Zendesk, Inc.
Q3 2017 Earnings Call Transcript

Published: 2 Nov 2017

[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 the Third Quarter 2017 Zendesk’s Earnings Conference Call. All participants are in a listen-only mode. After the presentation, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Marc Cabi, you may begin your conference.

[Marc Cabi:]

Thank you, Kelly, and good afternoon, everyone. Welcome to our third quarter 2017 earnings call. We’re pleased to report solid financial results for this quarter. Joining me on the call today are Mikkel Svane, Founder, CEO and Chair of the Board; and Elena Gomez, our Chief Financial Officer. Before we get into the results, let me pass along a few reminders. Our shareholder letter is available at investor.zendesk.com, which details our full results and commentary. During the course of today’s call, we may make forward-looking statements, such as statements regarding our future financial performance, product development, growth prospects, ability to attract and retain customers and ability to compete effectively. The assumptions, risks and factors that could affect our actual results are contained in our earnings press release and in the Risk Factors section of our prior and subsequent filings with the Securities and Exchange Commission, including our most recent Quarterly Report on Form 10-Q and our upcoming Quarterly Report on Form 10-Q. We undertake no obligation to update these statements after today’s presentation or to conform these statements to actual results or to changes in our expectations, except as required by law. Please refer to today’s earnings release for more information regarding forward-looking statements. During this call, we will present both GAAP and non-GAAP financial measures. The non-GAAP financial measures should be considered in addition to not as a substitute or in isolation from our GAAP financial information. You could find additional disclosures regarding these non-GAAP financial measures, including reconciliations with the comparable GAAP financial results in today’s earnings press release and shareholder letter and for certain non-GAAP financial measures for prior periods in the earnings press releases of those prior periods, all of which are available on our investor website. With this introduction, I would like to turn it over to Mikkel.

[Mikkel Svane:]

Thank you so much, Marc, and welcome, everybody. And we are very proud of the results we achieved during the third quarter. We reaccelerated our revenue growth rate to 40% versus a year ago. We made strong strives in our upmarket activities as our sales teams continued to improve productivity, continued to mature. A key metrics that measure our enterprise class business made advances. The percentage of our monthly recurring revenue from 100 plus seat support customers rose through 37% from 35% at the end of the second quarter this year. We also signed many more and larger deals of at least $50,000 in annual contract value compared to a year ago. These improvements come as we see more traditional and recognizable brands in our pipeline and as our go-to-market organization is in a stronger position demand and expand business with larger organizations. On the product front, we advanced our upmarket offerings with enterprise versions of our talk and chat products. Our chat product now includes sending message to serve as a group to serve a growing number of messaging channel used for customer conversations. Within our recently released product guide, we launched Answer Bot, which has received high marks from customers adopting self-service for their customers. More recently in October, we reached an important internal milestone. We are now 2,000 employees worldwide. We are using this milestone as an opportunity to redouble our diversity and inclusion efforts as a company across our global offices. Our progress so far this year and our outlook for the rest of the year makes us confident in our plan to reach $1 billion revenue objective for 2020 and to manage our business in order to deliver improving margins as we continued to grow. As we nearly end of 2017, we feel confident and our ability continued to grow our business and advance our product portfolio, attract new customers, while expanding with our existing once. I look forward to share more success with you in the New Year. And before we take your questions, I want to welcome our new board member Hilarie Koplow-McAdams and acknowledge the service of our long-time Director Peter Fenton, who is now leaving the board. Hilarie first and foremost brings us extensive enterprise software sales expertise from her past executive leadership positions at New Relic, with Salesforce, within Intuit and with Oracle. So we are very happy to have Hilarie on the board. Thank you so much for joining us, Hilarie. You already made a big difference. Peter joined us as Benchmark and let our sales be back in 2009. He has been an incredible resource to the company and to me since the earlier stage of the company. Peter helped me make some of my very best and some of my very worst decisions, and he helped me more importantly learn from both the good and the bad ones and always helped me keep pushing the company forward. So thanks for everything, Peter. Thanks for your tenure here on the Board and we look forward to keeping in touch with you. We really appreciate your continued support and your continued friendship. And even though you are leaving the Board, we know where you live. So thank you so much, Peter. With that on that note, Marc, back to you.

