Elena Gomez:]

Yes, it’s not material for the quarter.

[Mikkel Svane:]

No.

[Koji Ikeda:]

Okay great. Thank you for that. And congrats on the quarter.

[Elena Gomez:]

Thanks.

[Operator:]

Your next question comes from the line of Chris Merwin from Goldman Sachs. Please go ahead. Your line is open.

[Chris Merwin:]

Okay, great. Thanks for taking my questions. Just going back to Duet for a minute. In terms of how the sales force is prioritizing some of the products, I mean, are they still trying to sell Suite first and foremost or in some cases will they be leading with you. Just curious about how they are managing that.

[Marc Cabi:]

Just a reminder, Duet is still really focused on the SMB. So, there is only a subset of the sales teams that that would apply to. But, and really Duet is in its first version. There is a lot more integration into our future platform that Duet will kind of build into as we go through the rest of this year and early next year. And it’s also working its way up in terms of serving bigger customers. So, I would separate those two, the Duet and some of the other offerings that we have.

[Chris Merwin:]

Got it. Maybe just a follow-up in terms of Suite sales in particular for the enterprise and I remember at the Analyst Day, Norm was talking about very much prioritizing that in the conversations with enterprise. So just curious if you could speak to any momentum for Suite for that segment in particular?

[Elena Gomez:]

I think, Suite has done well across all of our segments frankly. I think our original intention was really more for the SMB space and we were encouraged by many of our customers upon renewal coming back and asking more about Suite. And I think to the question earlier about our uptick in enterprise, I definitely believe that has something to do with it as we’ve launched three new teams, more of a dialogue with our customers to generally spend – have more interest in some of these other channels that we offer in omnichannel solution. So I think that really Suite has been broadly embraced by both segments.

[Chris Merwin:]

Okay, great. Thank you.

[Operator:]

Your next question comes from the line of Tom Roderick from Stifel. Please go ahead. Your line is open.

[Tom Roderick:]

Hey guys. Thanks for taking my question. I wanted to piggy back on Derrick’s earlier question on Smooch and it seems like a nice acquisition and looks like you paid about $70 million for that. Elena, could I just ask you to put a finer point on the impact to the financials and if there is any impact to RPO, any revenue contributions that are sort of leaking into the guidance for the rest of the year? And/or more specifically, next quarter on the expense side. Is that sort of weighing on your expense guidance or I should say your op inc guidance for the third quarter here?

[Elena Gomez:]

Yes, no, it’s obviously, Smooch has been in our runrate now, plus they are frankly not material to the total revenue. So, there is not, I think Mikkel expressed it correctly and I think we are exploring different ways to monetize and there is definitely opportunity there. But I don’t see anything meaningful and definitely not in 2019 and even in 2020. I think there will be early day with that. So, that’s how I think about it.

[Tom Roderick:]

Okay and then.

[Elena Gomez:]

Yes, they are definitely in our runrate.

[Tom Roderick:]

Excellent.

[Mikkel Svane:]

Yes, it’s on our future guidance.

[Tom Roderick:]

Can you speak to how many employees you picked up as part of that acquisition?

[Marc Cabi:]

I think, you know in the mid double-digits. I don’t know the exact number for you.

[Tom Roderick:]

Okay. That’s fine. That’s helpful. And then, just relative to Suite and the traction you are getting there and then sort of goes that the question of the playbook as well. Are there any different strategies with packaging or pricing of Suite as you get into international markets? Is that sort of – is that effectively the same message as you get out internationally as it is domestic suite being treated the same by the sales force across the board. We just love to hear if there is any sort of geographic differences that may have played a role in any of the execution in the quarter?

[Mikkel Svane:]

I wouldn’t say that it has affected anything in this quarter, like, not other that what we’ve seen before, like Suite, definitely took off faster here in the U.S. than it did in some of the other regions and that maybe one of the things that we need to think about going forward with our business like faster execution outside of the U.S. and there are some differences. We are working with a lot of like, telephony partners outside of the U.S. to and like and our partner talk addition is being outside of the U.S. But like beyond that, no, it very much remains there.

[Tom Roderick:]

Excellent. That’s good detail. Thank you guys. Appreciate it.

[Operator:]

Your next question comes from the line of Brad Sills from Bank of America. Please go ahead. Your line is open.

[Brad Sills:]

Well, great. Hi guys. Thanks for taking my question. I just wanted to ask a question on Enterprise. You’ve obviously seen some momentum acceleration there. Would you attribute that more to the land portion of those deals versus expand? Are you seeing customers commit to more company-wide deployments or are you seeing momentum more on the kind of expansion deals, maybe the size of those deals and the momentum there really gaining seam?

[Marc Cabi:]

It’s been a combination of both. We continue to land new companies which we are very proud to land each quarter. But we do also have a lot of expansion opportunity with existing customers. And so, I would say it’s a healthy mix of both. In our products with the introduction of Sunshine are creating more curiosity around building around the investment.

