Box Inc Q2 FY2020 Earnings Call

Good afternoon. My name is Christine, and I’ll be your conference operator today. At this time, I would like to welcome everyone to Box Inc.'s Second Quarter Fiscal 2020 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Alice Lopatto, Head of Investor Relations, you may begin your conference.

Good afternoon, and welcome to Box's second quarter fiscal 2020 earnings conference call. On the call today, we have Aaron Levie, our CEO; and Dylan Smith, our CFO. Following our prepared remarks, we will take questions. Today's call is being webcast and will also be available for replay on our Investor Relations website. Our webcast will be audio-only. However, supplemental slides are now available for download from our website. We'll also post the highlights of today's call on Twitter. On this call, we will be making forward-looking statements, including our Q3 and FY 2020 financial guidance and our expectations regarding our financial performance for fiscal 2020 and future periods, timing of and market adoption of our products, our markets and market size, our operating leverage, our expectations regarding maintaining positive free cash flow, future profitability, and unrecognized revenue and remaining performance obligations, our planned investments and growth strategies, our ability to achieve our long-term revenue and other operating model targets, and expected timing and benefits from our new products, pricing, and partnerships. These statements reflect our best judgment based on factors currently known to us and actual events or results may differ materially. Please refer to the press release and the risk factors in documents we file with the Securities and Exchange Commission for information on risks and uncertainties that may cause actual results to differ materially. These forward-looking statements are being made as of today, August 28, 2019, and we disclaim any obligation to update or revise them should they change or cease to be up-to-date. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to not as a substitute for, or in isolation from, our GAAP results. You can find additional disclosures regarding these non-GAAP measures in our earnings press release and in the related presentation. Unless otherwise indicated, all references to financial measures are on a non-GAAP basis. With that, let me hand it over to Aaron.

