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Zendesk Inc (NYSE:ZEN)
Q2 2019 Earnings Call
Jul 30, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, my name is Kelly and I'll be your conference operator today. At this time, I would like to welcome everyone to the Zendesk Second Quarter Earnings Conference Call. [Operator Instructions]. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions].

I will now turn the call over to Marc Cabi. Please go ahead.

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

Thank you, Kelly. Good afternoon, everybody, and welcome to our second quarter 2019 earnings call. We're 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.

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 quarterly report on Form 10-Q for the past quarter March 31, 2019 and our upcoming quarterly report on Form 10-Q for June 30, 2019. 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 be presenting both GAAP and non-GAAP financial measures. The non-GAAP financial measures should be considered in addition to and not as a substitute 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, 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 available on our investor website.

With that intro, I am going to turn the call over to Mikkel.

Mikkel Svane -- Founder, Chairman and Chief Executive Officer

Yeah. Thank you so much, Marc, and good afternoon everyone. Thank you for joining us. Q2 was another quarter of high growth for us with revenue increasing 37% year-over-year. We continued to see strong demand for our products across both small and mid-sized businesses and also in the enterprise. And we also believe that our rapid introduction of new products, new offerings since late last year has really set us up well for the future -- for our future ambitions to be a multi-billion dollar revenue company.

In the enterprise, we saw a good uptick in the percentage of our recurring revenue that comes from 100 plus seat implementations. As a reminder, this is our proxy for our enterprise progress. It rose to 42% in Q2 of 2019, up four points year-over-year and two points quarter-over-quarter. Momentum around the Zendesk Suite really continues to play a key role in our growth. Our omnichannel offering, which brings together our core customer service products and channels has become a key differentiator for us and led to more strategic conversations with customers.

We saw solid growth worldwide, but performance with some regional unevenness in performance. We had strong growth in our largest market in the U.S. and also in all of LatAm. Growth in EMEA and APAC, although still solid, didn't quite live up to our own expectations and lagging other regions. Similar to last quarter, we are of course monitoring the macroeconomic factors and will also take steps to manage for the best possible execution in those regions.

In Q2, we made some significant product and packaging introductions tied to our Zendesk Showcase event, events which are a series of local product focus events that we host around the world. We announced our acquisition of Smooch and its conversational messaging platform during the New York Showcase. And we launched Zendesk Duet, our combination of our support and sell products into a joint super offering at the London Showcase events. Both are only first steps in our bigger plan to both put messaging at the center of our products and our platform and to bring our sales software to a wider audience. You will see a lot more about how our products and how our new Sunshine platform are coming together, helping us expand into new markets during our big event of the year, Zendesk Relate, our Global User Conference. We moved that to the spring of 2020 rather than having it in Q4, as we've done in the past. And we are very excited about hosting everyone in Miami for our big Relate event.

For the rest of this year, we're very focused on investing in tighter integration of our new products and platform and further building our go-to-market efforts around them. We believe we continue to lead CRM innovation and that our investments will give us an even larger opportunity in the broader CRM and customer experience market.

And with that, Elena, I will let you talk more about our financial results.

Elena Gomez -- Chief Financial Officer

Thank you, Mikkel. Good afternoon, everyone. As Mikkel stated, we delivered strong revenue growth of 37% in the second quarter. Our growth was driven by continued rising customer expectations, product innovation and improving sales and marketing initiatives. The Zendesk Suite continue to perform very well and drove strong sales in SMB and mid-market customers, as well as strategic conversations with our enterprise customers.

A few financial highlights for the quarter were; we had strong revenue growth in North America, which grew 38% year-over-year. It's important to note, the U.S. is performing very well and represents over 50% of our revenue. Other regions, including LatAm were up 53%. As Mikkel stated, EMEA and APAC had solid revenue growth in the quarter, up 33% and 31% respectively. However, in these two regions we observed some pockets of sub-optimal execution. We will be focused on understanding the macro environment in these regions as well as where our execution was below our expectations.

We had continued success moving up market with our percentage of ARR from 100 plus Support seats advancing four points year-over-year. Additionally, our RPO increased 61% year-over-year with long-term RPO up 127% and short-term RPO up 47%. RPO continues to benefit from larger, longer term deals.

