Zendesk's (ZEN) CEO Mikkel Svane on Q1 2018 Results - Earnings Call Transcript

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About: Zendesk, Inc. (ZEN)
by: SA Transcripts

Zendesk Inc. (NYSE:ZEN) Q1 2018 Earnings Conference Call May 1, 2018 5:00 PM ET

Executives

Marc Cabi - Investor Relations

Mikkel Svane - Founder, Chief Executive Officer and Chairman

Elena Gomez - Chief Financial Officer

Analysts

Bhavan Suri - William Blair

Brent Bracelin - KeyBanc

Jesse Hulsing - Goldman Sachs

Stan Zlotsky - Morgan Stanley

Scott Wilson - Piper Jaffray

Daniel Greenfield - Evercore

Derrick Wood - Cowen and Company

Phil Winslow - Wells Fargo

Jennifer Lowe - UBS

Brad Sills - Bank of America Merrill Lynch

Paker Lane - Stifel

Matt Spencer - JMP Securities

Jeff Van Rhee - Craig-Hallum

Operator

Good afternoon. My name is Jesse, and I will be your conference operator today. At this time, I would like to welcome everyone to the Zendesk First Quarter 2018 Earnings 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. [Operator Instructions] Thank you.

Marc Cabi, You may begin your conference.

Marc Cabi

It's Marc Cabi and I'd like to welcome to our first quarter 2018 earnings call. We're pleased to report a solid financial results this evening. Joining me on the call today are Mikkel Svane, Founder, CEO and Chair of the Board; and Elena Gomez, our Chief Financial Officer.

Before we get into the details and results, let me pass along a few reminders. Our Shareholder Letter is available at investor.zendesk.com, which details our full results and commentary. As a reminder we adopted the new revenue recognition standard ASC 606 effective January 1, 2018 and all results today and forward-looking guidance are in accordance with the new revenue recognition standard.

During the course of today's call, we may make forward-looking statements such as statements regarding our future financial performance, product development, growth prospects, ability to attract or retain customers and ability to compete effectively. The assumptions, risks and factors that could affect our actual results are contained in our earnings press release in the Risk Factors section of our prior and subsequent filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K and our upcoming quarterly report on Form 10-Q.

We undertake no obligation to update these statements after today's presentation or to conform these statements to actual results or to changes in our expectations, except as required by law. Please refer to today's earnings release for more information regarding forward-looking statements. During this call, we will present both GAAP and non-GAAP financial measures. The non-GAAP financial measure should be considered in addition to, not as a substitute or an isolation from our GAAP financial information. You can find additional disclosures regarding these non-GAAP financial measures, including reconciliations with the comparable GAAP financial measures in today's earnings press release and in the Shareholder Letter and for certain non-GAAP financial measures for the prior period in the earnings press releases for such periods, all of which are available on our website.

With that introduction, I will turn the call over to Mikkel.

Mikkel Svane

Thank you so much, Marc, and welcome, everybody. Thanks for joining us today. So we started 2018 with a strong first quarter. Thanks largely to increased momentum in moving upmarket with enterprise customers. Our results exceeded our expectations and put us in a position to increase our guidance for the remainder of the year. Our revenue for Q1, 2018 rose 38% year-over-year. We now expect our full year revenue for 2018 to range between $565 million and $572 million.

Our enterprise momentum comes as we seek to accelerate our move upmarket during 2018 booked by maturing our go-to-market efforts and by building out our family of products with capabilities to sign for larger organization. We've invested in sales leadership with enterprise experience and have begun seeing the benefits in the execution and the productivity of our sales team. Over the past nine months, we have launched free enterprise focus product releases. Talk and Chat Enterprise were released in Q3 and most recently we launched an enterprise addition of Guide here in April. You'll see us continue to build enterprise product capabilities going forward.