Thanks, Alice, and thanks everyone for joining the call today. In Q2, we delivered a solid quarter with revenue of 172.5 million, up 16% year-over-year. Non-GAAP EPS improved to breakeven versus negative $0.05 a year ago. We delivered wins and expansions with thousands of customers, including the City of Philadelphia, IQVIA, NewYork-Presbyterian, and LPL Financial. This past quarter, we closed two deals worth more than $1 million, in line with Q2 last year, three deals over $500,000 versus 11 a year ago, and 68 deals greater than $100,000 versus 50 a year ago. We are incredibly happy with our execution in our $100,000 plus deals, which is due to the improvements in sales productivity and enablement that we've been driving across the company to deliver more consistent results. As we discussed last quarter, we are focused on helping our customers leverage Box as a complete platform for secure content management, workflow, and collaboration by evolving our product and improving our sales motion. When our customers use our full suite of cloud content management solutions, we see dramatically higher average contract value and better retention leading to greater lifetime value. A key indicator of our success in driving this transition is both the repeatability of our $100,000 plus deals and the adoption of our add-on products. This past quarter, over 80% of our $100,000 plus deals included at least one add-on product, compared to just two-thirds a year ago. And we are seeing strong adoption of these products across sales segments as demonstrated by our add-on product revenue growing at roughly 50% year-over-year. Demand for Box remains strong. Customers are looking to protect their most important information with frictionless security and compliance, streamline internal and external collaboration and workflows, and integrate content into their best-of-breed applications in their IT stack. Box is the only cloud-native platform built to meet all of these needs. In Q2, we continued to deliver exciting new products and execute on the most aggressive product launch timeline in our history. In June, we released the all-new Box Relay to our customers. Relay automates critical workflows across the enterprise while benefiting from Box's security, compliance, and deep integrations. While still early, we are incredibly excited with how the product has been received and the new use cases it addresses, including automating document review and approvals, streamlining the recruiting and onboarding process, and automating routing and approval of incoming invoices and other documents. Last week, we announced Box Shield at an event with an audience of security and technology leaders from some of the world's largest organizations. Shield is a breakthrough product for us that's been in the works for nearly two years and delivers a new set of security controls and intelligent threat detection capabilities for content management. Built natively in Box, Shield helps prevent accidental data leakage, detects potential access misuse, and identifies external threats. For example, with Shield, banks can more easily prevent accidental sharing of documents in an M&A process; media companies can better ensure content doesn't leak; and government agencies can quickly decipher regular versus anomalous activities affecting sensitive information. We are already seeing incredibly strong interest in Shield across all industries. We've received resounding feedback from customers and industry analysts that Shield is a major advancement in cloud security. Shield will help further extend and strengthen Box's differentiation in the enterprise from a critical set of customer challenges and increase Box's available market opportunity. Shield will be generally available later in the quarter and will be sold as a standalone product, as well as part of our Box suites. Our continued innovation led Forrester in June to name Box as the most visionary leader in its new wave for cloud content platforms. Out of 13 vendors, including Microsoft, we received the highest overall score for our strategy as determined by our clear, compelling, and exceptional three-year vision, ease of use, and strong security, governance, and compliance capabilities. This new report and the direction by Forrester to re-categorize the market as cloud content platforms recognizes the profound market shift away from traditional ECM offerings. In Q2, several customers chose Box over these legacy solutions. For example, we closed a six-figure expansion with a global security and advanced technologies company to enable seamless and intelligent work with content across its internal and external communities. As a part of their Box deployment, this company will move off from SharePoint to faster real-time access to information, reliability, and ease of collaboration with their clients. A U.S. state government agency purchased Box in a six-figure deal to replace multiple file servers and storage platforms, including FileNet and SharePoint to create a centralized secure cloud repository. They will also be leveraging Box to build custom internal and external portals to better serve their constituents and staff. This transition to Box will decrease their annual spend on resources and infrastructure while adhering to regulations like FedRAMP, ITAR, and HIPAA compliance. Finally, we closed a six-figure deal with a large Fortune 500 mining company that standardized on Box to deliver a content sharing solution that is mobile, user-friendly, and secure. The initial deployment of Box will retire OneDrive and SharePoint sites, providing a single platform to exchange documents and information between internal staff, partners, and other third parties. Overall, with our portfolio solutions, including Box Relay, Shield, Governance, and Platform, we have a huge opportunity to disrupt the $40 billion plus legacy content management collaboration and storage markets. We will continue to stay focused on rapidly innovating for customers to transform and simplify how they work and ensure we're staying far ahead of the competition. We also made good progress on the evolution of our go-to-market efforts in Q2. A major component of this evolution was the introduction of Box suites. Box's product portfolio has evolved considerably over the past four to five years, and we have heard from customers that they want to adopt our add-on products like Governance, Relay, Shield, and Platforms in a more streamlined way. We now offer two suites, one aimed at secure collaboration in the enterprise, and a second for driving critical business processes and building custom apps on Box. These suites bundle our products to better align with our customers' cloud content management use cases. Already with suites only live for the past few weeks, we are seeing a more streamlined sales process, which led to higher average contract value and customers adopting more of our add-on products. In the quarter, we're also excited to welcome Mark Wayland as our new Chief Revenue Officer, leading our global sales organization, reporting to Stephanie Carullo. He is a 10-year veteran of Salesforce, where he held a variety of sales leadership roles and has worked in the information technology industry for 25 years with companies like Gartner, Nortel, and most recently Tanium, an enterprise security company. Mark’s strong operational experience will be instrumental in driving higher sales productivity as we scale, and he’s already been ramping incredibly quickly at Box. At Box, he will be focused on driving standardization in our sales motion to achieve consistent execution across regions, improving the growth rate of our large deals that bring our full cloud content management suite to our customers and expanding growth within our existing customer base through a deeper focus on renewals and retention. In particular, we are extremely focused on driving the repeatability of our $100,000 plus deals. We expect to see increasing growth in this volume of $100,000 plus deals on a year-over-year basis, as we drive more standardization in our sales motion and simplify our product offerings with suites. To support these initiatives, we are continuing to focus on improved sales enablement and training programs and having our sales and customer success organizations partner more closely to drive retention and expansion initiatives. Before we conclude, we wanted to share that this October, we will be hosting thousands of customers and partners at BoxWorks, where we will discuss our latest product developments and strategy. This year will be another incredible event with speakers including Ginni Rometty, CEO of IBM; Shantanu Narayen, CEO of Adobe; CEOs of best-of-breed technology partners including Zoom, PagerDuty, Okta, and Slack, as well as IT leaders from enterprises like Intuit, MGM Studios, the NBA, and Uber among many others. Overall, with the combination of a large installed base of enterprise customers, a strong product roadmap and advanced capabilities, and a focus on improved sales productivity, we feel confident in our ability to capitalize on the opportunities ahead. We're excited about the future of cloud content management, and our strategy remains focused on driving long-term revenue growth balanced with greater profitability.

