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Zendesk (NYSE:ZEN)
Q4 2018 Earnings Conference Call
Feb. 5, 2019 5:00 p.m. ET

Contents:

Prepared Remarks:

Operator

Good afternoon. My name is Kelly and I will be your conference operator today. At this time, I'd like to welcome everyone to the Zendesk fourth-quarter 2018 earnings conference call. [Operator instructions] After the prepared remarks, there will be a question-and-answer session.

[Operator instructions] Thank you. I would now like to turn the call over to Marc Cabi. Please go ahead.

Marc Cabi -- Head of Investor Relations

Thank you, Kelly. Good afternoon, everybody, and welcome to our fourth-quarter and full-fiscal year 2018 earnings call. We are pleased to report our results. Joining me on the call today are Mikkel Svane, founder, CEO and chair of the board; and Elena Gomez, our chief financial officer.

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

During the course of today's call, we may make forward-looking statements such as statements regarding our future financial performance, product development, growth prospects, ability to attract and retain customers and ability to compete effectively. The assumptions, risks and factors that could affect our actual results are contained in our earnings press release and in the Risk Factors section of our prior and subsequent filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2017, our quarterly report on Form 10-Q for the quarter ended September 30, 2018, and our upcoming annual report on Form 10-K for the year December 31, 2018. We undertake no obligation to update these statements after today's presentation or to conform these statements to actual results or to changes in our expectations, except as required by law. Please refer to today's earnings release for more information regarding forward-looking statements.

During this call, we will present both GAAP and non-GAAP financial measures. The non-GAAP financial measures should be considered in addition to, not as a substitute for, or in isolation from our GAAP financial results. You can find additional disclosures regarding these non-GAAP financial measures, including reconciliations with the comparable GAAP financial measures, in today's earnings press release and shareholder letter; and for certain non-GAAP financial measures for prior periods in the earnings press releases for such prior periods, all of which are again available on our investor website. So, with this brief introduction, I am happy to turn the call over to Mikkel.

Mikkel Svane -- Founder, Chief Executive Officer

Excellent. Thanks so much, Marc, and good afternoon, everybody. We finished 2018 on a high note after delivering strong Q4 results across our business. For the year, we made major strides in achieving our goals of moving up market and advancing our omnichannel offerings.

During the quarter, we continued to see a year-over-year increase in the percentage of our montly recurring revenue from 100-plus seat customers, also known as our enterprise proxy. And we also continued to exceed our expectation with the Zendesk Suite, our omnichannel bundle. We believe our product and platform in -- platform innovation in 2018 put us in a stronger competitive position and expanded our addressable market. Our revenue for the full year of 2018 grew 39% to $598.7 million, rising at a faster pace than the full-year 2017.

We also increased our free cash flow margin by approximately 2 percentage points compared to 2017. The results give us confidence in our ability to continue to grow our business. My personal highlight of the quarter was the launch of our new CRM platform Zendesk Sunshine at our annual Relate user conference. Sunshine represents an entirely new approach to CRM platforms.

We built it on top of AWS in the public cloud and made it incredibly open and flexible, so companies can build new customer apps quickly and developers can use the tools they already know and love. We've already seen the platform change the kind of conversations we have with our prospects and with our customers. We can solve more of their problems and more of their use cases and also go deeper into their business and be a true partner for them. Sunshine sets us up to further accelerate our enterprise momentum in 2019 and beyond while laying the foundation for a longer-term strategy that will help us become a multibillion dollar revenue company.

Our future depends a lot on our people. As we've grown to more than 2,700 employees, we have also focused on building our leadership ranks to be sure we're ready for next stage of growth. We have added experienced executives across product, marketing, sales, and operations over the past year. As a board, we understand how important it is to have proven leaders helping us and that's also why I'm excited to welcome our newest board member, Tom Szkutak, who joined January 31st.

Tom knows all about scaling a high-growth company as SVP and CFO at Amazon from 2002 to 2015. We are very, very lucky to have him now helping us scale. And with that announcement, I'm going to turn the call over to Elena, who can talk more about our financial results.

Elena Gomez -- Chief Financial Officer

Thank you, Mikkel. We closed 2018 with solid execution across the board. As Mikkel said, we delivered strong revenue growth of 39% for the year, which is higher than the 38% growth we delivered in 2017, and we delivered strong revenue growth in every region. Our growth was driven by continued favorable market dynamics, product innovation and sales and marketing initiatives.

We believe we've made significant advances on our business and its competitive position. In addition to solid top-line growth, we continue to demonstrate the scale capability of our business by delivering both GAAP and non-GAAP operating margin improvement despite making incremental investments for growth during the year. In 2018, following our acquisition of FutureSimple, we made additional investments to introduce Zendesk Sell quickly. We also accelerated investments to expand our opportunities with partners, including GSIs.

Finally, in 2018, we expanded our operating cash flow margin by approximately 3 percentage points and our free cash flow margin by approximately 2 percentage points, despite a year of big investments. We enter into 2019 with a strong portfolio of opportunities with organizations, big and small, looking to deliver improved customer experiences to their customers. Our 2019 planned investments in our platform provide us an opportunity to continue to move up market into more strategic relationships with our enterprise customers. We will continue to make big investments in our products and platform while also continuing to drive incremental margin improvement during the year.