We also crossed an important milestone based on our Q1 results by exceeding an annual revenue run rate of $500 million. We're the fastest growing dedicated customer service and engagement platform out there and our progress continues to increase our confidence in our plan to achieve our longer term revenue target of $1 billion in 2020. Personally, I feel very proud about the progress we've made through expand entirely new areas of our business. We're proving that our products and our mission have brought appeal to both the newest, coolest, startups and for the Fortune 500. We now serve more than 125,000 paid customer accounts worldwide which by the way is up 23% year-over-year. So we're ready to reach far more organizations this year and beyond and help them build the best customer experiences for their customers.

And with that, back to you Marc. Thanks everybody.

Marc Cabi

Thank you, Mikkel. Jesse, I'm going to turn it back to you. As you know, we keep our comments brief and we'll begin to take questions from the call.

Question-and-Answer Session

Operator

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

Bhavan Suri

First just starting over the next dollar expansion rate there, 120%. Can you just parse that out a little more between sort of large customer expansions? Product sales sort of driving ARPU, sort of existing customers that we're sort of large but expanding the different divisions because you had the challenge of large customers buying in bulk and sort of at, putting pressure a little bit on net dollar expansion rate because they're buying sort of in large number of season [ph] fully penetrating sort of departments or divisions so just some breakout there would be helpful. Thank you.

Elena Gomez

Sure. The figured [ph] question. So we typically plan for at the highest levels just to give you contact. We range between 110% and 120% but we're consistently seeing our land and expand motion continue to play out both with large and small customers. So we recently looked at analysis that really demonstrated that even customers that are with us for sometime continue to show expansion and even some of our large customers continue to show expansion as they grow. So we're seeing it in both segments. The other thing I would is that our turning contraction has held steady across both segments and that continues to give us confidence and understanding in that net expansion rate.

Bhavan Suri

Got it. It's helpful. And then maybe for Mikkel. Obviously the enterprise activity is ramping up, what we see with lot of companies that sort of benefit from that, they sort of the partner channel so just a little bit more color on the partner and the mix and where do you think that is in three to four years sort of in terms of driving both new and expansion deals, especially the larger customers typically require a little more hand holding, a little more configuration, a little more customization and professional services remain sort of sub 5% for you guys. So just some sense of the investment you're making there and sort of what makes you think that does and say two, three, four, five years. Thanks.

Mikkel Svane

Yes, there's no doubt that we're still in the very early days of our partner and channel strategy buddy. This is an area that we're investing in, as you say because just it is an important channel, but it's also important for our customers and so making our partner channel work really well with our professional services is going to be critical for our continue move up stream and continue move into the enterprise, so this is an area we're investing in and we can really see kind of, the areas, some of the areas especially outside of the US where we made early investments that it has really paid off. So it's definitely where you'll see a completely different game from us in the time range that you're talking about.

Bhavan Suri

Great. Thanks guys and congratulations again.

Operator

Your next question comes from Brent Bracelin with KeyBanc. Your line is open.

Brent Bracelin

I'll start with Elena here obviously very impressive net dollar expansion ratio improvement there. My question is really on the contribution from new ARR, it looks like that grew double digits for the first time in over a year so as we think about the drivers of that in this quarter, that did look like the net logo adds were a little bit less than what you had the last quarter, was it all higher ASP deals, mixed shift enterprise. Walk us through why you're seeing the double-digit growth and new ARR for the first time in a while here this quarter and what those drivers are given the logo adds were a little lower than last year.

Elena Gomez

Sure, thanks. Brent. So there's really a couple things, one is we talked about. You probably heard us talking about it towards the end of last year or certainly to see strength in our pipeline as well as we had a marketing leader join us at the middle of last year and so it's not any single one attribute I can point to. It's really the combination of stability in the sales force and in particular the territories remain stable and we were deliberate about that combined with more marketing rigor and really focus on making sure we have SLAs etc. as well as like I said continuity in the sales order [ph]. I think all of those things along with continued strength in our pipeline really demonstrates our success and that's what really showing up in the numbers.

