Good afternoon. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Zuora Second Quarter and Fiscal 2020 Earnings Conference Call. [Operator Instructions].

Thank you. I will now turn the call over to Joon Huh, VP of Investor Relations. You may begin the conference. .

Thanks, Chris. Good afternoon, and welcome to Zuora's Second Quarter Fiscal 2020 Earnings Conference Call. Joining me today are Tien Tzuo, Zuora's Chief Executive Officer; and Tyler Sloat, Zuora's Chief Financial Officer..

The purpose of today's call is for us to provide some color on our second quarter results as well as provide our financial outlook for our third quarter and the remainder of the year. Some of our discussion and responses today will include forward-looking statements.

So as a reminder, our actual results could differ materially as a result of a variety of factors. You can find information regarding those factors in the earnings release we issued today and our most recent 10-Q filed with the SEC. .

Finally, we'll be referring to several non-GAAP financial measures today. And reconciliations to the related GAAP measures are included in our earnings release. For a copy of our earnings release, links to our SEC filings, a replay of today's call or to learn more about Zuora, please visit our Investor Relations website at investor.zuora.com. .

And with that, let me turn it over to Tien. .

Thank you, Joon, and welcome. Welcome to our second quarter earnings call for fiscal 2020. The headline is that we had a solid quarter. Our second quarter financial results came in largely better than expectations while we continue to focus on improving our operational metrics.

Subscription revenue grew 24% while professional services increased 12%, resulting in total revenues of $69.7 million, representing a 21% year-over-year growth. And we outperformed on operating income as we saw some savings in the quarter. Tyler will cover financials in greater detail later on the call. .

In Q2, we continue to see signs that support our Central thesis, that our core market remains strong and that we are in the early stages of a broad shift to subscription business models, a shift that we believe will ripple through every industry, and that the needs of the companies in this new world cannot be met by traditional product-centric ERP systems that are not designed for customer-centric, subscription-based business models.

.

In Q2, we continue to sign on customers in, of course, our technology vertical such as Seiko Epson, Omnitracs and Virtustream. But we also continue to see strong demand outside of the technology vertical. For example, this quarter, we signed one of the largest electronic manufacturers in Japan.

We signed a major manufacturer of ball bearings in Europe, yet another automotive services provider, one of the largest global consulting firms and one of the top 3 educational publishers in the United States. So the shift to subscriptions remains strong.

We also saw successful go-live deployments for key customers, including Airbus, Diamond Inc., Hudl, Penske Media, and Poly, the merger between Polycom and Plantronics. .

In Q2, we also shared some great stories like how StackPath, a platform for secure edge services, is taking advantage of our new Central Platform to build and automate key workflows, which we'll talk about later.

Or how we helped a company in Europe called Omoove that's focused on the car sharing space to manage and support complex, usage-based pricing models. And how we're powering Creativebug.

It's a division of retailer, Jo-Ann Fabrics, to scale an on-demand video content offering that enables them to better engage with their customers and increase retail sales. .

We also focused relentlessly on operational execution. We overhauled our go-to-market methodology. We completed the first version of the technical integration work between Billing and RevPro. And we brought in new senior talent to help build the foundation for the next level of growth. .

first, I'll give you an update on our sales operations and our go-to-market execution; next, I'll provide a progress report on the product integration between Billing and RevPro; then I'll highlight key highlights -- I'll review key highlights and product innovations from the quarter; and I'll close with some early thoughts of the platform strategy that we recently announced at Subscribed conference in June.

.

Let's start by talking about our plans to address the sales execution challenges we discussed in our last call. We have worked on 4 specific initiatives over the quarter. First, as we mentioned on our last earnings call, we reorganized the sales team in order to better leverage our experienced leaders.

Since then, we've also promoted some of our first-line managers so they're in a better position to coach a wider group of folks. We're starting to see this pay off in terms of more momentum in our newer reps as we engage with our prospective customers. .