Our revenue growth guidance for the full-year 2019 is $795 million to $805 million, which represents 34% year-over-year growth. And our free cash flow guidance for the full-year 2019 is $55 million to $65 million. Thank you, and I now will turn the call back over to Marc.

Marc Cabi -- Head of Investor Relations

Thanks, Elena. Before we take your questions, I do want to cover one housekeeping item that relates to our paid customer accounts. As we discussed on our last earnings call, I'd like to remind you that customers that purchase multiple products at Zendesk a la carte are counted as a customer for each product they purchase while a customer that is buying the Zendesk Suite may now buy multiple products but is only -- in one SKU, but is only represented as one customer paid account. So, all other products remain unchanged at this point.

We have also excluded our Sell customers from the customer account. And from there, we will open up for questions. Kelly? 

Questions and Answers:

Operator

Certainly. [Operator instructions] Your first question comes from the line of Philip Winslow from Wells Fargo. Please go ahead. Your line is open.

Philip Winslow -- Wells Fargo Securities -- Analyst

Hi, guys. Thanks so much for taking my question and congrats on a great close to the year. Just wanted to focus on contract size. Obviously, your metric of MRR with north of 100 seats continues to trend higher, but in the shareholder letter you also called out your 50k new ACV contracts but also just I think it was 6% increase in the size of those -- the dollar size of those contracts year over year.

Yes, how much of this is driven by just sort of your success from a seat perspective? Or are we also starting to see the cross-sell and up-sell of the Suite start to show up in these bigger deals? Just more color there would be great

Marc Cabi -- Head of Investor Relations

So, I think if you were to look at what specifically you're referring at, the 50k annual contract by a deal size is now kind of a regular deal size for us, but we continue to see that growing. As we move forward, I think what we want to do is have people focus really on our growth in remaining performance obligations, both short and long term. As you'll see, that's also been moving up nicely. And that is a good indicator of the longer contracts, the more strategic contracts we're signing with our customers as we move up market.

You asked another question within there, which was Zendesk Suite. Zendesk Suite has been a very successful offering for us throughout the second half of the year 2018, so we're very pleased with the progress we're seeing, the competitive position we've earned as a result of having Zendesk Suite available.

Philip Winslow -- Wells Fargo Securities -- Analyst

Got it. Maybe just one quick follow up on that for Mikkel. Obviously a lot of announcements on the product side. This year, Suite and then Sell and then Sunshine.

With Sunshine having come in, in the second half, wondering if you could give us just the early customer feedback that you've had on those two, just how are your thoughts on those two heading into 2019?

Mikkel Svane -- Founder, Chief Executive Officer

Yes, I also just want to mention that we also launched Zendesk Explore late last year and the initial feedback on Explore is amazing. People really want custom analytics, but Sunshine is a door opener and a conversation changer as we haven't seen before. Like we're going from having conversations with our customers about how they think about customer service, customer engagement to really having a conservation about like how do you architect the customer experience across the customer lifetime, across the customer life cycle, across all the divisions with the new organization? And it's a super interesting conversation and we really enjoy being part of that and we really believe that we have a lot to contribute. And I think that from our customers that they know that Sunshine is built on an open platform that is their platform, not ours, that they are in control, and we really help them to succeed and kind of achieve their objectives in an environment that is familiar for their developers, for their organization and they're very familiar with, is really, really strong and we truly believe in that vision for the future of CRM platforms.

Philip Winslow -- Wells Fargo Securities -- Analyst

Great. Thanks.

Operator

Your next question comes from the line of Alex Zukin from Piper Jaffray. Please go ahead. Your line is open.

Alex Zukin -- Piper Jaffray -- Analyst

Hey, guys. Thanks for taking my question and congrats also on the quarter. I guess, maybe the first one for Mikkel is just given the early success and focus on Sunshine, can you talk about how you're thinking about any changes to the go-to-market strategy for 2019 as you level up that sale, particularly in the enterprise customer base?

Mikkel Svane -- Founder, Chief Executive Officer

I think that like we've invested increasingly in kind of the enterprise readiness of our whole go-to-market organization over the last couple of years and we definitely are not slowing down on that, like we have invested in both our partner and our customer success ecosystem, in our consulting services, in training and education and kind of engaging with our customers in new ways to help them kind of think more holistically about the overall customer experience. So that's definitely a continued investment from our perspective and something that we believe is radically going to change the relationship we have with a lot of our customers.

Alex Zukin -- Piper Jaffray -- Analyst

Perfect. And then just --

Elena Gomez -- Chief Financial Officer

Yes. I mean, the only thing I would add to that is as we add -- named account executives last year, which will help with that specifically, so -- sorry, Alex.

Alex Zukin -- Piper Jaffray -- Analyst

Got it. And then maybe -- yes, just a follow-up for you, I guess, Elena, on that. From operating margin -- implied operating margin guidance for fiscal '19, how you think on that in the context of the margin framework you laid out previously. And then the implied free cash flow margin guide was actually very, very strong, so any comments you have on that continued kind of delta?

