Pluralsight, Inc. (PS) CEO Aaron Skonnard on Q1 2019 Results - Earnings Call Transcript

|
About: Pluralsight, Inc. (PS)
by: SA Transcripts
Subscribers Only
Earning Call Audio

Pluralsight, Inc. (NASDAQ:PS) Q1 2019 Earnings Conference Call May 1, 2019 4:30 PM ET

Company Participants

Mark McReynolds - Director, IR

Aaron Skonnard - Co-Founder, CEO & Chairman

James Budge - CFO

Conference Call Participants

Joshua Reilly - Needham & Company

Bradley Sills - Bank of America Merrill Lynch

Sterling Auty - JPMorgan Chase & Co.

Saket Kalia - Barclays Bank

Brian Essex - Morgan Stanley

Terrell Tillman - SunTrust Robinson Humphrey

Corey Greendale - First Analysis Securities Corporation

Jeffrey Meuler - Robert W. Baird & Co.

Kevin Ruth - Raymond James & Associates

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2019 Pluralsight Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's call, Mr. Mark McReynolds, Director of Investor Relations. Sir, you may begin.

Mark McReynolds

Thank you. Good afternoon, and welcome to Pluralsight's First 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, I'd like to quickly remind you 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 connect with our customers and partners. We'll hold a half day session on August 28 specifically for investors and analysts, and you're all invited. Please send an e-mail to ir@pluralsight.com if you're interested in attending Pluralsight LIVE this year.

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

Aaron Skonnard

Thanks, Mark. Good afternoon, everyone, and thanks for joining our Q1 2019 earnings call. Our Q1 financial results marked a great start to 2019. Revenue and billings growth continue to be strong with both up over 40% year-over-year. We continued to demonstrate the efficiency in our model with our third consecutive quarter of positive cash flow. And our teams continue to execute with strong focus and commitment to customer success as demonstrated by our dollar-based net retention rate of 128%.

What's driving this growth is simple. Our business customers across all verticals are realizing that with our platform, they can proactively create the tech skills they need to rapidly deliver on their key technology objectives. Our skill measurement capabilities, along with our analytics derived from Pluralsight IQ, give tech leaders unprecedented insights into the skill gaps across their organizations, and we provide the tools to close them, enabling enterprises to monitor their progress, and ultimately accelerate innovation.

Our core tech skill development capabilities allow organizations of all sizes to digitally transform themselves over time and to emerge as the leading tech-enabled companies within their verticals. Today, we are expanding our platform further to provide even more value to technologists and tech leaders. We are excited to announce our acquisition of GitPrime, the leading developer productivity platform.

Let me tell you more about why we are excited about GitPrime. Companies are fighting to keep up with the pace of technology change. In order to compete and win, the need for the best technology talent and skills is required now more than ever. For decades, technology leaders have wondered how skilled their developers are, but have never had a solution to objectively measure it. Skill and Role IQ laid the foundation for that capability. And with 1.9 million assessments taken, we are now delivering valuable data-driven insights around technology skill proficiency.

GitPrime takes our platform and analytics one step further. GitPrime automatically aggregates a development team's activity across all major code repositories and visualizes individual and team performance for tech leaders. GitPrime software development analytics enables tech leaders to understand team productivity, identify bottlenecks, and manage team performance through data center discussions. In other words, GitPrime measures the application of knowledge and the demonstration of skill in the work being done.

Their analytics deliver valuable insights on how to further improve team productivity and performance, which we can help our customers create through our core learning experiences. GitPrime currently serves thousands of technologists and their leaders with objective data on their contributions and impact. As the leading developer productivity platform, we are very excited about GitPrime's commitment to ongoing innovation and to a platform that enables leaders to build and manage their teams more efficiently.

With today's announcement, we are making progress towards two big market opportunities. One, is realizing the full vision of Pluralsight's core experience by marrying skill measurement and skill development to the demonstration of those skills and the results they produce. GitPrime is connected to every major code repository in use today, including GitHub, Bitbucket, GitLab, and others. And as a result of this broad coverage, GitPrime offers a view of virtually every developer code commit, providing a clear and unbiased perspective of the demonstration of their skills.

The ability to measure the demonstration of these highly valuable software development skills further distances our platform from the rest of the industry. The second big opportunity is a deep and analytical perspective into the efficiency and performance of a developer. GitPrime provides clarity to developer productivity through insights into programming efficiency and overall performance. All of this is defined as Impact inside the GitPrime experience.