Second, we updated our sales formula. Our old model involves a lot of educating and evangelizing. Now the good news here is that the market has matured. Companies now understand the importance of subscriptions, and less education is needed. But there's also still a wide range in where companies are in the subscription maturity curve.

Some companies, for example, are looking to launch their very first offering. They want something quick, but they also want an experienced partner to guide them through potential pitfalls..

Others may be outgrowing a homegrown system that perhaps they first put in when they launched years ago, but it's now holding them back. And many of our bigger enterprises are working with SIs, global system integrators, on a entire quote-to-cash transformation.

So these companies are coming to us at different points in their subscription journey, and that's why we updated our sales formula so that our reps can intersect with our customers where they are in their range of maturity. .

Third, we overhauled our entire sales enablement and training process. We just finished boot camps in North America. In a couple weeks, we're headed to Europe to roll it out there.

As part of this, we've also tightened the definitions of each of our sales stages, leading to a cleaner instrumentation of our sales process so that we can be a more analytics-driven sales organization. .

And finally, we talked in previous calls about the importance of our global system integration partners. And so we've realigned this team to focus more on our key partners such as Deloitte, Accenture, E&Y and PwC. .

In regards to our search for our new head of sales. Now I've met a lot of candidates over the last few months, and the quality of people out there is truly really high. We've narrowed down to a few high-caliber candidates that I'm very excited about.

Of course, we're going to take the time to find the right person, but this is one of my top priorities, and we look forward to having announcements soon. .

So overall, we're making tangible progress on the sales front, but we know these type of organizational changes can take time to take hold. We expect to make continued incremental improvements each quarter, and we'll continue to keep you updated. .

Now turning to integration of our RevPro product with Billing. I am pleased to say that our engineering team has completed and delivered the integration technology between our 2 flagship products, Billing and RevPro. I'm incredibly proud of our entire technology organization for their dedication, commitment and hard work.

And so now, we're actively working with a backlog of our Billing customers who had purchased our RevPro solution to help bring them live. In fact, we've restarted with a number of previously paused implementations, including LivePerson, Carbonite and View The Space, with the expectation that these customers will go live in the coming quarters.

And once we completed these implementations, we plan to resume our cross-sell motion of selling RevPro to our other Billing customers. .

Over the past quarter, I've been truly inspired by the focus and dedication of our ZEOs as we work to improve our operational execution. Our sales team added over 49 logos this quarter, and our global services team helped over 50 customers go live on Zuora.

We continue to attract great talent to our team across the board, in sales, product, engineering, as we build a team for the next leg of our journey. We appointed Tom Krackeler, our previously -- previous SVP of Product, to a new Chief Customer Officer role.

This is a strategic position to ensure that our customers are consistently successful in growing as a result of adopting Zuora products.

And to lead the product organization going forward, we hired a new Chief Product Officer, Chris Battles, who comes to us with a wealth of enterprise software experience and will help us scale our platform and products to the next level of growth. .

Our product team also made meaningful enhancements for our billing and payment suites, including the Collect add-on product. Now the Collect product, as a reminder, is one of our newer products and really, really important for our high-volume B2C customers where managing payments and account receivables are critical.

And we now integrate with over 37 payment gateways worldwide. We believe this beats -- we believe this to be the most of any other cloud billing vendor. This help our customers improve revenue collection and reduce churn, and as a result, we've almost doubled our Collect customer base to nearly 90 customers in the past 2 quarters.

And in June, our product and marketing teams organized our largest Subscribed conference ever in San Francisco, and we're gearing up to take Subscribed to Europe and APAC in the fall. .

technology, media, increasing the manufacturing in a few emerging verticals like utilities. .

Now when we meet with investors, what you tell us is our customers are echoing that we have the best product on the market. But they also say that it doesn't do everything, and it's been pretty hard to customize and solve that last mile of functionality.

And unlike other product areas, for billing and revenue recognition, that last mile of functionality can be pretty important, especially if you're using us to compete and win in the market. And that's why our real competition remains homegrown, do-it-yourself or DIY systems. Now this is where our Zuora Central Platform comes in.

