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Edited Transcript of PS.OQ earnings conference call or presentation 31-Jul-19 8:30pm GMT

Q2 2019 Pluralsight Inc Earnings Call

Aug 22, 2019 (Thomson StreetEvents) -- Edited Transcript of Pluralsight Inc earnings conference call or presentation Wednesday, July 31, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Aaron B. Skonnard

Pluralsight, Inc. - Co-Founder, CEO & Chairman

* James W. Budge

Pluralsight, Inc. - CFO

* Mark McReynolds

Pluralsight, Inc. - Director of IR

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Conference Call Participants

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* Arvind Anil Ramnani

KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst

* Bradley Hartwell Sills

BofA Merrill Lynch, Research Division - VP

* Brian Christopher Peterson

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Corey Adam Greendale

First Analysis Securities Corporation, Research Division - MD

* Eric Carlos Lemus

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Huang Howe

Barrington Research Associates, Inc., Research Division - Senior Investment Analyst & Research Analyst

* Jeffrey P. Meuler

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Saket Kalia

Barclays Bank PLC, Research Division - Senior Analyst

* Scott Randolph Berg

Needham & Company, LLC, Research Division - Senior Analyst

* Sterling Auty

JP Morgan Chase & Co, Research Division - Senior Analyst

* Terrell Frederick Tillman

SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to the Pluralsight Second Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Mark McReynolds, Director of Investor Relations. Sir, you may begin.

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Mark McReynolds, Pluralsight, Inc. - Director of IR [2]

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Thank you. Good afternoon, and welcome to Pluralsight's Second Quarter 2019 Earnings Conference Call. With me today are Aaron Skonnard, Co-Founder and CEO; and James Budge, CFO. Some of our remarks will include forward-looking statements within the meaning of the federal securities laws. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in today's press release and in our SEC filings. Any forward-looking statements that we make on this call are based on information and assumptions as of today, and we assume no obligation to update these statements.

During this call, we may present both GAAP and non-GAAP financial measures. Except for revenue, balance sheet amounts, cash flow from operations and billings, all financial amounts discussed are non-GAAP, and growth rates are compared to the prior year comparable period unless otherwise stated. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release. The press release is available on our website at investors.pluralsight.com.

Before we hear from Aaron, a quick reminder about Pluralsight LIVE 2019. Our annual user conference will be held on August 27 through the 29 at the Grand America Hotel in Salt Lake City. Pluralsight LIVE provides an excellent opportunity for investors and analysts to hear from a wide range of our executives and leaders and to connect with our customers and partners. We'll hold a half day session on August 28 specifically for investors and analysts, and we'd love to see you there. Please send an e-mail to ir@pluralsight.com if you are interested in attending Pluralsight LIVE this year.

And with that, I'll turn the call over to Aaron.

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Aaron B. Skonnard, Pluralsight, Inc. - Co-Founder, CEO & Chairman [3]

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Thanks, Mark. Good afternoon, everyone, and thanks for joining our Q2 2019 earnings call. We beat our Q2 revenue and EPS guidance with revenue growing 42% and EPS growing by 71%. Our market, our product, our early successes with GitPrime and our second half pipeline, all give me line of sight to achieving our revenue guidance this year and $1 billion in billings in 2022. While we generated strong revenue and EPS in Q2, we experienced sales execution challenges, which impacted our billings. I'd like to share what we learned and what we're doing to strengthen and improve execution moving forward.

We hired over 100 new sales reps in the last 12 months, which may seem like a lot, but that was not enough capacity in the system to sustain our high-growth expectations as we entered the year. In addition, the type of fast growth we've enjoyed requires us to provide prescriptive and effective sales enablement, and we didn't invest enough in that area of our business. And finally, we need more leaders with experience at scale to help our sales teams execute more effectively.

We're making specific improvements right now to build $1 billion SaaS company with sustainable annual growth above 30%. For example, we've nearly caught up with our annual sales ramp capacity plan, which will strengthen the balance of the year and into 2020. We're also adding key people and investing in sales operations, customer success and sales enablement to support our newly hired sales teams. We're also making key changes in our sales leadership. Since Joe DiBartolomeo joined us 3 years ago as CRO, we have more than doubled our billings. Joe has done an incredible job in building the team and growing our business worldwide, and we could not have made it to where we are without him. Joe and I agree that now is the right time to find a new sales leader as we continue to scale the business.

Joe will remain available to us as an adviser as we swiftly execute the search for our next Chief Revenue Officer. I expect we'll have our new leader no later than the end of this quarter. I'm confident these are the right changes for the business and that they'll get us quickly back to our expected long-term growth trajectory. I'll share more later in the call about the positive momentum I'm seeing, but first I'd like to turn the call over to James to dig a bit deeper into the numbers. James?