We delivered good non-GAAP gross margin expansion of 240 basis points, largely due to scale and benefit from shutting down our co-lo data center. For the full year, we expect to deliver our non-GAAP gross margin target to improve approximately a 100 basis points year-on-year. Our revenue guidance for the full year 2019 is raised to $807 million to $811 million, which represents 35% year-over-year growth at the midpoint. We are maintaining a prudent view on the year as we gain a better understanding of the dynamics internal and external in EMEA and APAC.

Our free cash flow guidance for the full year 2019 is now $35 million to $45 million. This is below our previous guidance, largely due to refinements made in our forecasting process, acquisition-related expenses, prepayment of some large vendor deals to get better terms, additional capex related to our real estate utilization and the timing and changes of some contingent payments from share-based cash-based payments.

Thank you. And now I would like to turn the call back over to Marc.

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

Thanks. Elena. Before we take your questions, just one reminder about customer count metrics. As we discussed in the last few calls, customers have purchased multiple products at Zendesk a la carte are still counted as a customer for each product they purchase, whereas if they are purchasing the Zendesk Suite, it is only counted as one paid customer account.

Unidentified Speaker -- Vice President, Strategy and Head of Investor Relations

And so that I ask that you continue to work with us as we move on those metrics.

Finally, Zendesk Duet, which is our bundled support and sell will be showing up in our support product because that would be the lead product there.

With that, I will turn the call back over to Kelly to poll for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Phil Winslow from Wells Fargo. Please go ahead, your line is open.

Philip Winslow -- Wells Fargo Securities -- Analyst

Yeah. Thanks guys for taking my question and congrats on a great quarter. Just wanted to focus on Sunshine. Mikkel, obviously it's still early days, but what's the feedback that you're getting from some of your larger customers on Sunshine? Do you think it's actually starting to influence some of the deals that you're seeing, obviously given some of that uptick in the larger transactions. Just some more color there would be great?

Mikkel Svane -- Founder, Chairman and Chief Executive Officer

It absolutely is. And I think there is a craving in the market for an alternative kind of platform offering, platform offering that is more open and more in line with kind of their platforming and kind of infrastructure investments. And this is really why we see the doubling down on AWS and really becoming native to the platform using all the different services and being tightly tied to all the different services on the platform. And on AWS it's really playing to -- is playing to how the market want to work with that.

So like we are very excited. As you said, it's -- we still have a lot of work to do, but just like seeing a lot of our early implementations, we are very, very satisfied with where we are today.

Philip Winslow -- Wells Fargo Securities -- Analyst

Got it. And then just one follow up for Elena. Elena, you mentioned extra capex on the real estate side, some accelerated payments. I wonder if you could try to quantify that for us, sort of what the delta is in terms of like a one-time impact this year?

Elena Gomez -- Chief Financial Officer

You know I don't want to quantify that because there are so many different elements to it, but obviously meaningful enough that we share that with you guys. But I think one important element of that to think about is one of the decisions we're making is to try to identify some of our space all around the world and that will have long-term positive cash flow because we'll be able to leverage the space we already have instead of entering into new real estate, not that we won't ever, but I think that will allow us to scale more quickly.

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

And then on the vendor payments, Phil, I would just say that we have an opportunity for better terms as we extend payment terms. So we'll work out what's right for the company from our vendor relationship perspective with some of our key vendors.

Philip Winslow -- Wells Fargo Securities -- Analyst

Got it. Thanks.

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 Securities -- Analyst

Hey there, thanks, and good afternoon. In terms of market progress, long-term RPO and MRR from more than a 100 agents both ticked up nicely, but revenue upside for the quarter was less pronounced. It sounds like most of that was related to some of what you saw overseas. And we know that first half is historically more velocity focused, but can you maybe talk more about what you're seeing in terms of our market progress as we head into the back half of the year?

Elena Gomez -- Chief Financial Officer

Sure. I mean I think we're obviously very encouraged by our RPO. And I think one thing that sometimes gets lost is not every, not our entire business is in RPO, so don't forget that. Really RPO is reflective mostly of our enterprise customers. So when you're trying to look at the delta between RPO and revenue, just keep that in mind. But yeah, I think for me as I reflected on guidance, it was really important for me to be a bit more prudent until we understand the dynamics of the regions a bit more and also because as you guys know, toward the back half of the year we're more enterprise heavy. And so we typically put a lower probability on those deals. And with the uneven performance, I didn't want to change that philosophy.

