Slack Technologies, Inc. (NYSE:WORK) Q1 2020 Earnings Conference Call June 4, 2020 5:00 PM ET
Jesse Hulsing - VP, IR
Stewart Butterfield - Co-Founder and CEO
Allen Shim - CFO
Conference Call Participants
Alex Zukin - RBC Capital Markets
Raimo Lenschow - Barclays
Brent Bracelin - Piper Sandler
Brad Zelnick - Credit Suisse
Michael Turrin - Wells Fargo
Arjun Bhatia - William Blair
Keith Weiss - Morgan Stanley
Derrick Wood - Cowen and Company
Will Power - Baird
Rohit Kulkarni - MKM Partners
Mark Moerdler - Bernstein Research
Ladies and gentlemen, thank you for standing by, and welcome to Slack Technologies First Quarter Earnings Conference Call. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Jesse Hulsing, Vice President of Investor Relations. Thank you. Please go ahead.
Good afternoon, and thank you for joining us on today's conference call to discuss Slack's first quarter fiscal 2021 financial results. On the call, we have Stewart Butterfield, Co-Founder and Chief Executive Officer; and Allen Shim, Chief Financial Officer.
During the course of today's call, we may make forward-looking statements, including but not limited to statements regarding our guidance and future financial performance, market demand, product development, growth prospects, business strategies and plans, ability to attract and retain customers and ability to compete effectively. We will also make forward-looking statements regarding the potential impact of the global COVID-19 pandemic on US and global economies and our business.
These forward-looking statements are based on management's current views and assumptions and should not be relied upon as of any subsequent date. And we disclaim any obligation to update any forward-looking statements. Actual results may vary materially from today's statements. Information concerning our risks, uncertainties and other factors that could cause results to differ from these forward-looking statements are contained in the Company's SEC filings, earnings press release and supplemental information posted on the Investors section of the Company's website.
Our discussion today will include certain non-GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from GAAP measures. Our non-GAAP measures exclude the effect of our GAAP results of stock-based compensation and certain other items. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP measures in our earnings release and on our Investor Relations website at investor.slackhq.com.
I would now like to turn the conference call over to Slack's Co-Founder and Chief Executive Officer, Stewart Butterfield. Stewart?
Thanks, Jesse, and thank, you all for joining today's call.
Before we begin, I want to take a moment to acknowledge the second human crisis we are living through right now, one that is not caused by a silent unthinking virus, but the one that is caused by us, by people, by generations of systemic racism and white supremacy that now regularly manifests itself in violence, in poverty and in the oppression of black people.
This is a crisis of our own making, not nature's, and it will take all of us to repair it to demand that it is repaired. That's why it's important for me to highlight it now because silence is a luxury we cannot afford. I know we're here to talk about Slack, our business and our quarterly results, but from the Company's perspective, that was something that needed to be said.
So now moving on to the business side. Q1 was a phenomenal quarter, by most metrics, one of the strongest ever for Slack. Revenue for the quarter was $202 million, up 50% year-on-year. We added a record of over 90,000 net new free and paid organizations using Slack in the quarter, bringing the total to more than 750,000.
We also added record 12,000 net new paid customers in the quarter, bringing the total to more than 122,000. And finally, we continue to show leverage. Non-GAAP operating margin improved 17 percentage points year-over-year.
Q1 was historic in its impact, both for Slack and for the world. We believe very strongly the impacts that the COVID crisis will have on the way we work are of generational magnitude and are just beginning to be felt. It's too soon to understand the impact with any precision, but it reinforces our conviction around this business and our long-term trajectory.
Today I want to cover three topics. First, I'll start the call by providing more detail on the work-from-home surge and our plans to lead our customers through what we see as a permanent shift to a more fluid work environment.
Second, I'll give an update on our three priorities for the rest of fiscal 2021, maintaining leadership in the enterprise , accelerating growth in small and medium business and self-serve, and growing the usage of Slack for communication across organizational boundaries. I'll finish by walking through how we plan to balance investing for growth versus profitability in what remains a very volatile macroeconomic backdrop.
Beginning with the work from home surge. Q1 was simultaneously intense, productive, overwhelming and exciting for Slack. We went fully remote in early March and much of the working world followed over the next month. The all at once shift to work from home concentrated multiple quarters of Slack adoption into a few weeks. Tens of thousands of new organizations and millions of new users adopted Slack, most of them trying Slack for the first time on our free plan. Existing users also began to rely on Slack more.
For our paid users, average time spent actively using Slack each day increased from just under 90 minutes at the end of Q4 to over 120 minutes per day at the end of Q1. Time spent connected to Slack also increased from about nine hours to well over 10 hours per day. We saw similar increases across all related metrics.
Slack is not specifically a tool for remote work. As a channel-based messaging platform, we improved communication to help organizations create alignment, become more productive, and ultimately become more agile, wherever their employees are. And unlike the many video conferencing solutions in the market such as Zoom, RingCentral, Google Meet, Microsoft Teams, Amazon Chime and BlueJeans, we aren't a digital substitute for physical in person meetings. Instead, Slack acts more like a digital office, a persistent place for users to connect and find information.
Slack is a multiplier on the productivity of users and the value of their software wherever work is happening. During this crisis, the work being done on Slack is diverse, and in many cases, inspiring. A great example of organizational agility is Frontline Foods, a grassroots organization that provides food from local restaurants to frontline workers and impacted communities. They have a network of hundreds of volunteers who are organizing and communicating on Slack. They've delivered over 450,000 meals and partnered with more than 1,100 restaurants across dozens of cities in the United States.
One of their founding organizers, Frank Barbieri, said what they've accomplished and the speed with which they've done it would not have been possible without Slack. He also said it's impossible to imagine a fully distributed team who had never worked together before and never even been a person tackling critical real-time communications on any other platform.
As I talk to other CEOs, talk to our customers, review survey data and just follow the news, it's clear to me that remote work will be a much bigger part of the working world moving forward. Business leaders everywhere are beginning to realize the potential, financial, talent and employee well-being benefits of offering a more fluid work environment, lending offices and remote work.
They are also beginning to realize that in order to make this transition, they need the right enabling technology. E-mail and legacy collaboration tools won't cut it. This reality will continue to catalyze adoption for the channel-based messaging platform category we created and for which we are the only enterprise-grade offering.
Turning to the Enterprise business, the first of our fiscal 2021 priorities. Q1 was another exceptional quarter. We finished the quarter with 963 customers spending more than $100,000 annually, up 49% versus the end of Q1 in our fiscal 2020. New and expansion deals for the quarter demonstrate our growing breadth of penetration across industries.