[Marc Cabi:]

Thanks, Mikkel. Kelly, we will open it up for questions.

[Operator:]

[Operator Instructions] Your first question comes from the line of Bhavan Suri from William Blair. Your line is open.

[Bhavan Suri:]

I just wanted to touch sort of on the use cases that you are seeing. So you are seeing sort of really solid enterprise attraction, and at the user conference we heard some interesting use cases outside of the traditional customer support and you guys have sort of topped down in the past sort of internal helpdesk type use cases. Just wondering are you starting to see more uses than that internally? Is that a piece of what's driving the growth? And then as you think about broad sort of customer support non-typical use cases, are you seeing more in marketing and sales and other areas? Or are you still very predominantly focused on sort of the outbound customer support view?

[Mikkel Svane:]

This is Mikkel. I think that we've always had our fair share of internal use cases for our product and we appreciate those. Like, there is some really interesting use cases, but what we are really focus on are the internal use cases where it's really a about providing as almost as the customer service-like experience. If it becomes more about like managing your IT assets and managing your IT infrastructure and all these other things that sometimes are associated with the internal use cases, we try to shy away from them. These are not our expertise at all. But when you have larger inflations that strides provide and almost customer service like experience through the internal employees or through their staff, we can do -- we can help them and we can do some really interesting things for them and then let some really interesting used cases where they -- we can help them to transform their employee engagement and then employee relation. And for external use cases, yes, it’s a changing world and like how we think traditionally about customer service is definitely changing. And like more and more we see more and more forward-looking, organization is thinking how sales, marketing, customer service work together and that is definitely affecting the use cases so that some of our products is also being used tremendously in much more traditional kind of sales roles, anything from account management to success management to proactive sales engagement on website.

[Bhavan Suri:]

That’s helpful, Mikkel. And I guess just a quick follow-up from me. So given the move in sort of sales account management, Answer Bot is a great product. That’s sort of a customer support, self-support-type product. Any color sort of how you guys are thinking they are using AI and bots sort of drive? We talked about some of the - and how does you built into which ticket should be answered, which customer should be responded to. But as you think about account management sort of appropriate touch end, touch points for the customer how frequently, I think - like just some sense of how you guys think about using AI or some of the technology bots to expand in that area would be helpful. Thank you.

[Mikkel Svane:]

Well, I think that -- I think the same principle goes for anything that is customer-related that we are trying to do the customers services, basically helping the customer get to the wide information on their own as easy as possible using the collective information to guide them there. So we are doing that with Answer Bot and you will see more that stuff in our products. Also, we are very bullish about what we can do with our connect product, also powered by a recent outbound acquisition, and like really using the collective information there to be much more proactive and preemptive in outreach to customers and a lot of that stuff with time would also be powered by more and more like machine learning model. So we believe that all these investments will be used -- can be used to provide much better customer experiences across the board.

[Operator:]

Your next question comes from the line of Ross MacMillan of RBC. Your line is open.

[Robert Simmon:]

This is Robert Simmon down for Ross. That’s a pretty significant cut down in growth. I was wondering if there was some - maybe there were some one-off in Q3 that helps? Thanks.

[Elena Gomez:]

Our full year guide is up to question, Ross?

[Robert Simmon:]

No, 4Q.

[Elena Gomez:]

For 4Q, yes. So we actually raised our guide for the full year. We still have confidence in Q4. There is definitely some seasonal aspects to our business, but we still have complete confidence in the sales productivity continuing to improve and position us well to close our Q4 strong.

[Mikkel Svane:]

Yes. And Robert, I would just kind of remind everyone that as we set guidance, we assign a high probability to our transactional business, which very linear and convenience throughout the quarter, whereas our move upmarket to larger business transactions have less predictability around when close those and that’s represented in how we set guides each quarter.

[Operator:]

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

[Stan Zlotsky:]

So just listening to Mikkel and opening this call and reading the shareholder new letter, it certainly sounds -- you certainly sound very excited about going into the Q4 in the big enterprise pipeline. What specifically are you seeing out of your sales force productivity year-on-year as well as just the pipeline that’s giving you this confidence going into this big important fourth quarter?