Michael Turrin -- Deutsche Bank Securities -- Analyst

That's helpful. Appreciate the transparency there. In terms of Suite, you mentioned 3,500 customers in Q1 were lapping its introduction last summer. Is there anything we should be cognizant at all in terms of growth impacts there or does a continued ramp and adoption and some of the additional bundling efforts we're seeing lead to this being potentially more of a sustainable trend as we anniversary this intro?

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

Yeah. So since we've anniversaried Suite, we continue to see very strong uptake. And it have -- it shows itself in two ways, it shows itself in terms of the type of customer we're lending, those customers tend to be typically a higher average deal size than our traditional customers were. And presumably, now we'll start measuring this as we go through the rest of this year, they are stickier customer because they are multi-product customer for us.

Michael Turrin -- Deutsche Bank Securities -- Analyst

Thanks. I appreciate the color.

Operator

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

Arjun Bhatia -- William Blair & Company -- Analyst

Hey guys, it's actually Arjun Bhatia on for Bhavan. First maybe on the product side. Just wanted to touch on the AI announcements, I know there were several, several announcements with Answer Bot and and knowledge base over the past few months. Can you maybe just help us understand where you are in your AI road map and what your investment priorities there are on that front going forward? And then just some color on what role this is playing in customer conversations, especially on the enterprise side would be helpful?

Mikkel Svane -- Founder, Chairman and Chief Executive Officer

So I definitely see our AI investment as our long play. We have the privilege of having a -- working with a lot of customer data and really helping building ability to really create patterns in all this data that we are working with. Our product has kind of the algorithm, so it help our customers build better experiences for their customers. And automating a lot of these things that we, nobody wants to spend time on neither our customers or their customers. We believe that we can really provide a fantastic experience. Self-service, automated service is the future. We don't want to -- if we can avoid it, we don't want to talk to people, but at the same time, the demand for engaging with customer service is growing exponentially. So we see it very much as an opportunity to help our customers, help them scale at a more kind of measured way and like we will continue to invest in the products to provide our customers with the best solution for scaling the operations.

Arjun Bhatia -- William Blair & Company -- Analyst

Thanks. That's helpful. And then maybe a follow-up for Elena. As you move upmarket into the enterprise, obviously some of your operational and financial metrics are going to change. I'm just wondering, is there any way you can quantify the evolution of new customer ACV over the past year or so? And then related to that, should we expect a more exaggerated land and expand motion with the larger enterprise customer base?

Elena Gomez -- Chief Financial Officer

Yes. Let me take the first part of the question, which is do our operational or basically cost of acquisition change effectively is I think what you're asking as we move upmarket. And we don't disclose obviously segment information, but absolutely the way we think about our business is really the sort of the SMB and enterprise business and mid-market as well. And as you move up, obviously the cost of acquisition increases, but you also get a stickier longer term customer. So as you think about lifetime value, which is how we think about it, that's absolutely the right investment, obviously more tools across more people to talk to you to close that deal.

The flip side is, we're trying to really hard as Mikkel suggested to make sure that we make it super easy to on-board the rest of the customers and that cost of acquisition is lower. And so as we think about our investment choices, we're very much aware of that dynamic and making those trade-offs and that's inclusive of all of our sales and marketing investments.

So that's the first question. And I think the second question, you did two part question. What's your second question?

Arjun Bhatia -- William Blair & Company -- Analyst

Yeah. The second part was on the land and expand. Should we just expect that to be more exaggerated and play out maybe over a multi-year timeframe here as the enterprise space gains more prominence?

Elena Gomez -- Chief Financial Officer

Yeah. There is sort of a black and white there, to be honest because a couple of reasons. There is many dimensions setup, but if you think about our Suite product, we're having a higher land earlier. And so we're just a year into that and understanding that dynamic and then a lot of our enterprise customers as you know they grow with us. So that philosophy of landing customers and expanding hasn't changed. Do we sometimes have larger expansions, yeah, but that's not always the norm. Sometimes they start very small, they attachon a department and then over time you see that build up versus necessarily always just a huge expansion. So it really depends, and it really depends on the complexity of the use case they want, etc..

Arjun Bhatia -- William Blair & Company -- Analyst

Got it. That's very helpful. Thanks for taking my questions.

Elena Gomez -- Chief Financial Officer

Yeah.

Operator

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

Jennifer Swanson Lowe -- UBS -- Analyst

Great. Thank you. First I just wanted to touch on sort of the commentary around geography and some of the challenges you've seen there. And I guess part one of that is can you sort of isolate what's macro versus execution because it seems like both of those concepts came up in the prepared remarks? And then two, there's a lot of real estate that falls under EMEA and APAC, is there any more specificity there in particular countries that were outliers in terms of the weakness?