They include centers for Medicaid and Medicare services, the U.K. Ministry of Justice, Harvard University, Virgin Media, CISA, the Cybersecurity and Infrastructure Security Agency, Recruit Holdings, West Japan Railway Company and Credit Saison. Over the last few quarters, we have observed significant momentum in some of the largest and most security-conscious companies in the world. These companies are standardizing in Slack because Slack is the only enterprise-grade solution in the market.
The global investment for Man Group was able to swiftly transition to all remote in less than two weeks with the help of Slack. As a financial services provider, company and client data security are top priorities. Slack's Enterprise mobility management meets the firm's security and compliance needs, giving them control over how their company data is used and accessed on mobile devices. Another big win this quarter was adding Verizon as a new Enterprise customer, rising to leverage Slack as a component of its digital workplace.
We won another enterprise-wide agreement with Amazon across all of its businesses. In Q1, Amazon chose Slack because of our scalability, the strength of our platform and the unique ability to securely and productively collaborate with customers and partners using shared channels.
We also expanded our strategic partnership with Amazon Web Services, which includes robust integrations between Slack and a number of AWS services, including AWS Chatbot, AWS Chime, AWS Sandstone, AWS Cloud Formation and AWS Key Management Services. Slack will also use AWS Chime to support our native calling capabilities.
Finally, we're excited to announce that AWS is now Slack's preferred cloud provider. It's exciting to see the progress and the momentum across our Enterprise business since I mentioned it as a focus area on our last call.
Moving on, our second fiscal '21 priority is accelerating the SMB self-serve business. Many organizations begin their Slack journey on our free plan. In the quarter, we added over 90,000 net new organizations using Slack, more than we added in all of our last fiscal year. We also added 12,000 net new paid customers, more than any other quarter in the history of the company.
I would love for us to be able to take credit for all this, but obviously, the global situation had an impact. However, we responded rapidly to the changing market dynamics, ramping up remote work consultations for our customers, accelerating the launch of a new user interface and introducing a new onboarding experience. As a result, we saw improved rates of engagement for new, free and paid teams added in the quarter.
That's important because there are millions of organizations and tens of millions of users in the United States alone whose working lives are mediated by e-mail and all of them will be better off using Slack. And if they come to our website and download Slack, we want them to be successful, to have that aha moment and to get value from Slack as quickly as possible.
This remains personally my biggest focus area, particularly because of the large number of organizations new to Slack who, if we do our job in showing them value, could become larger paid customers down the road. I'm pleased with the progress on our second fiscal '21 priority in the quarter, but there remains much more to do.
Our final top priority for this fiscal year is shared channels, which provides a secure productive environment for our customers to communicate across organizational boundaries. Shared channels adoption accelerated in the quarter with over 41,000 paid customers now using shared channels, up from 32,000 at the end of Q4. We saw emerging network effects that drove growth in connected endpoints to over 250,000 in the quarter, up triple-digits year-over-year.
The breadth of use cases in ingenuity displayed by our customers and shared channels continues to surprise us, ranging from software vendors providing premium support to food delivery companies coordinating with their restaurant partners. Increasingly, shared channels are blending the power of Slack's platform with external collaboration.
Last week, Adobe released an updated Creative Cloud integration that will now allow users to share Creative Cloud assets, get notifications and stay up-to-date and design projects in a shared channel. For our many joint customers planning marketing campaigns or developing new creative content with external partners, this will be incredibly powerful. And with all that, we're still just getting started.
In Q1, we entered the pilot phase for multi-word share channels, which will take shared channels from being a one-to-one connection between two collaborating organizations to a connection that can support as many as 20 distinct organizations working together securely, each with their own compliance settings, such as message retention policies.
For me personally, the experience has been kind of magical. I'm in a multi-org shared channel with the CEOs of 15 other SaaS companies, including Shopify, Twilio, Splunk, Atlassian and Okta. In the channel, we have helped each other navigate these unprecedented times. My CEO network is now in Slack, as is Allen's CFO network.
And soon, we had channels of communication created between the CMOs, who could discuss how they were thinking about pipeline generation in a world without field marketing, another for CHROs and heads of people, who supported one another and working through benefits and policy changes, the challenges of recruiting and onboarding in a world where none of the participants have met face-to-face, and the same thing happened for IR leads and IT leaders, among others.
There is no other way these conversations can happen as effectively outside of Slack. Companies have poor alternatives, and they want to collaborate outside their organization. If they use an e-mail list, it's too disorganized and jumbled for a meaningful conversation. If they use a consumer messaging service, they sacrifice security or compliance. Shared channels give all the benefits that our customers have gotten from channels, organizing information and creating context, but now for their external communications in an environment that they control.
This capability is unique to Slack and takes advantage of our purpose-built architecture to handle the complex considerations required to connect different organizations, all while maintaining the enterprise-grade security and scale that only Slack can provide. It's a big step forward for collaboration across organizations and, at the same time, a big step forward in security and compliance. Stay tuned for more on this very soon.
I'll conclude with some thoughts on how we plan to navigate and invest in the current environment. Our customer base looks a lot like the global economy, with nearly every segment, vertical and geography in the world represented. Accordingly, as Allen will discuss in more detail, we are not immune from our customers' bankruptcies, downsizing or other negative macroeconomic effects.
Due to these factors, the range of outcomes, as we move through the year, is also significantly wider than is typical. We don't know with any confidence what the second half of the year will look like from a world health or macroeconomic perspective and how that will impact our customers. These are challenging times for everyone.
However, we also see a generational shift occurring. How the world works is changing right now. This shift will significantly increase what our customers need from us. It will also likely accelerate the adoption of both our category and software more broadly over the medium to long-term. The timing is hard to predict, but the secular trends are very clear in our view.
So we'll continue to invest. We will market aggressively. We will hire more engineers, designers, product managers and sales people. We will pursue opportunistic M&A where we see opportunities to expand our portfolio of offerings. While we invest, we'll continue to manage the business towards free cash flow breakeven.
And with that, I'd like to turn it over to Allen for a more detailed commentary on the quarter and our guidance.
Thank you, Stewart. And thanks again to everyone for joining us.
I will go through our fiscal first quarter results in detail before moving on to guidance for the second quarter and full year fiscal 2021. I'll also discuss the expected impact from COVID-19 on the rest of the year.
Total revenues in the first quarter were $202 million, growing 50% year-over-year. Our Q1 calculated billings were $206 million, growing 38% year-over-year. Calculated billings this quarter were impacted by approximately $17 million of headwinds, which impact the year-over-year growth rate.