[Elena Gomez:]

So we don’t obviously talk about specific numbers around productivity, but we have seen -- we talked about this a little bit last quarter, Stan, if you remember that we did some hiring in the back half of last year and the early part of Q1. Our expectation was that we would begin to see that the sales force begin to have some productivity in Q3 and some of it will continue to play out in Q4, which we are really proud of given that we had a leadership change over the quarter. We were able to continue our focus and execute pretty consistently throughout the quarter. In terms of pipeline, I've been at the company little over a year and half and we’re starting to see more household names in our pipeline on a more consistent basis obviously, as Mark alluded to. The predictability of when those close, it's a little bit more challenging for us to pin point exactly, which is why we’ve put that in a lower probability in that business, but were thrilled to see on a more consistent basis that pipeline is showing household names.

[Stan Zlotsky:]

And maybe to dig into something that you guys mentioned in the shareholder newsletter. So you have products that address all the major communications channel that our customer service representative would touch on a daily basis, and in the letter you mentioned that there could be opportunities for you in the future to start to bundle these products into unified omni-channel offerings. Can you unpack that a little bit for us? What kind of omni-channel offerings could you be offering in the future? Or are you going to make us hold that collective press until the big review?

[Mikkel Svane:]

And this is definitely something we want to told much more about next year, but like - the ease of use we are providing and we kind of build into these products, we’re really excited about extending that to how seamlessly these products work together both from internally and seeing from the customer perspective and we believe there is a tremendous amount of like -- it's just -- you can just do a lot with the customer experience by providing a very seamless omni-channel experience. So that's something we are going to talk more about and it also gives us some new opportunities for some different type of conversations with customers and to see attach rate for the products go up and provide a much better experience for everybody. So like I think we've been doing that for lot of companies. I think we are looking at streamlining and mainstreaming that much more going forward.

[Operator:]

Your next question comes from the line of Derrick Wood of Cowen & Company. Your line is open.

[Derrick Wood:]

It sounds like you guys are starting to see the fruits of the investments on the territory-based sales teams. Could you just give us a sense for how much progress you've made in laying that foundation and then maybe a little color as to what to expect as you build up this strategy over the next year or so?

[Elena Gomez:]

Sure. So you are right, we made a change little over a year ago to have a territory-based sales organization as we move upmarket and what we are finding is as our sales leaders are taking a longer view with customers, were seeing those our relationships build out, which allows us to have a deeper conversation about helping them solve their needs and how they engage with their customers. So that’s definitely playing out enough -- where we see that is translating and the productivity improvements we have seen. We are going to continue with that model for the foreseeable future. Especially as we move upmarket, it’s really important that we have consistency in those territories not only with our enterprise customers but just as we are transitioning years often times sales organizations change territories and we are very committed to trying to keep consistent territory base for the foreseeable future. So we are not changing out executive to customer relationships very often. We are trying to hold that steady.

[Derrick Wood:]

Great. And then as you guys shift more towards a solution sales and model going after more multichannel environment, I mean are you expecting sales cycles to change much? And I guess maybe too early to tell, but this is a land-and-expand sales model, so can you give us a sense for what the cadence looks like between an initial deal and how long it takes come back into expansion deals?

[Elena Gomez:]

So we don’t anticipate part of the -- beauty of the territory model is if you have a consistent engagement with your customer, you can have that conversation about expanding to our new products. We do expect that we will begin to sell -- we will have solutions selling earlier in the customer engagement, you are right, but we are going to try to invest a lot in sales enablement and making sure that’s a big priority for us next year so that we manage and not extend our sales cycles that much. But as you know, as we move upmarket, those sales cycles are less predictable, so we have to factor that in as we guide. But we’re not expecting a wholesale change in our sales cycles. In fact, what we are hoping is that the additional products we have are really just natural adjacencies to our flagship support products.

[Operator:]

Your next question comes from the line of Jesse Hulsing from Goldman Sachs. Your line is open.

[Jesse Hulsing:]

Yes, thank you. Elena, you mentioned that there is more household dense in the enterprise pipeline and I guess I think if I look this quarter and to an extent in second quarter as well, it seems like the floodgates kind of opened up a little bit in the enterprise segment, and I am wondering what’s changed there. Is it just the function of having the sales force kind of totally realigned and less attrition and that sort of thing? Or is there something that’s changing in the market as far as the types of technologies customers are looking to adopt and so they’re bringing in Zendesk rather than other vendors? Are you win rates going up? I am just trying to unpack the nice inflection that we are seeing in the enterprise business?