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James W. Budge, Pluralsight, Inc. - CFO [4]

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Thanks, Aaron. Let me start today by reviewing some of our financial performance before moving to our outlook for the third quarter and remainder of the year. Q2 revenue grew by 42% to $75.9 million. Gross margin was 78%, up from 76% last year. And we see a clear path to further improving gross margins to over 80%.

Non-GAAP net loss per share in Q2 was $0.06, a 71% improvement over our net loss per share in Q2 last year of $0.21. The sales execution challenges, Aaron covered, contributed to Q2 B2B billings growth of 27% to $69.1 million, short of the growth we have been producing. We expect to reaccelerate our growth rates after we move beyond these temporary execution challenges.

Our dollar-based net retention rate for the trailing 12-month period remain strong at 126%. As our billings regained momentum in the second half of the year, we believe our net retention rate will grow back into the high 120s or low 130s.

Operating cash flow was negative $7.2 million in Q2 and free cash flow was negative $11.1 million in the quarter. Our lower-than-expected billings in Q2 negatively impacted our cash flows, but we expect to return to being cash flow positive as we exit 2019. We closed the quarter with total cash and investments of $600 million, and our on-balance sheet backlog is expressed by our deferred revenue was $186 million at the end of the quarter, up 45% from last year.

We're also announcing a change in our auditors based on a competitive process conducted by our audit committee. Following a review of the proposals, the audit committee approved the engagement of Ernst & Young effective upon the filing of our second quarter 10-Q, which we filed earlier today. We are confident that we're heading in the right direction. We are optimistic about the sustained long-term growth opportunity we see ahead of us, and we believe we're the best positioned company in our space with the combination of our platform and content to capture that growth over time.

As a result, we will continue to invest in our product and go-to-market teams. And we expect to accelerate some of our go-to-market investments planned for 2020 into 2019, in order to capture the top line opportunity we see in front of us.

Let me wrap up now with some guidance. For Q3 2019, we expect revenue to be in the range of $79.5 million to $80 million, an increase of 30% over Q3 2018 at the midpoint of the range. For the full year 2019, we are holding our expected revenue range from $312 million to $318 million, an increase of 36% over 2018 at the midpoint of the range. With the billings results in Q2, our degree of cushion in the annual number -- revenue number has been diminished somewhat. Nevertheless, given the actions Aaron covered and having nearly caught up on our sales capacity gaps, we remain confident in our prior guidance for revenue and earnings per share. To bridge from the expected third quarter revenue to our expectations for the full year, we expect our usual jump in fourth quarter revenue that will be in the range of $89.5 million to $90 million.

On the bottom line, we expect Q3 non-GAAP net loss per share to be in the range of $0.13 to $0.15, assuming weighted average shares outstanding of approximately 138 million. We expect non-GAAP net loss per share for the full year 2019 to remain in the range previously given of $0.38 to $0.42. The full year 2019 EPS estimate assumes a weighted average shares outstanding number of approximately 137 million.

To bridge from the expected third quarter loss per share to the full year loss per share, we expect that the fourth quarter net loss per share will be in the range of $0.12 to $0.14, assuming weighted average shares outstanding of approximately 139 million.

In summary, I'm confident in the future of our business. The market opportunity is measured in tens of billions. We believe we are the best positioned to capture that market and we intend to do just that.

And now I'd like to turn it back over to Aaron for some more comments. Aaron?

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Aaron B. Skonnard, Pluralsight, Inc. - Co-Founder, CEO & Chairman [5]

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Thanks, Jim. We're seeing positive momentum in the business. We saw success in Europe and Australia as well as the government space, which is a segment we're just beginning to penetrate. And we continue to see growth across our largest customers. We have 343 customers with annual billings of over $100,000, a 62% increase year-over-year. We also have 61 customers with annual billings exceeding $500,000, a 103% increase from a year ago. And we have 21 customers with annual billings exceeding $1 million, a 91% increase from a year ago.

As of Q2, our top 25 customers have now expanded 22x from their initial purchase. This quarter we saw 4 new customers join our $1 million in annual billings club, and we're proud to welcome Fujitsu, Intel, MasterCard and Ford into this group. All of this meaningful growth in our largest accounts clearly demonstrates the value we continue to provide since our customers keep coming back for more.

We also saw early success with GitPrime, exceeding our internal Q2 billings expectations by more than 40%, resulting in year-over-year growth of over 100%. We're encouraged by the progress and excited by the early indicators we're seeing for our data-driven engineering platform. Quantifying an engineering team's progress is something that tech leaders have never experienced and they want more of it. We're actively building our unified offering that we plan to launch in Q1 2020, and we believe that this will create even more opportunity to penetrate our large and expanding TAM.

On the partnership front, we continue to be encouraged by our progress with the 3 largest cloud providers: Microsoft, Google and Amazon. We're working with Google to finalize ingesting their courses into our library, and we're collaborating with GCP at large enterprise accounts around the world. We're excited to announce that Pluralsight is now available via the AWS marketplace, strengthening our co-selling motion with high potential target customers.