First, as we discussed in the fourth quarter call, there were $10 million of billings that occurred in the first quarter of fiscal 2020 that will be renewed in the latter three quarters of fiscal 2021. Second, there were a number of COVID-19-related headwinds. To support distressed customers, we've offered credits, installment billings and billings duration of less than one year. We have similarly built up a reserve to account for potential credit issues, which is a negative impact to deferred revenue. These COVID-19-related billings headwinds totaled $7 million in the first quarter. We plan to continue to help customers manage through this unique time and expect calculated billings to be less useful as a measure of underlying growth during the COVID-19 crisis.
Trailing 12-month calculated billings were $822 million and grew 46% year-over-year. Remaining performance obligations were $379 million, up 16% quarter-over-quarter and 97% year-over-year. Because we have taken the practical expedient under ASC 606, our RPO disclosure is reflective of contracts greater than one year in length and excludes annual and monthly contracts, which are captured in deferred revenue. Accordingly, RPO growth is driven primarily by growth in multiyear Enterprise license agreements. These multi-year deals tend to be larger and often reflect the decision by our enterprise customers to standardize on Slack.
In terms of geographic breakdown, 38% of our total revenue came from outside the U.S., which is up from 37% in Q1 last year. We continue to invest in international growth, including expanding our direct sales footprint and additional language localization. As Stewart mentioned, we ended the quarter with over 750,000 total free and paid organizations using Slack, up from 660,000 at the end of Q4. The over 90,000 net new organizations added in the quarter was a record for Slack.
As of the end of Q1, we surpassed 122,000 paid customers, up 28% year-over-year and representing a net addition of 12,000 customers quarter-over-quarter, also a record for Slack. Due to the unique nature of the work-from-home surge, I'll give additional detail about paid customers added this quarter.
Customers added in the quarter had a similar distribution to our customer base as a whole from a geographic and a segment perspective. Moreover, the average annual recurring revenue of customers added in the quarter was up slightly year-over-year. The transition to work-from-home was obviously a major tailwind this quarter, and we expect net new customer additions to moderate through the remainder of the year to quarterly levels closer to those observed in fiscal 2020.
We remain focused on expansion within existing customers and growing our large enterprise customer base, and ended the quarter with 963 paid customers with greater than $100,000 in annual recurring revenue, which is up 49% year-over-year.
Paid customers with greater than $100,000 in annual recurring revenue represented 49% of revenue in the first quarter, up from 43% in the year ago quarter. Our strong customer retention and ability to expand within existing customers have resulted in a consistently high net dollar retention rate, which remained flat at 132% at the end of the first quarter.
Moving forward, I'll be discussing non-GAAP financial measures. Gross margin was 89% versus 87% a year ago. R&D expenses were $61 million or 30% of revenue. We continue to invest in Slack's user experience, scalability, our platform and new features, such as shared channels, and expect R&D expenses to grow roughly in line with revenue growth in fiscal 2021.
Sales and marketing expenses were $95 million or 47% of revenue. We increased marketing spend in the quarter, due to the work from home surge and plan to invest into what we see as a major secular trend in the shift to remote work. As such, we expect sales and marketing as a percentage of revenue for fiscal '21 to be similar to Q1 levels.
G&A expenses were $40 million or 20% of revenue. We continue to expect G&A expenses as a percentage of revenue to decline moving forward. Our operating loss in the quarter was $17 million, representing an operating margin of negative 8%. Free cash flow was $3.7 million. Free cash flow includes $5 million of capital expenditures related to the build-out of office space.
Stock based composition and related employer payroll taxes were $58 million in the quarter or 29% of revenue. I'd like to spend a moment on the expected impact from COVID-19 and how we have factored it into guidance.
We are fortunate that Slack enables remote work. Due in part to this, growth in the first quarter accelerated and was above our expectations. We've also continued to see stronger than normal top-of-funnel activity in April and May.
However, there are potential headwinds to our business. We estimate that about 1/4 of our business is derived from companies with less than 100 employees. Within this SMB base, we saw churn trend a bit higher than historical norms in March and April, albeit off a low base.
When I look at the breakdown by industry, our customer distribution is highly diversified. However, some of our customers have been impacted by COVID-19. We estimate that less than 20% of our business is derived from the most directly impacted industries, such as travel, hospitality, commercial real estate, ridesharing and retail.
In the Enterprise segment, some sales cycles have accelerated due to work from home, but others have slowed, particularly in impacted industries. Our pipeline remains very healthy, but on balance, there's less visibility into how IT spending will trend for the remainder of the year, particularly if the economic effects of the COVID-19 pandemic persist or worsen.
As mentioned previously, we also plan to accommodate certain distressed customers during the crisis via the use of flexible contract structures and billing terms. While this is less of a revenue impact, it directly impacts calculated billings and free cash flow.
When we guided for the full year in early March, we accounted for some of these headwinds. Thus far, in the first half, the tailwinds have outweighed the headwinds. However, we believe that macroeconomic uncertainty is significantly greater today than it was then. Taking into account the puts and takes of the above, we continue to drive visibility to guide to quarterly and full year revenue, but are withdrawing our calculated billings guidance.
Now on to guidance. For the second quarter, we expect revenue in the range of $206 million to $209 million, representing growth of 43% at the midpoint. We expect non-GAAP operating loss in the range of negative $22 million to negative $18 million. We expect non-GAAP EPS in the range of negative $0.04 to negative $0.03. We are modeling Q2 basic shares outstanding of approximately 564 million.
For the full year, we are raising our revenue guidance to a range of $855 million to $870 million, representing growth of 37% at the midpoint. We expect full year non-GAAP operating loss guidance to a range of negative $110 million to negative $100 million.
We expect full year non-GAAP EPS in a range of negative $0.19 to negative $0.17. We are modeling full year weighted average basic shares outstanding of approximately 567 million. We are maintaining full year free cash flow guidance in the range of negative $20 million to breakeven.
To close, we are obviously operating in very unique times. Now more than ever, our customers depend on Slack to continue to push the envelope of innovation. We plan to continue to invest as we see the current crisis accelerating digital transformation and the transition from e-mail to channel based messaging platforms over the medium-term to long-term. At the same time, we will manage the business prudently and with the goal of showing consistent operating leverage and progression towards being free cash flow positive.
With that, I'll turn it over to the operator for questions.
[Operator Instructions] The first question is from Alex Zukin of RBC Capital Markets. Please go ahead. Your line is open.
Congratulations on a great quarter and some definitely moving and powerful words there, Stewart, at the beginning. I wanted to dive in, maybe just one for Stewart and then a quick follow-up. If you think about the selling environment right now for Slack, given this move to a more fluid work environment, has it moved up the priority curve? And are you seeing the value prop being easier to sell, understanding your customers? And then from a competitive perspective, given the pressure on IT budgets, maybe just level set what you're seeing as you talk to customers around the various options that they have and why they're choosing Slack. And a quick one for Allen.