[Elena Gomez:]

Yes, I think a couple of things. I think one thing we have -- if you recall, last year we had a little bit of a disruption, so that at that point we made a change to the territory-based model and that has definitely helped and translated. I think we have also had strong consistency in our regional BPs. They have not really turned over and I think that that’s translating into strong leadership all around the globe, which I think is helping us. As customers evolve their use cases, I think our product is evolving and we are adding more product to support our enterprise install and not starting to -- we are starting to see early success of that and we will continue to see that as we get into next year as well. But I think it’s a little bit of both. Our product is improving as well as our sales has been stable now for good almost a year.

[Mikkel Svane:]

Yes. And Jess, I just one add to that. Without like diminishing any of that, like we have talked about increased kind of seasonality of our business throughout the year, and so we -- that is kind of expected. Some of this that like more and off the enterprise deals that we used to have we’re seeing them by the end of the year.

[Jesse Hulsing:]

And it looks like -- if I just look at your other products outside of support and chat, I know it's a small base, but you've increase each quarter the last couple of quarters the number of net new adds within that line. Where are you seeing most attraction of their product that stands out there? Or is it pretty broad-based?

[Mikkel Svane:]

So Jesse, as you know, Guide is a product that we now monetize as part of our selling efforts with customers. It's an upgraded version of our Help Center, and the professional version of Guide has seen some very good adoption. It has a lot of features customers are looking for to support kind of their efforts around self-service. So that is seeing some very good uptick. But our cross sell on chat and talk are also very strong right now. And so the adoption rates of second and third products for our existing customers is growing nicely as well.

[Operator:]

Your next question comes from the line of Alex Zukin from Piper Jaffray. Your line is open.

[Alex Zukin:]

I wanted to ask first about the competitive environment and specifically if you are seeing any boost to your pipelines on either the mid-market side or the enterprise side from the sub-selling or discontinuation of certain products to your competitors’?

[Mikkel Svane:]

We've always had a really strong offering for the mid-market and so our product does fit very well for the replacement of our competitors’ products that might not be receiving the investment that their customers are looking for. We provide a really nice ability for customers to transition on to Zendesk in a really quick way. We can have those customers up and running and a period of days and weeks. So the transition is also a nice transition for them. And they feel secure that we are going to continue to grow with them. We have a lot of use cases where our customers started with 5 or 10 agents and they are now multiple hundreds and thousands of agents. So we have a demonstrated ability to scale for a lot of customers in the mid-market and small enterprise.

[Alex Zukin:]

And then maybe just one for Elena. In a shareholder letter you guys mentioned some increased investments for 4Q, can you maybe be a little bit more specific about what areas those investments are going to and maybe is that some of the products that you referenced earlier that…

[Mikkel Svane:]

I think what it is referencing is that as we continue to see success, we are going to continue to invest in those categories where we have success. So as you know, we've placed a lot more emphasis on our move upmarket as we built the territory model that is being reinvested in as things are starting to work well for us there. We've added investments arounds our solutions consultants as we move towards solutions selling and that's what we are referring to you in the shareholder letter.

[Operator:]

Your next question comes from the line of Kash Rangan of Bank of America Merrill Lynch. Your line is open.

[Mikkel Svane:]

Kash? I know there are a couple of other calle. Operator, let’s put them back in the queue. We’ll re-pull him.

[Operator:]

Certainly. Your next question comes from the line of David Hynes from Canaccord Genuity. Your line is open.

[David Hynes:]

Hey thanks, guys. It was an interesting color on Answer Bot in the prepared remarks. I guess dollar shakes probably seem in that results. Probably thinking about what needed really ramp that product, so a couple of related questions there. How populated does the knowledge base and guide need to be to really leverage a bot? How long does that take? And then is that burden on the customer or is some of that automated? Can you help them kind of populate that knowledge base? And any color would be helpful thinking about how bots can scale?

