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Pluralsight, Inc. (NASDAQ:PS)
Q2 2020 Earnings Call
Jul 29, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon ladies and gentlemen, and welcome to the Q2 2020 Pluralsight Earnings Conference Call. [Operator Instructions] Later, we'll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions].

I would like to turn the call over to your host, Mark McReynolds, Director of Investor Relations. Please go ahead.

Mark McReynolds -- Director of Investor Relations

Thanks, Sara. Good afternoon. And welcome to Pluralsight's second quarter 2020 earnings conference call. Joining me remotely are Aaron Skonnard, Co-Founder and CEO and James Budge, CFO.

Our remarks today may include forward-looking statements about guidance and future results of operations. Our actual results may differ materially based on a variety of factors, including our ability to execute our business during the COVID-19 pandemic, the impact of the crisis on our customers and partners and government action taken in response to COVID-19 among other factors. Forward-looking statements involve risks and uncertainties and assumptions that are described in our SEC filings. These forward-looking statements are based on beliefs and assumptions today, and we assume no obligation to update any forward-looking statements.

During this call, we present both GAAP and non-GAAP financial measures. Except for revenue, balance sheet amounts, cash flow from operations and billings, all financial amounts discussed are non-GAAP. A reconciliation of these measures is included in today's earnings release, which you can find on our investor relations website. Unless otherwise stated, growth comparisons are measured against the same period of the prior year.

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

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Thanks, Mark. Hello everyone, and thank you for joining us. The last several months have presented incredible challenges to the world and our thoughts go out to all those impacted by the global pandemic. I'd especially like to thank our team members for their responsiveness and flexibility as we continue to problem solve and serve our customers remotely. Our teams continue to perform and execute in the midst of all these challenges. I'm especially pleased with how the Skills and Flow teams are adapting to the new market dynamic. And I'm excited to share that we are in the final stages of our CTO search, and we look forward to bringing on a new CTO, who will extend the technology advantages created by Nate.

We've interviewed candidates from a diverse pool across the globe, and we have some outstanding leaders to choose from. We expect to formalize the decision and make an announcement soon. We remain focused as we continue to work with the tech community and our customers to create digital solutions that enhance tech skills development strategy, and provide the fastest path to Skills transformation. Our team's commitment to each other and to our customers has never been stronger despite these extraordinary circumstances.

I'm proud that this commitment is reflected in our financial performance for the quarter. Since the onset of the pandemic, our customers and partners have relied on the fast deployment of our platform to upskill and engage technologists as they respond and adjust to the new normal. An excellent example of this came in Q2, as we closed our largest Flow deal to date, a seven figure deal with the oldest bank in New York. This bank, a long time Skills customer depends on its global workforce of software engineers to deliver new products and stay competitive. As this critical team was transitioning to a remote work environment, the tech leaders ran a Flow pilot to identify metrics, work patterns and best practices to ensure productivity.

The bank saw the value in synergy of complementing their already existing Skills programs with Flow. They used Flow to quantify the impact of their Skills development efforts, and then used that data to more effectively leverage Skills to close their technology gap. Flow is also helping these tech leaders increase productivity and more effectively manage their dispersed teams. Flow provides a data driven view of their development processes, so they can identify bottlenecks and improve engineering workflows. By using data to optimize their engineering development processes, they are shifting their culture from having feeling [Phonetic] based conversations to facts based conversations about engineering effectiveness and productivity.

The improvements Flow identified allow these tech leaders to demonstrate more impact for less investment. This created confidence that Flow will materially improve the productivity of their organization as early as the second half of 2020. This is one of many examples that demonstrates the importance of our platform for tech teams now more than ever. During the pandemic, we have seen enterprises increased scrutiny on all discretionary spending. And despite that, we executed better than expected, and we remain committed to strong execution in order to capture our long term market opportunity.

Now, I'd like to turn the call over to James, and then I'll come back with some brief final thoughts, James?

James W. Budge -- Chief Financials Officer

Thanks, Aaron. And hello to everybody turning in -- tuning-in. In the face of a full quarter of COVID impact on the business.

I'm pleased that we were able to deliver better than expected results on all of our key metrics, including billings, revenue, cash flow and EPS. B2B billings grew 12% to $77.7 million and total billings grew by 11% to $89 million. And we continue to expand deeper into our largest customers, ending Q2 with 67% more customers with annual billings greater than $1 million. Q2 revenue grew by 25% to $94.8 million, well above the high end of the range we provided last quarter, allowing us to increase the midpoint of the revenue range for 2020 which I will speak to later.

Despite operating in the COVID impacted business climate the entire quarter, our net revenue retention remained strong in the high teens at 118%. Our Q2 gross margin increased to 81%, up from 78% and net loss per share in Q2 was $0.02, a significant improvement compared to a loss of $0.06 last year, and meaningfully better than the guidance we provided for Q2.