Similar to Pluralsight IQ, GitPrime created a new metric for measuring developer productivity called the Impact score. Pluralsight and GitPrime are committed to improving the impact of the teams we serve. Integrating GitPrime with our leading technology skills platform is a win for our customers. The combination will enable tech leaders to more fully control their innovation lifecycle, starting with diagnostics and skill development all the way through to developer productivity, performance, and ultimately results.

On a personal note, I have been highly engaged with Travis Kimmel, GitPrime's CEO. He and his team have built something incredible, and we look forward to rapidly expanding what they have created to date. I have more details to share later in the call, but first I'd like to turn the call over to James to dig a little deeper into the numbers. James?

James Budge

Thanks, Aaron. To start, I'd like to give some financial details on the GitPrime acquisition. Pluralsight will acquire GitPrime for a total purchase price of $170 million to be paid in cash. This amount represents a multiple of approximately 5x to 6x expected 2020 billings. The acquisition is expected to close next week subject to customary closing conditions.

I'd like to echo the enthusiasm that Aaron showed relative to the capabilities GitPrime brings to Pluralsight. Not only are their employees passionate about their craft, but the solution is spot on for the next level needs of tech leaders to measure and deliver improved developer productivity, much like Salesforce delivers improved sales productivity. We believe GitPrime will produce meaningful top and bottom line improvements as we look towards next year's results. I'll come back to more specific guidance-related comments later in the call after I share some Q1 highlights.

In Q1, our new customer acquisition, combined with strong expansion within our existing customers, drove Q1 billings growth of 41% to $77.9 million and revenue growth of 40% to $69.6 million. Our B2B billings increased by 48% to $67.2 million. Our land and expand strategy continues to be successful as evidenced by the growing number of customers with larger deal sizes. As of March 31, we have 318 customers with annual billings of over $100,000, an 83% increase year-over-year. We also have 57 customers with annual billings exceeding $500,000, a 111% increase from a year ago, and we have 17 customers with annual billings exceeding $1 million, a 143% increase from a year ago.

Our Q1 gross margin was 77%, 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 Q1 was $0.07, a significant improvement over our net loss per share in Q1 last year of $0.34. We saw a significant improvement in operating cash flow with positive $5.5 million in Q1 compared to negative $10.4 million last year.

Free cash flow was positive $2.5 million in the quarter compared to negative $13.1 million last year. Our improving earnings per share and cash flow measures are strong indicators of the operational efficiencies we are leveraging in our business as we grow. We closed the quarter with total cash of $764 million, including net proceeds of $548 million from our convertible bond offering in March. And our on-balance sheet backlog is expressed by our deferred revenue was $180 million at the end of the quarter, up 54% from last year.

Turning now to guidance, which includes the anticipated results of GitPrime. For Q2 2019, we expect revenue to be in the range of $73.5 million to $74 million, an increase of 38% over Q2 2018 at the midpoint of the range. For the full year 2019, we are increasing our expected revenue range to $312 million and $318 million, an increase of 36% over 2018 at the midpoint of the range.

While the top line impact from GitPrime is modest for 2019, we expect a more material contribution in 2020 after fully integrating products and go-to-market functions, resulting in an approximately 5% or 500 basis points added to our projected 2020 billings growth rate. Given the future upside we expect from GitPrime, we intend to materially invest in our integrated product offering and go-to-market teams. Additionally, we will not realize any of the deferred revenue from GitPrime due to purchase accounting.

When taking that into account, we expect Q2 non-GAAP net loss per share to be in the range of $0.13 to $0.15, assuming weighted average shares outstanding of approximately 137 million. We expect non-GAAP net loss per share for the full year 2019 to be in the range of $0.38 to $0.42. The 2019 dilution from GitPrime-related investments offsets what would have otherwise been an improvement in EPS estimates. The full year 2019 EPS estimate assumes a weighted average shares outstanding number of approximately 137 million.

For the full year 2020, we were already expecting positive non-GAAP EPS exiting the year, and we anticipate the GitPrime acquisition to be neutral to that EPS expectation and then turn accretive to earnings beginning in 2021 expediting our path toward our target model. Regarding cash flows, we expected to generate positive cash flows in 2019, and we continue to expect positive cash flows in 2019, even after the acquisition, albeit at lower levels due to investments required to make the acquisition -- to make sure the acquisition is integrated successfully.

And with that, I'd like to turn the call back over to Aaron. Aaron?