[Mikkel Svane:]

Like, there has to be well-structured information that can be navigated by our bots. So it’s none of this knowledge is auto created. We have tools with guide and we have different source that helps agents be much more productive and producing these knowledge auto bots. That is part of our new offerings from also our guide products. So they kind -- the distance between creating articles and actually having them published is very, very small. So we try to make all of these publishing efforts minimal and just make it super easy to put structured content out there and build tools that helps it kind of structure in an easy way with ratings and what’s most popular and what’s the thing used most et cetera, et cetera. So we are trying to make all parts of knowledge creation and knowledge consumption as easy as possible, which will make the Answer Bot job much easier to. But like Answer Bot cannot work without some level up structure content and some level of volume, it needs some kind of -- even though it comes with a base model that is based on the collective kind of customer data we have, we need some kind of knowledge about how customers of our customers should react and how they ask question, et cetera, et cetera for Answer Bot to be most efficient. But that also means that you can put Answer Bot to work. You can set the threshold to when you feel like that it should step in and like over time where we will get more and more confident and then we’ll learn more and more about the customers’ new content and there we’ll be more and more confident in how we can provide answers. And that’s the beauty of these machines and the algorithms and I think that’s why it’s relatively low asset for most of our customers to put it into production and easily over time help it learn more and be more and more efficient and also be more and more kind of relevant for the customers.

[David Hynes:]

Yes, that’s helpful. Maybe one more if I can sneak it in. International, you guys talked a lot about new-ish efforts in I think Brazil, Japan, Australia last quarter. Open-ended question you could take and address any one. Any color on kind of what you are seeing internationally?

[Mikkel Svane:]

So we make incremental investments internationally all the time. As you know, we have customers in over a 100 countries and we invest in a smaller subset of those as they weren’t a larger investment. So Brazil a couple of years ago, Japan this past year has we grown our investment, India, and what we see is that as we can demonstrate success in each of those markets. We have the model that works. We're seeing really good output from our new team in Japan. And so those are exciting for us because we create relationships in market, which is critical as we move upmarket.

[Operator:]

Your next question comes from the line of Jonathan Kees from Summit Redstone. Your line is open.

[Jonathan Kees:]

I guess my first question is, if I can get an update in terms of gross margins, they have picked up incrementally sequentially. So under development in terms of your buildup format, your work with AWS there or is that still under consideration in terms of what your plan is? And how should we think about gross margins into 2018? Or I guess that's to be hit continue off in terms of what you are going to be doing with AWS sells with your own network?

[Mikkel Svane:]

So as we stated early in the year, we continue to have both a colo and cloud infrastructure bill pass at this point. As you'll see in the shareholder letter, we will be making a commitment to cloud infrastructure in the Q4 and we work through the timing of how we transition our customers in a proper way with a good outcome, and we will be able to tell you more about that in February when we meet next. But we do -- we are moving quickly to cloud infrastructure.

[Jonathan Kees:]

And I think my last question is, as you have roll out to new products and you have overlapped some of your partners that you currently work with now, are you getting any pushback from them in terms of what you are rolling out in terms of even like referrals? Or is it still too early to tell?

[Marc Cabi:]

It's natural that we are going to evolve our offerings and I guess it's natural that we will bump into kind of partner offerings, but we really believe in like as we really believe in and that our partner can take things and the duration that we are now going to take it. And like we also really believe and continue to support our partners even though we have our own offerings. So that for example with our top products, we also maintain a partner addition so that we make it, so we provide the same seamless experience if you are using a different product in our own 12 product and the same thing with our chat product. Like, you can use our chat product. If you use the partner product instead, we also try to make the experience as seamless as possible. We do, off course -- like we want to have some amazing products and then we want to give our customers good reasons for you choosing our products. But it is also we also want to make sure that partners that investment in our platform and build on our platform can be successful, so we are always going to chose a dual strategy where we try to be as augment as inclusive as possible with our partners at the same time as we try to build really amazing products ourselves.

[Mikkel Svane:]

Jonathan, I just want to go back to my part of my answer there. When I say quickly, it's just quickly as possible as our in terms of our move to cloud infrastructure and we want to make sure that transition experience is great for our customers.

[Operator:]

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

[Unidentified Analyst:]

This is [Selasa] on from Brent. My question was around, if I did some math on the kind of new subscription side , and it looks like you really had strengthen your new subscriber revenue. Is that something where you attribute all to kind of we are talking about around large deals? Or is there something else kind of going on that really causes inflexion in your new customers?