Being on the AWS marketplace lets us leverage their existing agreements with customers, allowing us to quickly move through procurement. Our cloud content and our new partnership with GCP and AWS has increased by over 135% over the last 12 months. We believe that our unmatched content and strong partnership set us apart as the unquestioned leader in cloud skills.

These partner developments combined with the organizational and operational changes we've already made have strengthened our second half capacity such that we're able to maintain our revenue guidance for 2019. We're continually improving our platform and building new products to address the growing market demand for a scalable solution for tech skill development. We will be showcasing these advances with a special focus on GitPrime at Pluralsight LIVE in late August. It will be an incredible event, and I hope to see you there.

To summarize, when I look at the opportunities ahead of us, I am confident about our future. The fundamentals of our business are strong, and our customers continue to want more as evidenced by the growth in our top customers and by our high net retention rates. With our acquisition of GitPrime and the progress we're making with Microsoft, Amazon and Google, we'll continue to capture the market. The market conditions are outstanding. The TAM is over $30 billion. Our world-class content and platform position Pluralsight to best take advantage of this opportunity. We are committed to our vision, and I'm confident that this will take us to $1 billion in billings in 2022.

And with that, I'll turn the call back over to the operator for some Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Brad Sills with Bank of America.

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Bradley Hartwell Sills, BofA Merrill Lynch, Research Division - VP [2]

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Wanted to just ask a little bit about on the execution challenges that you mentioned earlier. It sounds like it was primarily a ramp of some of the new hires. Was there anything going on with existing reps that had been around a little while longer? Maybe just a little bit more color on just where you saw the execution in some of these more tenured reps, if you did see that?

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Aaron B. Skonnard, Pluralsight, Inc. - Co-Founder, CEO & Chairman [3]

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Yes, we didn't see anything specific around tenured reps. The gap that we experienced in Q2, as we said in the script, was focused specifically on the sales capacity challenges and ultimately ramping those new reps through sales enablement. So that's our focus.

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Bradley Hartwell Sills, BofA Merrill Lynch, Research Division - VP [4]

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Got it. Got it. Okay. And you mentioned that you're back on track for hiring. What was the target for head count? And where did you kind of come in? And maybe just a little bit color on where you are there now?

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James W. Budge, Pluralsight, Inc. - CFO [5]

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Yes. Thanks, Brad. We're about 250 quota-bearing reps right now. And that's about the number of bodies we wanted to have at this time in the year, but they didn't come into the year early enough in the year. So the ramp time to get them trained up and ready to go, be effective with salaries, we're a few months behind there, that's been the big impact. We're targeting about 330 as we exit the year, and we see clear line of sight to that. So it would have been about 300 to 310 naturally, and I think as we mentioned in the comments here, we're actually pulling some of those reps forward into 2019 so that we get ahead of 2020 because of the opportunity we see.

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Bradley Hartwell Sills, BofA Merrill Lynch, Research Division - VP [6]

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Great. And then one more, if I may, please. I mean you're not the only software company that has seen some pockets of weakness here. Is there anything you could point to that might be macro related, that might be indicative of a slowdown in any way that you're seeing from your customers? Maybe some pause on some bigger deals, anything of that nature?

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Aaron B. Skonnard, Pluralsight, Inc. - Co-Founder, CEO & Chairman [7]

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No, Brad. We're not seeing any weakness around the market or the TAM specific to our space. In fact, we see the TAM growing. The addition of GitPrime adds even more to our TAM and the opportunity that exists there. And we're seeing strong demand from all of our enterprise customers for both the core product and the new addition of GitPrime. Just in the last quarter, I've been in dozens of Fortune 500 level conversations both speaking about the integration of our core product, expanding at much higher scale. And so that doesn't look any different today than it did a quarter ago. And we're seeing even more appetite for expanding into the new product line offered by GitPrime. So very promising.

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James W. Budge, Pluralsight, Inc. - CFO [8]

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I might just pile on there, Brad, just to reiterate a couple of points, Aaron made in his remarks that -- typically that lengthening of the deal you see in bigger deals, and we're not seeing that. In fact, we see the 61% growth in deals over $100,000 and 91% growth in deals over $1 million. We added 4 new to our $1 million club and that's as many as we've ever added that have gone over $1 million in annual billing. So despite the size of the deals materially increasing, and our average deal size is growing, we're not seeing material change in the timing of getting deals over the finish line.

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Operator [9]

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And our next question comes from the line of Corey Greendale with First Analysis.

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Corey Adam Greendale, First Analysis Securities Corporation, Research Division - MD [10]

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So starting on a similar theme. I know you don't guide to billings. But it sounds like this was a relatively short-term issue and you think it is resolved. So just directionally, do you think B2B billings growth in Q3 looks more like Q1 than the Q2 growth?