Brent Bracelin

Helpful there. And Mikkel if I look at billings here second straight quarter of 40% plus growth in calculated billings. My question is really around the international. How much of a role did international play here in the quarter itself and how should we think about the international opportunity relative to kind of the momentum, the strength that you saw in the US for the last three, four years.

Mikkel Svane

Zendesk has always been a company with tremendous international presence and tremendous international kind of flare. Maybe due to our roots, maybe due to the fact that we build a very strong diverse company. We do business really well all around the world and we see some very high growth rates in several regions. But we're still like, we still feel that there are large regions where we're still very low penetrated and we seek huge growth opportunities outside of the US. We still think, we have around half of business outside the US and we can see that part of our business can continue to grow in faster than we do here in the whole market.

Brent Bracelin

Great. Thank you.

Operator

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

Jesse Hulsing

I wanted to ask about your non-support products. It looked like, non-support, non-Chat products were at 10,000 for the first time I think it was 2,800 or 2,900 a year ago. So you've had a pretty significant increase in adoption of those products and as you mentioned in the prepared remarks. I think you rolled out enterprise functionality for a few of those as well. I'm wondering how you're trending towards the 25% of revenue from non-support products by 2020. The target that you talked about your analyst day last year, any update to that.

Elena Gomez

No, there's not really an update and we're seeing really good traction with our multi-products and we look at of course the number of customers with multiple products and it continues to evolve and we can see that our percentage of revenue coming straight from supportive is trending down overtime. So at this point I don't see myself changing that general guidance. I feel pretty good about where we are.

Jesse Hulsing

Great and then Mikkel. I'm wondering at a higher level. How do you feel about where you stand with regards to AI capabilities that's more of the - I guess support lifecycle becomes automated and more agent task become automated. And then as a follow-up to that, what are your thoughts on usage base pricing and what types of things are you exploring with regards to usage base pricing?

Mikkel Svane

Yes, so this is of course an area Jesse as you know, that this we're investing in super interested and the volume of support transactions are just growing exponentially. It's good for business but it's hard for our customers to manage [indiscernible] and there's no doubt that applying smart, systems, applying machine learn models, artificial intelligence if you will on top of US systems can help you both. You know with better productivity but can also help you provide a much, much better customer experience. So this is something that we've been investing in for a while as you know. We have the benefit of a large customer base and billions of customer service transactions that we can build models from and really start helping our customers order make more and more of the customer service experience because they have no choice like the amount of customer service is just growing exponentially\. So we've had some recently releases that helps our customers with these things and most as we've been talking about that for a few quarters now, our answer but which is now also supporting German, Dutch and what was the last language we announced today. French, exactly as alongside English, Spanish and Portuguese and like it really helps customers of customers help themselves in a much smarter way. So our customers are really reaping the benefits of that in providing much better customer experience, but we're launching more and more these initiatives. We recently have capabilities on our enterprise Guide product that helps our customers finding the relevant content they have to create to help their customers help themselves. So this is another example of how we have applied machine learning techniques to help our customers to provide a much better and scalable customer experience. So this is of course something that we invest in, that our customers are really interested in and as you know, we also experimenting with new pricing models. Our Answer Bot is being priced at $1 per successful answer and that's really, really interesting model. Let's say we're still in the early phases of figuring out exactly steps viable long-term model, but it's really interesting that we can do these things and have a scalable billing model that allows us to make these kind of experiment on pricing model. So very excited about it and great, great feedback from our customers. We're really making a difference for a lot of our customers with these types of technologies.

Jesse Hulsing

Thank you Mikkel.

Operator

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

Stan Zlotsky

Maybe just a couple of very quick items for me. As much as billings put up a very nice acceleration again were there any changes to billing terms maybe as far as mix of annual versus something other than annual. And second one is just a high level, as much as growing the partner ecosystem. I think it's very important lever for overall growth for Zendesk. Is there enough of a post-services attached to really grow? Their way to sensitive feed this growing partner ecosystem from a work and dollars available perspective. That's it from me, thank you.