Elena Gomez -- Chief Financial Officer

Yes -- no, I think we believe we're in a position of strength coming off of four, almost five quarters of really strong execution. So with that, I felt it was important as we're launching Sunshine to really continue our investment in that as well as the go-to-market efforts around that, so that's really what you're seeing in our guide. And in terms of free cash flow, I think that's reflective of our continued strength and execution. And all the while in the background, we're focused on sales productivity, G&A, operating leverage, and all these things that contribute to that.

Alex Zukin -- Piper Jaffray -- Analyst

Great. Thank you, guys.

Operator

Your next question comes from the line of Bhavan Suri from William Blair. Please go ahead. Your line is open.

Bhavan Suri -- William Blair & Company -- Analyst

Hey, guys. Thanks for taking my questions. Fantastic job, Mikkel, Elena, Marc, and Norm, the entire team, just a great job. I'd love to just touch on the CRM as an offering, right? So, you have service, obviously.

You have Sunshine, gets you a 360 view of the customer, how are you thinking about expanding to other parts of that customer relationship market, specifically into marketing automation with Zen Connect? Mikkel, I'd just love to get your thoughts around Zen Connect please.

Mikkel Svane -- Founder, Chief Executive Officer

Yes, so -- first and foremost, we truly believe that like there's a ton of businesses out there, especially younger, smaller, fast-growing companies that think very differently about kind of the traditional silos of operations and kind of having a great Sell product alongside a great Support product is a really, really attractive offering for these companies. And where they don't necessarily think about them as really like separate functions, they can think much more about emerging these functions and kind of dealing with the overall kind of customer experience. Connect is many ways kind of the -- both the future of proactive engagement and that kind of drive specifically into marketing. And we see a lot of our customers doing some really interesting things with Connect where it becomes – it's in the grey zone of are they doing marketing here or are they doing customer acquisition or is this kind of a customer service play? And like we think that's really, really interesting market.

So, we continue to invest in that, continue to have some great customers to tell that story and are very optimistic about the future of that market.

Bhavan Suri -- William Blair & Company -- Analyst

So, maybe diving in that for one second as a quick follow up, so you bought, obviously, the base business that you invested a lot. How do you think about build versus buy? Like you and Elena are managing this business and its' growth and there's the idea we're going to be view -- unfortunately, like others have [Inaudible] approaches and [Inaudible] can't be integrated as well. But how are you thinking about build versus buy and the investment there? I'd love to get some color on that. Thank you.

Mikkel Svane -- Founder, Chief Executive Officer

Well, I think that, like, we are a product company, so like building will always be our kind of our -- in our DNA. But talking about DNA like getting new DNA into a company, getting people who think very differently about kind of the market or think very differently about the buyer or the use case is incredibly important. And like, with the few acquisitions we've done, like it's been so important and so helpful for the company to get that new DNA into the company. And the team we got through the Base acquisition has really been helpful in accelerating our thinking around these things.

And when they then come in on top of it with a beautiful product that has gone through a ton of iterations to really live up to customer expectations, like, we really feel that we've done something special. And like, we will continue to do that, no doubt. Like, getting foreign DNA into the company that helps us accelerate our own development and helps us expand our minds about a market is truly important.

Bhavan Suri -- William Blair & Company -- Analyst

Thank you. Thanks for the color. Congratulations, my friend. It's a very nice job.

Marc Cabi -- Head of Investor Relations

Thank you.

Mikkel Svane -- Founder, Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Kirk Materne from Evercore ISI. Please go ahead. Your line is open.

Kirk Materne -- Evercore ISI -- Analyst

Hi. Yes. Thanks very much. I'll add my congrats on the fiscal year as well.

Mikkel and, I guess, Elena as well, I was wondering now that Ricardo is on board from a channel perspective, how are you thinking about sort of the channel -- Elena, I think you mentioned GSIs coming on board. How are you thinking about sort of the contribution from the channel this year from more of a revenue-generating perspective? I expect you'd take some time to build out some of these channel partnerships. So, I'm just trying to get a sense if that's something you feel that can contribute in a bigger way this year or this is sort of a growing year with 2020 being the year that sort of pays off?

Elena Gomez -- Chief Financial Officer

Yes, I think that's -- I would frame it that way that this is really a building year. Ricardo has been on board for less than a year for sure, but it's encouraging some of the things that he seen and he's doing I think we're going to have to deepen our relationships with GSIs. And we've signed a strategic agreement with a big CSI which is great, so that's encouraging. Now what's also encouraging is the receptivity that we're seeing in the market around Zendesk as well as many of them really initiating the conversation with us.

And so, I think more to come on that but I view that as a more significant impact in 2020.

Kirk Materne -- Evercore ISI -- Analyst

OK. And one follow up for you, Elena, just on RPO. I expect that's going to become a more important metric for everybody as it starts having full-year comps on that. So, is there anything we should think about just from a seasonality perspective in that metric just to be cognizant of as we build out our models? I assume we track the traditional -- sort of calculate buildings metric, but anything else we should be I guess aware of?