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James W. Budge, Pluralsight, Inc. - CFO [11]

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Definitely looks more like Q1 than Q2 for sure. They'll probably be, as Aaron mentioned, we're on great path towards a new leader, new sales leader, but it'll take a little bit of time. It probably won't be up to the 50% B2B growth that we've historically had, but it -- there is a path to get there. But in any case, it will look a lot better than the second quarter. And by the end of the year, as we move into the fourth quarter, which is always our biggest quarter, we still feel confident about that one.

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Aaron B. Skonnard, Pluralsight, Inc. - Co-Founder, CEO & Chairman [12]

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Yes. And Corey, the reason we're more confident in driving better results in Q3 is because of the ramp capacity. We have our best closing event of the year in Q3, which is Pluralsight LIVE late August, and the strong momentum we're seeing with GitPrime. So all of those things will help strengthen Q3 even further.

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Corey Adam Greendale, First Analysis Securities Corporation, Research Division - MD [13]

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And longer-term, as you accelerate some of the new rep hiring is -- all else equal, I would have expected productivity per rep on kind of a like-to-like basis to go up in 2020 just because they have the addition of the GitPrime portfolio. Did you still -- and maybe I'm putting words in your mouth, do you still expect that productivity per rep, kind of, on a like maturity basis will be higher or should be higher in 2020 than 2019?

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James W. Budge, Pluralsight, Inc. - CFO [14]

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Yes. Absolutely. We're seeing really great momentum in GitPrime. It's quite a bit higher than what we expected. The cross-selling that's happening between the accounts into big accounts is pretty fantastic for us right now. It's definitely one of the highlights for the quarter. And as you pointed out, it will absolutely add to the capacity capabilities and ultimately more productivity out of the sales reps on board as we roll into 2020, so definitely feel that.

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Corey Adam Greendale, First Analysis Securities Corporation, Research Division - MD [15]

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And just to, sort of, one more point on the model. The -- understand where -- net retention is where you expect it to go. Can you just comment on the gross retention, whether you saw any hit to that?

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James W. Budge, Pluralsight, Inc. - CFO [16]

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Yes. We did. It came off a couple of points. We've been in the high 80s. It kind of came into the mid to slightly higher than mid. It came off a couple of percentage points, similar to the net retention. And we definitely see visibility to getting that right back up into the high 120s to low 130s, which implies that the gross retention moves back up into the high 80s.

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Corey Adam Greendale, First Analysis Securities Corporation, Research Division - MD [17]

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And that too, it did pick over a couple of hundred bps, but that doesn't sound like a sales productivity issue. So what do you think caused that?

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James W. Budge, Pluralsight, Inc. - CFO [18]

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Well some of it is expressed in some of the renewal that came up that did have implications as they were tied to expand. They just kind of pushed out a quarter or -- well a few months, I should say, but some of those have even closed in July. And there is some things that Aaron mentioned, where we're investing in customer success and adding more resources there that we need to drive those higher rates.

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Operator [19]

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Our next question is from Brian Peterson with Raymond James.

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Brian Christopher Peterson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [20]

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I know we had some price increases that started earlier this year. I'm curious if those had any impact on what we're seeing from the sell side? And anything to share on what we're seeing related to the price increases?

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Aaron B. Skonnard, Pluralsight, Inc. - Co-Founder, CEO & Chairman [21]

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Yes. We did have price increases. Thanks, Brian. Those happened in the beginning part of the year, in the January, February time frame. Had there been pulled forward around that, you would have actually seen that in the fourth quarter with an impact in the first quarter and yet, we still had really solid results in the first quarter. So summary of that is, we don't -- I'm sure there was some pockets of resistance around that like it would happen anytime you have a price raise. But we don't see that as a reason for why we didn't hit the billings. We had our customers. They see the value in the products that we're delivering. They see the relative cost compared to their classroom learning that they are paying for right now. And they see tremendous value, not regardless of cost, but a small increase wasn't anything that we would feel would be impactful.

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Brian Christopher Peterson, Raymond James & Associates, Inc., Research Division - Senior Research Associate [22]

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Got it. And maybe just one on GitPrime. If you looked at maybe your joint customers or don't I know the right way to think about this. But I'm trying to get a sense for what the penetration currently is into the user base of GitPrime? And how that might look versus the existing Pluralsight relationships?

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James W. Budge, Pluralsight, Inc. - CFO [23]

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Yes. I mean look, we've had -- we inherited just over 300 accounts from GitPrime and we have almost 18,000 customers. So very little overlap, but some, and certainly, the low hanging fruit right out of the gate is going to the common customer and driving incremental value, whether it's the traditional Pluralsight capability or GitPrime. But where the real value is going to come over time is taking their GitPrime technology into our 18,000 business accounts and driving the value through that. So there is a tremendous amount of opportunity. I think in past calls, we've shared the growth rates we expected to come from GitPrime, and we saw that and we've only had it for 60 days and we saw all of the growth we expected and then some. As Aaron mentioned, 40% more than what we expected, and we were pretty optimistic about what we expected. So it's going fantastic.