[Mikkel Svane:]

I am looking to say Matthew or but we always have a mix of new and extension each quarter. We had fairly good customer additions in this quarter, especially on our support product as in our guide product. So that’s probably how you are making that determination. But we have a fairly balanced new and expansion model that’s within the bounds of what we feel comfortable with.

[Operator:]

And your next question comes from the line of Kirk Materne from Evercore. Your line is open.

[Kirk Materne:]

I guess when I look forward and as you all continue to transition to more of a service solution selling company and have a broader portfolio products to offer your customers, I was curious as to how sort of broader partnerships with system integrators sort of factors into that evolution. Some of your bigger competitors evolve. There is more need or there was a more need, but there was actually more interest in the bigger system integrators partnering with them to help their own customers get through more with digital transformation journey. So I am just kind of curious if your dialogue with bigger SIs has picked up as your product portfolio has broadened, I guess just any color on that would be great?

[Mikkel Svane:]

Well, yes, what can I say that. Like, as we have moved upmarket over the last couple of years, it becomes an increasingly bigger part of the picture and increasingly bigger part of our engagement model with our customers to make them successful. So as we continued to move upmarket it’s going to continue to become an increasingly important part of ours. I do want to say that it’s a high grade product in being really, really easy to implement and roll out quickly. So it is a different set of needs and it’s definitely much more of projects that we come into these large organizations with. But nevertheless, it is important that we can kind of provide a joint offering and that we can provide a joint kind of engagement towards the customer with some of these partners as the projects becomes very big.

[Kirk Materne:]

Okay. And just laying on your commentary around your productivity improving, is there any way to sort of think about that in terms of just the amount of addbacks you are getting versus the hit rate on those addbacks. I assume everything is moving sort of in the right direction. I was just wondering if there is any sort of one or two things that were sort of staying out on that front in terms of people being in the seats longer there just, you are much more efficient in how fast they can take a deal from the front end of the pipeline to getting it through. Any extra color you can add on that would be great? Thanks.

[Elena Gomez:]

Yes, I mean we haven’t -- we don’t disclose obviously close rates or anything like that. We haven’t seen any major shift there. I think what we are seeing more is qualifying customers better but also just the tenure of our and more ramp productive sales force has really proven to be powerful for us in all regions. I think the other thing too is we do have a balance of new expansion, but as you can tell from our net expansion rate, we really did kind of go back our landing expand motions pretty heavily in Q3, and I think that really played out very well and that’s a testament to the territory model working for us.

[Operator:]

Your next question comes from the line of Philip Winslow of Wells Fargo. Your line is open.

[Philip Winslow:]

One of the things you told in the shareholder was just for you to repackaging that we say, chat and talk, and I guess in the release of the enterprise additions. Then why don’t you provide just more color and just and sort of what drop us behind as what benefits do you see and kind of how you think about this going forward?

[Marc Cabi:]

So all of our products, we’ve talked about this over the past year all of our products are intended to close future gaps to be be able to address our broader segment of our customers especially our larger customers and so a lot of R&D efforts goes into making sure that overtime our products can sit side-by-side with each other and work well together and have all the features that are required for an enterprise or enterprise-like used case. And talk and chat were the two products that started off from a small base, certainly a small of small based o customers to a point now where they can serve larger sets of customers with our larger base of agents. And they were very excited and we're going to continue to close future gaps. And as Mikkel said earlier, there are times where we are going to partner with someone else for these kit capabilities. So we want to be able to serve the end customers the way they want to be served.

[Philip Winslow:]

And also just if you can provide some color on just the international versus domestic just the trends that you saw this quarter and how you are thinking about Q4?

[Mikkel Svane:]

I wanted to make changes pretty even across the Board.

[Elena Gomez:]

Maybe there is nothing notable. I mean we continue to have successful Latin America, but that's it's still small part of our business today.

[Marc Cabi:]

You'll see that we did highlight in the shareholder letter that we have some large customers that are either expanded or joined us recently in the European market, so our territory model is working for them now. But we are very happy that all the regions are growing nicely.

[Mikkel Svane:]

Yes, and I just came back from a number of visits in Brazil and I guess by seeing our performance in LATAM and it is really inspiring and continue to do more there and continue to be growing really quickly. We have seen some great things coming out of APAC the last quarter. Europe too, because I met up, but also North Americas still continue to grow really, really nicely for us. So we are international in our approach and we love to see all our children grow.