Elena Gomez -- Chief Financial Officer

No, I mean, I think the big thing is that we still have a good portion of our business in monthly terms. So, I think as the business evolves, we'll try to describe and characterize our portfolio of business better. So, I think that's important. And then as we move up market, we'll start to see more seasonality with our enterprise business as well, so you'll see heavier enterprise wins, if you will, in the back half of the year, in particular in Q4.

And so that can have some dynamics on the RPO for the long term.

Marc Cabi -- Head of Investor Relations

Yes, and specifically on Q1, Kirk, you'd see the op, which is the transactional business be strong in mix terms.

Kirk Materne -- Evercore ISI -- Analyst

Right, got it. OK. Thanks very much. Congrats on the quarter.

Operator

Your next question comes from the line of Tom Roderick from Stifel. Please go ahead. Your line is open.

Parker Lane -- Stifel Financial Corp -- Analyst

Hi. It's actually Parker Lane in for Tom. Thanks for taking my question. With Explore now out of beta for about one quarter, be curious if you could talk about some of the key use cases you've seen your customers have success with so far? And whether or not they're using this alongside of their BI and Analytics tools or given the average customer size that you have this is really the first analytics tool they're using? Thanks.

Mikkel Svane -- Founder, Chief Executive Officer

And so, that's for the use case -- like what we're really focused on with Explore is to make a tool that is very intuitive, very easy to use, very beautiful so you don't have to have like a dedicated team of specialists to provide you with kind of operational insights and analytics, and that's really our objective. So, the democratizing access is great like customer insights and empowering the customer service and the customer focused operations to have that insight and deliver those data themselves is really what we focus on here. It's very competitive. It's competitively priced very aggressively.

So, it's kind of a no-brainer for a lot of our customers to acquire the product and start using it. We don't focus so much on kind of how does it fit into kind of a broader BI play for our customers yet, but there's definitely opportunity there kind of long term.

Parker Lane -- Stifel Financial Corp. -- Analyst

And then just a follow up on that, is this primarily being used by Support customers today or does Explore also touch some of the nearer features you're offering like Connect and then eventually Sell and Sunshine? Thanks.

Mikkel Svane -- Founder, Chief Executive Officer

Yes, it's primarily focused on Suite customers, so Support and Suite customers today but you will see more and more data in there. And like the Sunshine, integration will be deep.

Operator

Your next question comes from the line of Michael Turrin from Deutsche Bank. Please go ahead. Your line is open.

Michael Turrin -- Deutsche Bank -- Analyst

Good afternoon. Thanks for taking the questions. Look, it's the first 40%-plus quarter revenue growth we've seen in two years. It looks like the strength there is also showing sort of in the guide.

So, I was just wondering if we could take a moment to expand on some of the key sources of that performance and your confidence level going forward whether it's Suite adoption, the move-up market or something else you'd like to touch on. Any more color there would be helpful? Thanks.

Elena Gomez -- Chief Financial Officer

Yes, I mean, obviously, we're pleased with the acceleration in revenue in Q4 and I think if I were to point -- you can't really point to one thing. It's really a combination of the sales force executing and productivity up all around, strength in our Americas business, particularly with bigger deals this quarter. There's a healthy demand environment overall we're seeing. We're not seeing our pipeline slip in any way.

I also think kudos to our product org for delivering a lot of product and innovation in the back half of 2018, which is really important because it positions us to have different conversations with our customers, which ultimately down the road obviously help us with expansion. So, it's really a combination of all these things. And I would add Suite, as we've been talking about for the last couple of quarters, continues to perform and really deliver as we expected. So, all the way around a bunch of things that really drive the momentum and that gives us, obviously, the confidence we have with our guide for 2019.

Marc Cabi -- Head of Investor Relations

I'm just going to add to that answer. We've also just seen some really good demand from customers across industries. So, as you'll see in the shareholder letter, we had customer stories across all different types of industries from new digital technology companies to traditional companies trying to transform what they're doing. So, it has been a really robust end of year for us in terms of attracting new customers.

Michael Turrin -- Deutsche Bank -- Analyst

Great. If I could just add one follow on, you also mentioned in the prepared materials the opportunity for some omni-channel bundling both with enterprise customers and also different use cases. So I was wondering if you could expand there at all, that'd be helpful. Thank you.

Marc Cabi -- Head of Investor Relations

I think what we're referring to there is with the success of the Suite, we know that our customers like a simplified way of acquiring Zendesk and Zendesk solutions. So, we're not abandoning our a la carte pricing for customers that want to buy that way. But being able to present a Suite or a bundled offer where the purchase decision -- the risk around the purchase decision is much lower in terms of how you license agents and how you do different things has been a really powerful tool for us in terms of closing business.

Michael Turrin -- Deutsche Bank -- Analyst

Got it. Thank you all.

Operator

Your next question comes from the line of James Rutherford from Stephens Inc. Please go ahead. Your line is open.

James Rutherford -- Stephens Inc. -- Analyst

Hey, good afternoon. Thanks for taking the questions. I want to echo the congratulations in the quarter. Just a couple of questions for me, the first on the velocity business.

I know that the go-to-market approach is center around the Web [Inaudible]. I'm just curious how the Suite plays into that and if you've observed kind of materially better up-sell rates from the free to the paid when you're talking about Suite versus the typical up-sell you see when someone trials an individual product?