Thanks, Aaron. Good afternoon, everyone, and thank you for joining us today. Q2 was another solid quarter of demonstrating momentum in our cloud content management strategy as we continue to see strong add-on product attach rates leading to healthy growth on $100,000 deals while delivering our second ever quarter of positive operating income. We delivered revenue of $172.5 million in Q2, up 16% year-over-year. This result benefited from strong in-quarter deal pacing and roughly a million in non-recurring revenue that we had been expecting to recognize in the second half of the year. 25% of our Q2 revenue came from regions outside of the United States. As a reminder, we will be emphasizing our remaining performance obligations (RPO), which are consistent with GAAP accounting and represent non-cancelable contracts that we expect to recognize as revenue in future periods. This metric consists of deferred revenue and backlog offset by contract assets, and we believe it is a more comprehensive indicator of our momentum and growth potential than billings. Our RPO ended Q2 at $641 million, up 9% year-over-year. We expect to recognize roughly 67% of this RPO over the next 12 months. Due to the timing of large upcoming multi-year renewals, we expect to see pressure on our RPO in Q3 before rebounding in Q4 as these deals renew. Second quarter billings came in at $172.9 million, representing 6% calculated and 7% adjusted billings growth year-over-year in line with the expectations we referenced in our last earnings call. As we mentioned on that call, Q2 billings were impacted by this year's deal pacing and a headwind from the enhanced developer fee. In the back half of this year, we continue to expect calculated billings growth to track more closely to revenue growth. Turning to margins. Non-GAAP gross margin came in at 71.3% versus 73.7% a year ago and slightly better than our expectations as we delivered optimizations to our data center infrastructure. As we migrate our data center footprint to more scalable lower-cost regions, leading to temporarily duplicative costs, we still expect gross margin for the remainder of FY 2020 to range from 70% to 71%. Once we complete this migration and as we continue to drive efficiencies in our infrastructure, we expect our gross margin to trend upwards starting in the back half of FY 2021. In Q2, we continued to see our business model and improved efficiencies drive leverage across the business. Sales and marketing expenses in the quarter were $70.4 million, representing 41% of revenue, an improvement from 45% in the prior year. Looking ahead, we expect to generate additional leverage in sales and marketing as more of our revenue comes from renewals and up-sells, which are more profitable and as we simplify our product offerings and standardize our sales motion to achieve more consistent execution globally. Next, research and development expenses were $34.4 million, or 20% of revenue, flat with a year ago, even as we significantly enhanced our cloud content management product offerings, including the general availability of Box Relay and the continued development of Box Shield. Our general and administrative costs were $17.7 million, or 10% of revenue, compared to 12% in Q2 of last year. We expect to drive continued leverage in G&A as we benefit from greater operational excellence and scale. Total Q2 operating expenses represented 71% of revenue, compared to 78% a year ago, so despite our temporarily lower gross margin, we are able to drive our Q2 non-GAAP operating margin to a 5-percentage point improvement year-over-year coming in at just over breakeven versus negative 4% a year ago. As we mentioned on our last earnings call, we continue to expect non-GAAP operating margin to be 6% to 7% for the full year of FY 2021. Non-GAAP EPS came in at breakeven, a very strong $0.05 improvement from negative $0.05 a year ago and above the high end of our guidance. In Q2, our full churn rate remained stable at 4.2% on an annualized basis. As customers increasingly adopt additional products either in their initial purchase or as a cross-sell over time, they become significantly stickier. Our net expansion rate was 10% on an annualized basis. As such, we ended Q2 with a net retention rate of 106%, down from 107% last quarter. As a reminder, this incorporates the impact of a single large customer that reduced its footprint in Q1 of this year. For the fifth consecutive quarter, we've seen an improvement in our price per seat on a year-over-year basis. We now have $12.5 million paid users. Let me now move on to our balance sheet and cash flow. We ended the quarter with $201.5 million in cash, cash equivalents, and restricted cash. Cash flow from operations was negative $4.7 million, compared to negative $1.3 million a year ago. Year-to-date, we've generated roughly $21 million in cash flow from operations, up roughly $4 million over the same period last year. In Q2, total CapEx was $1.5 million versus $3.3 million a year ago. Capital lease payments, which we factor into our free cash flow calculation, were $10.0 million versus $5.8 million a year ago. We expect CapEx and capital lease payments combined to be roughly 6% to 7% of revenue both in Q3 and for the full year of FY 2020. As a result, free cash flow was negative $19.0 million, compared to negative $10.3 million a year ago. We expect to see year-over-year improvement in free cash flow in the second half of this year. With that, let's now turn to our guidance. For the full year of fiscal 2020, we expect revenue to be in the range of $690 million to $692 million. We remain committed to delivering our first year of non-GAAP profitability this year and we expect our FY 2020 non-GAAP EPS to be in the range of $0.00 to positive $0.02 on approximately 153 million diluted shares. Our GAAP EPS is expected to be in the range of negative $1.03 to negative $1.01 on approximately 148 million shares. For the third quarter of fiscal 2020, we are setting revenue guidance in the range of $174 million to $175 million. We expect our non-GAAP EPS to be in the range of negative $0.01 to $0.00 and for our GAAP EPS to be in the range of negative $0.28 to negative $0.27 on approximately 153 million and 149 million shares respectively. We look forward to hosting our annual user conference BoxWorks in San Francisco on October 3 and 4. As usual, our Q3 sales and marketing expenses will reflect the cost of this event, which we expect to be approximately $6 million. In conjunction with this user conference, we will be hosting a breakout session for analysts and investors on October 3, including Q&A. At BoxWorks, we'll be highlighting our progress and excitement around our product roadmap, which will allow us to build on the CCM momentum that we've been seeing. We will also be discussing our customer economics and overall financial model as we balance growth and profitability on our path to a billion and beyond. With that, I would like to open it up for questions.

