Zendesk, Inc.
Q2 2015 Earnings Call Transcript

Published: 5 Aug 2015

[Operator:]

Welcome to the Second Quarter 2015 Zendesk’s Earnings Conference Call. During the call all participants will be in a listen-only mode. After the presentation we will conduct a question-and-answer session. [Operator Instruction] As a reminder, this conference is being recorded, and will be available for replay from the Investor Relations section of Zendesk’s Web site following this call. I will now turn the call over to Marc Cabi, Vice President of Investor Relations. Thank you, Mr. Cabi, you may now begin.

[Marc Cabi:]

Thank you, Mike and hello everyone. Again this is Marc Cabi, Vice President and Head of Investor Relations. I'm pleased to welcome you to Zendesk’s second quarter 2015 earnings conference call and webcast to discuss our financial results. Joining me today are Mikkel Svane, Founder, CEO and Chair of the Board of Directors; and Alan Black, Chief Financial Officer. After the market closed today, Zendesk announced financial results for its second quarter of 2015. The earnings press release and a live webcast of this session are available by visiting investor.zendesk.com, which is our Investors website. And a replay of this webcast will also be available for one year on that website. 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. Words such as may, should, will, believe, expect, anticipate, target and project and similar phrases that denote future expectations or intent regarding our financial results, operations and other matters are also intended to identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in our earnings press release and the risk factors in our filings with the Securities and Exchange Commission, including our quarterly report on Form 10-Q for the year ended March 31, 2015. Further information on potential risks that could affect actual results will also be included in the subsequent periodic and current reports and other filings that we make with the Securities and Exchange Commission from time-to-time, including our quarterly report on Form 10-Q for the quarter ended June 30, 2015. Please note that any forward-looking statements made today are based on assumptions that we believe to be reasonable as of today. Actual results may differ materially from those expressed or implied by any forward-looking statements that we make. 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. During this call, we will present both GAAP and non-GAAP financial measures. The non-GAAP measures should be considered in addition to, not as a substitute for, 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 measures in today’s earnings press release regarding our second quarter 2015 results, which is available on our Investor website. With that, let me turn it over to Mikkel to tell us about the quarter.

[Mikkel Svane:]