Aaron Skonnard

Thanks, James, for sharing the results of our outstanding quarter. Now let me share more context behind what's driving this performance. Large enterprises continue to embrace Pluralsight as their key partner to future proof their companies, avoid disruption and advance innovation. Expanding our footprint within existing customers, which include over 70% of the Fortune 500, is a key growth opportunity for Pluralsight.

As an indicator of our ability to significantly expand in our customer base, billings from our top 25 customers for the last 12 months increased by over 21x from the billions we generated from those same customers in the year of their initial purchase. In addition to expansion, we also saw strong performance in net new business during the quarter, as demonstrated by over 450 new business customer wins.

These included one of the Big 5 Canadian banks, one of the largest telecommunications corporations and ISPs in the U.K., one of the world's largest furniture retailers, a Global 2000 insurance provider, a Global 2000 Japanese investment and financial services company and one of the largest multinational law firms in the world. These new customer wins demonstrate that our platform works for any industry at scale. The combination of our acquisition of new customers and our ability to expand within our existing customer base resulted in a strong start to the year for Pluralsight.

Let me highlight a couple of customer examples that are a great illustration of the diversity and scope of our market opportunity. Founded in 1895, Rabobank is a global full range financial services provider headquartered in the Netherlands. Rabobank is committed to making a substantial contribution towards achieving wealth and prosperity in the Netherlands and to resolving the food scarcity issue worldwide. To stay ahead of the rapid pace of technological change, increasing regulations and to continuously improve on its customer experience, Rabobank is moving to an open banking model.

To help the teams adopt the skills required for this digital strategy, Rabobank turned to Pluralsight. Pluralsight was chosen by Rabobank because of our ability to measure the skills and relative proficiencies within the organization. With this information, Rabobank is able to align people and teams to key business objectives. The analytics capabilities clearly show strengths and gaps, allowing Rabobank to strategically develop its talent. This ensures that Rabobank feels confident that teams have the skills to deliver valuable products in a reliable and secure manner.

Western Governors University knows that in a digital economy tech skills matter. Continual skilling up is required for a career in technology, and WGU instills this sentiment in their students as they achieve their degrees. Through Iris, the brains of our platform, WGU is building a skill taxonomy by embedding Skill IQ and Role IQ assessment into their degree pathways. This exciting work is just beginning in the College of IT and Business.

WGU believes that a student graduating with both a degree and a Role IQ will be more attractive to employers. In addition, WGU provides alumni with access to Pluralsight, so they can continue to keep their skills fresh while in the workforce. These customer examples, along with many others, demonstrate how Pluralsight can help any organization from any industry become a tech company in the future.

Another key element of our go-to-market strategy is our partnerships with leading technology companies. As we mentioned last quarter, we are strategic partners with the three largest cloud providers, Microsoft, Google and Amazon. They each see us as the technology skills platform for developers that work in their ecosystems. Partnering with these tech giants allows Pluralsight greater access to the Global 2000 than ever before, and we expect these relationships will help accelerate our growth throughout the world.

In Q1, we continue to strengthen our partnership with Microsoft. We signed an extension to support continued content development for the Azure community focusing on new roles with Role IQ and Skill IQ, plus all the underlying courseware. In alignment with an internal mandate from Microsoft executives, we are piloting an enterprise collaboration, whereby we help create Azure learning strategies at some of their top enterprise customers with Pluralsight's enterprise solution as a core element of that strategy. This will lead to increased B2B pipeline for Pluralsight and increased Azure skills and consumption within our joint customers. Our customers depend on Pluralsight as the authority for Azure skill development.

Also in Q1, we continue to build our partnership with Google. We formalized our partnership with Google Cloud Platform or GCP, wherein we will host their official curriculum and build Skill and Role IQs to help tech professionals in our enterprise customers skill up on GCP. This includes more than 50 GCP courses being onboarded into our platform, which will be available to all paying subscribers. As partners, we will ensure Google customers are putting their best foot forward to leverage GCP technologies as they move to the cloud.

Finally, we continue to invest in our partnership with Amazon Web Services and are pleased with the progress to-date. In short, our content partnerships, strategic relationships and referrals from our technology partners have proven to be mutually beneficial, and we expect to expand these relationships throughout 2019 and beyond.

Now I'd like to provide an update on our social enterprise, Pluralsight One. In Q1, Pluralsight One grew its community of nonprofit and K-12 organizations from 34 to 112, spanning nine countries. On International Women's Day, Pluralsight One announced its partnership with Malala Fund, which is committed to a world where every girl can learn and lead. Success with nonprofits such as Malala Fund will help close the global opportunity gap, creating more technologists in the market, which, in turn, produces more potential users and increases our TAM.