Hi. This is Rich Hilliker on for Phil. Thanks for taking my questions. In terms of the changes that you've been making to your go-to-market, specifically operational rigor with large deals, hiring, training, enablement. I was wondering if you can help us understand the progress you've made there? What went well this quarter and is resonating with the team relative to prior quarters? And maybe where your focus lies, as we head into the second half of the year? And then I have a follow-up. Thanks.

Yes, thanks. This is Aaron. We've already made a significant amount of progress on the training enablement efforts around streamlining selling Box in a repeatable way. And that remains a massive focus for the second half of this year. I think the best evidence of this is the 36% growth in the $100,000-plus deals. In that segment generally, what we're seeing is that when our sales reps go after use cases that bring together the full power of Box, which now includes obviously Relay and imminently Box Shield, our win rates are a lot higher, the deal sizes are significantly greater, and ultimately we see way greater lifetime value from those customers. So, we're really, really focusing our sales enablement, training, and sales standardization efforts on selling the complete value proposition of Box and the complete platform. When we do that, we know that we execute incredibly well. So, the second half is all about focusing on that.

Great. Thanks. That's helpful. Staying on that same note, I realize that it's still early, though, how has traction been for the digital workplace and digital business suites? And how has that corresponded with these other go-to-market changes that we've just been talking about? And I guess I'm particularly wondering in terms of the larger deals and the longer sales cycles that you've called out in past quarters. Thanks.

Yes. So, the suites are incredibly important to our strategy. We wanted to introduce a way where our customers could leverage multiple add-on products and be able to get the full value from Box as opposed to historically having individual sales processes for each add-on product that we sell. Now we have a portfolio that really warrants streamlining that sales motion and making sure it's as efficient as possible. We introduced two product suites in Q2, and at the very end of the quarter. So, adoption was actually very strong at the very end of the quarter, and we're building a very strong pipeline for the second half. We already have a lot of great evidence of the sale of these suites, and that's where we're going to be focusing on in the second half. It really helps drive the standardization of our sales motion, as well as being able to really drive a higher volume of these $100,000-plus deals across all sales segments in the business right now.

And this is Dylan. The only thing I’d add to that is that, especially given how long these suites have been in the market, we’re seeing a pronounced impact, particularly in the commercial segment, where a year ago it was very, very rare that we were able to achieve a six-figure deal outcome. That strength is one of the things driving some of the growth that Aaron mentioned in the large deal outcomes. We are seeing deal cycles stabilizing now with more predictability. There's still a lot of work to do, as we talked about, but the impact that we're already seeing through these customer conversations around suites and newer products is something we’re pretty excited about.

Great. Thank you.

Good afternoon, guys, and thank you for taking my question. I'd like to follow on your comments relative to what you're experiencing with sales cycles and such new products hitting, in light of the fact that growth in the second half is looking at 11.5% and a pretty precipitous decline from the first half and on a year-over-year basis. So, help us understand where the level of conservatism is there, where the puts and takes are relative to that guide. Thanks.