Our gross margin and EPS continue to over perform and give us even more confidence that we will trend toward sustainable earnings and cash flow profitability earlier than we previously expected. Cash used in operations was $9.3 million, and free cash flow was negative $18 million. Both cash flow measures were meaningfully better than we expected.

As a reminder, we are in the completion phase of our new headquarters and in the first half of 2020, we spent almost $15 million on related capital expenditures, with another $10 million or so to come in the second half of the year. Our operating cash flow for the first half of 2020 was over $9 million positive and our free cash flow for the first half of 2020 was nearly break even if we exclude the one-time expenditures related to the new headquarters build. Both cash flow measures demonstrate our accelerating path to profitability.

Turning now to guidance. For Q3 we expect revenue to be in the range of $95 million to $96 million, an increase of 16% at the midpoint of the range. To assist in your model building, we expect Q4 revenue to be in a range of $98 million and $101 million. When taking into account the first half actual results with these second half quarterly expectations, the result is a tightened full year 2020 revenue range of between $375 million and $390 million. This updated revenue range represents an increase of 21% at the midpoint.

As we covered last quarter the success of our Free April campaign exceeded our expectations. Despite the free month we were able to maintain our B2C billings and improve our revenue year-over-year. And on the B2B side, our pipeline continues to build from these users. We anticipate over the coming quarters these individuals will continue to open doors for us and their organizations and help us engage in dialogue with B2B buyers. The Free April contribution to Q2 B2B billings was small but our pipelines for the next two to three quarters have increased more effectively and efficiently than from typical campaigns. We believe as a result of heightened demand for our product and increase opportunities produced from the free April campaign.

On the bottom line, we expect Q3 net loss per share to be in the range of $0.05 to $0.06, assuming weighted average shares outstanding of approximately $144 million. And we expect a net loss per share range of $0.06 to $0.07 in Q4 assuming the same weighted average shares outstanding. The expected increase in net loss per share compared to Q2 is primarily related to the expenses associated with our new campus lease costs coming online in August, and some growth in our quota-bearing Salesforce toward the end of the year as we hire ahead of 2021.

As a reminder, we currently have enough quota-bearing sales rep capacity to see us through at least mid 2021. That said, we see value in hiring ahead of the year to ensure all our sales teams are as trained and enabled as possible for the year to come. We expect full year 2020 net loss per share to be in the range of $0.19 to $0.27, assuming weighted average shares outstanding of approximately $144 million. At the midpoint, this full year EPS range is a $14.05 improvement over the midpoint of the range we gave three months ago, and reflects our accelerating progress toward P&L profitability.

Our cash breakeven expectations remain the same as before. We expect to break even in Q4 and continue improving our cash based profits as we move through 2021.

To summarize, we delivered solid results in the second quarter. Our ability to focus and execute have served us and our customers well in a difficult environment. And our Q2 performance gives us confidence that we'll be in a strong position when economic conditions improve. Our collections and the timing of those collections are coming in ahead of our expectations and we remain focused and well-capitalized with over $550 million in cash and investments on our balance sheet, to continue to support our customers and partners through this tough period.

And with that, I'd like to turn the call back over to Aaron. Aaron? Thanks, James. We're pleased with our Q2 performance in the midst of a challenging period for the world. This isn't the first difficulty we faced as a company. Every time we go through a moment like this, it helps us learn, evolve and emerge as a stronger company. And I believe this time will be no different. We've never seen a more pressing need for our products and we know from experience that enterprises that take advantage of this window to up-scale and rescale will rebound faster and stronger than their competitors. I'd like to thank our customers, our partners and our community of expert authors and our team members for their continued support. And with that, I'll turn the call back over to the operator for Q&A.

Questions and Answers:

Operator

[Operator Instructions]. Your first question comes from the line of Sterling Auty from JP Morgan. Please go ahead.

Sterling Auty -- JP Morgan -- Analyst

Yeah. Thanks. Hi, guys. I really appreciate it. Apologies, bouncing around through multiple calls, but I would say, probably the number one question on my mind has to be around the strength of Free April. And what you learned in terms of that marketing and promotion, not only in terms of the conversion rates that you may have seen or what it's driven. But also, what that might motivate you to do in terms of your sales and marketing plans for the rest of the year?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah. Great question. We definitely learned a lot through the Free April campaign, and we're continuing to learn as we watch the leads and the new accounts come in through that promotion. We've definitely seen that -- that campaign was more cost effective and efficient in a way to bring in a significant amount of new leads into our database, and be able to market to those leads more effectively.

So, we're taking those learnings into our strategy work for 2021, and we'll continue to refine our pricing and premium strategies and different types of promotions that we use into next year and beyond. But more to come, more to learn and things will continue to take shape as we finish that work.