To briefly summarize the quarter, we are pleased with our strong Q1 results, and we are thrilled about the opportunity GitPrime brings to our customers. Pluralsight helps customers skill up and GitPrime helps them know if it's working. Together, Pluralsight and GitPrime are creating an entirely new way to measure and improve developer productivity and performance, solving an age-old problem that has plagued technology leaders for decades. That, combined with the ability to learn and assess technology skills at scale, provides the most complete and targeted platform for technology leaders to successfully execute and deliver on their digital transformation strategies.

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

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from Scott Berg from Needham.

Joshua Reilly

This is Josh for Scott. Congrats on the acquisition. I guess the first question is how should we think about product synergies, the go-to-market strategy, and just the general integration timeline for GitPrime?

Aaron Skonnard

Yes, a lot of product synergies here. Like we said a few seconds ago, Pluralsight helps customers to skill up. GitPrime helps them know if it's working. Ultimately, it's Pluralsight IQ that measures ongoing skill development and proficiency, whereas GitPrime plugs into the code repositories where the developers are actually working and provides immediate diagnostic of those skills in action. So the combination of Pluralsight and GitPrime will really help tech leaders build better products faster.

As an example, AppDirect began using GitPrime and focused their attention on the frequency at which developers were able to commit code. And as they used it, they identified slowdowns in their development cycle. AppDirect saw 41% increase in impact to the code base while decreasing the time it takes to do what's called pull request -- resolving pull request, and they increased that by 64%, which basically means they improved their flow efficiencies significantly. So we think that capability, combined with our core capability, is going to provide a holistic solution that allows tech developers -- sorry, tech leaders to build better products faster and innovate more quickly. On the go-to-market side, we think there is tremendous opportunity as well, which James can speak into.

James Budge

Yes. Just to finish up on the product side, we actually think we'll have an integrated product offering by early 2020, and that feeds right into the go-to-market motion that we have as well. We have -- we'll run as two separate teams, but sort of integrated through the balance of 2019, sort of means that both sides -- both sales teams can sell each other's products and have cross-sell opportunities to see opportunities as they arise.

By the beginning of 2020, we'll have a fully integrated organization, not just go-to-market, but across the entire organization between the two companies, and our sales reps will have the opportunity to sell either a combined offering or independent offerings if they choose, depending on the opportunity as it arises with our customers. So we expect a lot of lift from this as we learn through 2019 with certain sales opportunities here and there where we can cross-sell, and then we'll be off full steam in 2020, which is why you see the strong increase in our growth in 2020.

Joshua Reilly

Okay, great. And then just one follow-up question on gross margin. It's pretty strong currently at 77%. How should we think about the puts and takes with the GitPrime acquisition and the impact from that versus maybe the positive tailwind from more partner developed content on the platform over the next couple of years?

James Budge

Yes, great question. And you're spot on, on the partner developed content. That will absolutely help our gross margin and is one of the reasons why we expect to get above 80% maybe earlier than we previously anticipated. GitPrime will actually get us there quicker as well. There is actually a tremendous more capability and value now placed into the platform as compared to the content, which is where most of the costs are related on cost of goods sold, which is why it will only accelerate our push to 80-plus percent gross margins, so helpful in that regard also.

Operator

Our next question comes from Brad Sills from Bank of America.

Bradley Sills

Yes. I wanted to ask also on GitPrime. Do you envision this being a stand-alone offering or one where this could potentially drive more migration up on the premium mix?

James Budge

Yes. Look, I think -- great question, Brad. I think more often than not, you'll see opportunities for combined offering. We'll have both available to our sales force. There will be opportunities where maybe you might seed an opportunity with some of the GitPrime capabilities and might be vice versa. Majority of the time, I think, we'll have a combined offering. We think that will be super attractive to our user community and the buyers that buy it. But if opportunities arise where they only want the skill development capability that comes on Pluralsight or the deep insights into the developer team that might come with GitPrime, they have that offering as well. So yes, we will -- this takes us down a path of being a multiproduct company starting now, and you'll see the benefits to come with that beginning in -- really now on through 2020 and beyond.

Aaron Skonnard

And really that combined offering further solidifies our position as the tech skills platform for tech leaders and further distances us from the competition.

Bradley Sills

Great. And then just a housekeeping on that. Thanks for the metric on the valuation on 2020 bookings. Any range or estimate for contribution to revenue potentially this year?