Sorry, Stewart's muted. One second.
On the perception of value or giving people to understand it, I think there's been a big improvement there. People are just more aware and paying more attention. The bigger difference, though, I think, is the speed at which decisions are getting made. That's been a big boon. And inside a large organization, you already have things like the vendor approval process, the security review, commercial negotiations, MSA. All that stuff is happening faster. So there's definitely a sense of urgency, which we kind of expect to continue. In terms of the - sorry, what was your second question?
Competitive. The competitive environment?
Yes. Why are they choosing Slack over Teams?
Yes. Just given the - given what you're seeing with kind of IT budgets being pressured, you're moving up the priority list, but the overall pie, a pool of dollars is shifting or shrinking. So I'm curious how that's changed, in real time with competitive dynamics?
Right. Sorry, I remember what I was trying to get at. You mentioned IT budgets. We haven't seen contraction. That is something that we could imagine happening in the back half of the year. It hasn't, as far as we're able to discern at this point, affect competitive dynamics. So that's a positive point. But obviously, there's a lot to untangle here.
And there's a lot of, again, factors, including the changes that we make that aren't driven by COVID or the macro changes, changes to the improvements in the user experience and new product launches, which do have a difference in adoption, retention and engagement. So I think we're probably going to have a little bit more insight on that in next quarter and the one following.
And I also - just let me just quickly add to that. I mean, COVID currently boosted pipeline for us. It made - it validates this category. It's clearly more important. And you see that show up because customers are much more motivated to get deals done. The large enterprise wins you saw in the quarter, whether it's Amazon, Verizon, Man Group and so on. And that's a real indication that these people are motivated. They saw a problem that we could solve for them, not just for today, but over the longer-term.
And I think just in terms of how that then affects the competitive, they want the best solution out there. Good enough is not good enough, right? In this environment, you want to make sure that you've got a strategic investment and the best tools that will enable this remote work environment that you're seeing.
Totally understood. And then maybe just a technical or a financial question. Obviously, RPO and RPO bookings at 97% and 78% were significantly more than double the billings growth. So just - do you have any - is there any way to kind of contextualize what you're seeing? What's the right forward-looking growth rates for the business it could be? And then from a current RPO perspective, are there any numbers you can share? Is that number of closer from a growth rate perspective to the total RPO or to the billings rate?
There are a couple of moving pieces there. I think RPO, for us using the practical experience, it really is not necessarily - it can't be triangulated back to billings growth in a very linear clean way. It is reflective of these multiyear deals. And I think that's, again, an indication of the enterprise momentum, multiyear wall-to-wall traction that you're seeing overall.
I think in terms of billings itself, there were specific quarterly dynamics, which we seek to flag, Alex. And I think that's more what's happening here. It's some of the seasonality, which we've talked about, and obviously, some of the investments we're making in customers to support them during this time.
Your next question comes from Raimo Lenschow of Barclays. Please go ahead. Your line is open.
Thanks so much for the comments at the beginning. Can you talk a little bit about channels? Like, we have, like, that product in the market now. You talked about the adoption. What are you seeing in terms of customers? Does it have that flywheel effect that other vendors have seen that the guys that got invited to kind of communicate in the shared channel are actually becoming customers? And then like, obviously, if you kind of broaden it to 20 accounts, that could kind of work even further. But do you see the early signs of that flywheel that we were waiting for?
And then, Allen, you kind of reiterated the cash flow guidance for the year, but you're also saying that you're kind of giving - you're kind of more lenient or working with customers around payment. So can you talk a little bit about how you're managing that in between there? Thank you.
Thanks, Raimo. So yes, on shared channels. And we saw that a little bit in the early stages of piloting and the launch of one-to-one shared channels, both new user - new team adoption, but also new paid adoptions. Sometimes it's driven by the person doing the inviting because it was so much easier to work with their customers.
There's a lot of work happening right now to remove some of the friction. We don't wanted to give a lot of administrative control. So we're making it a lot easier for people to create them. So I think that we'll see an uptick there.
The multi or shared channels, I think, are qualitatively different. It's not just the number went from two to three or greater. It creates a different kind of dynamic, which frankly, I was surprised by on the upside, to establish like a small private network. And they can equally well be used over the long run to create larger networks. And that's different than just one customer and one supplier. It could be many organizations who are working together, like our six regional PR agencies and the global PR agency and our internal team.
But the use case that I mentioned on the call, the private network for the CEOs, CFOs, CMOs, the heads of people, it's just something that you can't do any other way. And we did have the one CEO who wasn't using Slack [could be sign up] Slack in order to get access to that channel.
So I think we'll see a lot more of that, and we're going to be pretty aggressive on the marketing sides over the next couple of months. And I think - we're putting a lot of effort into realize that flywheel.
Okay. Raimo, just on the cash side, and maybe before I do that, we've already seen on shared channels. If you're on a shared channel, you're four times more likely to send an invite. So these are the early signs that this is really starting to move along. And then on to the cash flow side, I think what you should take away from there is we've got a lot of momentum in terms of this ongoing growth phase progress that we expect it to make towards cash flow breakeven. So that's leverage and kind of a momentum in driving leverage that we think is continuing we feel very confident about. I think what you're hearing from me is a lot of uncertainty and volatility in the second half and the visibility as a result is pretty limited for me.
So we are customer forward. We're thinking about how to support customers during this time. And so it's unclear to me the magnitude of which that will play out. But I think that's what you're kind of - you're seeing balanced out here.
Your next question is from Brent Bracelin of Piper Sandler. Please go ahead. Your line is open.
One for Stewart and a follow-up for Allen. Stewart, the average mix of usage of Slack has hovered for the last year at this 85, 90 minutes, but jumped meaningfully this quarter to 120 minutes in a post-COVID environment. My question is, how is Slack usage changing in a post-COVID environment as you look at kind of the trends there? And is that changing anything as you think about the product road map here that you plan to accelerate?
Yes. It's a great question. And off the top of my head, I don't think of road map changes as a result of this. But I think what you're seeing is a greater percentage of the users, so therefore, bringing up the average. A greater percentage of the users coming to really rely on Slack for being where work happens, being their digital workplace. I think there was always a benefit to having that kind of rigor and discipline about communication to make sure things are in writing, to make sure things are in the right channel and communicated well. But that doesn't come naturally. I guess it doesn't come for free.
There was always a population of people using Slack in a very intensive way. And I think what we saw was a much bigger population kind of moving into that more mature usage category, which is great to see, and hopefully they'll - key individual employees will take that with them to the next employer and that will spread.