Sterling Auty -- JP Morgan -- Analyst

And then, one follow up if I can in terms of sales resourcing. As we think about, what happened in 2019, maybe falling a little bit behind the curve on hiring then catching up. But as you came into this year, you were managing expenses much, let's say, in a tighter fashion. Where do you stand now? Are you happy with the sales resources that you have on board? Where are you in your hiring plans? And how does that impact the margin outlook?

James W. Budge -- Chief Financials Officer

Yeah. Thanks, Sterling. This is James. So, we have about 360, just over 360 quarter bearing sales reps as we move through our forecast of 2020 and even through 2021, that's enough sales capacity to get us through at least mid 2021. And we likely depending on continuing strength in the business will hire a few more as we move to the end of the year to be prepped and even more ready to go into 2021. So, we feel relative to where we were a year ago, we feel really good about where we are right now.

Sterling Auty -- JP Morgan -- Analyst

Great. Thank you.

Operator

Your next question comes from line of Saket Kalia from Barclays. Please go ahead.

Saket Kalia -- Barclays -- Analyst

Okay. Great. Hey, guys, thanks for taking my questions here. Hey, Aaron, maybe just to start with you. Listen, obviously, a lot of debate about customers willingness to spend in this environment, just in general. But perhaps you can touch on the competitive landscape a bit? And what you're seeing from other players out there like Coursera, like LinkedIn learning, and other platforms in sort of the core enterprise space?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah. Saket, COVID has definitely impacted customers' willingness to spend in the near term. And we're not exempt from that. And that's what -- that's why we're experiencing some of the near term headwinds that we referenced. But we do remain laser focused on our core enterprise space. That's where we're highly differentiated, that's where we provide a strategic Skills transformation solution that goes well beyond content, with analytics and other capabilities to drive that kind of transformation. And that's where we see the highest win rates and the strongest retention rates.

And we're confident in our competitive position in that core space. We do see some of that competition in the smaller account segments where they're discounting very aggressively right now, to win short term opportunities. But that's not our focus nor our priority longer term. We're focused on the accounts that want to use this window to significantly transform their talent and their business through a strategic relationship with us, and that's really our big opportunity long term.

Saket Kalia -- Barclays -- Analyst

Got it. That makes a lot of sense. James, maybe for you for my follow up. A little bit of a divertive question that was asked earlier. But maybe from a sales planning perspective, it definitely sounds like -- it sounds like you and the team are thinking about 2021 or the out-year earlier. And I don't want to look too far back in the rear view mirror. But maybe you could compare and contrast about how that's different than last year. And maybe just anecdotally talk about how the planning process for this year might be a little different with Ross Meyercord and his team sort of now more fully ingrained? Does that question make sense?

James W. Budge -- Chief Financials Officer

Yeah. It does. Great question. And maybe I'll just spin it into numbers. If we go back a year ago, we got started late in planning, as you mentioned, we -- as a result, we ended Q2 about 40 headcount shy of where we needed to be to deliver on expectations, which suggests that Q1 of 2019, we're just over performing with the headcount we had and then it caught up to us in the second quarter. Relevant to this year, we came in strong, we had as high as 360, we have about 365 reps now. And relative to our expectations for the year, the remped capacity we have in our plan, we actually have built up some over capacity in our system over the last couple of months to deliver on the new COVID expectations that we have, if you will.

So, we feel like we're in a great spot relative to the shortfalls we had last year. We're ahead of the game now, or even ahead of the game to the point you raised about getting ahead of 2021. And that's the pace we're going to stay on, we're not going to stop, we're going to get toward the end of the year and even higher ahead some more as we think about the latter part of 2021. And always try to stay between two and four quarters ahead of the pace where we see ourselves going. So quite a bit different than what we -- where we were a year ago.

Saket Kalia -- Barclays -- Analyst

Absolutely. Great to hear. Thanks guys.

James W. Budge -- Chief Financials Officer

Yeah.

Operator

Your next question come from the line of Brian Peterson from Raymond James. Please go ahead.

Brian Peterson -- Raymond James -- Analyst

Hi, gentlemen. Thanks for taking the question. So a higher level question for Aaron. I know you've mentioned in the past that in-classroom training was still a much bigger spend area for a lot of your customers. I think that the idea of in-classroom training has changed. So I'm curious what are your customers doing to react to that? Is it too soon to see any meaningful change? And how do you see that move away from in-classroom training changing going forward?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah. Thanks, Brian. We were paying very close attention to this dynamic as it's playing out. The instructor led training or classroom training market is largely frozen at the moment across our customer base. Meaning, that if they had budget allocated to it before they frozen those budgets and may not have reallocated them to other types of equivalent solutions quite yet. And that often happens in the classroom training world, they get frozen temporarily during the crisis, during a period of time and then they get thawed or unfrozen at some point beyond.