Marc Cabi -- Head of Investor Relations

So, I think one way I can help you look at that is if we ever try to buy a customer and they were purchasing one product versus a Suite, when they land on the Suite, we're getting mostly a 50% if not better average selling price per agent just based on selecting the Suite. So, we did see our average deal sizes go up in that category over time this year as the Suite became more popular and we'll just continue to have to monitor it in 2019.

James Rutherford -- Stephens Inc. -- Analyst

OK. Thanks. And one more question, if I may, on kind of broader product positioning as you push more to the enterprise and clearly a big part of your success to the market has been the ease of use of the product. I'm just curious as you add additional functionality and more professional services, start selling the platform, and eventually sell into enterprise, how you see yourselves balancing the ease of use and the robust features that an enterprise customer needs?

Mikkel Svane -- Founder, Chief Executive Officer

I think like -- I think the ease of use is really good. The Sunshine -- how we've launched the Sunshine platform is a really good example of what ease of use also means, that it's a much more flexible, open, familiar, well known environment to build in that you can control much better yourself that you're not like depending on a specific vendor to provide you with all the functionality, etc., etc. That is also ease of use. And I think like we will continue to push the envelope for what is ease of use and continue to democratize great enterprise software, also the most complicated part of it, and that is truly our mission.

James Rutherford -- Stephens Inc. -- Analyst

Great. Thank you.

Operator

Your next question comes from the line of Samad Samana from Jefferies. Please go ahead. Your line is open.

Samad Samana -- Jefferies -- Analyst

Hi. Good evening. Thanks for taking my questions. Elena, a couple of housekeeping ones for you and then I have one for Mikkel.

Could you remind us what FutureSimple contributed for the quarter? I think you guys have guided for a wide range of $1 million to $5 million. Maybe if you could just give us what that number is. And then in terms of the velocity business, I was wondering, did that outperform enterprise in the fourth quarter just because we didn't really see an uptick in enterprise MMR from 3Q to 4Q? So, I'm just curious how would you say enterprise performed? And then, Mikkel, I have a follow up for you.

Elena Gomez -- Chief Financial Officer

So, on the latter one, we continue to see growth in enterprise but it is a mixed metric. And so to the extent we continue to bring on velocity customers, of course that won't move as much. So I would say we had strengthened in both businesses. Your first question, we're not going to talk about FutureSimple on a separate -- separately anymore.

So I would -- I'm just not going to answer that.

Marc Cabi -- Head of Investor Relations

So polite.

Elena Gomez -- Chief Financial Officer

I'm trying to be polite.

Samad Samana -- Jefferies -- Analyst

[Inaudible] say that to me. I'm sure I'm going to hear that again in my life a lot of times. Mikkel, and then just a conversation for you. I know you said that the conversations of customers are changing now that the company's rolled out Sunshine.

I'm curious if you can maybe dig into that a little bit more. Is it bringing you into new conversations with new enterprise customers maybe in verticals or in categories you haven't served as well before or served as thoroughly before? And do you think it will have any change on maybe deal cycles or deal cadence as these conversations do change?

Mikkel Svane -- Founder, Chief Executive Officer

Well, I do believe that -- I don't think it's necessarily going to bring us into new industries per se but it's going to bring us deeper into industries, and that's really our focus here. I think there was a lot of -- even when we could serve some large enterprises in industries that weren't necessarily super familiar for us, like we typically stayed in our swim lane than helping them out with the customer support if we couldn't kind of have a full customer experience conversation with them. And that's really where the conversation with Sunshine changes. We're much more strategic, much more important part of their conversation.

We still are in the very early days or early innings, as you say in the U.S., of this but the initial response has been really, really good and we look forward to continue to invest in this and continue to change our relationships. Like, we are very -- it has given us a lot of adverting, the initial reaction on this.

Elena Gomez -- Chief Financial Officer

Great. And, Elena, just one question. What was that $10 million strategic investment that was on the cash flow statement in the fourth quarter?

Marc Cabi -- Head of Investor Relations

That is -- we rely on a third party vendor for part of our services and we are working with them on that undisclosed.

Samad Samana -- Jefferies -- Analyst

Great. Thanks again for taking my questions. I appreciate it.

Operator

Your next question comes from the line of Stan Zlotsky from Morgan Stanley. Please go ahead. Your line is open.

Stan Zlotsky -- Morgan Stanley -- Analyst

Perfect. Thank you so much for taking my questions. So, maybe just going back to what Phil asked all the way at the start of Q&A, the disclosure around deals greater than 50k CV, I think was what he was trying to get to was it was impressive to see the 60% growth in the value -- the average value of those deals. Maybe you can try to unpack a little bit for us as far as the drivers of such a big uptick and the value of those deals, were there may be a few very large deals that really SKU that metric or was it just all across? And if it is all across the board, what are the drivers of such a big uptick? Because when we look for the last, I think it was four quarters, we really didn't see much movement in that number -- in that metric.