Elena Gomez

So I'll touch on the billing, Stan questions. So the - we've seen overtime as we move up market we're seeing more of our customers default annual billing that's just sort of standard practice as you get to enterprise, but we still have many legacy customers that continue to be on either monthly or annual billing and as we see fit through renewals, we may change that but at the moment what we're seeing is all of unique customers as we're moving upmarket are defaulting mostly to annual. And then on [indiscernible] I'll touch on and then Mikkel if you want to add. We have - we've done our investment and as Mikkel we're in the very early days of building out our partner ecosystem and really our alliances organization and with that is Pro serve and we're continuing to invest alongside our investment in Pro serve and we expect that there will be a tight partnership there because we want to make sure that, we can serve all customers and that there is clear delineation between who's going to work on what? But at the highest level I do think there is enough room there for us especially as we go upmarket and there's so much change management involved, there's complex environments that we're doing business with, so we definitely feel like there's an opportunity for us to have influencers in the market as we move upmarket.

Mikkel Svane

Yes, just to supplement here. Like there's a tremendous amount of demand with our enterprise customers for services to expand, to integrate and to kind of build a network of applications where senders fits in and kind of plays up, it's a good citizen in that set up. So like tremendous demand for these services from ourselves and from our partners from our enterprise customers and that's also why we're continuing to invest in this area and this will look very different just in a few years.

Stan Zlotsky

Perfect. Thank you so much guys.

Operator

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

Scott Wilson

This is Scott on for Alex. Maybe a question and a quick follow-up. Enterprise is obviously very strong 40% billings growth and then you also raised the high end of your revenue guide by $7 million which I think is the biggest raise you've ever done as a public company. But at the same time you're [indiscernible] kind of stayed flat at 38% which in my mind kind of suggest that the velocity business outperformed to. So I guess my question is, is that the right way to think about your whole and with EC [ph] driving the success across both units [ph].

Elena Gomez

Yes, so I think I'm not sure if I completely heard you but I think what you're saying is 100 plus seed [ph] metric remained at 38% and the way we think about that metric is, yes it's a proxy for our enterprise business. We also say that, [indiscernible] point or two throughout the year. Historically our Q1 is more of a transactional nature kind of quarter. This quarter we did have a little bit more movement with enterprise, but we definitely are seeing strength in our velocity business and to succeed we need growth in both businesses and that's how we think about it.

Marc Cabi

And Scott your other question around the guidance raising it by $7 million at the midpoint for the full year. Remember that as we have a strong first quarter in that subscription business that will translate out over three more quarters of subscriptions for the year. So that is definitely something that helps when we outperform in Q1. In subsequent quarters, if we're continuing to outperform in enterprise as an opportunity to continue to move upward but not at the same level as you do in a Q1 period.

Scott Wilson

Understood, so strong results. I guess my follow-up question would be despite the strong outperformance I think you left operating income and free cash flow guidance unchanged. So I guess how should we conceptualize this. Are you kind of investing? Where you kind of leaning in to investing for that outperformance or any color that would be great?

Elena Gomez

Yes it's a good question. Absolutely I think we - our philosophy is, we want to continue to invest in growth and continue to our investment with group talking about whether it's partners or enterprise investments in which we see partners as a big part of that and so we feel like this is the opportunity to set ourselves up for continued growth in that investment for us for the long haul and so that's really reason we're not changing our margin guidance.

Marc Cabi

In free cash flow margin, our free cash flow guidance as an annual guidance number. That we do have some real estate investments that will come through the year and so we'll update that if we can later in the year as we get more certainty on timing [indiscernible] real estate investments but for now until we understand all the timing of the real estate expansions we've left that where we guided last quarter.

Scott Wilson

Understood. Thanks. Congrats a good quarter.

Operator

Your next question comes from Kirk Materne with Evercore. Your line is open.

Daniel Greenfield

This is Daniel Greenfield on for Kirk. Congrats on the quarters. Just wanted to touch on, you guys drew deals worth over $50,000 by 60% plus versus just, I mean phenomenal. Can you talk about what drove that and then sort of following up on prior questions on that note since 100C [indiscernible] stayed flat, is it fair to think about some of these sub 100C customers buying more from you guys since there was 50K deals were up 60% plus.