A platform strategy is ultimately what enables our customers to customize and extend their Zuora Billing or RevPro implementations, to solve those last mile needs. And we're already seeing signs, early sign, that this is working. .

So for example, let's take the customer, StackPath, a fast-growing technology company with a market-leading edge computing platform aimed at powering the $200 billion hardware-as-a-service market.

They've been a customer since 2016, but this year, they were able to use the workflow capabilities in the platform -- in the Central Platform to quickly build custom provisioning flows, integrations with other systems like Salesforce and automate.

[Audio Gap].

prior to the Central Platform, would have been too difficult or time-consuming to do.

This area is going to be a big, big focus for us, and you're going to hear a lot more about it in the coming quarters as we continue to add more platform capabilities and show the impact it's having on our business in terms of faster deployments, increased win rates against DIY decisions or being able to cover a greater footprint within our customers in terms of number of processes handled.

.

So in conclusion, I continue to be incredibly optimistic of our future. Early on, we intentionally decided to tackle a really hard problem. We learn from our early experience at the early SaaS leaders about the importance of billing and scaling this new business model.

And we wanted to build a solution that would allow the best companies in the world to compete and win in this new Subscription Economy. And we wanted to be there when the.

[Audio Gap].

start to drive their industry shift to subscriptions. And so today, we have a solution that not only works for technology companies, it also works for streaming media companies and industrial manufacturers, retailers and telecom companies, publishers and carmakers.

And this is what we believe is foundational to building a company for durable, long-term growth. We've been doing this for a decade now, and we plan on doing it for many decades to come. .

Now let me turn it over to Tyler. .

Thanks, Tien. This past quarter, we made a lot of progress to improve our operational execution, which is reflected in our Q2 financial results. So let me start my comments today by reviewing our key operating metrics, then cover our financial results and finish with our outlook for the third quarter and remainder of the fiscal year. .

Beginning with our customers. We ended the quarter with 566 customers over $100,000 ACV, which reflects a net add of 20 customers over the quarter and 19% year-over-year growth. As Tien mentioned, we've made changes to our go-to-market methodology and updated our sales approach.

We're optimistic about these changes, but it will take time to realize the benefits in terms of landing new logos and expanding with existing customers.

The good news is that we continue to see a steady trend of increasing average ACV within this customer base, which means our customers are growing on our platform and placing more value on our products. Customers over $100,000 ACV now represents 88% of our annual recurring revenue in Q2. .

Our second key operating metric, dollar-based retention, ended at 107%, down from the prior quarter. Keep in mind, this metric is measured on a trailing 12-month basis. So RevPro product integration challenges over the past 2 quarters have limited the cross-sell motion into our billing's customer base and the impact to expansion opportunities.

Additionally, we saw a slight increase in churn percentage driven mostly by downsell with some customers who renewed with lower transaction volume in the quarter.

We've historically talked about a range of 108% to 112% for dollar-based retention, but this metric may see fluctuations for the next couple of quarters given the strong comparison last year and as we continue working to improve our overall sales motion.

Longer term and as we talked about during our investor session in June, we expect dollar-based retention to trend higher as our platform innovations help make our products more mission-critical and stickier for our customers. .

Turning to transaction volume. We processed over $10.1 billion in transaction volume through our billing platform last quarter, which represents 35% year-over-year growth. Transaction volume continues to be the largest contributor to our upsell motion.

As I mentioned on prior calls, there can be quarterly movements in this metric due to the customer billing practices or large customer go-lives in a specific quarter. Given these movements, it's often helpful to look at transaction volume on a trailing 12-month basis, and when you do that, it results in 40% growth. .

Now let's talk about how all these operating metrics translate to our financial results. Starting with revenue. Subscription revenue grew 24% to $50.6 million in the quarter. And professional services revenue grew 12% compared to last year to $19.1 million.

Sequentially, professional services revenue represent a 14% increase from the prior quarter as services revenue benefited from seasonality in our business, including 3 additional days compared to Q1. This led to total revenue growth of 21% year-over-year to $69.7 million and ahead of our guidance expectations. .