Marc Cabi -- Head of Investor Relations

So, let me try to unpack it but I don't know if I will be able to unpack it in relative order of importance for you because as Elena said earlier, the business really performed across the board both from a product perspective and regional perspective well. But if you think about the contributors to the number, the growth in that average, there were three kind of primary. One is the size of deal we land with enterprise and we have been entering more strategic conversations with larger customers and doing bigger, more complex deals with those customers, which contributes to that result. The second one is around our Suite offering.

We do have a higher average deal size associated with the Suite. We originally went into the Suite thinking it would be an SMB product. The Suite conversations we have with customers really drive the growth of the average deal size. And some of our customers that are enterprise class acquire Suite-like capabilities or maybe even the Suite SKU.

And then finally with introduction of enterprise guide and some other things that we're adding to the mix, we are starting to see traction with these additional products.

Stan Zlotsky -- Morgan Stanley -- Analyst

OK. Perfect. And then -- that makes a lot of sense. And just a quick follow up, how are you thinking about your sales organization heading into 2019? Any planned changes or any meaningful additions that we need to keep in mind? And that's it.

Thank you.

Elena Gomez -- Chief Financial Officer

Yes -- no, I think what Norm has brought and we've benefited from is a lot of stability in that org and even as we've added named account managers and named account executives, they've been done incredibly intentional and thoughtfully. And so, we will continue along that same approach. So if everything, there may be tweaks but nothing wholesale changed.

Stan Zlotsky -- Morgan Stanley -- Analyst

Perfect. Thank you.

Marc Cabi -- Head of Investor Relations

And before we take the next question, I want to make a quick additional comment to Samad's question. Even though it's not disclosed specifically in this press release, I just wanted to make sure that everybody understood that a company, GoodData, who was a third-party vendor to us, has an external press release, where we are one of the investors in their most recent round.

Operator

Your next question comes from the line of David Hynes from Canaccord. Please go ahead. Your line is open.

David Hynes -- Canaccord -- Analyst

Hey. Thanks, guys. Nice numbers. Maybe a more strategic question for Mikkel.

I think it was at -- you guys alluded to some thoughts around value-based pricing mechanisms, right? I think we've seen some early iterations of that with usage-based pricing with Answer Bot. But I'm just curious as you get deeper and more strategic relationships with your customers, how could that -- the idea of value-based pricing kind of manifest itself in the model?

Mikkel Svane -- Founder, Chief Executive Officer

It's a super interesting conversation to have. It's also a long conversation. And I think like the instrumentation we have across systems really allows us to be able to theoretically at least invoice our customers based on business outcomes. Is that always super easy and transparent and all these things like easy for the customer to predict and understand? No.

Like, are we far away from mainstreaming kind of -- that kind of pricing model? Yes. Is it interesting? Very interesting, yes.

David Hynes -- Canaccord -- Analyst

Yes, yes. OK. And then one quick follow-up. Elena, the 407 RPO number, do we have a Q4 '17 comparable or a growth rate for that 407?

Elena Gomez -- Chief Financial Officer

No, we do not. We do not have that.

David Hynes -- Canaccord -- Analyst

OK. All right. Thanks, guys.

Operator

Your next question comes from the line of Ross MacMillan from RBC Capital Markets. Please go ahead. Your line is open.

Ross MacMillan -- RBC Capital Markets -- Analyst

Thank you. My congrats as well. Elena, I was just curious, as you do larger or have a higher volume of larger strategic deals, is there anything happening regarding ramping of deals, where maybe first-year invoicing might lag the contracted -- the kind of annual contract value? And I'm asking this in the context of sort of where we should cut on billings in Q4 versus your starting point on your fiscal '19 revenue guide, which I think is maybe higher than, obviously, the sell-side expected?

Elena Gomez -- Chief Financial Officer

Yes -- no, I think it's a fair question. So, I mean, the dynamics of our billing and we don't have a ton of ramp deals here, so no that's not the dynamic. But I think just as a reminder, we still have some portion of our book of business that despite being larger, they may want quarterly or semiannual billings. So, we're very much focused on contract term and billing.

But no, there's no dynamic there that would shape out, sort of indicate anything different for 2019.

Ross MacMillan -- RBC Capital Markets -- Analyst

OK. And then maybe just one other one. I think Q4 is the first quarter where you had Suite available to install-based customers for the full quarter and I was just curious if you can compare and contrast Suite adoption for install-based customers versus net new and what the appetite for Suite into the base is?

Marc Cabi -- Head of Investor Relations

I don't have the direct breakdowns to share with you, but the Suite has brought in a lot of new customers for us over time and it is allowing our sales teams to go back and interact with our single product customers. So, we're seeing success from both. It's a fairly healthy mix but I don't have an exact number of that mix for you to share. But if you think about the fact that we entered a multi-product journey just a few years ago, we have a lot of single-product customers that we have an up-sell opportunity to and our sales team should be executing on that opportunity.

Ross MacMillan -- RBC Capital Markets -- Analyst

Great. Thank you. Congrats.

Marc Cabi -- Head of Investor Relations

Thank you.

Operator

Your next question comes from the line of Derrick Wood from Cowen and Co. Please go ahead. Your line is open.