But what we're seeing here is a different type of conversation this time, where a lot of those large enterprise customers are reimagining and rethinking how they're going to solve those same jobs to be done that they solved with classroom training in a post-COVID environment. And I believe we're well positioned to take advantage of that opportunity. Both through our digital solutions that we offer today, along with some new and improved professional services offerings that we can also bring to the table, like our workshops offering that you may have heard of before. That's something we can execute on right now today. And we're also looking at how to further extend that capability to further maximize our ability to take advantage of that transition opportunity. And we think it'll be something that plays out over many years to come. And we want to help our customers accomplish that.

Brian Peterson -- Raymond James -- Analyst

Understood. And maybe just a follow-up just on how things are trending in the pandemic. In terms of usage of the platform, you have a lot of people working from home, anything that you can say in the overall usage of the platform or any stats on the Role IQ or Skill IQ tests? Thanks, guys.

James W. Budge -- Chief Financials Officer

Yeah. Thanks, Brian. James here. I'll just limit it to the usage. We're up roughly 2 times in minutes viewed compared to just a quarter ago. So we had a pretty good pop in the month of -- later part of March, as we were getting created with some of our customers and adding more users. And we continue to extend that through Q2 to the point where we now have -- can happily report that we had 2 times more usage time on our platform in the June quarter than we had in the March quarter.

Brian Peterson -- Raymond James -- Analyst

That's great to hear. Thanks guys.

Operator

Your next question comes from line of Scott Berg from Needham. Your line is open.

Scott Berg -- Needham -- Analyst

Hi, everyone. Thanks for taking my questions. I guess I've get two here. Why don't we start on sales pipelines. I know this is the time of year we would normally start talking about LIVE, which had been in August last couple of years. That was a great tool for sales generation, for bringing in potential new customers, obviously, and showing them the platform. But how do you look at pipelines today versus last year, knowing that event is probably at least limiting or could limit some of your opportunities here in the short-term?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Thanks, Scott. LIVE is definitely different this year than it was last year, and it's always a big pipe generation event for us. But we are moving forward with LIVE as a virtual event, just like we did in March with our LIVE Europe event, right, as COVID was hitting. And so, we're optimistic based on what we saw from LIVE Europe that LIVE North America in October could be even bigger and better from this perspective. There's a lot less to do and to see as we move through this event, but one of the benefits of a virtual event is, we can actually scale to a much larger audience and attract people that wouldn't typically travel to the event to be part of it. So, we've reorganized our strategy, we've recalibrated, and we're looking to do everything we possibly can to produce even more pipeline this year at LIVE North America than we did last year. And that's our objective, and I think we have a great opportunity to produce that.

James W. Budge -- Chief Financials Officer

Maybe as a side note there, Scott. We would anticipate also having our usual Investor and Analyst Day wrapped around that. And hope that everybody can come and join the virtual conference that we have and see the messaging that we're giving to our customers and partners, and then share a few hours with us as we talk about the future of our financials.

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

And maybe one last -- one last point on this, Scott. During LIVE, we have all the main stage presentations, then we have breakout tracks where people are speaking to large groups. But we also do a lot of customer one-on-ones and interactions that are more intimate behind the scenes in all the various conference rooms that we use during that event. We're basically replicating that in the virtual environment. So, in addition to the virtual presentations that we give, we also are really focused on creating all those intimate customer interactions during that virtual event. And that's where we'll get some of that deeper customer engagement you're talking about.

Scott Berg -- Needham -- Analyst

Great. Super helpful. And then from a follow up perspective. Aaron, wanted to maybe see if you can comment on the sales that are coming through over the last 90 days plus or minus in this COVID environment. Are the deals any different, whether it's in terms of sizing, ASP pricing, relative to maybe what you saw pre-COVID? You mentioned the large Flow deal. So didn't know, I guess with any of those modules you're seeing maybe more demand versus others?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah. We're definitely seeing a strong demand from Flow, like we mentioned, given the unique characteristic that brings to the COVID world. We're also seeing some interesting scenarios on the Skills side of the business, customers that are wanting to move faster on their classroom training shifts. But in general, I would say, the thing that's been most impacted in the last quarter was the smaller account segments. That's where there's much more price sensitivity, that's where there's more competition and very aggressive discounting. And that's where we saw more of the churn in the quarter. But our large strategic enterprise deals looked just as strong and sort of similar characteristics as quarters pass. And that's really where we're staying focused, where we're investing the most deeply and want to maintain the strength of those accounts over time.

Scott Berg -- Needham -- Analyst

Great. Super helpful. Thanks. And congrats again on the good quarter.

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Thanks.

Operator

Your next question comes from the line of Jeff Miller from Baird. Your line is open.