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

When you look at the regions, we are -- again, they delivered good growth, but there were pockets. So it's not a regionwide phenomenon for either, but within specific countries we've seen some feedback that there is some uncertainty on the behalf of customers, deals are taking somewhat longer to close in certain instances. For example, out of Australia, which is a large trading partner to China, we've heard that. And I think some of the stuff in the UK might suggest that there is some longer deal cycles there. But it's really difficult to discern the macro fundamentals from execution fundamentals. We will be looking very closely at that over this next couple of quarters to get better views on that. But overall, the demand profile for our products is strong. So we've seen these little pockets here and there that we wanted to point out and be transparent about.

Jennifer Swanson Lowe -- UBS -- Analyst

Okay, great. And just one more for me and this is another detailed one. But as I was going through the shareholder letter and looking at some of the commentary around the cash flow guidance, there was a comment that some of it was due to increased acquisition activity in the associated acquisition-related expenses and I know we've seen you be more acquisitive lately with Smooth and with Base. So is that really what that's referring to. I know Base was last year, but is that what it's referring to or are you more broadly beefing up to have a more proactive acquisition and even is M&A the right way to think about acquisition or is it customer acquisition. If you could just give a little more on what exactly that meant that would be super helpful?

Elena Gomez -- Chief Financial Officer

Yeah. No, you exactly nailed it. It's really Smooch and some payments related to that acquisition that really drove that. There's nothing obviously right now that we're thinking about, but that doesn't mean it won't ever happen. But right now, that's what we're really talking about is Smooch.

Jennifer Swanson Lowe -- UBS -- Analyst

Okay, great. That's it from me. Thanks.

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 afternoon, and thanks for taking my questions. So if I could ask a follow-up on the geography question actually. Is the mix between enterprise and velocity different in the U.S. versus international? In other words, should we think about the kind of mixed performance in APAC and EMEA having a less or more pronounced impact on enterprise MRR? And then I have one follow up.

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

No I don't think any region is all that different in terms of their complexion. So it's hard for me to discern there a big difference that would account for that. APAC has landed some very large opportunities over there historically. So we're doing some work around there. And again, we just want to be very transparent that we're watching market conditions in both EMEA and in APAC.

Samad Samana -- Jefferies -- Analyst

That's helpful. And then maybe just a follow up on Duet, I know that the company announced the new package. I'm curious maybe what the initial response from customers has been and maybe what early traction looks like and how we should think about Duet factoring into what you expected for Base CRM to contribute in 2019? Thanks again for taking my questions.

Mikkel Svane -- Founder, Chairman and Chief Executive Officer

It is of course something we are very bullish around, but I believe, honestly it's very early days. We launched it like very late in June. So we have very little data to work with so far. This is the beginning of a journey, like there's a lot of things that we are preparing for being able to do next year and are excited about that. And this is really to kind of assess and test the market, get a bit of understanding of it. And so far we're very happy about what we see.

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 question. Maybe just at a high level if I could just follow up on Samad's question on Duet. What has the initial feedback been like in the sense that do you often see your customers, the customer service agents also wearing a sales hat in day to day functions? And if so , is that -- the identity of that potential buyer is that more on the enterprise side, more on the SMB side? And then I have a quick follow up.

Mikkel Svane -- Founder, Chairman and Chief Executive Officer

Yeah. Stan, you should think about this as really like that way of thinking initially being very much catering for the small businesses where like roles are much less like well defined where it's all about like doing what's right for the customer. But like we definitely also see the big opportunity and we're kind of where a new generation of high velocity low touch sales is touching kind of the advocacy and the post sales experience in a much more fluent way. And I think that's what we have our eyes on as we start to get experimenting with this and start to getting some initial feedback from the market. And there is no doubt, like smaller businesses or even like smaller teams like they see a big benefit in like that they can fluently have people move from one function to the other and that they are not tied to like, oh I can only do this or I can only do that. So we're already seeing that validated in the market.

Stan Zlotsky -- Morgan Stanley -- Analyst

Got it. Perfect. And then a quick follow up on the EMEA and APAC, some of the unevenness that you saw. You mentioned that some of it was just the longer sales cycles and some of it was execution. How are you guys approaching the execution part of that as opposed to maybe just seeing overall customer prospect hesitancy? What can you do to kind of streamline your motion there, especially as you head into the back half of the year, the big enterprise back half? Thank you.