Thank you John. Thanks for leaving me with that cliffhanger. Everybody thanks so much for joining us on our call today. Second quarter of 2015 was one of major milestones and achievements for us as a company. I am incredibly proud of the financial results we reported but we will let it up to Alan to dig into them more deeply. And I am particularly happy that our growth was broad-based in the quarter both geographically and across industries. Also that so much of this growth was driven by our customers making significant expansions and investments with us. Zendesk during the second quarter cross a 1,000 employees worldwide and 60,000 paid customer accounts globally. These are important milestones for us because they demonstrate how we are able to increase our scale and reach while staying true to our call mission over bringing organizations and customers closer together. We are sitting in the middle of a major sensation in how customers and organizations relate to one another. It's a new era of customer relationships. What's changes, we've seen the rise of two economies if you will, the subscription economy led by a change in business model as to focus on recurring business and the promoter economy led by shift of influence toward consumers promoting businesses through the reach of social media and mobile technology, together the intersection of these economies are fundamentally changing the nature of our relationships with customers, moving from actual relationships to relationships that require ongoing nurturing. Zendesk is at the center of that shift with a beautifully simple platform for customer service and for customer engagement and we are focused on continued innovation off our platform to stay ahead of shifts in customer communication. LiveChat is one of those areas of innovation and investment for us. Our own benchmark research on LiveChat released in the second quarter found that LiveChat has the highest customer satisfaction of any communication channel. The more messages that I exchanged in a chat session the more satisfied customers become suggesting that customers prefer the real time conversational engagement in chat. During the quarter we focused on advancing our LiveChat product's capabilities for larger teams and organizations and we began to see early success in cross-selling LiveChat into our existing customer base including with our enterprise customers. We are making great inroads into large organizations as part of our strategy to expand our enterprise customer base. Our success within these organizations is a result of four separate efforts; first, we cultivate existing relationships at Zendesk; second, we find identify new customer opportunities; and third, we work with business process outsources, also known as BPOs and other partners to gain entry points into Fortune 500 type companies. And also finally we introduced new features and innovation to address the needs of our larger customers. Our land and expand sales strategy coupled with our organic lead generation and our sales service -- sales activities have allowed us over time to invest a large number of customers with which we have significant opportunities for expansion. In the past year, part of our sales and marketing expansion has been focused on ways to directly tap into this opportunity. And let me share some facts about our current customer base. Our customers that have a 100 or more seats with us have continued to grow. They now represent 27% of our monthly recurring revenue as of the end of Q2 versus 23% as of the end of Q2 of last year. At the same time, our average contract revenue is trending higher. Since the beginning of 2014, we have signed more than 150 contracts with an individual value of more than $50,000 annually, which we determine by annualizing the month’s recurring revenue for those contracts. Across a wide range of industries and use cases, we saw an exciting set of new and expanded customers during the second quarter in our enterprise segment of organizations with 500 or more employees. Those included; Booking.com, a leader in booking accommodations online; Pearson, one of the most recognized snowball brands in the world; CenturyLink, the third largest telecom company in the U.S.; Floor and Decor, specialty retailer of hard surface flooring; STA Travel, the largest discount student and young adult travel agency; and also the Kids & Family Group of Nickelodeon, the children’s entertainment network owned by Viacom. So, welcome SpongeBob SquarePants. Also of note is Deckers Brands. In our Q4 2014 call, I mentioned that the footwear designer and distributor had begun using Zendesk to support its click and collect program. I am proud to announce that in Q2, Deckers expanded Zendesk to its U.S. operations so its contact Zendesk agents can provide a world class customer experience. We have a great relationship with so called unicorn companies. Those private companies that are valued at more than $1 billion by the investors. In early 2014, The Wall Street Journal began tracking these unicorn under this called the $1 billion start up drop. Of the 122 companies on the latest list from July 2015, 47 of them, almost 40%, were Zendesk customers as of the end of the Q2 2015. This June at the Gartner Customer Strategies & Technologies Summit keynote in London, Garner shared a list of companies using innovative business models and digital technologies. We were honored to have customer relationships with a level of the 17 organizations mentioned. Our agility and scalability play a big role in landing, retaining and expanding with these customers as they lead the shift to digital business. But it’s not just disruptive who can take advantage of this shift to digital. Zendesk has been used in established organizations across industries including the public sector and education. In education, we are working with