James Budge

Yes, small means measured in just a few million dollars this year. It would be higher, but for all of the deferred revenue being blowed up in purchase accounting that came from the acquisition. So, we really opted just the way the accounting works there, we're starting from scratch on the revenue side. So a few million dollars, not a ton, but will definitely be helpful in 2019, a lot more helpful in 2020 as we build that base back up.

Bradley Sills

Great. And then one more, if I may, just on the price increase. How was that received over the course of the quarter?

James Budge

Yes. Well from our perspective, super well. Deals were already in flight that we honored mid-Q1 before we made the price increase on the enterprise and the professional version. Now all sales quotes that go out are on the new list price, and while certainly, if you're a customer, you’d love to pay less than more, I think they realized that our value is tremendous. They have probably been underpaying somewhat for years and haven't seen a ton of pushback on that front. So we're delighted with how it's gone.

Operator

Our next question comes from Sterling Auty from JP Morgan.

Sterling Auty

I actually got disconnected right in part of the prepared remarks. I just wanted to double check. Did you say that the net dollar retention in the quarter was 128% again in the March quarter?

Aaron Skonnard

Correct.

James Budge

We did say that, yes.

Sterling Auty

Okay. And listen, ton of good momentum there on the B2B side. I do want to ask on the B2C side what you saw in the quarter? And looking at the revenue guide for June, what kind of impacts you might be seeing from the B2C side in the June quarter?

James Budge

Yes. We've actually seen some pretty good green shoots of positivity on the B2C side, not that it was negative in the past. I think, as you know, we use that as some pretty amazing lead gen into our B2B motion. That's generally how we see it. But we did see where maybe last few quarters it has been in like low-single digits maybe even flat. We actually saw it in the mid-single digits trending up to higher single digits. And I think that's what we would expect in the second quarter as well.

Operator

Our next question comes from Saket Kalia from Barclays Capital.

Saket Kalia

Maybe first for you, Aaron. First of all, congrats on the deal. Just to dig a little deeper into GitPrime. Can you just talk about their presence in the enterprise, almost like a similar B2B mix versus Pluralsight, if you will? And perhaps any areas where you actually overlap at common customers?

Aaron Skonnard

Yes, you bet, Saket. It's -- there is a lot of synergy here between our models. They're an enterprise-focused company with an enterprise-enabled product and solution and an enterprise go-to-market already established. So they are in the enterprise. They are in the Fortune 500. We do have a small amount of overlap, but a lot of opportunity to bring them into our 17,000-plus business customers. So very excited about that possibility. And really impressed with what they've built. This is a very -- the perfect plug-in into the way we go-to-market with our business, providing a new job to be done that's going to be very valuable to these tech leaders.

Saket Kalia

Got it. Got it. And James, maybe a few for my follow up. Can you just talk a little bit about their pricing? I think we all see some of the numbers on their website, but can you just go one level deeper. Is this a similar sort of per seat type of subscription? And also maybe just touch on their collections policy. Is this an annual and advanced type of billing policy, similar to Pluralsight as well?

James Budge

Yes, great questions. Similar to what Aaron just said on the synergies and the product and what is exciting for the buyer, this fits really nicely into our existing business models, priced mostly on a seat count basis. It is generally charged on an annual basis, while they do have some month-to-month customers just like we had several years ago. We expect to kind of migrate them gradually over to mostly annual subscriptions. It is a subscription model that gets booked upfront, paid upfront and then recognized over time. So very similar to what we have.

As you've seen our unit economics go, grow over the last couple of years from sub-$250 per unit up to where we're over $300 per unit now for our unit economics, their's is also very similar. It's in the $300-plus range on average. We would expect to combine that with ours. And I think you expect in the combined customers, those that we start to find immediately, you'd see a pretty material uptick in the price per unit that we would receive from those customers.

Saket Kalia

Got it. And actually if I could just squeeze one more in because, I think, it's important, maybe back to you, Aaron. Can you just touch on who GitPrime primarily competes with? And what you feel like are maybe some of the competitive differentiators?

Aaron Skonnard

This is a brand-new space, new category. There's just a few very small players that are out there attempting to build something similar to what GitPrime has already established and are well in the lead. So GitPrime's position here is a very strong one in this new category around developer productivity. And the data science they've developed, the ability to take all that data around the activities that go into building product and surface valuable insights into the business is where the value is. That's the hard work here. So given how far ahead they are of the pack, which is a very small pack, by the way, they have a strong position when combined with our very strong position with technology buyers, creates obviously an even stronger position. So we're very excited about how early we are in the space and its development and what it means to the ongoing development of our combined go-to-market.