Jeff Miller -- Baird -- Analyst

Yeah. Thank you. So you call about the sizable revenue beat on the quarter. But for being a heavily subscription business that usually has pretty good predictability. It's not clear to me what drove that. So, maybe some more detail there?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah. Jeff, I'm happy to share. So, I think if we take you back three months, we were in a world where the vast majority of customers or vast majority of companies were not providing any guidance. Given the somewhat predictability of our model and the strength we saw in the business, we thought it was appropriate for us to give guidance. And the middle ground we found is that, we gave a little bit more conservative guidance than we normally would have. So there's a function of conservativism in there. And there's a function of just, I think, really good -- really good execution in the quarter. We had -- our customers continue to pay us, so we didn't have any giant reserves we had to take against unpaying customers, which would have been a negative hit to revenue. We continue to execute through giving a free month of April to a big chunk of our B2C and continue to execute there. And we continue to deliver value to our customers that allowed us to continue to recognize the revenue there. So, I think it's a combination of just being conservative 90 days ago to your point, fair point, and also executing really well in the quarter.

Jeff Miller -- Baird -- Analyst

Okay, great. And then, may be Aaron on the evolution of the content, if you could just speak to it. Just how important are kind of the -- is the interactive content, the interactive courses and projects in terms of minutes viewed or viewership at this point? And just any other kind of evolution of the content, like what percentage is kind of content from the big three cloud providers? Just anything you call on content demand evolution?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah, from a content perspective, we definitely see the most demand in areas like cloud, data science, machine learning, AI and cybersecurity, as well as our core sort of software development languages, frameworks that are sort of bread and butter for us. And the big three are obviously very focused on the cloud today, and so, we're very focused there with them. That remains a top priority for us as a business. We also see new opportunities in space -- in the other spaces I mentioned, like AI, data science, machine learning and cyber. And you also mentioned the interactive pieces or what we like to call the hands on learning components of our platform, like our interactive courses and project experiences. Those remain a very high priority for us today and we're intending to invest even more deeply in this hands on domain in the quarters ahead. And it will be a big theme for us in 2021. So, stay tuned. We'll have more to share at LIVE in October. And I'm really excited about what those developments will mean for our customers.

Jeff Miller -- Baird -- Analyst

Thank you.

Operator

Your next question from the line of Stephen Sheldon from William Blair. Please go ahead.

Stephen Sheldon -- William Blair -- Analyst

Hi. Thanks. First I wanted to ask about the, I guess, the progress of B2B billings throughout the quarter and into early July. Did anything changed materially throughout the quarter, either in terms of a pickup or slowdown in year-over-year growth? And based upon what you can see at this point, can you talk about updated B2B billings growth expectations over the rest of this year?

James W. Budge -- Chief Financials Officer

Yeah. So on the progression through the quarter, I'd say, the nice thing was that it didn't fall apart on us in the third month like the beginning of March, when COVID started to hit. So that's, I'll contrast it to that quarter. Relative to kind of any other quarter, it fell, the progression of billings through month one, month two, month three didn't feel that much different than any other quarter that we've had. We always have the heavy amount of our B2B business happen in the third month, roughly about 50% happens in the third month, with about 25%, 25% in the first couple of months, and that's above what we saw in the second quarter as well. So nothing new or unique to report on their, flurry of activity toward the end like we always have.

As for the rest of the year, we expect incremental improvements, I think, is about as far as we want to go on billing to this point, we're happy to give revenue and EPS guidance. I think if you back that into billings, that would translate into a little bit of improvement on year-over-year growth in Q3 over Q2 and the same thing in Q4 over Q3, emphasis on just a little bit.

Stephen Sheldon -- William Blair -- Analyst

Got it. That's helpful. And then I think you gave some commentary on usage. I think the 2 times increase in minutes. Anything you can provide on the trends you're seeing in terms of per user engagement relative to the prior few quarters? Has that kind of continued to trend higher here in 2Q?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah. I think if you work it through, we had a tremendous amount of users come in the first quarter. For the second quarter, we also had a lot of users come into our platform. It was our second highest user add in the history of our company after the first quarter. And when you kind of work that through, it's slightly less than 2 times the increase on a user per or a time pre user basis, but still right around 2 times, maybe a little bit above 2 times in March, and then it kind of trended to around 2 times throughout the entirety of the second quarter.

Stephen Sheldon -- William Blair -- Analyst

Great. Thank you.

Operator

Your next question comes from the line of Arvind Ramnani from Piper Sandler. Please go ahead.