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Aaron B. Skonnard, Pluralsight, Inc. - Co-Founder, CEO & Chairman [24]

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And we did -- I'll just add on here a bit. We focused on GitPrime quite a bit at Pluralsight LIVE Europe earlier in the quarter and drove a lot of strong pipeline at that event. I was in a lot of those top customer conversations during LIVE, and it was all very promising a lot of interest. So we're really excited. We think there is a tremendous amount of synergy, but not a lot of direct overlap, like James just spoke to, which creates opportunity.

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Operator [25]

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Our next question comes from the line of Terry Tillman of SunTrust Robinson.

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Eric Carlos Lemus, SunTrust Robinson Humphrey, Inc., Research Division - Associate [26]

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This is Eric Lemus on for Terry. And 2 metrics you guys talked about: the dollar-based net retention rate coming down like 2 percentage points, and then also that business customers, April was up versus last quarter, but certainly, down year-over-year. When I look at the billings for business customers, splitting out from what you said, what had more of an impact? It seems like it was -- new net adds was lower-than-expected, but what is the split between the impact of the lower net retention rate versus the net adds?

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James W. Budge, Pluralsight, Inc. - CFO [27]

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The lower net adds is probably about 60-40. Good question. Probably about 60% related to lower net adds than we expected. And then about 40% coming from those 2 percentage points, but we could have done better on a few -- on our expands, our new -- and our retention. So definitely all areas that with the extra capacity, the capacity that we'll now have that now actually exists in the system, now it's chasing all 3 of those types of billings, and we expect all of those to have significant improvements over the next 6 months.

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Terrell Frederick Tillman, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [28]

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Got it. And then looking at the quota-bearing sales reps, was there any sort of churn that you witnessed in this quarter versus -- different than in previous quarters?

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Aaron B. Skonnard, Pluralsight, Inc. - Co-Founder, CEO & Chairman [29]

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No. We actually -- we have benchmarks that we look out regularly for what happens in the software industry, where we have historically been much better than those benchmarks and that continued through the first 6 months. We would prefer none of our top performing reps to leave us, but occasionally they do for other opportunities like any company. But our overall retention for sales reps, we're super comfortable with.

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Operator [30]

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Our next question is from Saket Kalia with Barclays.

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Saket Kalia, Barclays Bank PLC, Research Division - Senior Analyst [31]

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Aaron, maybe just for you. We talked about the sales execution issues, and we're making changes accordingly. But can you just talk about any analysis that you've seen from the sales team on competitive win rates? I guess, the question is, what gives you the confidence that the shortfall of this magnitude on billings wasn't related to any sort of more intense competition or any other issues around the competitive landscape?

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Aaron B. Skonnard, Pluralsight, Inc. - Co-Founder, CEO & Chairman [32]

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Yes. You bet. We're not seeing anything significant in terms of decreases in macro win rates. Ultimately, what we're seeing in the data is our primary competition remained classroom training. That's where the big dollars are. But with our sales execution issues that we described, we're simply not moving through the sequence of events fast enough at this scale to get to the finish line. When we look at why the Fortune 500 customers end up choosing us in the end, it goes back to our content advantage, how far ahead we are of the competition, which really puts us in a unique place, the author community that we built over the last 10 years, the confidence in our product and our platform and all the data science investments we've made with Skill IQ and Role IQ. And now GitPrime, which allows us to take these customers all the way to the finish line of how those tech skills are translating into better productivity, better performance and ultimately the outcomes they care about. So all of that, to say, we're highly differentiated from other learning types of companies that are not really in the SaaS tech skill development space that we sit in. So we just don't see that showing up in the data as the main reason why we didn't get the deal done.

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Saket Kalia, Barclays Bank PLC, Research Division - Senior Analyst [33]

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Got it. Got it. That's helpful. James, maybe from a follow-up for you. It sounds like the pipeline here for the second half remained strong. So given the shortfall in the quarter, feels like close rates were a little bit lower than we expected. Of course, we've talked about net retention here as well. But as you look forward, as you sort of adjust the guide, at least on billings, how have you kind of contemplated some of those new assumptions to make sure that we set ourselves up for success, if you will, going forward?

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James W. Budge, Pluralsight, Inc. - CFO [34]

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Yes. Great. Yes, I think in a simplest form, we've taken a hybrid between what we saw in Q2 and what we'd historically seen for Q1, where we do see Q2 as a momentary point in time where we have some improvements to make. But now that we're caught up around sales capacity, we're committed to our investments and putting investments into sales enablement and showing that up. We do see us eventually getting back to where we were rolling through Q1. So it's -- I'd say there is a healthy amount of conservatism still built into our numbers, but less conservative than maybe -- than we had a couple of months ago.

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Operator [35]

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And our next question is from Sterling Auty with JP Morgan.