Elena Gomez -- Chief Financial Officer

Yeah. I mean I think there is a lot of different things. It's not just one playbook here, but I think it starts with understanding, to your point, the pipeline in the back half of the year, understanding close rates, understanding the productivity of all those reps in that region and as well, obviously we're having success in North America. So we're doing some comparisons on what's working here and are there certain things that we can bring to the region that makes sense for that region. Typically we try to do uniform things, but there are definitely localized practices, it just make more sense. So we're just evaluating this from many different angles.

Stan Zlotsky -- Morgan Stanley -- Analyst

Got it. Thank you so much.

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

Thanks very much. I guess I had a question for Elena just around the RPO metrics. Obviously, the long-term RPO clearly signifies your customers are willing to make longer term bets on you all. I was wondering if you could just talk a little bit, it's really accelerated this quarter in front of the last few quarters . I was wondering if you could just talk about, is that something your go-to-market field force is trying to do, meaning get into longer-term deals with the customers? And I assume most of that relates to serve expansion deals not necessarily net new. But can you just provide I guess a little bit more color around that metric because that obviously speaks very well of sort of the longer term strategic relationship you're building up with a lot of your customers? Thanks.

Elena Gomez -- Chief Financial Officer

Sure. So a good question. So absolutely we're -- Norm is definitely and his leadership team are focused on longer term deals that was very much intentional, started probably late last year really thinking about building a longer term relationship with our customers. And it's not really just isolated to expansion deals actually, it's really both deals. So we're seeing success in both new deals that are coming to us having larger customers commit to us for a longer period of time, but also upon renewal, getting some of those expansions to commit longer term.

Kirk Materne -- Evercore ISI -- Analyst

And if I could just dovetail my follow up back into the question around international. I assume the go-to-market playbook is pretty similar across all the regions, I guess do you think any of the execution choppiness perhaps internationally is about doing longer term deals with customers and maybe just the U.S. customers are more used to that? I guess does that play into any of your earlier commentary on say Asia and Europe at all? Thanks.

Elena Gomez -- Chief Financial Officer

No, no, actually don't think that's true. We definitely have international customers committing to us longer term. So that's not really speaking to that uneven performance.

Kirk Materne -- Evercore ISI -- Analyst

Okay, great. Thanks so much.

Operator

Your next question comes from the line of Derrick Wood from Cowen & Company. Please go ahead, your line is open.

Derrick Wood -- Cowen and Company -- Analyst

Thanks. So you guys hired a new Head of Channel I guess roughly nine months ago. Can you give us an update on what new initiatives or efforts are taking hold and now that maybe you've seen some progress kind of where you think that can go in a year from now in terms of broadening the SI engagement?

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

I think -- do you want to take that?

Mikkel Svane -- Founder, Chairman and Chief Executive Officer

Well, I think we are seeing, I think we are seeing, like, I think we're seeing really good relationships with -- like we have some record numbers, like we are working with a lot of partners. Now we're seeing really good traction in going with partners together to customers than we are seeing, especially I would say like regional kind of excellence around these things. We have some areas where we're doing, like where we really have the playbook nailed. Other areas where we believe we still have more work to do. But like nine months end we're very happy with where we are. There is no doubt that this will get more and more significance in our business over the years.

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

Yeah. I think Ricardo has done a really good job of his, just like when you enable your sales people to sell your product, you also have to do a lot of things around partner enablement. And building those programs, really building those relationships with the partners has been the first goal around here. And that is starting to result in good feedback and good customer activity from the partner network, there is still lot more to be done. And over time we'll move from these regional to more global SIs as an important factor of moving into a bigger enterprise deals.

Elena Gomez -- Chief Financial Officer

Yeah. And I would just add that we're encouraged by the fact that we're getting inbound interest, which I would say when I got here that was not what I would hear. And I think Sunshine has really open up the conversation [Indecipherable]

Derrick Wood -- Cowen and Company -- Analyst

Great. And then a follow-up on Smooch, and I suspect you're not expecting much incremental revenue near-term. But I guess from a long-term perspective, do you see this as being like a meaningful revenue line item for you or is it more about kind of creating stickiness and differentiation with the kind of full platform and making the products stronger not Smooch as a stand-alone per se?