Arvind Ramnani -- Piper Sandler -- Analyst

Congrats on great quarter. I just had a couple of quick questions. Just when you think of the demand environment, do you see this kind of pandemic lift the over demand environment where you expect kind of secular trends to be behind you guys? Or do you think that it's more for cyclical lift in overall demand?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah. Arvind, good question. I would say that, what we're seeing overall is an increase in focus and opportunity around that will create much more demand post-COVID. So I think we're experiencing some near term headwinds because of the budget constraints and cost containment efforts that a lot of our customers are employing. But given the reimagining and the reinventing of how they intend to solve this job to be done longer term, that is, I think, creating a rising tide for this entire space and the entire TAM. So I believe we're going to see an overall lift in demand across the sector. And I believe, that will lend itself to us emerging from this as a much stronger company than even what we looked like before. The question is around timing. How long will that whole transition take to play out? And that's the thing that we're very focused on and paying attention to, and we'll hopefully have more clarity on over the next few quarters as things unfold.

Arvind Ramnani -- Piper Sandler -- Analyst

Great. Thanks. Just a follow-up question. I know last year at your event you were talking about a fairly good kind of pricing strength, particularly with GitPrime and all of that. And while you didn't kind of specifically outlined kind of pricing strength, you all talked about 2020 seeing like mid to high single-digits kind of price increase for 2020 and now that we are midway into the year, can you just kind of give us an update on how you're seen pricing trends improve?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah. Look, I'd say -- Arvind, James here. Consistent with last quarter, we're favoring incremental users over maximizing price right now. I think if you compare that to the last few years, we definitely had probably more of our growth coming from price increase. This year, you'll definitely have more of our growth coming from usership increase. And we think that's the right approach right now in the middle of COVID just to aggregate and attract as many users to our platform as possible. We're still a premium product, so we do price accordingly. But we're not trying to maximize on price right now.

Arvind Ramnani -- Piper Sandler -- Analyst

All right. Thank you very much. Good luck for the remainder of the year.

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah. Thank you, Arvind.

Operator

Your next question comes from the line of Jason Celino from KeyBanc Capital Market. Please go ahead.

Jason Celino -- KeyBanc Capital Market -- Analyst

Hey, guys. Thanks for taking my question. Can you hear me all right?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah.

Jason Celino -- KeyBanc Capital Market -- Analyst

So, I actually have a follow-up question on the competitive front. It looks like one of your legacy ILT competitors might've filed for bankruptcy last month. Now, do you think this is more reflective of the headwinds to some of the in-classroom training or was this maybe more company-specific?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah. I think that one in particular was likely more company and strategy specific, given that, it sort of played out leading into COVID. I think the shifting trends over the last couple of years is something that, that is obviously working against large scale classroom ILT providers. And companies are looking for more hybrid, digital approaches, which is where we're more positioned today.

So, I don't think it -- I do think COVID exacerbated it and accelerated the issue. And I think it's playing out on other fronts as well. And so, we are watching these situations play out and looking for whatever opportunities exist in them for our customers. And so, I think we're going to see a massive transformation overall around how those ILT/classroom companies evolve through COVID. This is one -- this is a very transformational moment for that entire sector of companies. And I think, it's going to be really good for the customer base as well to have those happen.

Jason Celino -- KeyBanc Capital Market -- Analyst

Great. That's -- thanks for that great color. And then, we've talked a little bit about some of the usage trends across the entire platform. But may be can you just speak to some of the usage trends with the specific Free April cohort?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

[Speech Overlap] Do you want to take a chance, go ahead.

James W. Budge -- Chief Financials Officer

Yes, well, I just give a couple things and then feel free to jump in also. The number of unique visitors to our site in April was around 900,000, on the B2C side, and a couple of hundred thousand unique visitors that had a B2B tag attached to them. And a lot of those B2C customers have converted and are still continuing to evaluate our platform, and they're coming from a lot of different places of the globe that maybe we hadn't touched before. So, that's all good for us to expand expand our reach. On the B2B side, as I mentioned in some of the remarks, we're still in the phase of discovering, where they are in the organization, how they can influence decisions and include some of their colleagues in on the decision making to move to a purchase decision. So, we're super bullish on how that's going to play out over the coming two to three quarters. And I'd say it's -- to echo some of the comments I had before, it's by far been our most successful campaign that we've ever had. So I'll pause there.

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

And just a little more color on that. We were concerned with such a large number of individuals coming in that may be usage wouldn't be as strong on that Free April cohort. But we actually saw that cohort have really strong individual engagement, and it was able to help lift the usage across the entire learner base by that 2 times factor. So we were very pleased overall with the usage of the Free April cohort specifically.

Jason Celino -- KeyBanc Capital Market -- Analyst

Great. I appreciate the time. Thank you.

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

You bet.

Operator

Your next question comes from the line of Josh Harris from Morgan Stanley. Your line is open.