Sure. As we've talked about in prior calls, we have seen and had been expecting a fairly back-end loaded year this year. So, the second half and Q4 in particular will be very telling both for measuring our continued progress on some of these initiatives, as well as our overall growth rate. A lot of this was baked in, and I want to note that the deal cycles have been stabilizing. We have been able to mitigate many of the challenges that we've seen as we've been moving upmarket through the different initiatives that Aaron discussed. The only other note I'd make is that because of some assumptions going into the deal pacing and the nature of deals, this will show up in the formal guidance for this year, while much of our success and that volume will flow through next year's model. Because of the ability to execute on key milestones, we pulled in about $1 million of non-recurring revenue that we'd expected in the second half into Q2. So, that was a bit of an impact on the overall growth rate.

Can you elaborate on what that non-recurring component was? I'm sorry.

Yes. It tends to be services-related; that's what the bulk of our non-recurring revenue is.

Yes. Just to build on Dylan’s point on the pipeline that we're seeing in the second half, there’s really strong momentum around financial services, life sciences, and the federal government, where we've seen a lot of success. As that rolls through in the second half, this will continue to show up in the revenue and bookings numbers.

Hi, good afternoon. This is Matt Coss, on behalf of Mark Murphy. Thank you for taking my questions. Did any of the seven-figure deals that had slipped till later in the year close in Q2? And if not, do you see some of those still being in play?

Yes. So, we did see some good performance against some of those pushed deals in the first half, and we see the majority of them still in the pipeline. Those that didn’t close in the first half are expected in the second half. There’s very strong momentum. Obviously, the size of the companies we tend to see those seven-figure deals come from tends to align more with second half budgets or end-of-year budgets from those customers. This points to a little bit of a close cycle later in the year, but we are seeing strong progress across these bigger deal segments. In Q2, we also saw a lot more progress in the $100,000-plus deal segment. We’re focusing deeply on that sales segment and expect to see continued growth there in the coming quarters.

Got it. That's helpful. And then the year-over-year improvement in sales and marketing as a percentage of revenue has been nice. Is there a steady state of this sales and marketing spending as a percentage of revenue? And does this involve a slowdown in the pace of sales headcount additions offset by some efficiency gains? Where do you see S&M as a percentage of revenue over the longer term, just conceptually?

Yes. We do expect to drive additional leverage in sales and marketing, primarily as a combination of both the natural business model leverage and the fact that greater proportions of our revenue base are coming through up-sells and renewals, which are higher contribution margins. There’s still a lot of focus and room for improvement over time.

Hi, this is Josh Baer on behalf of Melissa. Congrats on the really strong $100,000 deals metrics. My question is on the new CRO, Mark Wayland. Any strategic changes or tweaks that he's putting into place compared to the strategies that you've outlined over the last few quarters?

Yes. I think fortunately, it’s mostly a continuation of the strategy we've put in place over the past few quarters. His approach aligns very nicely with what Steph had been building up from an overall go-to-market strategy standpoint. The additional points of clarity or refinement are mostly on standardizing the sales process. A big push is happening on partnering with customer success on renewals and existing customer expansion. This includes a strong focus on standardization and bringing in strong sales talent while building on the momentum we’ve put in place.

Got it. And regarding Mark coming in, were there any other sales management changes in relation to that?

There have been some slight changes at various management levels in the organization, but only on an incremental basis. We feel very confident in the team we have on the field right now, especially in driving second half execution. We think we have the team and leadership in place to drive that.

If I could just sneak in one more on Box Shield. Just wondering how you think about that opportunity compared to some of your other more recent products and up-sell opportunities.

Yes. Shield is an area we’re incredibly excited about, and we've seen an excellent response from customers. For the past few years, customers have asked us for more functionality to help protect their data directly in Box. Our strong security partnerships will remain strong with Box Shield enhancing those partnerships further. However, our customers are demanding more native functionality to help them classify their data and ensure sensitive information does not exit the enterprise inadvertently. By building this functionality natively in Box, we can deliver a better user experience and utilize proprietary data signals to help identify anomalous activity. By doing so, we're unlocking a share of budget associated with security, data loss prevention, and similar technologies. We expect that this product will enhance our differentiation and encourage customers to adopt Box more widely across their organization.

Thanks for taking the questions. I wanted to start on the non-U.S. results. It looks like those accelerated this quarter. I didn't know if that benefited at all from the one-time non-recurring item you mentioned, Dylan. In the past, there have been challenges in regions outside the U.S. Any update on what drove the improvement there?

Yes. It was not related to the non-recurring piece. Regarding overall revenue, it reflects trailing metrics, but we are certainly seeing overall strength in a lot of our regions outside of North America. In particular, Japan has been performing very well for us consistently. We have also seen some improvement in EMEA. As you'll recall, that was one area where we experienced variability and disappointing results last year. Overall productivity there is still below levels seen in other regions globally, but we’re seeing positive signs.