Looking at our margins, we saw improvements in our gross margin and operating efficiency metrics over the past quarter. Non-GAAP subscription gross margins remained at 78% as we continue to maintain healthy rates. We saw a good improvement on non-GAAP professional services gross margin compared to Q1, reaching breakeven levels for the quarter.

This sequential improvement is a result of some seasonal benefits, combined with improved management oversight of the services business in Q2. Our non-GAAP operating margin was negative 14% for Q2, coming in well ahead of expectations. .

In addition to revenue outperformance, we realize meaningful cost savings in the quarter. While we had some expense shift to the second half of the year, most of the savings in the quarter came from improved productivity and efficiency.

We said all along, it's important for us to invest for future growth, but we want to do it in a prudent and scalable manner in growing the business. .

Turning to our sales efficiency. We measure this through our GEI or Growth Efficiency Index. It's calculated by dividing our trailing 12 months non-GAAP sales and marketing expense of $93.2 million by the year-over-year increase in trailing 12 months subscription revenue of $43.6 million.

A lower number means we're spending less to acquire each incremental dollar of subscription revenue. We maintained our GEI at 2.1 for Q2, similar to Q1. Our long-term expectations are to maintain or improve the GEI as our business grows, but as I mentioned before, this efficiency metric may see movements as we work through our sales execution changes.

.

Let me now turn to our billings and free cash flow. As you know, quarterly billings can fluctuate due to a number of factors, and we saw this play out over the last couple of quarters. We noted on the Q1 call that we saw higher rate of early renewal activity, and we need to have benefit in Q1 billings with a possible detriment to Q2 billings.

As we expected, Q2 billings was impacted by these early renewals in Q1, resulting in calculated subscription billings growth of 14% year-over-year to $48.5 million and calculated total billings of $67.6 million..

Additionally, we saw a lower mix percentage for annual billing terms compared to the historical average, which further impacted the growth rate. In order to normalize for these quarter-to-quarter factors, we generally look at billings growth over a longer period of time.

So looking on a trailing 6-month basis, calculated subscription billings grew 22%. We know that there will be continued quarterly billings fluctuations. So looking over the full year, we estimate our fiscal '20 subscription billings growth to be slightly lower than our subscription revenue growth rate for the year.

Beyond that and longer term, we expect 12-month trailing subscription billings to track similarly with our longer-term revenue growth rates. .

Moving to cash flow. Q2 free cash flow was negative $11.5 million compared to negative $7.3 million for the same quarter a year ago. Most of the difference resulted from our ESPP plan that reduced free cash flow by approximately $2.6 million in the quarter and had a similar impact in Q4 last year.

As we move forward, we can expect to see a negative free cash flow impact in Q2 and Q4 and a positive impact in Q1 and Q3 each year, resulting from stock issuances from the plan. For the full year, we expect free cash flow to be modestly better than the negative $40 million we targeted on the Q1 call..

Excluding the $9 million of facilities spend expected for our HQ move, free cash flow for the year will be better than negative $31 million, reflecting an improvement of more than $6 million compared to last year. We expect the majority of the facilities spend to happen this quarter, so Q4 free cash flow should be better than Q3.

Lastly, we ended the quarter with $174.6 million in cash and cash equivalents. We remain fully funded against our current operating plan. Another item to note for your models, our fully diluted share count as of July 31 was 126 million using the treasury stock method. .

Before we move to our forward-looking guidance, a couple of quick comments. As you can see, we're making meaningful changes to improve our execution and have been working hard to put the issues we described in our Q1 call behind us.

I hope you can see that we're making good progress, but as we have said, it will take some time for our changes to take hold. Second, we are confident in our operating model and our ability to invest prudently and create leverage as we grow the business.

We know that managing the balance between operating margin improvement and sustainable growth is how we deliver the long-term value to our shareholders, and we're focused on doing just that. .

Now let me close out with our guidance numbers.