And then, Allen, just on the billings, obviously, RPO growth accelerated. Your revenue growth accelerated. Billings didn't, and you talked about that $17 million kind of impact to the renewal timing and customer credits. My question is, is this kind of a onetime headwind to deferred? Or do you think as you kind of work with customers extend kind of additional payment credits that we're going to get more noise going forward around deferred and billings, where - or that might not be as useful as a number? Just trying to understand, is it onetime or could there be additional adjustments as you think about supporting customers at this time?
Yes, absolutely, Brent. I think the short answer is we don't know. I think when I look at the performance in the quarter, there's so much momentum in the business. We're investing very aggressively. There's a huge opportunity ahead of us. That's all systems go. We're in the growth phase. We want to keep investing in that way. At the same time, we look at customers that are pretty impacted by this. Right now, thankfully, less than 20%, but I think we're going to watch how that plays out over time.
And just to separate kind of the impact there, $10 million is sort of the timing on seasonality we flagged out last quarter when we were setting the guide for the year and for the quarter. But in terms of the $7 million, I think that number is - I'm not sure. And I think similar to what I mentioned to Raimo. We've got a lot of momentum in driving leverage in this business. But at the same time, you've got this cloud around what can happen in the economy and how that may translate to our customers. So we just want to be very thoughtful about how to manage that proactively.
Your next question is from Brad Zelnick of Credit Suisse. Please go ahead. Your line is open.
Stewart, your comments about what you offered not being a substitute for in-person meetings, but more providing the digital office and being a multiplier on the productivity of users and the value of the software that they use, wherever work might be happening, makes a lot of sense and resonates really well. From a product perspective, you also talked about the investments in R&D. I think Allen had talked about investments in user experience, scalability and platform. But he also talked about new features. And while I know shared channels and multi org shared channels are right here in front of us and really exciting, as you think about the vision and where you can go to build upon that multiplier effect many years out, how should we think about this market and Slack evolving from a product perspective when you look out in the horizon?
It's a great question. And I think people's ideas about what collaboration software or what enterprise software should be, are largely shaped by what they've experienced and kind of backward looking. So we have a long history of unified communications. We're really trying to think about what does the next 20 years going to bring, and how can we help accelerate that.
So the movement from inboxes to channels, which you've heard me talk about probably too much at this point, that's an inevitability. That's a huge advantage, but I think Slack really comes into its own when it's also a lightweight fabric for systems integration. So there's a lot of intersection between these features.
As we extend the reach and increase the usage of shared channels, which, by the way, we used for - to put together that convert offering. We had the bankers and everyone in there. I don't know if we were the first one or the first big one to happen in the post-COVID world. So the road show - everything is coordinated that way.
But as we see increased adoption there, there's increased opportunities for platform usage that crosses organizational boundaries. And that could be purchase order, statements of work, contracts being signed, service tickets going back and forth. And we're interested in that. We're interested in really - and I think we had a huge advantage when we first started, and probably we haven't made as many advancements over the last five years as we should have to keep up to date.
So really kind of pushing ahead on the user experience through moving friction, making it more of a delightful experience, and not just because that makes people happy, but because when you remove the friction, it makes it easier for the communication to happen, and that's where people are getting the value. So there's a couple of things that we're about ready to talk about. But the intersection of platform and shared channels, I think, is going to be really a significant one for us.
And allowing more parties, but also more content, more applications and more workflows to come into the environment, I think, is going to be hugely beneficial. It doesn't mean that we want to bring all of your software into Slack. Part of our thesis is - the proliferation is going to continue more or less wherever. What we want to do is connect them in a way that makes it as easy as possible for people to get to what they need.
If I could just follow-up with another, presumably for Allen, the 90,000 total customer adds, a record, really impressive, and obviously, a huge funnel of opportunity to see play out going forward. If you look at that funnel as it's built, and I appreciate that there are so many unknowns from here through to the end of the year, which has caused you to withdraw your billings guidance. But is there any observations that you can share about that massive opportunity and maybe some patterns that you're beginning to see just in the last couple of months even that might provide any insight into how that might convert over time could be helpful? Thank you.
Yes. Brad, when I see 90,000, a record amount of customers, both free and paid in a quarter that was more than what we brought in all of last year, to me, there's a real shift in understanding and awareness of this category, right? This is not just some new category, kind of, interesting side projects for folks.
Now this is part of the core IT spend. And I think what you're seeing now with that pool is obviously, 12,000 of those converted right away. You had this kind of compression of time what we were very motivated, obviously given the environment to do that. But over the longer term, there's a - that's a really rich pool for us to tap into overtime, whether that's continue to convert them to paid or continue to build out the network through shared channels as we continue to bring them up the adoption curve.
So I think for us, when we look at it, it's broad based, its different type - all kinds of sizes of companies, all regions of the world. I think that's been pretty unique. And to me, a much more stronger validation of, I think, the long-term runway we have with this and how to continue to navigate and feed that in the midst of a volatile environment ahead of us.
Your next question is from Michael Turrin of Wells Fargo. Please go ahead. Your line is open.
I want to spend just a minute on Brad's question there, on the 90,000 net orgs added, because, I think, obviously, what you're speaking to make sense in terms of just more evangelism happening in the market. Is there more you can do to just kind of influence those orgs to ensure that they have an optimal experience to start off? And then you mentioned the generational shift that's happening within the market. Is there - are there other things you can do to just kind of lean into this sort of remote work motion and take advantage, maybe play some offense around what's happening today?
Yes. I'll take the product one and Allen can take the follow-up. But those - the efforts that you're talking about to get - making it easier for people to get started are ones that have always been important to us, and I think that recently, we've been able to make some exciting progress on. So that's more of a coincidence in timing as opposed to specifically because of this. But it is hard, right? One of the reasons Slack has such high retention, I think, is because it's a real cultural shift. You have 100,000 employees and people are using Slack for two hours a day. That's 1 million hours of employee time a week.
So when you're talking about that kind of change, there's a lot that people have to understand. How many channels should we have? What we set up channels for? What should be public? What should be private? How do the integrations work? And so really thinking about unfolding the experience of using the product in a sequence that's going to make it easier for people to understand that and more likely that they take advantage of the full feature set, it's something that is really important to us. And we have a phenomenal team working on that now, and there's a lot of momentum. So you can expect to see a lot of changes. And obviously, that will benefit this crew of the 90,000, but it will also benefit everyone who signs up later.
Yes. Makes sense. Go ahead, Allen.