Andrew Sherman -- Cowen and Company -- Analyst

Great. Thanks. It's Andrew Sherman on for Derrick. How should we think about the new product contribution for 2019, maybe a rank order between Sell, Connect, and Sunshine? And then for Sell, where are you seeing the greatest success in demand generation there?

Marc Cabi -- Head of Investor Relations

So, it's probably too early for each of those products to have major contribution, but Sell was the existing product that we've now brought into Zendesk family. So, we will continue to look at the referrals set up by our sales team for cross-sell. I think that's where that opportunity is. Connect is a product that is really starting to be part of the customer experience, communication kind of product, and so there are opportunities there.

The last one Sunshine that you mentioned, in 2019, you should think about Sunshine being part of our enterprise customers' activities. We want them to try and build things on our platform and we'll look to directly monetize that sometime in the future, probably more in the 2020 framework.

Andrew Sherman -- Cowen and Company -- Analyst

Great. Thanks. And then when will the data center migration be fully complete and what would the impact to 2019 gross margins be?

Elena Gomez -- Chief Financial Officer

So, we still are on deck to complete that in the first half of the year and we're striving for 100 basis points of gross margin expansion for 2019.

Andrew Sherman -- Cowen and Company -- Analyst

Great. Thanks.

Operator

Your next question comes from the line of Jonathan Kees from Summit Insights. Please go ahead. Your line is open.

Jonathan Kees -- Summit Insights Group, L.L.C. -- Analyst

Great. Thanks for taking my questions and I'll ask my -- I'll add my kudos for the numbers. As I -- listening to your commentary you talked about you're seeing really healthy demand environment, you're seeing a really good demand across industries and such -- commentary and obviously, it supports the numbers. Seems to be in contrast of some of the cautious commentary I'm hearing from some of your tech peers this earnings season.

I guess, I'm curious, are there any macros that may be on the horizon -- obviously, it's not hitting you yet, but are there any macros on the horizon that you're on the lookout for, you're more concerned about? Obviously, there's going to be stuff specific to you and not to others. You don't have manufacturing in China and you don't have to worry about trade wars or something like that, but you do have a presence in the U.K. and Europe that's slowing down. Are there -- you have some exposure to software purchases, which are supposedly coming down.

There's some data points in terms of IT spending coming down. Just curious, what can be on the horizon for you?

Elena Gomez -- Chief Financial Officer

Yes, it's a fair question in light of what at least is in the news, in the economic news anyway. But we haven't seen anything -- any disruption. And the first place we're looking, obviously, is our pipeline. And we look at our pipeline across every region, etc., and so far we haven't -- we have not seen anything.

The other thing that we benefit from is we have a cross-functional set of customers, so we're not overly burdened by any one industry, if you will. And so I think that horizontal reach we have in some ways will protect us a little bit if, in particular, a vertical were to suffer a bit more through a macroeconomic climate issue. But for now, we haven't seen anything in our data that would indicate a slow in spending by CIOs or anything like that. Not that it won't come but today, with the data we have, we haven't seen it.

Jonathan Kees -- Summit Insights Group, L.L.C. -- Analyst

OK. Great. That's encouraging. If I can ask one more, it's more of a follow up.

Chat was kind of decreased in the quarter sequentially. Is that because it's more being sold in Connect? Is that one reason why the stand-alone has not pushed us as heavily as before?

Marc Cabi -- Head of Investor Relations

No, Chat has been on a net decline in terms of net customers by design. Our early Chat efforts back years ago were for very small chat instances. Over time as the product has improved and our capabilities to deliver a more robust chat environment, we can focus on larger customers with better retention and expansion, so that's by design. If you're looking at the net chat customer account, it will continue to decline for the time being.

Jonathan Kees -- Summit Insights Group, L.L.C. -- Analyst

OK. Got it. Great. Thanks a lot and good luck, guys.

Keep it up.

Marc Cabi -- Head of Investor Relations

Thank you.

Elena Gomez -- Chief Financial Officer

Thanks.

Operator

Your next question comes from the line of Brad Sills from Bank of America. Please go ahead. Your line is open.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Great. Thanks, guys. I wanted to ask one on Sunshine, please. I know it's early but any color on some of the applications or use cases that are being addressed with the platform for some of these custom -- customer apps?

Mikkel Svane -- Founder, Chief Executive Officer

I think it's like a good use case that we're seeing is when our customers want to model more complex inventory, catalogs, products, assets, various things that touch the customers across the business and can model this out directly on the Sunshine platform and natively have all this information available and editable throughout all the applications. So, it's like -- so, they're working on actual real live data. That's a good example of how we help customers think more broadly about the whole customer experience that they have their stuff available across the entire customer experience and available for the customer experience. Yes.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Great. Thanks, Mikkel. And then one more, if I may, please. Just on Sell, what are your expectations for that offering over time? Is it more of an additive solution that might be running alongside existing CRM systems that are already deployed or do you see it as a potential displacement? Is it a greenfield opportunity? Any color there or at least maybe in what you've seen already or even going forward?