For Q3, we are currently expecting total revenue of $69 million to $71 million; subscription revenue of $51.5 million to $52.5 million; non-GAAP operating loss of $10.5 million to $9.5 million; and non-GAAP net loss per share of $0.10 to $0.09, assuming weighted average shares outstanding of approximately 111.8 million.

For the full year fiscal '20, we are currently expecting total revenue of $273.5 million to $278 million; subscription revenue of $202.5 million to $206 million; non-GAAP operating loss of $44 million to $42 million.

This includes $1.3 million of additional temporary rent expense associated with our HQ move expected in the second half of this year; and non-GAAP net loss per share of $0.40 to $0.38, assuming weighted average shares outstanding of approximately 111.1 million. .

And with that, we're happy to take your questions.

Operator?.

[Operator Instructions] And your first question is from John DiFucci with Jefferies. .

This is Luv Sodha on for John DiFucci. I just had 2 quick questions. One was on the net dollar retention. You mentioned that, that fell to 107%. Could you provide some additional color? Because transaction volumes seem to have increased impressively this quarter.

So was there any change in like renewal rates or anything else?.

Yes, I can take that one. Luv, this is Tyler. So we said there was really 2 things that impacted the net dollar retention, the cross-sell motion between Billings and RevPro. We kind of -- we've talked about that after our Q1 call, that we kind of paused that until we can get a bunch of our backlog customers successful.

And because of that, that slows down your upsell motion, right?.

And we talked about the transaction volume. As a reminder, the purchases of transaction volume precedes the actual volume that flows through our system. So as we report each quarter, right, that's probably reflective of something that's already been purchased.

And what we mentioned in the call just now that, sometimes, as customers get to the end of their contract terms, they renew for something less than what they would have had. So we did see some downsell, which pushes down your dollar net retention a little bit. .

Yes. Just to add some color to that, right? Just visualize, some customers will sign a 3-year contract with expectations that perhaps even something they launched, being able to generate a certain amount of revenue. Some percent of those customers are going to wait to see their launch expectations, right, and that results in upsells.

But this quarter, we did see a few of the renewals where they did not hit their launch expectations and so resulted in a reduction of the transaction volume. And so we're going to see some quarter-to-quarter fluctuations depending on the mix of that specific quarter. .

But as a reminder, the transaction volume we process is not really a correlation for upsells in that quarter. .

Good. And just 1 quick follow-up, if I may. So thank you for the comments on the sales -- the changes that you've made to the sales execution. I just had -- so you mentioned an updated sales formula. I just wanted to ask a little bit further on that.

Has the go-to-market motion changed dramatically? Or how has the conversations that you have with customers changed?.

Yes. I wouldn't say it's changed dramatically. I think that what I was trying to highlight was, if you think 4 years ago, certainly, some of the company mixes are a little bit different. We see a lot of manufacturing companies. We see utility companies.

But the bigger change, I think, is 4 years ago, we had to do a lot more work convincing people that billing was important. And now these companies are coming to us. And like I mentioned, the good news is they're looking for a billing solution, right? We don't have to do as much work. But there's still a mix of maturity.

And so some companies, we'll be at 4 motions, if you will, to simplify down, companies might be coming to us saying, "We want to launch something." Companies might be coming to us saying, "Look, we put in a commercial billing system or built our homegrown billing system years ago, and it's no longer working." They might be coming to us saying, "We're doing more and more revenue recognitions, spreadsheets because of all these new business models, and that's killing us." Or the SIs might be saying, "Look, as part of your digital transformation, you've got to do a complete quote-to-cash transformation." And so honing down on these 4 types and updating our sales formula to more match our customers are buying today was part of what we're doing.

But the conversations are still the same conversations. .

Your next question comes from Scott Berg with Needham. .

I guess, Tien, we'll start off with the sales changes in the quarter and then roll that forward to comments on your overall pipeline.

With the changes that you made in the quarter, how did sales trend relative to your expectations when you started the journey around these changes through the sales org?.