Yes, Michael, I can just quickly add. Obviously, the products up are accelerating just. On the kind of the business side of things, we are accelerating marketing spend. We saw that in Q1. We're going to continue to be very aggressive in mid-market here. I think maybe some of the ads you've seen recently, the whole company has mobilized around this, whether it's kind of these one-on-one consultations, webinars, website changes.
And I think the biggest advantage we have here is a lot of these customers that are remote only that were remote first from the beginning, whether it's Gitlab, Wordpress, they run on Slack, right? So there are a lot of stories and expertise that we can share already because we have the right customer set that knows about this because they've picked the best-in-class platform to make this happen and enable it within their organizations.
There's a lot to squeeze in on the call here, but I wanted to go back to the AWS partnership you mentioned because that press release came through during the call, and it looks like there are some interesting integrations there in terms of Chime and Slack calls, EKM and some other pieces. So I think it would be great if you could just spend another minute kind of walking through those pieces, the vision there and how that potentially impacts your reach here as well? Thanks.
So yes, I'll take that. There's a bunch of relatively simple utility we can offer because a lot of the use of AWS, if you're a network operations engineer, if you're a developer, there's a lot of kind of input and output. There's a lot of - you're doing things and you're getting results back, you're getting notifications, you get an alert, you're running tests and get in the results of this test back. So the deeper that's integrated the better off you are because notifications can come into channels instead of being sent to individuals, and you could offer a richer experience.
Thinking a little bit further ahead, we really want to allow people to create the kind of very simple applications that you find inside of companies that if you go back in the time machine a little bit, you would have seen people creating with VBScript and access databases 20 years ago. And working with AWS on that is something that's a little bit more forward-looking besides the integrations we're doing now.
Obviously, a lot of developers on AWS, SAP it's not a very popular tool with developers, and we really want to ensure that we keep that population happy. But looking forward, I'd love to also extend some of those benefits to outside of the realm of software engineering and technical roles.
Your next question is from Arjun Bhatia of William Blair. Please go ahead. Your line is open.
On Enterprise, I wanted to - I think it's great to see the wins in Verizon and Amazon, and some of the traction that you're getting with 100,000 plus customers. I think last quarter when we talked, it seemed like you were maybe a little bit concerned about pulling the reps on the field and what that might do to the Enterprise sales motion. So can you maybe just give us a - walk us through how you've adjusted that thought of motion? And how some of these larger deals are coming to fruition, especially with new Enterprise customers, are they reaching out to you? Is this an outbound effort? Just maybe help us walk through some of those dynamics.
Yes. Allen has been spending a lot more time on kind of the modeling there and trying to build the forecast. But I will say for developing personal relationships, it's obviously a disadvantage to not be able to meet in person.
But for getting the meetings done, it is just an enormous advantage. I can very easily do myself five or 10 customer calls in a week. Whereas if I had to travel or they had to travel to us, they'd be much harder to arrange and just logistically difficult. You see the same thing with our sales team, with our solutions engineers, which our customer success team. All of that motion, at least to date, I think, has been accelerated. So Allen, I don't know if you have more to add?
Yes. No, I would just echo that. I think Arjun, when we looked at - when we kind of went into the quarter and we did the call three months ago, we definitely had more concerns around new deals. And what was surprising for me is just the surge in interest and relevance that what we do is for everybody, right? And especially if you have no solution in this area, you're just not much more motivated to try to figure this out.
And I think that was something that was probably different than my expectations. We had this kind of compression of time that Stewart is describing here. And I think going forward, it's more of working through the leads that we've built over through the surge and then also trying to navigate what's going to be a more challenging macroeconomic environment.
Perfect. That's very helpful. And then on the shared channel usage, I see that's increasing pretty dramatically as well, which is, again, great to see. Is there any way you can help us understand whether shared channels is being adopted by existing customers? Or if it's being used as kind of a top of funnel activity to actually draw new customers to Slack that maybe we're not looking at previously?
It's definitely been existing customers up to now, the majority of them. So 90% of our 100,000-plus customers are already using shared channels. We only very recently, probably within the last six weeks or so, maybe eight weeks, launched features to make it easy to invite people who aren't already using Slack into a shared channel. I think there's a long way to go there in optimization and kind of how you unpack a new Slack experience for someone who's coming in with the shared channel because that's actually a big advantage in modeling how they should use it and understanding the value of Slack.
So huge room for optimization there. And it has not been a significant driver of new team acquisition to this point, but I believe it can be in the end. Even in the kind of short to medium-term, I think we can start to see some results from that, but it's an area that we're going to lean into, and obviously, one of the things that excites us about shared channels.
Yes. And Arjun, just keep in mind that we're doing the multi or in the near-term here, and we'll talk about that when that's ready to be announced. But I think the confluence of that with the invite will really lead to some pretty interesting opportunities to kind of promote more virality and network effects within the customer base.
Your next question is from Kevin Weiss or Keith Weiss of Morgan Stanley. Please go ahead. Your line is open.
I wanted to dig into - the new customer add numbers, both on the free and the paid side of the equation were huge. Well, I think - remember that investors are probably more disappointed with, if you look at like the afterhours, but, actually, it's the net dollar retention rate because we've seen in a lot of companies an ability to really accelerate upsell into the existing install base. Can you talk us to us, are there any like inhibitors or kind of transmission mechanisms that make sort of the increased usage that you're seeing in your existing installed base not translating better into a higher net dollar retention rate or more of a sequential increase in that net dollar retention rate? Then I have one follow-up for Allen.
Sorry, Allen, I don't know if you want me to take that.
Sure, I'll take that. Yes. Let me just take that, so if you want. Sorry. Just - Keith, just - I'll let Stewart talk about just from the mechanics of it. Our enterprise adoption net dollar retention rate continues to be very strong. I think what you're seeing here is, again, our net dollar retention rate is a reflection of all of our customers. So the vast majority of our customers are SMBs.
And that - we saw a slight tick down in that net dollar retention rate quarter over quarter. But the mix shift, I think, it is what's probably more kind of a bigger drag than it typically is just given the number of customers that we brought onboard. And back to you, Stewart.
Yes. I was going to maybe almost the same point, but articulated in a slightly different way. It's always going to be bigger earlier. I feel like 132% is pretty great. So it's always going to be bigger earlier because you land and then expand at the Enterprise side. But because there's a huge spike of brand-new customers, they don't have much of a chance to expand.
So it's going to bring the average down a little bit as well. So I think that's an area that we're pleased with. And it's - there's no inhibitor - or let me put it this way. There's no substantive difference that we've been able to uncover yet between this cohort coming in Q1 and the behavior that we've seen with historical cohorts.