Marc Cabi

Remember 50K MR annual revenue deals, annual contract [indiscernible] deals represent somewhere in maybe 50 to 60 seats [ph] range, so and since the 100 plus C metric is a mix metric. When you have strength in both you know there are more transactional side of our SMB business and in the enterprise that kind of stays flat. So it meant that both businesses grew extremely well. In the first quarter we traditionally have a stronger business around our transactional SMB side. This quarter we saw strength on both sides. So it was much more even quarter with the outperformance coming from the enterprise side.

Daniel Greenfield

Got it. Thanks.

Operator

Your next question comes from Derrick Wood with Cowen and Company. Your line is open.

Derrick Wood

You guys have obviously put a lot of investment on the High-Touch business. I wanted to ask about the velocity and I think you already answered saying that, you don't anticipate any slowdown in investment there, but anything you'd highlight that our new growth levers on the velocity side that we should be thinking about.

Elena Gomez

No, I mean I think you'd characterize it correctly and we have to balance the investment in our cost of acquisition if you will between the enterprise business and the velocity and that segment is all about optimization and making sure that we're as efficient as we can be and how we onboard customers into [indiscernible] by experience and we owe it ourselves to make sure that is a streamline as frictional less as possible. If we make investments is to make sure that continues to be as streamlined as we think and obviously that we have capacity to deal with deals that come in, that do require a little bit of touch. On the flipside, on the enterprise side, we continue to invest there as we see fit and making sure that we have the capacity in the field in various territories we have, but it's always a balance of both.

Derrick Wood

On the enterprise study, you have new products Chat and Self Service knowledge are pretty sizeable enterprise markets with large budgets to go after. Do you feel the need to develop more specialized sales people to target those markets more head-on, are you feeling good about your existing AE structure? I think they're kind of selling the whole portfolio right now.

Elena Gomez

We're focused on solution selling and so we're enabling our sales force. We will occasionally have specialist to help out if there's a very complex used case. But on the whole, we're investing enablement to make sure that we one AE or the group of [indiscernible] that we have is really able to support that deal just with the AE and standalone business.

Marc Cabi

Yes we talked Derrick in the past about having grown our population of pre-sales consultants. They're technical people that help and ease on more sophisticated kind of situations and so they team up in these situations to help out the coverage account number [ph].

Derrick Wood

That's great. Okay. Thanks.

Operator

Your next question comes from Phil Winslow with Wells Fargo. Your line is open.

Phil Winslow

One of the things I noted in the Letters to Shareholders was that, MRR from customers with two or more products was up 80% year-over-year. I think that's a first time I've seen that metric. Why don't you just give a little more detail on the sort of the two or more side? And so to sort of what you're seeing in terms of tax rates. Is one of the sort of the non-sport products really ticking up in your mind and or are you seeing anything between let's say the velocity of business and the larger deals in terms of just attach to multiple products.

Marc Cabi

So I think a few things as you know we start our multi-product roadmap maybe two years ago. Not all of our products in the early days had enterprise versions of that were equivalent to our support product. In this past year, we now have many more of our products [indiscernible] in terms of features, requirements and alike. So it's a lot easier for our sales people to speak about a solution base sale rather than a single product based sale and so that's some of what you're seeing there is better pull through of multiple accounts. We will continue to refine how we report on multiple products because not all products are consumed at the same rate right now across our customers. You'll hear more about how we intent to yet that to be a bigger factor of our business bigger opportunity of our business in a very short future.

Mikkel Svane

One thing maybe we could add to that is that, there is a tremendous demand for multiple channel, omnichannel solutions from our customers and like nobody thinks about customer service operation from a single channel perspective anymore and that is really creating demand for a collection of products that really works seamlessly together and that helps with this seamless end-to-end customer conversation that isn't [indiscernible] between different channels and this is really where we have invested tremendously and are continuing to invest and you see that in kind of the multi product adoption numbers.