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Sterling Auty, JP Morgan Chase & Co, Research Division - Senior Analyst [36]

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I want to hit on the capacity and productivity of sales again from this perspective because I thought I heard a couple of different items. Is the productivity of your sales reps different today than it was 6 months ago because of some factor?

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James W. Budge, Pluralsight, Inc. - CFO [37]

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No. No. I think it was a question around the tenured reps. The productivity we're seeing on the tenured reps is the same where it historically has been. Simply put, there was dozen -- there were dozens of reps that we needed to bring on board at the end of last year, beginning into this year, so they would ramp and become fully productive in the second quarter. And there was for a number of reasons delays in bringing them on board until, kind of, early to mid second quarter. The nice thing is they'll be fully ramped as we move into the third quarter and certainly well ramped as we move into the fourth quarter, but we just didn't have enough ramped capacity in our system in really the first and second quarter, and it expressed itself with the outcome you saw in the second quarter. Good news is we feel, with where we are, we're caught up to some extent. For the most part still, we're up by a few heads, but not a material amount like we were through Q2. So we feel like we're in a great spot going into the second half.

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Sterling Auty, JP Morgan Chase & Co, Research Division - Senior Analyst [38]

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So I know I'm playing Monday morning quarterback on this by why is this -- when we're hearing it, why didn't we hear this on last quarter's call?

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James W. Budge, Pluralsight, Inc. - CFO [39]

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Well, we were still hitting our numbers, and we felt like we had things broke, right. We were still realizing what we needed with on our -- what we need on our retention rates with our expand opportunities, and we were seeing kind of an accelerated productivity out of reps that was not sustainable in the second quarter. We just needed more bodies to soak that up.

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Sterling Auty, JP Morgan Chase & Co, Research Division - Senior Analyst [40]

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And then one more follow-up. When you have a change at the head of sales, a lot of times they want to come in and make changes to structure, some of the sales leadership, maybe even some of the sales reps and it usually takes a couple of quarters. Is that what we should expect? Or are you going to hire somebody with a mandate that you're looking for tweaks, but you're not looking for major overhauls to the go-to-market function?

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Aaron B. Skonnard, Pluralsight, Inc. - Co-Founder, CEO & Chairman [41]

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Yes. No, we -- I know what you're talking about there. We've seen that before. We do not intend to have it happen that way in this particular case. I mean I think it's primarily because of how evolved and well structured our model is today. We do see refinements that we can continue to make, and we're planning on making those with the direction of our future CRO. But our strategy is solid. We're confident in the direction we're heading with coverage and global expansion. And we think what the new CRO brings will be additive to that and will not be something that highly disrupts our motion.

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Operator [42]

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Our next question is from Jeff Meuler with Baird & Company.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [43]

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So is this -- was it mostly about recruiting resources? Or did you change something on wage or comp plans? Or just -- what were the keys to kind of addressing the issue to get caught up?

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James W. Budge, Pluralsight, Inc. - CFO [44]

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Yes. Lot of points there that you could point to. I would say, on comp plan, the comp plans are richer this year than they were last year and richer last year than they were the year before. So the amount and the size of opportunity that we provide to our sales reps continues to grow each year. I think it really comes -- I think it does come straight down to, which has been bringing the body in early enough in the year or even into last year ahead of '19. And decisions about where the body should go, what territories they should be in. Those just took too long to be made and we suffered from that in the first half and we're committed to making sure it doesn't happen again as we roll into 2020.

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Jeffrey P. Meuler, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [45]

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And any way you can help us out with kind of the timing of when they came on board, like was it a lot of June catch-up? Just kind of wondering as we think through typical sales productivity ramps, roughly what the timing we should be contemplating is?

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James W. Budge, Pluralsight, Inc. - CFO [46]

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Yes. There were probably about 50 reps that should have -- 50 more reps that should have been with us in the December-January time frame that on average didn't start -- as an average rep, they didn't start until the April-May time frame. There was a good 4 to 5 months of impact from a sizable amount of reps.

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Operator [47]

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And our next question is from Arvind Ramnani with KeyBanc.

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Arvind Anil Ramnani, KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst [48]

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I just kind of wonder to get your view on custom appetite for sustained price increases in the near to medium term? And what are some of the factors that allow for price increases?

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James W. Budge, Pluralsight, Inc. - CFO [49]

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Yes. I mean, look, if you go back to the last couple of years, just as examples, we had some pretty major capabilities we added into the platform in mid 2017 that resulted in us creating the enterprise skew in early 2018, with all the advanced analytics that came along with that. That created tremendous amount of value to our customers and allowed us to create that higher price skew. And then when you rolled into mid 2018 with all the capabilities we added there with Role IQ, interactive courses, projects and other capabilities in the platform, in addition to incremental world-class content, we felt like there was another incremental amount of value that we provided that could help us raise prices again and allow us to show even more value to our customers. So we did that at the beginning of '19. And I think what will happen here as we roll into Pluralsight LIVE here in a few weeks, we'll have a lot of really incredible things to talk about. The integrated product offering with GitPrime is going to be fantastic. And we're thinking through whether that merits an increase or not. I'd say nothing is determined at this point, but we do a lot of testing around that and see whether elasticity there is in our price. And if the market can bear it, then we increase it, and we'll see how that goes as we roll through the rest of 2019 and into 2020.