Josh Harris -- Morgan Stanley -- Analyst

Thanks for the question, and congrats on the quarter. I'd like to double click on some of the opportunities and potential competition with Microsoft. So they recently announced an initiative combining LinkedIn Learning, GitHub Learn, Microsoft Learn. I think to initially focus on upskilling nontech workers, so not your target user, potentially an area for an opportunity for you as a third party content provider to add into their platform, plus your existing partnership with Microsoft. And then on the other hand, they have all these technical assets, enterprise focus and ambition, I think, to get -- to become a bigger player in skilling. So I'm just wondering how you think about the future of Microsoft as both a partner and a competitor in this space?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

You bet. Yeah, Microsoft remains a very strong partner of ours and one of our largest customers to date. And none of that has changed or is changing in the moment. And the specific opportunity you're pointing to is a really good development in my opinion. It's about, like you said, creating more technologists, more developers and bringing them into the space. It's a much more consumer focused initiative than a B2B focus initiative. And it's something that's necessary that I wish all of our partners would do to help create more customers for us, because ultimately, that initiative will create more software developers that then further expands our market opportunity as a professional enterprise solution. And that's how we see things continuing to play out today. We don't see any changes to that trajectory.

Josh Harris -- Morgan Stanley -- Analyst

Thanks for the insight.

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

You bet.

Operator

Your next question comes from the line of Brad Sills from Bank of America.

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

Hey, guys. Thanks for taking my question. I guess I'll ask the environment question a little differently. In those larger account expansion deals, how's the environment impacted, willingness to add more users, make a commitment to learning. On the one hand, you would think -- you mentioned earlier that this is discretionary. Then you fared well during that kind of discretionary spend review. So just curious kind of what your -- what you saw there, what are the conversations like in some of the larger accounts in terms of willingness to expand, given the pressure that, I'm sure, these guys are seeing?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah. The willingness to expand is the area where we've seen the most hesitation or the most impact. Expansion is usually where we crush it every quarter, because we have this land and expand model that worked so well for us over the last 16 years. And so, that's why we believe this is a temporary depression, COVID induced, and that's where we see the most hesitation. If we had customers that were thinking before about expanding from, maybe a couple thousand licenses to 10,000 licenses, that conversation in many cases is slowed down.

And that's why we have leaned in so heavily with more aggressive and flexible COVID relief options that make it easier for those customers to expand temporarily before we finalize some of the commercials. I think I mentioned on the last earnings call an example of a big bank where we did that, who was in that exact scenario I'm describing going from a few thousand to over 10,000. And through that flexible structuring posture that we brought to the market, that's actually allowed that deal to move forward. And we're weeks away from that one closing now, just a quarter later. And that'll be another seven figure deal, ACV.

So ultimately, like we -- there's definitely more risk -- more hesitation around large scale expansion, and that's directly related to the company's overall posture on all forms of expansion, all forms of additional spend in a moment. But I think through our creativity, we're able to work through some of that now. And we believe that once we're past this cost containment frenzy, things will really turn for us again.

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

Got it. Thanks. Thanks, Aaron. It's helpful.

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

You bet.

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

And then just on Flow, it sounds like you're seeing some early traction there. I guess how pervasive is Flow now in the pipeline? Is it -- would you say you're hitting your stride in terms of interest level for attach into some of the renewals and maybe new deals? And any thoughts on kind of what ASP uplift could look like for that or pricing?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah, you bet. I'll start and then James can add on here. We're really pleased with what we're seeing around Flow right now. The business as a whole is pacing on track for our original start of the year target for Flow. So that hasn't -- that hasn't changed through this COVID cycle. So it speaks to the overall strength and health and position that we have in that particular space. And the pipeline for Flow continues to develop very nicely. We've been very pleased with the pipeline levels that we've been able to generate going into, both Q2 and now into Q3. And it's looking good.

Like, there's definitely still the overarching trend I just spoke to in your prior question, impacting company's overall willingness to spend. But if they want to maximize the productivity of their remote, now fully remote engineering teams, this is a direct solution to that. So I think that's helping counteract some of those adverse COVID affect. James, anything you would add?

James W. Budge -- Chief Financials Officer

Yeah. Maybe the only thing I'd add is just a reminder that Flow or GitPrime on its own, the average deal size was around 150,000, which was quite a bit bigger than the average Skills deal. And as we have more and more Flow deals as it becomes a bigger percentage of our overall business, it should have and will have likely a very meaningful impact on our average deal size. So, we would have seen it this year. We're confident we want to see it this year, if not for some of the favorable economics we're giving to maximize user counts in the face of COVID. But as we get into more normalized environment, I think, you'll see that average deal size go up quite a bit on the back of Flow.

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

Got it. Great. Thanks guys.

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

You bet.

Operator

Your next question comes from the line of Hanna Vidal from D.A. Davidson. Your line is open.