Operator

Our next question is from Brian Essex from Morgan Stanley.

Brian Essex

Congratulations on the results. I guess first question I had just kind of tune into margins a little bit and the margin progression there on the gross margin side. Can you maybe give us an update in terms of the economics to authors? What kind of progress you've made there? And how much is left to go in terms of kind of managing those royalty rates lower over time?

James Budge

Yes, sure. The average payment these days is in the 17%, 18% range. That compares nicely to maybe 19%, 20% a year ago. We see that gravitating down to less than 15% over the next few quarters and settling down into the low teens. I think important over time. So that's clearly going to be -- it has been and will continue to be the biggest driver to gross margin expansion.

I think just important to recognize side-by-side with that is that we're paying our author community quite a bit more now than we have ever in the past. The highest paid authors are getting paid more than they ever have by orders of magnitude more. The number of authors we're paying over $100,000 is 2x what it was a year ago by any measure. So by any economic measure, the authors in aggregate are doing much better than they were a year ago, and we're sharing some of that by having our margin improved as well.

So author NPS is sort of at an all-time high, at least the highest I've ever seen it in a couple of years that I've been here. We're up over 60 now in NPS. Traditionally, we've been in the 40 to 50 range, which is also outstanding, but we're now in a great territory. And that's come from a combination of the high amounts we continue to pay them and the incredible content tooling and making it a lot easier for them to create content on our platform. So a lot of good win-win across the board.

Brian Essex

Got it. That's super helpful. And maybe to follow up. On the business customer side, pretty consistent, 16-plus percent growth. I understand your legacy customers spend more over time. But just in terms of logo ads, is there a way that we can kind of wrap our arms around the consistency of that number? Might we anticipate that would accelerate with a more mature sales force? Or is there kind of a limitation to the number of business customers you can add in each quarter?

James Budge

Yes, good question. I mean we've been on a -- if you kind of took the average over the last 5, 6, 7 quarters, it's been somewhere in the 500-plus range each quarter. We did -- I think, as Aaron mentioned, we had about 450 this quarter. We did about a 1,000 in the second half of last year. 500 a quarter feel -- I mean I guess, if we doubled our sales force overnight, we'd probably see that number spike pretty high. But we do, do about -- in dollar terms, we do close to 20% of our business in any given quarter is new business. And the rest is still coming from renewals and upsells. There's still a massive opportunity in our expand and upsell motion.

As Aaron mentioned, our top 25 customers are now at 21x what they were when they first purchased. Our Fortune 500s are like 19x what they were. So lots of -- huge opportunities in our expansion. We still get really great net retention from our existing customers where we're retaining them and expanding. And we like our motion right now on the new side where we continue to add about 500 per quarter. So I guess, to get to the quick answer there, we would expect the 500 or thereabouts to be a consistent pattern going forward. We're at 17,000 customers. There are over 17,000 worldwide customers now, so there's probably only so many you can keep adding.

Operator

Our next question comes from Terry Tillman from SunTrust Robinson.

Terrell Tillman

Congrats on the transaction. I guess, the first question is just related -- James for you in terms of where are you or how are you doing in terms of the hiring to your targeted sales headcount by the end of the year? And also maybe just talk about the retention of existing sales reps because you have been hiding a lot over the last couple of years and how retention is going? That's the first question.

James Budge

Yes, great. Look, we like where we are with our sales reps. We're committed to continue to grow the sales force. We have a plan to grow into the high 200s, even cross over 300s in quota-bearing reps this year, 2019, which continues on the really outstanding progression we've had over the last few years where we've massively expanded our sales force from 80 quota-bearing reps two years ago to at this point over -- at the end of this year over 300. So a lot of growth there. Our retention is excellent. I think compared to industry average, we'd always like it to be higher and the churn to be lower, particularly with our sales reps. But it's a function where there is a little bit more turnover in sales often in the first quarter or so. We've experienced some of that. It's normal. We plan for that, and that's -- we're still committed, and we see a clear path to having 300-plus reps by the time we exit the year. So short answer is we're on pace.

Terrell Tillman

Okay. And Aaron, I liked the comments around Microsoft. That relationship seems to continue to expand nicely over time. What I'm curious about is I think towards the end of the Microsoft comments, you actually added something at the end there that I don't know how material or important that is, but it sounded like increased go-to-market motion or they are opening more doors for you. So I'd love a little bit more color on Microsoft either direct revenue driver or just what they can be doing to help you influence or influence more business your way.