more than 400 higher educational institutions, including Emerson College and Paulo University who both joined up this quarter. We also see several agencies embrace to move to the cloud. The FCCs recently deployed consumer health center for example, its winning a awards for its use of cloud based technology, from purchase of the technology to the launch of the platform. The process took approximately six months to complete and save tax payers 85% compared to other proposals. Powered by Zendesk this new easy to use system has been praised by the commissioner and public advocacy groups alike. FCCs ITT1 and a firm leader, federal leadership award for cloud computing for the health center, and I personally was invited to submit a video testimonial that was played at the Next Gen conference for government trained agents. Zendesk has also started down the path of becoming fit ramp compliant a process that will help us better serve a wider group of public sector organizations that are exploring the potential of cloud computing. Extending our reach through integration and partnerships is a key growth driver for us, and our efforts with BPO partners have opened new doors for us in the enterprise. These partners are important because they enable us to large organizations where we may not have had connections before. In fact, one of our earliest partners that signed with us last year has already introduced us to some of the world's largest companies. Of the new customers from this BPO, 10 of them are members of the Fortune 500 or the Global 500 list. This BPO partner selected Zendesk based on our ease of implementation, our integration capabilities, the agility of the platform and the favorable cost of ownership and of course our ability to address the needs of their customers today. Although we are in early stages of our efforts with our partners we are seeing early success and a growing pipeline of opportunity. As with other part of sales and marketing we have successfully built a solid team for this segment and during the past quarter this team signed five new BPO partners to work with us on new opportunities and we expect to sign additional partners over the coming quarters. Our efforts to introduce new products and functionality, one of our core growth drivers, have included initiatives in addressing our growing enterprise opportunity. In the first half of the year, we launched a premium LiveChat product and introduced a feature for managing multiple brands, both of which focus on the needs of larger customers. LiveChat is an important customer experience channel and it's quickly being adopted by a growing number of organizations as customers expect real time conversations including through messaging platforms. When we speak about chat we include the expanding universe of chat channels including messaging. We launched the new offering Premium Chat in April which provided emphasized class features for our customers to establish chat as an effective engagement channel. As of the end of Q2 we had landed more than 215 Premium chat accounts and we expect adoption of Premium Chat and our continued development for chat and messaging to further increase cross-sell opportunities in the coming quarters, and now the product will gain momentum in the second quarter with a new multi-brand feature. Over the years we have developed a strong track record of success with customers focused in e-commerce and in retail. Many of our larger customers in this category have multiple brands as part of their respective portfolios. Although we have always addressed the needs of these customers our new Multibrand offering delivers an elegant approach that improve on our earlier efforts. Some of our large customers with Multibrand settings have quickly embraced our new offering, in fact we have more than 400 paid customers account having adopted Multibrand since its launch with more than 1,700 brands represented. And before I move on to talking about our SMB efforts, a quick note on our progress in Embeddables. Adoption of Embeddables continues to grow. Now more than 5,800 paid customer accounts as of the end of second quarter are using Embeddables, nearly doubling our Q1 number. From used cases by some of our customers include embedded mobile chat capabilities across Iris both Android to give the customers an in-app in context customer engagement experience. The small and medium size business segment continues to be strong for us and it's an area where we are continuing to grow our leadership. One characteristic of this business segment is the wide diversity of organizations we serve. When we first launched Zendesk almost eight years ago and in small lab in Copenhagen our first customer was a small Irish telecom soon to be followed by a chain of convenient stores in Texas and also Laughing Squid brought which is now based out of New York. These are different businesses from very different regions but they all share a core desire to build closer tie with our customers. That diversity of customers remains true today. Our SMB segment includes both organizations and traditional industries as well as high growth start up reshaping industries. In the second quarter alone, new companies joining us range from a 50 year old school business to a five year old start up selling luxury mattresses online. Among the new traditional SMBs in Q2 was [Ph] that I mentioned well established school photography company based in Barrington, Illinois. DHP Furnitures and other one a Montreal based manufacturer of bedroom furniture and London based ATG media a provider of platforms for online auctions. Very different companies. We own much of our success as a company to our SMB customers. High growth start up and emerging companies in particular find that we can scale with them more quickly and usually than our competitors serving the SMB market. Many of them are