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Arvind Anil Ramnani, KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst [50]

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Great. And certainly this Pluralsight LIVE is a big event. Like -- and as you mentioned early on the call like it's also a big trigger point to -- from a sales perspective. Can you just give us a little bit more color on what we should expect? Because I mean I would imagine, this is a multi-quarter planning effort you have in terms of like making sure you highlight some of the things. So are you able to highlight some of the things we may be able to expect on -- at the event next month?

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Aaron B. Skonnard, Pluralsight, Inc. - Co-Founder, CEO & Chairman [51]

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Yes, look, the main focus there is going to be GitPrime and the integration in our core product line with GitPrime and the new value that creates for our customers. That's all we can say right now today. And it's those capabilities, along with the few new personalized learning experiences for the individual, that will take most of mainstage. And there are some things that will be very exciting to our enterprise customers. So we'll invite all of you to come to participate. We'll have an Analyst Day as part of Pluralsight LIVE, where we'll go even deeper with all of you about those new capabilities and how it will impact your models for 2020.

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James W. Budge, Pluralsight, Inc. - CFO [52]

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I might just add there, Arvind, maybe just a comment on TAM. I mean ultimately, the success of a big customer event like that is measured in terms of pipeline creation and closed deal. And when you compare our first LIVE event in 2017 to '18 to now mid 2019, the amount of pipeline that is already signed up to come into the room in 3 weeks is already close to double what it was last year. So seeing really great opportunities for pipeline coming in. As Aaron mentioned we did our first Pluralsight LIVE event in Europe, and it was roughly twice what we expected as far as pipeline in the room. We had close to $40 million to $50 million of pipeline in the room for that event, and we expect quite a bit more than that in the room for our event here in Utah.

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Arvind Anil Ramnani, KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst [53]

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That's exciting. Just last question from me. Just from -- either from a macro perspective or from -- just from a tech perspective, is there any change in the market you're seeing now versus like 6 months back or 1 year back either positive or negative?

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Aaron B. Skonnard, Pluralsight, Inc. - Co-Founder, CEO & Chairman [54]

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No. No changes that we're seeing in the macro environment. This is all about sales capacity and enablement.

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Operator [55]

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(Operator Instructions) Our next question comes from the line of Scott Berg with Needham.

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Scott Randolph Berg, Needham & Company, LLC, Research Division - Senior Analyst [56]

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I guess I got 2 brief ones. First of all, Aaron, can you comment on the impact GitPrime is having maybe on the sales cycle of the core Pluralsight solutions?

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Aaron B. Skonnard, Pluralsight, Inc. - Co-Founder, CEO & Chairman [57]

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Yes, you bet. Today it's not having any impact on the core Pluralsight sales cycle because we're continuing to run that team independently of the core sales team, the sales team covering the core product line. We have started in the -- since the acquisition date through the end of this year with a referral motion between the 2. So any customers that our core team has, that are interested in GitPrime, get referred over to the GitPrime team to keep that focus the same through the end of this year.

As we move into 2020 with the unified offering, the new coverage model for 2020 will then allow us to leverage all 300-plus sales reps selling both products, and we're working right now today to enable all of those reps in the second half of the year to ensure they're prepared for that.

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Scott Randolph Berg, Needham & Company, LLC, Research Division - Senior Analyst [58]

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Got it. Very helpful. And then a quick follow-up on sales execution. I know it's been spoken about often here. But is the simple solution just a new Chief Revenue Officer? Or do you think there is more scalable there? I think you addressed upon it a little bit, but trying to understand how much infrastructure is really required to scale the business appropriately to reach your [$100 billion] goal, which I assume you all have?

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James W. Budge, Pluralsight, Inc. - CFO [59]

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Yes. No, the new CRO is not a silver bullet. It's obviously the leadership that sits on top of the entire notion and the entire sales team. So it is significant, but it's not all inclusive. In addition, we're adding key hires in the core sales operations teams that do play into -- that's where the systems and the data live and all the processes that sit around the sales force. And we're also adding key hires in customer success and sales enablement, which we've mentioned several times.

So the plans we're executing on are very comprehensive of all the things that are at play, and this new CRO will be a big part of helping fit all that together in the second half once that person is here.

And I'll add, in the interim, I'm digging in deep here myself, along with a few other members of my executive team, and I'm going to be dedicating a large portion of my time until the new CRO is here playing the interim CRO role.

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Operator [60]

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And our next question comes from the line of Alex Paris with Barrington Research.