Mikkel Svane -- Founder, Chief Executive Officer

Yes, I think that our main thesis is that there's still a ton innovation that can be done in providing sales people with a great tool where they could do amazing things and provide a great customer experience in the sales process. And we believe that like what we have with the Sell product really, really good foundation for tremendous amount of innovation there. We also believe it's very important to kind of decouple the sales ramp experienced from that of modeling out your customer experience on the platform. So that's why these two things in many ways are connected and why they're both a big part of our future and we believe that Sell will be an amazing big product for us.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Great. Thanks so much, Mikkel.

Operator

Your next question comes from the line of Jennifer Lowe from UBS. Please go ahead. Your line is open.

Rakesh Kumar -- UBS -- Analyst

Hi. This is Rakesh Kumar sitting in for Jen Lowe. Thanks for taking my questions. I was wondering if you could talk about EMEA growth.

That continues to remain strong, if you see anything different in EMEA in terms of up-market move and enterprise success that you see in Americas?

Marc Cabi -- Head of Investor Relations

No, we employ the same kind of go-to-market motions in all of the regions. EMEA has had a very strong presence across all business sizes. They kind of have the same model around named account executives for our large kind of opportunities and strategic account executives for the more traditional enterprise opportunities. And I would say that one thing that EMEA stands out for is they're one of our early players in developing regional partners.

So they're building a good community of both partners for resell as well as GSI partners in that area. So, I think that can create some opportunity as we move through 2019 as well.

Rakesh Kumar -- UBS -- Analyst

Great. And I have a follow up, in the shareholder letter you talked about expanding reach to larger enterprises through professional services hiring. If you could elaborate about are you looking to do something specific in professional services this year?

Marc Cabi -- Head of Investor Relations

We've been evolving professional services, so it's still a small percentage of our revenues. We don't anticipate it being a large percentage of our revenues any time soon. But as we get into these more complex use cases, we're bringing in pre-sales technical consultants to help with evaluating opportunities to deliver a solution. And then our post-sales ProServes capabilities actually allow for a successful implementation.

Over time, we'll supplement some of our ProServe with outside GSI partners, but we have a new leader that came on at the beginning of the year leading our ProServe capabilities and he's done a really good job of creating training programs as well for the product, which allow our customers to be very successful at launch.

Rakesh Kumar -- UBS -- Analyst

Thank you.

Operator

And your last question comes from the line of Steve Koenig from Wedbush Securities. Please go ahead. Your line is open.

Steve Koenig -- Wedbush Securities -- Analyst

Hi, Zendesk. Thanks very much for fitting me in. I appreciate it. Maybe just an elaboration on the question before last, the color on the international resellers and Europe, that's helpful color.

And we noticed that you -- just in January, you've added just a whole bunch -- something like 18 additional international resellers. We noticed there were some in Latin America as well. So, my question really is how should we think about the potential for acceleration in your growth from international, maybe from that mix shifting even a little -- potentially even faster than it has been. How important is that in your growth plans and when does that start to materialize? Thanks very much.

Marc Cabi -- Head of Investor Relations

I think if you look at our international business, it's been growing a little faster than the U.S., primarily because we're continuing to open up new geographies across the world. Three or four years ago it was Brazil, more recently Mexico and Latin America. And other Latin American countries are also kind of on our radar. Same thing in Asia Pac -- APAC, where we've been in India now for a couple of years.

We're starting to see real good success. In EMEA, we were always strong in Northern Europe and have an opportunity to do more in Central and Southern Europe. So, you'll continue to see our focus expanding our geographies there. And in certain cases, it makes sense to go directly with the partner.

And in other cases, we might build our own go-to-market capabilities to serve a specific market.

Steve Koenig -- Wedbush Securities -- Analyst

Terrific. Thanks for your answer. I'll leave it there.

Marc Cabi -- Head of Investor Relations

All right. Thank you very much. Kelly, I'm going to turn it back over to you to close.

Operator

Yes. And there's no further questions at this time. I will now turn the call back over to Marc Cabi for closing comments.

Marc Cabi -- Head of Investor Relations

All right. We really appreciate all of your interest in Zendesk. It's been a very good year for us, 2018 was a very solid year. And we look forward to speaking to you next quarter.

Have a great evening.

Operator

[Operator signoff]

Duration: 53 minutes

Call Participants:

Marc Cabi -- Head of Investor Relations

Mikkel Svane -- Founder, Chief Executive Officer

Elena Gomez -- Chief Financial Officer

Philip Winslow -- Wells Fargo Securities -- Analyst

Alex Zukin -- Piper Jaffray -- Analyst

Bhavan Suri -- William Blair & Company -- Analyst

Kirk Materne -- Evercore ISI -- Analyst

Parker Lane -- Stifel Financial Corp. -- Analyst

Michael Turrin -- Deutsche Bank -- Analyst

James Rutherford -- Stephens Inc. -- Analyst

Samad Samana -- Jefferies -- Analyst

Stan Zlotsky -- Morgan Stanley -- Analyst

David Hynes -- Canaccord -- Analyst

Ross MacMillan -- RBC Capital Markets -- Analyst

Andrew Sherman -- Cowen and Company -- Analyst

Jonathan Kees -- Summit Insights Group, L.L.C. -- Analyst

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Rakesh Kumar -- UBS -- Analyst

Steve Koenig -- Wedbush Securities -- Analyst

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