at the forefront of the shift to subscription business models which as I mentioned earlier requires a rethinking of customer relationships and a more innovative and proactive strategy to engaging with customers. Birchbox, Saakalya [ph] and safety are three example of these types of high growth start ups. Birchbox’s monthly subscription offers consumers a personalized way to discover, learn about and purchase beauty, grooming and lifestyle products. It continues to grow with us in Q2 and is using our new multi-brand feature to deliver personalized content for -- personalized content and serves us for both its Birchbox brand, its Birchbox main brand and Birchbox Canada brands. Saaklya, which sells luxury mattresses nationwide and exclusively online, was named to Forbes list of Americas 100 most promising companies earlier this year. It chose Zendesk in Q2 specifically to replace its prior LiveChat solution with our chat product to deliver live service for its namesake brand and its loop and leaf brand. Finally, also new to Zendesk in Q2 was Zesty which provides meals from local restaurants and chef for office catering in San Francisco. They also recently announced Series A so congratulations on that guys. Furthering our data driven approach is another important growth driver for us. The breadth and the depth of our data lays the foundation for the data and analytics driven approach with focusing on for customer service and engagement. We believe the universe of data that we collect and analyze sets us apart in the industry and will help organizations engage more proactively and personally with customers because of data driven recommendation and prediction. Every day organizations and their customers communicate and average up more than 4.6 million times through Zendesk. We serve an average of over 400 million daily Web requests. We’re actively building deeper capabilities in data analytics and machine learning on top of this massive data asset. And I described in the past calls the Zendesk benchmark as well as some early data driven recommendations that we provide to customers and we expect to provide much more of this in the future. Developing our brand is as you know a core driver of our growth. And during the same quarter we extended that brand to the launch of our non-profit foundation, the Zendesk Neighbor Foundation. The name reflects the Foundation’s goal of providing financial and strategic support to local organizations focused on neighborhood renewals in the 11 cities where we have offices around the world. We launched the foundation initially in three cities during the quarter; San Francisco; Madison Wisconsin and London; and the global announcement gained national attention from Fortune Magazine amongst others. Initial commitments on the foundation included a $100,000 gift to a technology lab for low income and homeless residents in our headquarters in San Francisco. We placed another $100,000 in grand to a range of local Madison organizations including its local children’s museum and we committed to use employment opportunities in our London office through 20 short term seasonal employment opportunities. The foundation is starting with $1 million in funding but what I am most excited about is how as our customers grow with us so two of the important work of the foundation. Zendesk will contributor $1 per month for every net new agencies sold across all paid subscription plans for our customer service platform and our LiveChat product during the initial year of subscription. We also grow our brands through the events that we host throughout the year. We continue to expand the types of events we host to reach new potential customers and industry leaders, along with our ZenU events I’ve discussed before. In the second quarter we also launched a new professional development series for our customer service leaders and hosted a large user conference in London focused on industry trends. In total, we hosted 59 events and reached more than 2,300 people in the second quarter which was twice the number reached in the same period of last year. Finally continuing to expand our global footprint remains a core growth driver for us with 44% other revenues coming from outside the United States at the end of Q2. Early in our history, we invested in localization to cater for markets outside of the U.S. Today, we support 28 languages and regional variations for customer service agents, that’s twice the number that we reported at time of our IPO. For end users we support more than 40 languages on our customer service platform. This investment continues as we move closer to going live in Q3 with our collocation data center in Frankfort, Germany. This will be our second data center in Europe and allows us to better meet the needs of customers in the region. Germany in particular has seen an impressive 149% year-over-year revenue growth as of the end of Q2 and is a top non-English speaking country by revenue in Europe. In June, I joined our local German team at its Annual Customer Summer Party in Berlin and I had the chance to talk in person with many of our top German customers, including foodpanda, headquarter in Berlin foodpanda operates at the average a global online food delivery market place in more than 40 countries partnering with over 60,000 restaurants. Foodpanda continues to rapidly expand with us as it broadens its global operations. Another customer I met was Affinitas which has more than 13 million users worldwide it runs two well known matchmaking and dating eDarling and EliteSingles operating across Europe and also parts of the Americas. And with that little update on Germany. It's been an incredibly exciting quarter for us and I am of course very happy with the progress we made. But let me now turn it over to Alan to -- our CFO to discuss our financial results and give an update on our guidance.