And then the strictly financially related question was more on the gross margin side of the equation. That was up 200 basis points on a year-on-year basis despite a huge influx of free customers coming into the base and a huge spike in overall usage. That's pretty impressive. Can you talk to us kind of the dynamics on how that occurred, how gross margins go up when usage is also going up the way it is?
Yes, Keith. So remember, for the free portion of our server cost, customer care costs, technology costs, that is actually captured in marketing - sales and marketing. So part of it is that dynamic. But I think in general, you're right. We did continue to drive leverage there. Biggest benefit was the less of a drag from the small amount of revenue we do in professional services. But there's continued improvement that we're making on overall kind of the software subscription margins as well. And I think the growth phase we talked about kind of 86% to 88%, that's probably still the right target over time, and we'll see kind of how these net out.
Your next question is from Derrick Wood of Cowen and Company. Please go ahead. Your line is open.
So I wanted to drill into the customer count in a little different way. And if I have my math right, you guys signed nearly 80,000 free customers in Q1 versus 50,000 in all of last year. Obviously, that has a big impact to your top of funnel and your pipeline of targets to convert. But two questions. First of all, why do you think that free mix was up so much? And then, I mean, do you view that as being a boost to your pipeline conversion opportunities for the rest of the year? Or what's your view of that cohort of free customers that came on board over the last three months?
Great question. And the answer is, yes. We view that as a huge boon to the top of the funnel. The mix of free to paid there is actually slightly better than we've seen historically. It's just not as much time has elapsed. So people are more likely to convert upfront than people who signed up, let's say, three months ago. But it's always taken some time for Slack usage to kind of grow up inside of an organization, for people to get the hang of it, to invite their peers and colleagues and for it to spread. So I mentioned already, no significant differences between this cohort and historical ones. So I think we'll - we expect to be able to convert a large number of those over the course of the year.
And second question, it clearly seems like work-from-home is going to be a permanent strategy in some form or fashion, and obviously, where collaboration will be important to support that. So as you start - as you're looking at your prospects and your customers, are you seeing more top-down led engagements versus bottoms up? And what can you do to engage more with the C-suite?
Yes. So I wouldn't say that we've seen more in absolute terms, but we are seeing more than we have, historically. Because there's also - you got to imagine, certainly the second half of March, first half of April. If your job was VP of end-user applications or VP of productivity or something like that, you had a mandate and you had a lot of pressure on you to get something done. So that - it had a lot more attention.
And I think there's some combination of work-from-home, not having to travel. It's much easier to get meetings. It's much easier to get attention from the C-suite right now. I don't know if that is a femoral, but I think it's seen as strategic by a broader range of players than it might have been three, six, nine months ago. And I think that elevated attention is probably something that we can expect to continue even if it's not as easy to get a meeting, even if there's this moment, where there's a very intense level of interest.
Yes. Derrick, I think that's true. And in different cases, we have seen folks look to us to be a thought leader here because this is something that's in our core capability. This is really what we do. And this category seems that we are kind of the leader and expert in. So I think it's important for us to continue to invest behind that. And I think as you described those dynamics, I think that the gravitational pull or the trend is definitely very favorable as people come to appreciate what we're doing to support this remote work environment.
Your next question is from David Hynes of Canaccord. Please go ahead. Your line is open.
This is Luke on for DJ. So video has obviously become a huge deal lately. And we've seen guys like Microsoft get more active in that area through Teams. Have you noticed a change in how Microsoft positions itself in competitive situations, given its dual capabilities in chat and video? And then could you talk a bit about your existing capabilities in video today, your partnerships and perhaps how you think about that market aspirationally? Does it make sense for you to ever develop your own need of capabilities on that front? Thanks.
Yes. So Luke, it's - we're definitely interested in video in the broadest sense. We do have some built-in calling features, but it's slightly different. This is for calling inside of the Slack organization as opposed to outside. It's not about conference room integrations or calendar. Where we're particularly interested is kind of more lightweight, asynchronous video and the use of video communications that's not in the conference room.
And if you just indulge me just for a second. Generally, when we're selling, we're selling into a new category, which has its challenges, but it has its advantages, too. I think when I mentioned earlier, people's imagination is largely determined by what they've seen in the past. The last 20 years of unified commutations, as a category, is its important and everyone has made a choice. So now the sales motion would be instead of pure Slack brand-new category. And by the way, it integrates seamlessly with what - whoever you're using now. It integrates with Zoom, it integrates with Cisco, it integrates with Teams.
Now we have to say here's the software as a new category. And by the way, we want you to switch providers for video conferencing. I don't think that's - there's any advantage to us there. And I don't think there's a per customer revenue advantage. I don't think there's an increased win rate advantage. So we'd rather not have to make customers choose in and not have to compete in that category, and instead, start to think about the future.
Yes. And just add a couple of thoughts there. Again, the popular strategy is to make all the software that you use better because you're using it on Slack. So being that digital office, it's not just about bringing the people together, bringing all these applications together, and that includes voice and video. And the good news is that we do have a video offering that our primarily SMB customers take advantage of. We saw a huge surge in that - the usage as well, and that provided a lot of value for those customers. But to Stewart's point on the Enterprise side of things, it's really different.
And I think just in general, the way to look at this voice and video conversation is that the unified communication is a 20-year-old category. We're trying to build and progress towards the future of work. So I think it's important for us to continue to invest in things like shared channels and the innovation that we've talked about here that drive towards that outcome. And I think we got an opportunity and a responsibility to help people along the way and to help them to appreciate that some of the offerings out there are not apples-to-apples in terms of the value that it can bring, not just for today, but over the long-term for the organization.
I'm just going to add one more final point there. I think it's really what you saw with Zoom, what you saw with Teams, is a great indication that this is not apples-to-apples and that the products are not really competitive of one another. You just can't adopt Slack that quickly. You can't move from email to channel-based messaging in that short amount of time, which is - I wish that whole cultures could change overnight.
But I think what you really saw from Microsoft into Teams was the emphasis on voice, the emphasis on video, and the calling product moving people over from Skype for Business. So I think or hope anyway, makes it a little bit clearer to people that the products are not truly competitive.
There might be a competitive dynamic at the company level because if we're a threat to email, then we're a threat to the franchise. But it is a fundamentally different thing. And I think that the fact that instant messaging, kind of one-to-one or group messaging, was tied to voice and video historically, kind of suggest to people that, that's the way it should be as opposed to channel-based messaging platform that integrates with 2,000 third party apps, like we have - had 600,000 or 700,000 custom integrations built by end users, that's different. And it should integrate seamlessly with voice and video, but not necessarily contain it.
Your next question is from Will Power of Baird. Please go ahead. Your line is open.