Mikkel Svane -- Founder, Chairman and Chief Executive Officer

What I would say there is like, there is several elements to this. In parts of the world we are already seeing massive shifts away from the traditional channels to the messaging channels. And like to keep innovating and to keep being the premier provider in those regions like we are, like we have a commitment to our customers to ensure that they can have the great same experience with these channels as they can have with the channels that we have historically supported.

So, and that's why this kind of tied this acquisition of Smooch was so important for us because it is really, really strategic to be on the forefront of all these messaging channels. And I think that there is a lot of, there's a lot of revenue kind of opportunity in that and we are already exploring different ways of thinking about that. And customers are also more used to paying for these channels over you know like email for example that everybody considers like free channel.

So there is definitely a play there. And that's not only in customer service and the customer support, like we are seeing these messaging channels taking over everything, like sales, marketing, etc., etc.. So very excited about that. And this is really where we have our big play. At the same time, we're going to continue to invest in the platform business like really helping businesses as part of the Sunshine story, part of the Sunshine platform helping business is really built innovative solutions that saturate the entire business in that total customer engagement and we can be a partner for them in that entire lifecycle of managing the customer relationships and there is huge monetization opportunities in that too.

Derrick Wood -- Cowen and Company -- Analyst

Great. That's great color. Thank you.

Operator

Your next question comes from the line of Koji Ikeda from Oppenheimer. Please go ahead, your line is open.

Koji Ikeda -- Oppenheimer & Co. Inc. -- Analyst

Hi. Thanks for taking my questions and congrats on the quarter. So just a quick question here on that 100 plus age and percentage of MRR taking up to 42%. Now, it's really great and it's really demonstrating that the strategy and the go-to-market investments are working, I guess just taking a deeper look there into the levers that drive that metric, was there anything particular to point out that was maybe contributing more or maybe less to that uptick in the MRR?

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

I think it's really a good indicator of a successful strategy that Norm is employing of hiring more enterprise level strategic reps and really up-leveling his organization to go after larger opportunities. We're also making sure we engage with the customers that already are in Zendesk to make sure that they're growing with us. And so, I think a combination of that's what's helped that number move up.

Koji Ikeda -- Oppenheimer & Co. Inc. -- Analyst

Okay, great. Thanks for that. And just one quick follow up for Elena. The Relate 2020, just for modeling purposes, is there -- could you help us out maybe with what sort of expense we might be putting into our models for the first quarter of next year?

Elena Gomez -- Chief Financial Officer

I don't comment on individual expenses. So yeah, the answer is no.

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

Yeah. We haven't guided to 2020, but that is obviously a marketing expense in Q1 rather than another quarter.

Elena Gomez -- Chief Financial Officer

Yeah. It's not material to the quarter.

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

No.

Koji Ikeda -- Oppenheimer & Co. Inc. -- Analyst

Okay, great. Thank you for that. Congrats on the quarter.

Operator

Your next question comes from the line of Chris Merwin from Goldman Sachs. Please go ahead, your line is open.

Christopher Merwin -- Goldman Sachs -- Analyst

Okay, great. Thanks for taking my questions. Just going back to Duet for a minute. In terms of how the sales force is prioritizing, selling the products, I mean are they still trying to sell Suite first and foremost or in some cases would they be leading with Duet, just curious about how they're managing that?

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

Just a reminder, Duet is still really focused on the SMB. So there is only a subset of the sales teams that that would apply to. But -- and really Duet is in its first version. There is a lot more integration into our future platform that Duet will kind of build into as we go through the rest of this year and early next year and it's also working its way up in terms of serving bigger customers. So I would separate those two, the Duet and sort of the other offerings that we have.

Christopher Merwin -- Goldman Sachs -- Analyst

Got it. Maybe just a follow up in terms of Suite sales in particular for the enterprise, I remember at the Analyst Day Norm was talking about very much prioritizing that in the conversations with enterprise. So just curious if you could speak to any momentum for Suite for that segment in particular?

Elena Gomez -- Chief Financial Officer

I think Suite has done well across all of our segments, frankly. I think our original intention was really more for the SMB space, but we were encouraged by many of our customers upon renewal coming back and asking more about Suite. And I think to the question earlier about our uptick in enterprise, I definitely believe that has something to do with it. As we've launched Suite, we've seen more of a dialog with our customers to generally spend -- have more interest in some of these other channels that we offer in omnichannel solutions. So I think that really Suite has been broadly embraced by both segments.