[Alan Black:]

Thank you Mikkel and good afternoon everyone. As always in my prepared remarks I am going to review with you our results for the quarter and then round things up with discussion about the outlook for Q3 and 2015 as a whole. To start, let's dive into the numbers. Our second quarter results released this afternoon marked another strong quarter for Zendesk in terms of revenue momentum, financial results, and key operating metrics. Revenue for the quarter totaled $48.2 million up 63% from $29.5 million in Q2 of 2014 and up 14% sequentially from $42.2 million of revenue recorded in the first quarter. Our GAAP net loss was $21.5 million which included $13.8 million of share based compensation and related corporate payroll taxes $281,000 of share based compensation capitalized in internal use software and amortize the cost of revenue and $438,000 of amortization of purchased intangibles. GAAP net loss attributable to common shareholders was $0.25 a share and excluding the charges I just detailed non-GAAP net loss was $7 million or $0.08 per share. There were 86.4 million weighted average shares outstanding for the quarter. Non-GAAP gross margin was 70.2% in Q2 compared to 69.8% in the first quarter and non-GAAP operating margin came in at negative 13.4% in Q2 compared to negative 17.7% in the first quarter of the year. On a GAAP basis gross margin was 66.5% compared to 66.2% in the second quarter and operating margin was negative 43.4%. Turning to cash flows, we generated $423,000 positive cash from operations in the second quarter while using in investing activities $6.5 million comprised primarily of $4.1 million invested in property and equipment, $1.1 million in capitalized website and software development costs, and further net $1.4 million invested in marketable securities. Cash used in financing activities was $2.4 million in the second quarter resulting primarily from $6.2 million used to repay outstanding debt offset by $4.5 million stemmed for purchases of common stock by our employees through option purchases and under our employee stock purchase plan. We ended the second quarter with $255.7 million of cash and equivalents and had an additional $30.7 million of short-term marketable securities. 56% of revenue was derived from customers in the Unites States while 44% of revenue came from customers internationally. This mix once again reflects the broad and geographic diversification of our business and the global opportunity we are addressing. And once again in the quarter our land and expand strategy drove our growth. We consider our dollar based net expansion rate to be a good measure of our success executing our land and expand strategy. As of the end of the second quarter our dollar based net expansion rate was a strong 122% up from a slightly revised rate of 119% as of the end of the first quarter of 2015. The revision was due to a computational error for the previously reported rate at the end of Q1 of 120%. Review retention of the inverse of churn and as of June 30, 2015 our annualized measure of monthly recurring revenue represented by churned customers once again remained less than 10%. As a measure of our expanding footprint across larger customers as a percentage of recurring revenue that is generated by customers with 100 and more seats as mentioned by Mikkel grew to 27% of monthly recurring revenue as of the end of the quarter. Before I conclude and turn the call back to Marc, I would like to update our guidance for the third quarter and remainder of 2015. Our outlook for the third quarter is as follows. We expect Q3 revenue to be in the range of approximately $51 million to $53 million and we expect our non-GAAP operating loss to range between $7 million and $8 million. Our estimate for non-GAAP operating loss excludes share based compensation and related expenses of approximately $14.5 million and amortization of purchased intangibles of approximately $0.4 million. Our estimate of GAAP operating loss for the third quarter is $21.9 million to $22.9 million. We estimate we will have approximately 88 million weighted average shares outstanding for the third quarter based only on our current shares outstanding and anticipated activity associated with equity incentive plans. Now for the full year 2015 we expect revenue in the range now of $198 million to $201 million. Our estimate for non-GAAP operating loss for the year is $28 million to $30 million which excludes share based compensation and related expenses of $55 million and amortization of purchased intangibles of approximately $1.7 million. Our estimate for GAAP operating loss for 2015 is now between $84.7 million and $86.7 million. And with that I would like to thank you for your attention and I will turn the call back to Marc.