Maybe just to come back to the implied second half revenue guidance. It sounds like the pipeline remains healthy, whether it's free user conversion opportunity, ongoing enterprise trends, et cetera. I know Allen, I think you referenced some higher churn in SMB. So I guess really the question is, have you started to see a more meaningful pickup in that SMB churn kind of as you trend through May? Is that informing the guidance? Or is it more built around just some conservatism, given what are clearly a number of macroeconomic uncertainties? Just trying to make sure I kind of understand the different pieces that are impacting that thought process?
Yes, for sure. Well, I think first and foremost, guidance is tied to visibility for me. And I think what you're seeing is that we're guiding to a number that we feel like we've got high visibility into because of the trends that you're seeing. And just to kind of clarify the point around churn, I think. You got to remember, Slack is built on engagement, right? So when we look at bringing on customers, they adopt and engage, and then they become very sticky, and our retention rates are super high, right?
So, our churn baseline is super low as a result. And so when we see an uptick, it’s often very low base. Yeah, I think the good news is that over the last few weeks, they’ve been in that number. It’s more flattening out, stabilizing there. But that is something we are watching, I think that’s really a focus of my paying a lot of attention to it and making sure that those trends don't reverse again.
I just want to make a quick comment. It’s just a distinction because as a leader of a SaaS company, churn is a scary word because typically, when people say it, they mean, you lost the customer to a competitor or you just - you lost because the product wasn’t meeting their needs. When we talk about churn on this call, we’re talking specifically about churn that’s due to the macro. We don't expect any difference in the rates of retention, either at the high-end or the low end over the long-term, but we obviously - a lot of businesses are shrinking and some of them are disappearing.
Your next question is from Rohit Kulkarni of MKM Partners. Please go ahead. Your line is open.
A couple of them as in big picture ones, as in, you had a fresh new user interface, new home tab, to shared channels and many different things are launched over the last few months? I'm wondering whether you could quantify or qualitative feedback as to what may have led to easier adoption of new customers and that may have translated into higher conversion from free to paid whether you see any evidence of that. And second, just one for Allen, the new $750 million offering any color around why, what, around the extra cash that you have on the balance sheet now?
Sure. So for the changes that we're making specifically to the new user experience, and then maybe some subset of the other product changes, things like adding a single button that lets you compose a message which in a more familiar environment with you [indiscernible] editing a text to be a better text formatting tools. That kind of stuff absolutely makes a difference. A lot of those changes happened in Q1 and they continued into the first month here. It's super hard to honestly, to tell the difference or sort to tease apart the factors here. Because global pandemic obviously made a huge difference to the numbers.
So it's possible I’ve mentioned earlier we’re seeing increased rates of conversion and when I say that. I mean like going from creating a team to actually being successfully used on a sustained basis or from that successful state to a paid conversion. Those are increased and I can't say right now whether that's because of changes that we made or because of the pandemic. And over time we'll be able to better discern those but we're still investing and we still believe that there is enormous upside in getting people familiar with this model of communication and helping make them successful faster.
And Rohit on the convert, I think just worth of accounting anecdotally again, this was in early April when everyone thought the world was going to collapse and clearly the market has thought otherwise since then. But we were able to do a convertible offering in 10 days, end-to-end because we had this multi-org shared channels feature. And so being able to fluidly flexibly raise that money across bankers and lawyers and all these different stakeholders while everyone's working remotely is only possible because of Slack.
So, in terms of what we're doing with that money, it's because we see an opportunity here, an unprecedented once-in-a-lifetime opportunity here to really lean into where this category is now becoming much larger and much more important, much more relevant here. And that's an opportunity that we have a responsibility to really invest into as well as we see our customers.
We want to make sure that they feel that we've got a really strong balance sheet that we can weather any kind of macro volatility. But more importantly I think it’s back to making sure we maximize the opportunity ahead of us because I think it's here in front of us right now and we want to make sure we seize that.
Your last question is from Mark Moerdler of Bernstein Research. Please go ahead. Your line is open.
My peers asked a number of questions but I have a couple of variants. Two quickly, if you don't mind, have you seen both the tailwind and that usage and monetization from COVID-19, or is the tailwind from usage there but that ability to convert from unpaid to paid or increased monetization, do you think still ahead of you? And then a follow-up.
So almost the opposite. We have seen increased rates of conversion again because I think people are in the middle of making the transition to work from home. So it's more top of mind that they're paying more attention. They're making decisions more quickly. But still we expect that there's many, many more customers that we're going to convert out of that population.
So the tailwind I think have a couple of factors. One is just awareness. It's new teams discovering Slack and beginning to try it out. It's increased in the paid usage. It becomes central to people - to those teams working lives, and then expansion and increased engagement among existing customers.
So, all of that - but it’s still a little early. We're trying to make comparisons as deeply as we can, given the amount of time that’s passed. But all early indications are that, this is a very valuable cohort.
Excellent. And then related to that, very impressive you had almost 10% paid customer growth in the Q-over-Q. And that looks like - and it was greater than the revenue obviously. So it's more the down market. Anything you've done that change - drove that or is that really the kick in and of all of the factors we’ve discussed earlier.
I think it reflects the sort of move to the end market that it reflects the kind of mix that we see in the early stages. And same thing, people tend to start using Slack for a smaller team and they're paying monthly on a credit card and takes time for that to expand and switch to invoices in annual contracts and larger numbers of users. So - well, not every. Most of our large enterprise customers, you talk about like the big names, the Amazon and Verizon we mentioned today, but Vodafone , Target, Starbucks, all of them started off as a kind of individual work group level or decision to try to improve their communication.
We are seeing a little bit more top-down now, but it's not that the mix has shifted from Enterprise to SMB. It's just the enterprise ones always kind of start out small.
Excellent. So if you don’t mind, I'm going to ask one other quick one. RPO has become a real bellwether everyone watches. Your RPO definition is more conservative, removing the monthly and the quarterly. Can you give some color why you made that decision?
At the time, that was what we thought was best reflected the business at the time we did not have a ton of multiyear deals. And I think that trend has since changed as we begun to get a lot more traction in the enterprise.
And I think it's something that we can revisit and look at but I think overall, I think the enterprise because, enterprise momentum is very good and you were seeing more and more multiyear deals, wall-to-wall adoption for Slack in these large companies that Stewart already highlighted. And so it's something that we can revisit.
This completes the allotted time for questions. I will now turn the call over to Stewart Butterfield for closing remarks.
All right. Well, thank you, everyone for your time and attention. It was a great quarter and obviously, a very exciting time for the business so we're looking forward to keeping in touch and we'll see you again in three months. Thank you.
This concludes today's conference call. Thank you for your participation. You may now disconnect.