Aaron Skonnard

Yes, you bet. We're in conversations with Microsoft around how to further benefit our shared customers through a shared go-to-market model. So we look at the biggest customers that are facing a massive digital transformation strategy moving to the Azure cloud. They have a deep need for Azure skill development. Our platform is plugged in as the primary solution to that challenge. And so, basically, we're working with our -- with both of our go-to-market team to understand how we can better do that together in those situations with those top customers and really excited to see what that brings forward over the next few years. So similar to what we talked about with Amazon last quarter, similar type of model where we are being referred in to these big customers that have big AWS transformation needs. So we're seeing a consistent pattern here across all of them.

Operator

Our next question comes from Corey Greendale from First Analysis.

Corey Greendale

Congratulations on the really good results. On GitPrime, I think, it makes a lot of sense, very consistent, Aaron, with how you sort of foreshadowed where the company is heading. So I just had a couple more questions about that. First of all, is there -- did they have the same kind of land and expand motion as you do? Or is it more adopted enterprise-wide initially?

Aaron Skonnard

Yes, it's similar. They can show up and very quickly start delivering value to the customer. This is an interesting characteristic of GitPrime that's very unique. So when they show up, they can basically plug into the company's existing code repositories and look back at the prior 90 days of history. And then they can immediately deliver insights around the performance of those teams and where there are areas for upgrade, areas of opportunity. And so when they land, they land with almost like a premium model where they can show up and do a pilot and then very quickly provide value.

And then once the company starts experiencing that value, they then start to expand. In fact, we experienced this ourselves when GitPrime -- we first started conversations with GitPrime. We implemented the product on our own teams and started to experience the value that they are able to create. So I think you'll see similar dynamics with the products over time. We'll land more easily, I believe, with GitPrime as we -- because of that sort of unique entry point, and then I think you'll see similar expansion characteristics as we build it out.

Corey Greendale

Great. And just to dig a little deeper on what they provide. Is it measuring effectiveness or productivity? Is that a function of sort of lines of code per time? Or is it somehow measuring quality of that cold today? And as you integrate with them, is there a way -- if it doesn't do a lot of that today, is there a way of doing that more to integrate that with what you have today?

Aaron Skonnard

Yes. So it's mostly around the activities that go into building a product through codes. So some of that is lines of code and how the developers and the teams interact with that code base. So with a repository like GitHub, you'll have hundreds, maybe thousands of developers, many, many teams, all working on the same code base. And there is lots of activities around how they work on that code base. GitPrime extract all of that data around those activities and then identifies where the bottlenecks are, where the improvements can be made to improve flow efficiency and producing the outcome that they care about and accelerating their progress. So it's a very unique capability that doesn't exist today across any of the code repository products or solutions. And this one is vendor-agnostic, I should add, which means that it can work with GitHub. It can work with Bitbucket. It can work with any of the major ones in a way that can then provide that same capability around how their developers are actually working.

Corey Greendale

Okay. And I just had one last quick strategic one, and then I'll turn it over. I think that -- as I said, I think this makes a ton of sense. The core of what you have today, I think, is unquestionably the friend of the individual developer. You're evaluating and helping them to get better. Is there any way in which GitPrime is -- could be viewed as more of a big brother, so that some developers would have the opposite view of this? And if that's possible, how do you manage that?

Aaron Skonnard

Yes, look, great question. Look, in the end, I'm a developer. Travis, the CEO of GitPrime, he is a developer. We've built these products with the developer-first mindset. And like you mentioned, we've already been through this journey with Pluralsight IQ, with Skill IQ, Role IQ. How do we create an experience that actually serves the developer, while providing this value to the business? So of what I'm really pleased to see and GitPrime is, they have produced the very same experience within their product. And they have built these analytics, these insights and data that are completely objective, that drive healthy conversations to improve performance. Ultimately, this whole thing, everything we're doing, you've got a combination of Pluralsight and GitPrime, is about empowering the developer.

Operator

Our next question comes from Jeff Meuler from Baird.

Jeffrey Meuler

Maybe the addressable market is big enough or the GitPrime sales force is small enough that this isn't an issue. But just how are you planning to handle the overlapping signs, company assigned prospect challenge where you have a Pluralsight salesperson and a GitPrime salesperson assigned to the same account? Is that a meaningful challenge at all or no?