Phil Winslow

Great. Thanks guys.

Operator

Your next question comes from Jennifer Lowe with UBS. Your line is open.

Jennifer Lowe

I saw that the comment in the Letter that mentioned that now 75% of customers are on AWS and it sounds like the aspiration is to have everybody on AWS by the end of the year. And I think on the Q4 call there was a comment that, we would get some update on the financial impact on that, on the Q1 call. So I just wanted to drill in on that quickly. what sort of - how should we think about that transition in the base over AWS impacting numbers this year and then as we think about what the margin profile looks like in 2019, now that everyone sort of on the path. Any color that you can provide us at this point?

Elena Gomez

Sure. So you're right. We've moved about 75% of our customers and we expect to move the remaining sort of customers by the end of the year and we're - now the main analysis to confirm that's a possibility. We expect to have roughly 100 basis points of uplift once we get rid of this migration tax if you will, which is really the double tax of having two environments so you'll start to see that at the beginning of next year.

Jennifer Lowe

Okay, great. And then just one quick one there. We've seen companies like Intuit talk about leveraging AI capabilities in AWS to accelerate some of their own R&D around AI capabilities. From what I've seen it seems like Zendesk is really more focused on kind of the compute and using AWS to power your models, but not necessarily pulling on the more platform level, AI capabilities in AWS. But I just wanted to run that past you and see, now that your full base will be on AWS does that potentially enable you to accelerate some of your own AI work by tapping into what AWS is building out.

Mikkel Svane

Zendesk have - we have never kind of tried to invest in proprietary machine ML kind of infrastructure, we have always and I think the market quickly played out that way that it was the big public cloud providers won the race of providing the infrastructure and the capabilities for allowing companies like ourselves to build fantastic machine learning models. So we're always taking advantage of the public cloud providers to bring the infrastructure for us to build these models.

Jennifer Lowe

Great. Thank you.

Operator

Your next question comes from Brad Sills with Bank of America Merrill Lynch. Your line is open.

Brad Sills

Just one on the mix if you will on new business on the initial sale. As you guys are moving more and more into the enterprise and gaining real traction there. Are you seeing that mixed shift more towards company-wide type deals in some of these larger accounts or is it still kind of departmental with room for expansion on the renewals over the years?

Mikkel Svane

We're definitely getting into bigger deals upfront no doubt about it and that's been that trend for years, but like we really focus on making it very easy for our customers and part of that is giving them the capability to start more and rapidly grow from there. So we're using the advantages of our organization and our product to our advantage in these selling motions and really try to do what's best for the customer and the things that eliminates risk for the customers as they rollout these big solutions. So land and expand is still integral to how we think about doing what's right for the customer.

Brad Sills

Great, thank you and then one more if I may on the revenue retention acceleration again this quarter. how much would you parse out, is there any change in that mix of where that incremental growth is coming from between user expansion and just premium mix uplift?

Elena Gomez

It continues to be user expansion as the primary followed by upgrades to plans and now we're starting to see more product adoption and I expect that overtime to shift, but it continues to be growth in our customers we benefit from that.

Brad Sills

Great. Thanks so much guys.

Operator

Your next question comes from Tom Roderick with Stifel. Your line is open.

Parker Lane

Well it's actually Parker Lane in for Tom. Thanks for taking my question. I guess the first one's for Mikkel. As you approach the one year mark of the Outbound acquisitions completion. Was wondering how you're thinking about the broader customer engagement space and what you're seeing on that market from an enterprise adoption front. Thanks.

Mikkel Svane

Well that's something we're looking forward to talk much more about very soon and again like with these new technologies, these new products, these new areas we're focusing a lot on kind of the early adopters, the innovators. The disruptors in the big organization to change agents in the large organizations and that's typically where we enter with product like that, but again like this is something we look forward to talking a lot more about soon.

Parker Lane

Got it. And then with the launch of three new enterprise products in the last nine months. Curious as to how many of your existing larger customers have already converted to this new feature sets and how much that is aided in the expansion of the dollar-based expansion rate. Thanks.