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Huang Howe, Barrington Research Associates, Inc., Research Division - Senior Investment Analyst & Research Analyst [61]

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This is Chris Howe sitting in for Alex. I had 2 topics I wanted to touch on. One, you could probably guess, the sales execution. Just digging further into this. As we look at the recent new hires in your sales force, have there been -- how should we look at the mix between high performers and low performers within the recent new hires? And of these high performers, how can we transition this to the other new hires in the base?

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James W. Budge, Pluralsight, Inc. - CFO [62]

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Yes. I mean, a lot of the people who come on have been -- have come on in the last 4 to 6 months. We continue to grow the company. We're up to 1,400 all in and lot of that growth also comes in our sales force. So it's mixed right now, but there are most of them. We're hitting our metrics around how quickly a sales rep is ramped. How much they sell within the first 3 months, the first 6 months, the first 9 months. We feel very confident about the number and percentage of our new reps that are hitting those numbers, and that's easily enough to sustain ourselves. We kind of push forward to our second half target to maybe 2020.

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Huang Howe, Barrington Research Associates, Inc., Research Division - Senior Investment Analyst & Research Analyst [63]

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Okay. That's helpful. And then the second topic is, just around what you're seeing as far as growth, whether it'd be between existing accounts or new adds? Previously you had mentioned a penetration rate in relation to your Fortune 500 customers. And you've mentioned on this call the different growth that you're seeing with different size accounts. How should we look at the financial impact as you start to grow your penetration rates within these different size accounts? And how does this relate to upselling in renewables and the different opportunities you see there as we look forward?

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James W. Budge, Pluralsight, Inc. - CFO [64]

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Yes. Great series of questions there. I'd say, the penetration rate continues to slightly uptick with our Fortune 500 accounts when we went public just over a year ago. We said 5% of our Fortune 500 TAM was penetrated with billings to us on an annual basis. That number a quarter ago was about 7%. We're up to about 8% now. So it continues to grow. It's one of the key reason why Aaron was able to say that our top 25 customers, of course, would all be Fortune 500, but our top 25 customers have grown 22x since their initial land deal with us. That has grown from -- I think that number was around 9 to 11x at the time that we went public. So the expansion continue to grow in our biggest accounts and we don't see that changing over time. So massive opportunity in the Fortune 500, the top 25, whatever direction you want to cut it. And at the same time, we added 500 new logos this quarter. Some really big names and some really little names, but 500 new accounts in a quarter is excellent and we're super happy about that. And while we would always like to have even more, it's a great number and pretty consistent with the 500 to 600 that we add on any given quarter. So we're -- we see the momentum there. We see the opportunity in front of us. There's always opportunities and room for improvement, clearly coming off of this quarter. And we see the path to that improvement as we roll through the rest of the year.

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Huang Howe, Barrington Research Associates, Inc., Research Division - Senior Investment Analyst & Research Analyst [65]

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And is there any way to parse out or break out the 8% penetration rate as to what logos or perhaps what sectors are having more of a drive towards this increase in share of wallet?

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James W. Budge, Pluralsight, Inc. - CFO [66]

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Not really, it's pretty -- I mean, there's no concentration in any industry. Our biggest industry, just by size, but it's not really all that much bigger than the #2 industry, but financial services is our #1 vertical. Tax, might think will be #1, but that's #3 actually. Financial consulting services and shots like that are #2. And then, as you just heard Aaron mentioned, we've got Ford as $1 million payer right now. MasterCard, I guess, that would fit into financial services. But a lot of good breadth across all the verticals. So hard to break that out. There's no -- given there is no concentration, the way we think of a TAM is, the 8% roughly equates to about $80 million a year coming in from our roughly 350 Fortune 500 accounts. And we're seeing opportunity with a clear line of sight to $1 billion plus in total tech TAM. We're just talking about the tech TAM inside of those Fortune 500 accounts. And when you extend the Fortune 500 out to the Global 2000, it's roughly double, again, if not more. So the TAM in front of us with the accounts we've already landed is measured in -- already measured in billings.

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Aaron B. Skonnard, Pluralsight, Inc. - Co-Founder, CEO & Chairman [67]

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In the end, the best targets for us or these companies that are striving to become more tech-enabled, more tech-savvy, make tech a bigger part of their strategy, and like James says that's happening everywhere, in every industry.

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Operator [68]

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And I'm not showing any further questions.

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Aaron B. Skonnard, Pluralsight, Inc. - Co-Founder, CEO & Chairman [69]

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All right. Well, I'll close with a big thanks to our customers, our shareholders, our authors, and of course, all of our team members here at Pluralsight for your continued support. And we look forward to speaking with you again next quarter. Thanks, everyone.

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James W. Budge, Pluralsight, Inc. - CFO [70]

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Thank you.

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Operator [71]

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Ladies and gentlemen, this does conclude the program. You may now disconnect. Everyone, have a great day.