Well, it's great to hear. Just a follow-up. Dylan, you mentioned that there should be some sales and marketing efficiencies as you focus on selling to your existing customer base. Is there any way to split out how much of the sales and marketing expenses are focused on acquiring new logos versus selling back into the install base?

Yes. Directionally, we've discussed the types of ranges where we expect the components of the P&L to evolve over time. We expect to provide more color on that in the future. But at the moment, there hasn't been a change from our current measures compared to historical data.

And to build on that, we have a strong focus on ensuring our customers are advancing their use cases with our add-on products like Relay, soon Box Shield, Governance, and Platform. This will be aided by the launch of the new suites and ensuring customers fully adopt our solution portfolio.

Yes. Just directionally, one final point to add here is that as you think about our overall go-to-market efforts and sales and marketing spend, we expect a greater percentage to be directed toward our existing customers. This is motivated by both strategic opportunity as well as the ongoing build-out of our customer base in regions like Japan.

Hi, guys. Thanks for taking my questions. I wanted to start by drilling a little bit more down on the retention and expansion rate. Dylan, on your prepared remarks, you talked about how the sequential decline from 12% expansion last quarter to 10% this quarter was in part due to one large customer that renewed at a lower level in Q1. Can you help us understand how significant a contributor was that? Was that the entire reason for the decline? Why didn't it impact the number in that quarter, but it is having a more profound effect this quarter?

Sure. The majority of the impact was coming from that single customer. It’s more pronounced now as we calculate the metric on a trailing 12-month basis. This means the event will show up for the next few quarters as it impacts a higher number of quarters. So, that was the primary reason for the sequential change, but it is also worth noting that these metrics can be affected by rounding. The impact on a quarter-over-quarter basis was just slightly higher than 1%, even though it rounded to 2%.

Got it. Thanks, that's helpful. A follow-up on cash flow. I know cash flow was improved relative to Q2 last year but is still lighter than expected. How should we think about free cash flow for the remainder of the year? And maybe what levers should we look for beyond that? Thanks.

We view cash flow from operations and operating margin to generally trend in the same direction, moving and improving at roughly the same magnitude. Q2 has been traditionally our weakest cash flow outcome. We tend to see pressure there coming out of the lowest bookings and billings volumes in Q1. With a strong Q1 collection, we have seen solid improvement and results on the cash flow side year-to-date. On the free cash flow front, some impacts this year have come from capital leases attached to the data center migration project, which we view as elevated relative to the run rate levels. However, as for the business going forward, we expect to see improvements year-on-year in the second half in both cash flow from operations and free cash flow.

Thanks for taking my questions. On the $100,000-deal sizes, was there any material change year-over-year in terms of average deal size or ACV there?

No. We did not see a significant change in the average deal sizes in that segment. It was impacted more by deal volume. The biggest change in those deals has come from the segment, seeing contributions from our SMB sales reps, which has meaningfully contributed to that outcome.

Okay. Given that the deal count increased 36%, if average deal sizes have not changed, that translates to a dollar increase. Should we be impressed with that?

The average contract value, while we haven't provided specific numbers, is quite a bit higher than what you referenced. This segment includes the largest customer deals that can get into millions of dollars per year, so average contract values are much higher than $200,000 in that population. We measure the $100,000-deal segment to illustrate the health of the overall large deal segment. It's indicative of a larger trend in sales moving toward add-on product sales and larger deals.

We use the $100,000-deals threshold as an illustrative breakpoint. It indicates the overall sales motion's health, particularly as we see ongoing movements toward larger deals by encouraging deeper engagement with our complete portfolio.

Hi, good afternoon, and thanks for taking my question. Are you seeing any discounting or any pricing pressure in selling the suite to existing customers or new customers?

We do offer discounts associated with buying suites beyond what a customer would get if they were to purchase all those individual products a la carte. Overall, this has positively impacted our pricing. We've seen our fifth consecutive quarter of year-on-year improvement in price per seat.

As a follow-up on earlier questions about turnover, has there been any material turnover in the last quarter or two that has affected deals over $500,000?

No, I wouldn’t say that has affected the deals over $500,000. We have had a focus on performance management this year alongside up-leveling our sales leadership team and changes made there, but that hasn’t impacted the deals that we're working on this year.

There are no further questions at this time. This concludes today’s conference call. You may now disconnect.