The sales trends haven't changed significantly. One of the things that we didn't touched on because work was really done early was we did have a much tighter forecasting and much more disciplined forecasting process as well.

And what we're seeing really is the learning of the new reps, right? Now that the -- the change in the structure that we've done, right, allowing our newer reps to roll into more experienced reps, giving them a more specific sales formula, a recipe that matches our customers want to buy, right, these are the things that are just general focus on operational execution.

And we're definitely seeing early signs of this when I talk to the reps, right, when I join deals, when I see how they're doing. But we just want to also caution that, typically, these things do take several quarters to play out and really crystallize inside, right? Organizational change does take time. .

Okay. Fair enough.

And then how would you characterize the sales pipeline today relative to a year ago?.

We still see strong demand. You can feel it, right? You can feel it when you look at all these news reports. Companies are -- continue to move aggressively into launching subscription services or finding that their subscription services are doing really, really well and looking to scale these subscription services.

And so I don't think there's any change in the market. This is really our own execution. .

Got it. Then a quick follow-up for Tyler. Tyler, on the professional services that did break -- hit a breakeven level in the quarter, as you mentioned.

How should we feel the -- how should we view the margins on that business going forward? Is this kind of a new level that you can sustain? Or will this maybe kind of fall back into that low burn rate that you've seen over the last couple of years?.

Yes. I do think there's going to be some quarter-to-quarter fluctuation there, Scott. We -- and I think we could shift to some low burn. Our goal is to run that business on a non-GAAP breakeven basis. We're experiencing some really positive things on the services side this quarter in terms of utilization rates and things like that.

Compared to Q1, we benefit from a couple of extra days. But I could see us -- we could see some fluctuations, especially as we kick in hiring and you have people ramping and things like that as well. So I wouldn't expect it to just be a breakeven. It could fluctuate slightly. But again, the goal is to provide a breakeven from a non-GAAP perspective. .

I'm really happy with the operational discipline we have in that part of the business. So of course, there's always going to be some quarter-to-quarter fluctuations. But the discipline, the rigor of how we manage that business is fairly solid. .

Your next question is from Chris Merwin with Goldman Sachs. .

I just wanted to follow up real quick on net retention. As I understand it, just in terms of the way it works, you got the customers who pay kind of the -- like a platform fee, then they are paying in volume blocks.

So -- and to the extent that they bought bigger blocks than they thought initially, was that just a function of them overestimating kind of the pace of their growth? I just wonder if I can better understand just the downsell that you saw in the quarter, if that's something that should probably correct in time. And then I have a follow-up. .

Yes. That's right. It's right.

And it really speaks to just the range of customers we have, right? So if you're talking to a company that's -- they're well on their way to their subscription journey, perhaps 100% of the business is subscriptions, maybe they're a $100 million company, maybe they're a $1 billion company, you're obviously not going to see that big a range, right, because they can estimate.

But we do sell a lot of situations to a launch or an early-stage subscription offering where you're just going to see a lot of variation, right? They're committed to the offering. They might sign a 2- or 3-year contract with a set of expected volume that does not necessarily materialize.

The other factor we sometimes see is some of our customers will get acquired into a bigger company. And you see both effects. You'll see the bigger company is able to accelerate that division's revenue.

You'll also see, not a surprise, right, you guys see those other companies where the bigger company actually slows down the acquired company's revenues. And so you're going to see some level of variation just given it is.

I mean what we believe is, as we get bigger, as the industry matures, right, as we continue to get bigger and bigger levels of scale, that, that variation will reduce over time. But for now, you are going to see some quarter-to-quarter fluctuations on that. .

Okay, great. And then, Tien, maybe one more for you just on the platform. I mean just curious, any feedback that you've got from customers so far.

Are there any initial deployments out there? And just curious like what type of customers are taking this product, what they're using it for and kind of how we think about this building into the model in time in terms of net retention or any of those other KPIs?.