Christopher Merwin -- Goldman Sachs -- Analyst

Okay, great. Thank you.

Operator

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

Tom Roderick -- Stifel -- Analyst

Hey guys, thanks for taking my question. I wanted to piggyback on Derrick's earlier question on Smooch and it seems like a nice acquisition, looks like you paid about $70 million for that. Elena, could I just ask you to put a finer point on the impact to the financials and if there is any impact to RPO. Any revenue contributions that are sort of leaking into the guidance for the rest of the year and/or more specifically next quarter on the expense side, is that sort of weighing on your expense guidance or I should say, your operating guidance for the third quarter here?

Elena Gomez -- Chief Financial Officer

Yeah. Now, so it's obviously Smooch is in our run rate now, but they are frankly not material to the total revenue. So there is not -- I think Mikkel expressed it correctly and I think it will -- we're exploring different ways to monetize and there's definitely opportunity there, but I don't see anything meaningful. Definitely not in 2019 and even in 2020, I think there'll be early days with that. So that's how I think about it.

Tom Roderick -- Stifel -- Analyst

Okay. And then...

Elena Gomez -- Chief Financial Officer

Yeah. They are definitely in our run rate for sure.

Mikkel Svane -- Founder, Chairman and Chief Executive Officer

So, [Indecipherable] future guidance.

Tom Roderick -- Stifel -- Analyst

Can you speak to how many employees you picked up as part of that acquisition?

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

I think it's in the mid-double digits. I don't know the exact number for you.

Tom Roderick -- Stifel -- Analyst

Okay. That's fine. That's helpful. And then just relative to Suite and the traction you're getting there and this sort of goes at the question of the playbook as well. Are there any different strategies with packaging or pricing of Suite as you get into international markets? Is that effectively the same message as you get out internationally as it is domestic, Suite being treated the same by the sales force across the board. We'd just love to hear if there is any sort of geographic differences

that may have played a role in any of the execution in the quarter?

Mikkel Svane -- Founder, Chairman and Chief Executive Officer

I wouldn't say that it has affected anything in this quarter, like not others that what we've seen before. Like Suite definitely took off faster here in the U.S. than it did in some of the other regions and that may be one of the things that we need to think about going forward with our business like faster execution outside of the U.S. And there are some differences, we are working with a lot of like telephony partners outside of the U.S. to and like our partner Talk Edition is big outside of the U.S. than it is here. But like beyond that, no, it's very much the same sale.

Tom Roderick -- Stifel -- Analyst

Excellent. That's good detail. Thank you, guys. I appreciate it.

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

Well, great. Hi guys. Thanks for taking my question. I just wanted to ask a question on enterprise, you've obviously seen some momentum acceleration there. Would you attribute that more to the land portion of those deals versus expand? Are you seeing customers commit to more companywide deployments or are you seeing momentum more on the kind of expansion deals, maybe the size of those deals and the momentum there really gaining steam?

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

It's been a combination of both. We continue to land new companies, which we're very proud to land each quarter, but we do also have a lot of expansion opportunity with existing customers. And so I would say it's a healthy mix of both. And our products with the introduction of Sunshine are creating more curiosity around building around Zendesk.

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

Great, thanks. And then one on Sunshine if I may. Any common use cases or verticals that you're seeing whether in the pipeline or maybe some early deals closed?

Mikkel Svane -- Founder, Chairman and Chief Executive Officer

Like high level, I would say like commonality what we are seeing is kind of bringing in more data to provide better customer experience. Just like bringing in more context, more live data not only like to help with the customer service and the customer support, but also kind of to provide a more year end, post sale customer experience. So high level that's what I would say. And it's across, it's across any type of company, B2C, B2B. We're seeing it in smaller businesses embedded enterprises to it's -- we're seeing very much Sunshine help our customers free up, like it test them free, it helps them I could say think differently about that data flows, which we of course are very excited about.

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

That's great. Thanks, Mikkel.

Operator

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

Steve Koenig -- Wedbush Securities -- Analyst

Terrific. Thanks Zendesk. Maybe just to start with a question about, maybe can you give us some color on international competition and SMB competition. I'm guessing, no real change in the environment. Maybe just some color here would be helpful?