Marc Cabi

That is a great question and we have seen some really good adoption from some of our largest customers for these additional channels and additional capabilities that we're providing. Remember that enterprise guide which is the most recent one launched at the close of the quarter in early April. It is the first product that in the help center space that we can upsell to all our customers that really provides some really additional good value around Machine Learning, AI capabilities that we think will have lots of interest by a lot of our customers and so we're really excited about some of these new products and there are opportunity to grow throughout the year and be adopted by our existing customer base.

Operator

[Operator Instructions] the next question comes from Pat Walravens with JMP Securities. Your line is open.

Matt Spencer

This is Matt Spencer on for Pat. Thank you for taking my question. How important is it for Zendesk to increasingly serve internal used cases such as those for IT departments? Thank you.

Mikkel Svane

The biggest innovations happens in all the customer facing operations. That's where you see a multitude of channels, that's where you see the real opportunity for businesses to turn all these interactions into actual relationships and try to revenue. So this is where you sell all the innovation, this is what we're specialized in. that said, we are definitely also involved in some internal used cases. These are typical very large organizations that thinks about their huge employees of customers or organizations where it's very important for example to have a very customer oriented HR department. So I think we have - there's a lot of used cases that fit us really, really well and where there's a column it's like a spiritual fit between our philosophies between some of these businesses and how we build our products and we're very excited to work on them. But there's no doubt that all the really interesting things, all the innovation is happening around like mass scale customer service because businesses are growing global and are growing direct to consumer at crazy rate and this is really where you see all the innovation happening.

Matt Spencer

Great. Thank you very much and congratulations.

Operator

Your next question comes from Jeff Van Rhee with Craig-Hallum. Your line is open.

Jeff Van Rhee

Just a couple from me. With respect to the channel side and the partner ecosystem support I know that's a focus coming into 2018, just give me - give us maybe your thoughts on where we are now, where you hope to exit 2018, what do you think you need to accomplish there to give a little more backing and strength around the partner ecosystem?

Mikkel Svane

Well so high level, you'll see us build out a lot of our capabilities, you'll see us build out a lot of our infrastructure to make this a much more real thing in the coming years, that's really the priority and in that context, we're of course working with bunch of partners in a bunch of companies, but it's really about, the focus is really kind of long - how do we build a successful long-term relationship together?

Elena Gomez

I view the - thinking about the financial impact. I think that's more of a 2019, 2020 like material impact, meaningful impact. I don't see a meaningful impact. I think this is a year of investment and meaningful impact to really translate in 2019, 2020.

Jeff Van Rhee

Okay and then on the sort of the omnichannel view, if you look at your Chat in particular on the enterprise side. Can you just talk about your level of satisfaction with the Chat offering a sense of sort of market demand right now, in particular and then if you could incorporate that just do you have any thoughts around messaging as well?

Marc Cabi

Our focus on the Chat market has really been about moving upmarket with our product. In the past our Chat product cater very small business kind of context, but over the past two years we really built that product to be able to serve larger customers. So from a customer count perspective we acknowledge that growth rate of unique customer accounts [indiscernible] our Chat product have slowed but the value of those customers and the size of customers we're serving have increased and we've also really focused on cross-selling Chat into our existing support customer base, where those customers are now looking to serve their customers across a variety of channels as Mikkel said earlier in the call and we now have this seamless capability for our customers to serve in a messaging environment, in a chat environment, email environment, web forms and so forth. A seamless environment for customers, organizations to communicate with a customer. So it's part of that strategy that we're focused on for Chat right now and we're very pleased with what they've done.

Jeff Van Rhee

Got it. Thank you.

Operator

There are no further questions. I'll turn the call back to presenter for any closing remarks.

Marc Cabi

Again we'd like to thank you for joining us on our first quarter conference call and we look forward to speaking with you next quarter. Have a great afternoon.

Operator

This concludes the conference call. You may now disconnect.