So we just announced this platform in June. Certainly, it's been in a -- more of a limited availability before that. And so this is a fairly new product. And the early signs are that -- the early signs are what I'll call these last-mile customizations.

A lot of it is around things like orchestrating the customer experiences, right, where you see a lot of variation in terms of how companies want to operate from 1 company.

Now every company has a very specific experience they're trying to create for their customers, whether it's changing account profile or signing on a new customer, letting a customer change their add-on products. And the platform, specifically, the workflow tool, really allows them to do those last-mile customizations without a lot of work.

And so previously, they would have to build a lot of these things with custom code, find a place to host it, right, do a whole bunch of calls back to our APIs. Now they could do it in-platform, if you will.

And so the early signs are that the amount of work it takes to do any specific, say, flow has been cut down by 70%, 80% or 90%, right? Again, this is the early signs of the customers that are using it. So you're seeing them be able to customize our overall billing system right down that last-mile customization to their specific needs. .

I flagged a couple metrics on earlier conversation. Okay, how does that translate? So that should translate into faster deployments, right? That should translate into easier last-mile customizations.

And that should translate into a wider footprint that we have, if you measure that, say, by the number of processes that we cover inside the application itself. That ultimately, hopefully translates into, yes, a stickier product and faster growth. .

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

Mark Rende on for Stan Zlotsky here. So there's a press release out, you actually noted on your script, from Omoove, an Italian car sharing company.

So about that, I mean, have you guys seen any traction outside of Western Europe or you've been seeing a lot of traction like maybe APAC or just kind of more on that international opportunity?.

Yes. I mean what we do see the Subscription Economy certainly is not limited to any specific countries. And we continue to see, call it, 30% of our businesses coming from international regions. Just this past quarter, for example, our Nordic region, it is really starting to come on strong.

The ball bearings company that we talked about is in that part of the world. And so international becomes -- it still remains really, really important. .

We still think there's a lot of growth opportunity in the countries that we're already in, right? So this is going to be Western Europe. This is going to be Japan. This is going to be Australia, New Zealand. And so right now, I wouldn't say that we're focused on expanding beyond the countries that we're already in. .

Awesome. And then maybe 1 quick follow-up. I think customers over $100,000 in ACV, it grew 19% year-over-year this quarter. I think that's like compared to 28% a year ago and 24% last quarter.

Anything in particular for this? Any like large deals kind of slip in or out of the quarter? And how should we think about those moving forward?.

Let me just remember. We continue to -- obviously, to close companies that are sub-$100,000. We see this as the start-up tech community. And our goal is, if you close 10 companies there, 2 of them will become the next Zendesk, right, the next Box, the next Pluralsight. And we certainly see that happening.

We also flagged on the last -- in our Investor Day back in June that if we're at a $1 billion, call it, 4x growth, we wouldn't expect 4x growth in our customer base. And so we would expect that our footprint within our existing customers continues to grow as well. And so -- and you're going to continue to see that effect.

But I wouldn't say there's anything to call out with that. .

And your next question is from Scott Berg with Needham. .

Tien, just a quick follow-up. I forgot to ask about this Nike deal that you guys -- look like you maybe signed in the quarter or the prior quarter.

Can you help us understand maybe how Nike is using your software?.

Yes. I think you're talking about a commentary that we did on Nike's announcement. And so we are working with a number of fitness companies, I would say, right? But we don't have any specific announcement of a specific company. We're just seeing that the fitness sector, if you will, is very much in motion.

And we took Nike's announcement of their offering as a chance to comment on that broader trend that we see. .

We're really excited about fitness.

I mean the bigger picture is, if you're a consumer and you have, call it, $20, $50 to spend every month, where do you spend it, right? Do you spend it on a gym membership? Do you spend it on telethon, right? Do spend it on one of these fitness applications? Do you spend it on one of these boot camp places, right? And we're seeing this all really come to a head, and there's a lot of disruption and innovation happening in the entire sector.

.

Ladies and gentlemen, this concludes the Q&A period and today's call. Thank you for joining. And at this time, you may now disconnect..