[Marc Cabi:]

Thanks Alan. Actually I will turn the call back over to Mike who will poll for Q&A and we’re happy to take questions at this time.

[Operator:]

[Operator Instructions] First question is from Kash Rangan from Merrill Lynch.

[Kash Rangan:]

Could you characterize the tone of business in Q2 relative to Q1? It feels like lot of SaaS companies saw a meaningful reacceleration in their business, and the same applies to you guys. Can you talk about how the business trends, or different/better in Q2 versus Q1? And Mik I am curious to get your thoughts on enterprise. It looks like you’re making significant progress there. The percentage of business from enterprise seems to picking up very nicely. As you approach the next couple of years, should we be paying attention to, with respect to your enterprise specific initiatives, particularly in quota care and sales et cetera, since your payback economics appear to be very impressive for the dollar of sales and marketing that you currently spend. I am curious to get your thoughts on some of the new -- this emboldens you to pursue accelerated growth as strong as it is? Thank you.

[Mikkel Svane:]

Well, where should start? I think that I want to keep coming back to the fact that we have a land and expand strategy. So there will be quarters where we are more focused on the land part and there will be quarters where we are more focused on the expand part. And you know, you will be able to just budget, look through that information by analyzing our numbers. But although overall, we show a lot of progress every single quarter we showed a lot of progress in last quarter, we showed a lot of progress and overall we just incredibly satisfied with the direction of our business. And yes, we do have a more serious everyday and more and more serious enterprise play. This is the kind of increasing important for us but we continue to focus on our land and expand strategy to truly penetrate that market. And I know that there is a lot of players trying precision, there is a non-enterprise player. But our numbers prove that we have an increasing important enterprise play as we continue to serve the small businesses, the medium size businesses, that is the core of our business. So, so much development, so much progress on all fronts, I feel great about last quarter, I feel great about this quarter and we can show progress on all fronts.

[Kash Rangan:]

And the tone of business, Q2 versus Q1, if you could, thanks.

[Mikkel Svane:]

I feel incredibly proud about last quarter and I feel incredibly proud of about this quarter. Quarters come out a little differently in terms of like how we land versus how we expand but like overall we’re very satisfied with both quarters.

[Marc Cabi:]

Kash I think one in characterization I would put on this, it’s Marc Cabi, is as we’ve talked about our evolution of market, we’ve seen it in place and we’re really feeling very good about both the leadership of the team as well as the bench that we’ve developed. And so, that is starting to show up as part of our story. And we talked about 2014 being the building year, and 2015 showing some of that progress, and I think that’s what you’re seeing.

[Operator:]

The next question is from Philip Winslow from Credit Suisse.

[Philip Winslow:]

Just wanted to build Mikkel on your comment there about the perception or the counter marketing agency guys were being sort of -- not a enterprise player. Can you guys talk about sort of revenue from customers with more than 100 industries? I think you said Alan 27%. Just wondering if you could dig a little deeper and the trends that you’re seeing there and sort of how you think about the outlook of this business versus what I would call just sort of your volume side of Zendesk and just the trends you’re seeing in each of those.

[Mikkel Svane:]

Well, I think -- and I can reiterate that. I think it’s very important that we continue our growth in both the small businesses and in the large enterprise. And we’ve really seen fantastic progress in the enterprise. But it doesn’t happen. It happens while we continue to very aggressively expand in the small and medium size businesses. We believe that we are in an area where technology and the Internet allows us to serve products and to serve basically the same products for very small business and for large enterprises. And we feel that this is -- we are in area that makes that possible and we feel that we are really-really good positioned to execute on that.

[Philip Winslow:]

And then also just the double strike on just the volume business. Wondering if you can just talk about the competitive environment that you see there? I know some of your younger competitors [indiscernible] even the lower end of the market and try to make some noise competitively versus you. And any sort of change in whether the pricing dynamics, win rates, et cetera, there, any color would be great?

[Mikkel Svane:]

No changes really. We continue to do really-really well there, especially on a international basis. And are very excited about both the diversity of the small businesses that we attract and our ability to really scale and grow within. And I think that’s one of the things that really sets us apart where we can win these small customers. And some of them grow substantially like we can scale with them and we have the agility [ph] of a platform that they trust and that really helps them drive business.

[Operator:]

[Operator Instructions] The next question is from Stan Zlotsky from Morgan Stanley.

[Mikkel Svane:]

Hey Stan.

[Stan Zlotsky:]

Hey guys. Thanks for taking my question. The interesting part that stuck out at me is your partnership efforts with the BPOs. May be just dig in that one a little bit and how has that part of the business trended and what kind of impact do you expect as we head through the rest of 2015 and possibly into 2016?