James Budge

It's not enormous because they only have a few hundred customers, but it will come up from time to time. And frankly, we want to encourage cross-pollination across the team. So we are creating a separate pool of money. It's part of the investment that went into the EPS estimates that we have where we will be paying not a full 200% on deals that get done but to the extent there are both teams involved in the process and referrals going back and forth. We'll incentivize our sales forces to create that experience for the customer and bring ultimately more billings into Pluralsight.

Jeffrey Meuler

Okay. And then just on the core business. What is the limiting factor on the pace of sales headcount growth? I'm assuming it's not addressable market. So is it management -- sales management capacity? Is it wanting to operate around breakeven or better free cash flow? Just what's the limiting factor?

James Budge

Yes. Look, it's probably a combination of both of those. Probably it is a combination of both of those. We -- there's probably only so many reps we could hire in any given year. We do have a pace to it that between our people team and our sales management teams that puts people through good rigor on the kind of reps that we would like to hire into our organization. And we like the direction we're going on both a top and bottom line. We like the fact that we've been cash flow profitable for three straight quarters now. We like to continue that. As long as we can continue to drive growth of greater than 40% and near 50% on B2B, that's sufficient for us over time. And we think that will grow a long and sustainable business model for us.

Jeffrey Meuler

Okay. Then last, just what -- the expectation on the acquisition around retaining the management team, and are there any earnouts on top of the cash purchase price?

Aaron Skonnard

Yes. We have strong retention packages built in for each of the key executives, and they have all committed to be here and are really excited about the shared mission, the shared opportunity that's in front of us. We don't have any earnouts, per se, attached to the deal, but a strong shared belief in the success we're going to create over the next several years together.

Operator

Our next question comes from Brian Peterson from Raymond James.

Kevin Ruth

Kevin here on for Brian. I think the opportunity you guys have to grow your seat penetration within customers is pretty well understood. But can you help us frame how initial deal sizes have trended for some of your newer customers, maybe over the last year? And are you seeing any changes in the willingness to roll out the solution to a larger audience at the outset of a new contract?

James Budge

Yes, great question. Generally yes to all of that. Across the board, whether it's new or expand, we've seen some pretty good rises in our unit economics, and that's probably even more pronounced. It's a little easier to go into a new customer and drive them into an enterprise class license at higher price points than it is to take an existing customer from years ago that maybe came in at a much lower price points, little harder to bring them up to where we would bring in a new customer. So yes, absolutely, one of the reasons why you're seeing average prices on deals go up by over 30%, you're seeing those strong economics in some of the metrics we reported on deal -- the amount of deals we have over $100,000, $500,000 and $1 million a year is because we're driving higher price points and landing bigger accounts right out of the get go. The land and expand motion we have is still just as strong as ever, but definitely we're seeing an uptick in the amount that some of the lands are landing at. So it's been great. It's been super helpful to have higher price points, all backed up by a tremendous amount of value in the platform.

Kevin Ruth

That's helpful. And then we saw the numbers you guys mentioned for assessments taken in conjunction with your tech skills day campaign. Can you talk a little bit more about the Skill IQ offering, and can you speak to any changes, I guess, in utilization there across the enterprise base?

Aaron Skonnard

Yes. You're referencing our new national holiday, tech skills day, which coincides with our birthday as the company. So that just happened this last week, and we saw over 18,000 skills inventoried in that single day, which is really exciting and really pulled a lot of people into the product to have them experience the value that comes from knowing where they are at relative to where they want to go. So I'd say that one day is an example of a broader theme we're seeing, which is this ongoing development and improvement in the number of Skill IQs we're inventorying every month and throughout the year.

We're also seeing a big increase in Role IQ. The number of Role IQ people have started has increased by close to 100% over the last year. And as a reminder, a Role IQ is roughly equivalent to a bootcamp model, which might be similar to watching 40 to 50, maybe 60 hours of content. And so, we're very pleased with Skill IQ, Role IQ, the Pluralsight IQ family, the benefits its providing, how it's progressing and being adopted by our customers. And now adding in GitPrime, combining the two, creates an even bigger opportunity and more holistic value to out tech leader customers. So we're really excited to see how that further accelerates the progress with our core offerings.

Operator

I'm showing no further questions at this time. I would now like to turn the call over to Aaron Skonnard, Co-Founder and CEO, for closing remarks.

Aaron Skonnard

All right. Thanks, everyone. I'll close with our gratitude to all of our customers, our shareholders, our authors, our team members for your ongoing support. And we look forward to speaking with you, again, next quarter. See you then.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may disconnect, and have a wonderful day.