[Brad Sills:]

Great. Thanks. And then, one on Sunshine if I may. Any comment used cases or verticals that you are seeing and what are in the pipeline or some early deals closed?

[Mikkel Svane:]

Like high level, I would say like, commonality of what we are seeing is kind of bringing in more data to provide a better customer experience, just like bringing in more context, more live data, not only like to help with a customer service and the customer support, but also kind of to provide a more coherent post-sale customer experience. So, at the high level that’s what I would say. And it’s across any type of company, B2C, B2B, you are seeing it in smaller businesses and very large enterprises, too. We are seeing very much Sunshine help our customers free up like it sets them free, it helps them, I could say something differently about that data flows which we are of course are very excited about.

[Brad Sills:]

That’s great. Thanks, Mikkel.

[Operator:]

Your next question comes from the line of Steve Koenig from Wedbush Securities. Please go ahead. Your line is open.

[Steve Koenig:]

Terrific. Thanks Zendesk. Maybe just to start with a question about, maybe can you give us some color on international competition and SMB competition. I am guessing no real change in the environment. Maybe just some color here would be helpful.

[Marc Cabi:]

If we go outside the U.S., the markets are even more fragmented than here in the U.S. on the low-end. But from that point of view, I think, it’s pretty much the same story we’ve already – always told. On the high-end, I think that it’s the same set of competitors that are out there. In APAC sometimes people will still use on-premise for certain things. But other than that, I don’t think the competitive dynamics have changed that much in the marketplace.

[Steve Koenig:]

Okay. And just to clarify that, the slipped deal, the deals internationally that slipped, that was mostly slippage they weren’t lost and I just wanted if I can, I’d love to slip in another question which is, you had a big expansion in your international partner count at the beginning of the year. You guys were pretty emphatic about don’t expect too much from that this year. Maybe, can you talk a little bit about what – why you are signing those international partners and what do you expect from them and can they play a role in helping the international execution here?

[Marc Cabi:]

Just to correct something or just to restate it the way we’d like and stated, we didn’t say that deals slipped. What we’ve said is we will see feedback from those regions that deals are taking longer to close. So, there is business that I just want to make sure to justify. In terms of, we started working with partners in the international regions first. This is - more we hired a leader here in the U.S. So, internationally we have more traction with partners than we do in the U.S. today, because we started with them earlier. And now we are refining a global strategy of how we work with those partners to really become more impactful for our growth opportunities going forward.

[Steve Koenig:]

Got it. Great, well, thank you very much.

[Marc Cabi:]

Sure.

[Operator:]

Your next question comes from the line of Brent Bracelin from KeyBanc Capital Markets. Please go ahead. Your line is open.

[Brent Bracelin:]

Thank you. I just had one follow-up for Elena here. I wanted to circle back on RPO growth. You talked a little bit about enterprise driving momentum there, but it did accelerate and what jumped out to me was long-term RPO. It jumped by $41 million sequentially a year ago in Q2. It was up about $8 million sequentially. So, big change there, short-term RPO growth is pretty healthy, another 47% grower, but the big change was long-term. Is that’s solely tied to duration or are you starting to see larger new lands? Larger expands, any color to help explain that that big sequential increase in long-term RPO this quarter would be helpful. Thanks.

[Elena Gomez:]

Yes, it’s hard to say with precision which one of those factors, but I would say durations are definitely extending for us and we are seeing that and that was somewhat intentional and kudos to the sales teams for having those more strategic conversations where our customers are willing to commit to us for a longer period of time. So there is that tone and just the way we approach customer conversations. But definitely, there are some indications that there are larger deals, but if I were to say what is that heavier impact there, it’s really extending deals longer.

[Brent Bracelin:]

And when those customers commit? Are they committing to a certain set expands every year. So, year one, it’s a set expands, year two is going to be a bigger expand, or do they just commit over a multi-year period for the same seats?

[Elena Gomez:]

Yes, it’s committing over a multi-year period. But I think it’s also important to know that, once we commit with that customer, we build that partnership. It’s not like the relationship stops there right. We have a whole customer success organization really there to nurture that account and make sure that as our product evolves, we are having ongoing dialogue with that customer. So, could there be an expansion down the road? Absolutely. But what we are seeing right now is multi-year commitment up front.

[Brent Bracelin:]

Very helpful color. That’s all I had. Thank you.

[Mikkel Svane:]

Thank you.

[Operator:]

And there is no further questions at this time. I will now turn the call back to Marc Cabi for closing remarks.

[Marc Cabi:]

Thank you, Kelly. Thanks everyone for joining us for our second quarter call. We will look forward to touching base with you guys next quarter. Have a great evening.

[Operator:]

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