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

When we go outside the U.S., the markets are even more fragmented than here in the U.S. on the low-end. So from that point of view, I think it's pretty much the same story we've always told. On the high-end, I think that it's the same set of competitors that are out there. In APAC sometimes people still use on-premise for certain things. But other than that, I don't think the competitive dynamics have changed that much in the marketplace [Indecipherable] any time of indicator for anything right now.

Steve Koenig -- Wedbush Securities -- Analyst

Okay. And I just, just to clarify the slip deal, the deals internationally that slip. That was mostly slippage, they weren't lost. And I just wonder if I can, I'd love to slip in another question which is, you had a big expansion in your international partner count at the beginning of the year, you guys were pretty emphatic about don't expect too much from that this year. Maybe can you talk a little bit about what -- why you're signing those international partners, what you expect from them and can they play a role in helping your international execution here?

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

The first, just to correct something or just to restate the way we'd like it stated, we didn't say that deal slip, what we said is we received feedback from those regions that deals are taking longer to close. So there is a data there, I just want to make sure it testify. In terms of we started working with partners in the international regions first, this was before we hired a leader here in the U.S. So, internationally, we have more traction with partners than we do in the U.S. today because we started with them earlier. And now we are refining our global strategy of how we work with those partners to really become more impactful for our growth opportunities going forward.

Steve Koenig -- Wedbush Securities -- Analyst

Got it. Great. Well, thank you very much.

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

Sure.

Operator

Your next question comes from the line of Brent Bracelin from KeyBanc Capital Markets. Please go ahead, your line is open.

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Thank you. I just had one follow up for Elena here. I wanted to circle back up on RPO growth. You talked a little bit about enterprise driving momentum there, but it did accelerate and what jumped out to me was long-term RPO, it jumped by $41 million sequentially, a year ago in Q2 it was up about $8 million sequentially. So big change there. Short-term RPO growth look pretty healthy another 47% grower, but the big change was long-term. Is that solely tied to duration or are you starting to see larger new lands, larger expands, any color to help explain that big sequential increase in long-term RPO this quarter would be helpful? Thanks.

Elena Gomez -- Chief Financial Officer

Yeah It's hard to say with precision which one of those factors, but I would say durations are definitely extending for us and we've seen that and that was somewhat intentional. And kudos to the sales team for having those more strategic conversations where our customer is willing to commit to us for a longer period of time. So there is that tone and just the way we approach customer conversations. But definitely there are some, there are some indication that there are larger deals, but if I were to say what is the heavier impact there, it's really extending deals longer.

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

And when those customers commit to, are they committing to a certain set expands every year. So year one, it expands, year two it's going to be a bigger expand or do they just commit over a multi-year period for the same seats?

Elena Gomez -- Chief Financial Officer

It's also committing over -- yeah, it's committing over multi-year period, but I think it's also important to know that once we commit with that customer, we build that partnership. It's not like the relationship stops there, we have a whole customer success organization really there to nurture that account and make sure that as our product evolves, we're having ongoing dialog with our customers. So could there be an expansion down the road, absolutely, but what we're seeing right now is multi-year commitment upfront.

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

Very helpful color. That's all I had. Thank you.

Operator

[Operator Instructions] And there is no further questions at this time. I will now turn the call back to Marc Cabi for closing remarks.

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

Thank you, Kelly. Thanks everyone for joining us for our second quarter call. We will look forward to touching base with you guys next quarter. Have a great evening.

Operator

[Operator Closing Remarks].

Duration: 47 minutes

Call participants:

Marc Cabi -- Vice President, Strategy and Head of Investor Relations

Mikkel Svane -- Founder, Chairman and Chief Executive Officer

Elena Gomez -- Chief Financial Officer

Unidentified Speaker

Philip Winslow -- Wells Fargo Securities -- Analyst

Michael Turrin -- Deutsche Bank Securities -- Analyst

Arjun Bhatia -- William Blair & Company -- Analyst

Jennifer Swanson Lowe -- UBS -- Analyst

Samad Samana -- Jefferies -- Analyst

Stan Zlotsky -- Morgan Stanley -- Analyst

Kirk Materne -- Evercore ISI -- Analyst

Derrick Wood -- Cowen and Company -- Analyst

Koji Ikeda -- Oppenheimer & Co. Inc. -- Analyst

Christopher Merwin -- Goldman Sachs -- Analyst

Tom Roderick -- Stifel -- Analyst

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

Steve Koenig -- Wedbush Securities -- Analyst

Brent Bracelin -- KeyBanc Capital Markets -- Analyst

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