[Mikkel Svane:]

Well it's a new area for us like we signed our first BPO deals last year but it has grown quickly. And I think that the feedback we get from our BPO partners is that the agility of the platform that allows them to really deploy and scale quickly almost in a zero configuration, zero learning curve environment makes Zendesk a very, very attractive partner for these BPOs. So we've seen a lot of rate deployment and every deployment represents an opportunity for us to further expand into these organizations where we deploy. So it is great revenue business for us but it's also a great starting for our land and expansion business.

[Stan Zlotsky:]

Okay, that’s helpful. Thank you. And is there a revenue share associated with those BPOs or as far as go-to-market?

[Alan Black:]

Hi Stan it's Alan. So I think that the -- in particular partner with we've had the most success over the last few quarter there I think that it's favorable for them in terms of the cost for them in delivering service to their customers so we are getting typically our list prices for the plans that they are subscribed to.

[Stan Zlotsky:]

Okay, great. And then last question just sharpen the point a little bit on the Kash's question and that is as far as your thoughts on the number of outbound reps that you are looking to have once you have finished with FY15, just qualitatively are you looking to double that versus fiscal '14, how are you thinking about that business? Thank you that’s it from me.

[Mikkel Svane:]

Stan sure Alan want to elaborate on this, well I.

[Alan Black:]

Well I was wanting to elaborate.

[Mikkel Svane:]

I think first and foremost like with our land and expansion business we don’t qualify opportunity in terms of how many outbound sales reps we hire. So it is a wrong method for -- it's a wrong rule of thumb for trying to determine our business. And we focus on the land and expansion which is really about making it incredibly easy for prospective customers to try initially buy the product may be in small deployments initially and just have a super convenient friction less experience. From there a lot of customers grow organically but we also with our inside sales we help them grow tremendously overtime and build on the initial momentum they have and help the rest of the organization see the benefit and solution. And that has turned out really, really efficient for us and that’s also why we -- in some quarters we see a lot of land that is strong growth for us and some of course we see a lot of expand which you can see on the bottom-line. Alan?

[Alan Black:]

Yes. I think both Stan and Kash I mean to this point I think what we have said in the past is that we are going to invest in a major case as we see the growth opportunity in front of us while staying true what we have communicated which was that overtime we are going to increasingly demonstrate improved margins on the bottom-line. So as the business grows, certainly we will invest not only in sales but in marketing and on the product side and the product team to enable us to continue to scale and sustain the growth that we have been demonstrating. But I wouldn’t have you focused narrowly just on the sales organization because you think about we now closed a large number of opportunity through a third-party BPO where there's one sales person managing that relationship, right. So we have scale that's not always as visible that just counting the number of sales people you have in an organization.

[Stan Zlotsky:]

Okay. Thanks guys.

[Mikkel Svane:]

Thanks Stan. Next question?

[Operator:]

Next question is from Pat Walravens from JMP Securities.

[Mikkel Svane:]

Hi Pat.

[Unidentified Analyst:]

Hey guys. It's actually Matt on for Pat. Congratulations on a great quarter. Just wanted to ask briefly about [Jeremy] comment it seems like you his as your VP of Sales recently, wanted to just get a little bit more detail on that if you are replacing anyone is there a new position and what new strategies will be going forward? Thank you.

[Alan Black:]

So just to bring name any one person that we've hired but to kind of talk about the process that we undertook beginning in 2014 and 2015 as you know we did establish a much broader effort around our up-market strategy and he is just one of a large team of people that we have brought on to both manage and to create a whole team of players to execute on our strategy and so we welcome him as we welcome all the other leaders and people that have joined us in the last few months and year and we feel very good about the team and bench we have in place.

[Operator:]

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

[Marc Cabi:]

Thank you, Mike. It’s Marc Cabi. I would like to thank everyone for taking time to join our call today. We will be back next quarter with additional information. And again thank you for listening today.

[Operator:]

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