[Operator:]

Your next question comes from the line of Tom Rodriguez of Stifel. Your line is open.

[Parker Lane:]

It’s actually Parker Lane in for Tom. You guys wanted to strengthen Guide Pro and the up-sell of chat and talk. I was wondering if you can talk a little more about Explore and how that's resonating with your largest customers and what sort of opportunities to their longer term with that the velocity business customers? Thank you.

[Mikkel Svane:]

So we've taken our BIME acquisition to create Explore and that is still going through a process of getting out to the market in a broader way. We’ll have more to talk about as we enter the New Year on how that will do. We have high demand for that product. A lot of our customers want to use products like explore to really understand their customers both within what fits in Zendesk and outside. Today we do that to our own insides products that are very heavily used by our customers and Explore will take that to the next step. But Explore is not yet GA as the new version from that we acquired from BIME. We’ll have more to talk about on that in February.

[Parker Lane:]

Got it. Then you have some really nice strength in the MRR from support customers with a 100 agents or more. Should we expect that figure to continue going in this trend that you think you said a 100 basis points per quarter. Or would we expect to see it come back maybe for a quarter or two given that strength?

[Mikkel Svane:]

So our comments have always been we should see -- a sustainable growth rate for that would about a 100 to 200 basis points a year. Generally Q3 and Q4 are more enterprise oriented, so you may see more of the movement in those quarters going forward, and I don’t think we have reason to change our commentary. And if we are performing a little bit ahead of what’s sustainable, that’s great for us.

[Operator:]

And your next question comes from the line of Samad Samana of Stephens. Your line is open.

[Samad Samana:]

I think Adrian mentioned that you guys are approaching a million customer support seats. I was curious if you could help us understand what that growth in those seats looks like year-over-year? And of those million customers support seats what the attach rate for the additional products looks like?

[Mikkel Svane:]

So we haven’t publicly disclosed the average attach rates. It is a potential metric for next year. Right now we have some really good cross-sell activity happening, but it’s something that we are working on for next year into how we allow you guys to see more about our cross-sell opportunity and how that looks in terms of metrics. In terms of agent growth, we are -- as we move upmarket, we are growing our ASP slightly. Our enterprise customers are worth a little more per agents than a starter account is. And so the seat growth is probably slower than our revenue growth, but we haven’t disclosed the full amount for you on that.

[Samad Samana:]

And then maybe just as a follow-up to that. I think the company has a pretty big market opportunity. Could you may be able to frame what the market size is based on seats, just to help us understand that for our models?

[Mikkel Svane:]

I have not seen a reliable -- and I would never use our numbers, but I have not seen an industry analyst put out a seat number that I would put a high amount of reliance on. We do know that the market spends about $12 billion annually on our sector, and it’s growing to high single digits and that there is a large conversion opportunity from legacy on premise to cloud, which is kind of what we are benefiting from today.

[Operator:]

And we have another question from the line of Kash Rangan of Bank of America Merrill Lynch. Your line is open.

[Kash Rangan:]

I am curious to get your thoughts on go-to-market strategy for 2018, any update you have on the sales leadership front end as you move broadly and attract the billion million growth in toward revenue goal of 2020. How do you see your business mix change and how do you see changes in go to market, because every company become larger. They go through series of first steps learning and evolution it’s s always about to process. How do you see all these things playing out and what are changes you are going to be making to gear you better to get that billion dollar goal? Thank you.

[Mikkel Svane:]

We are all fighting for the wolf.

[Elena Gomez:]

I mean, I think so, Kash, has a good point. I think everyone is always is reevaluating sales organization, as you grow and so for us right now we're seeing success in the territory it. We are going to continue with that. We are looking for ahead of sales obviously to replace Brain and hopefully we will have more news on that soon. But in the meantime at least for the forcible future, we're going to stick with the model we have. It doesn’t mean it won't change because as you suggest as we move our market we may find that we may need to evolve that we are probably well but I think we are in a position right now where we are going to stick to our meeting and continue to focus on improved productivity and getting larger deals.

[Operator:]

And there seems to be no further questions at this time.

[Marc Cabi:]

All right, well. Again, we thank you for your interest in Zendesk. And we will talk to you next quarter. Have a great evening.

[Operator:]

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