Hanna Vidal -- D.A. Davidson -- Analyst

Hi, guys. Thanks for taking my questions today. Just first, what assumptions do you have around the conversion of Free April users built into guidance? And are you doing anything out of the ordinary or planning to do anything out of the ordinary to help incentivize these customers to convert since it is such a big opportunities for you?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah. I'd say on the B2C side, our typical conversion from a free campaign is in the mid single-digits and that's about what we saw and are continuing to see from Free April on the B2C side. B2B is still a bit of an unknown. We haven't had a campaign in the past that's produced the kind of output that we just created with the B2B side of Free April. So definitely the pipelines are significantly expanded from where they were before Free April, that gives us a lot of strength. And I'd say the conversion rates of that incremental pipeline should mirror, there's no reason why it shouldn't mirror similar conversion rates to any other lead that we bring into the business. So, it's really more of a function that we just have a lot more leads and a lot more pipeline flow now than we had before Free April, which is all goodness from us. And I think -- and I forgot, you had a final question there that I did not write down. Would you mind repeating that for me?

Hanna Vidal -- D.A. Davidson -- Analyst

Yeah. I was just wondering if you were planning to do anything out of the ordinary to incentivize the conversion?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah. I guess it depends what -- I would say, nothing out of the COVID ordinary, which I think as we've talked about, we've offered up some favorable pricing to bring in customers and more users during this time, and we would expect to do that with any leads we had from our Free April campaign. So more similar to the other strategies we have with any B2B customer to bring them into the company and use our platform.

Hanna Vidal -- D.A. Davidson -- Analyst

Okay. Great. That makes sense. And then are you seeing any indication that there has been some pulling forward of project or of IT budgets from the back half of this year into the first half?

James W. Budge -- Chief Financials Officer

I have -- we have not seen any. If anything, I think to some of the comments Aaron made, some of these dollars are still waiting to be, have been a little bit frozen are still thawing out and are waiting to be unlocked in the second half. So, if I think we see it the opposite way that there'd be more opportunity in the second half.

Hanna Vidal -- D.A. Davidson -- Analyst

Okay. Thank you guys.

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

You bet.

Operator

Our next question comes from the line of Brett Knoblauch from Berenberg Capital Markets.

Brett Knoblauch -- Berenberg Capital -- Analyst

Congrats on the quarter. Just a couple of questions for me. Could you elaborate on the announcement with the AWS DeepRacer? And I guess, what's the end goal of that? Is that a part of what you're talking about earlier which is more interactive I guess, projects? And then just speaking on Amazon, and maybe Google, Microsoft, how has those partners lead generation looked through the pandemic maybe relative to last year?

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

The AWS DeepRacer partnership is really focused on providing machine learning specific Skills development to those participants that are engaging in their DeepRacer learning campaign. This is a very broad at scale campaign that they run to effectively drive more motivation around learning -- machine learning skills across their community and ecosystem. This is a perfect place for us to participate and partner with them to enable those skills. While those participants are engaging in the competition, it's really a gamified experience for those learners where they compete with each other to build the best machine learning models that will essentially race against each other.

So we're partnering with them and that helps get us more brand awareness and exposure into the accounts where these participants work. And that's how we think about this particular opportunity. It's one of many different examples of things that we do with Microsoft, Google, and AWS. And all three of those relationships continue to mature and develop more deeply as the quarters roll on.

Brett Knoblauch -- Berenberg Capital -- Analyst

DOkay, thanks. And then maybe just one follow up. I know you guys talked about favorable pricing a lot, maybe this one for you James. Has the level of that favorable pricing reduced? Or I guess, as a discount held steady throughout the -- for several months of the pandemic or is that level of discounting kind of improving?

James W. Budge -- Chief Financials Officer

I'd say slightly improving. It mostly held steady since middle of March through June, but slightly improving as we get -- as we move through the second quarter.

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

All right. Perfect. Thanks, guys. Appreciate it.

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah, Brad.

Operator

And your next question comes from line of Nick Negulic from SunTrust. Your line is open.

Nick Negulic -- SunTrust -- Analyst

Hey, guys. Thanks for taking my question. The first one is focusing more so on Authors. So, how Authors doing in the COVID-19 uncertainty or disruption and how you guys staying closer to Authors and keeping them engaged? And also, is there anything you could potentially say directionally about royalties? Thank you.

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah, you bet. Yeah, our Author community remains very strong through all of this. Just to ensure full context on how our Author network operates. We have 1,500 of them all over the globe. So our Author network has always been and will always be a remote Author network. So, in this work from home environment, our Authors out of all of our constituents were likely the least impacted in terms of how they would continue to engage with us through this time.

And in addition to that, we have a model where every author receives what we call an Author success manager, which is a point of contact, kind of like a customer success manager in a typical CSM motion. That is consistently engaged and monitoring and helping, coaching, guiding the authors through their coursework, their projects that they do for us. And they're also keeping tabs on the health and psychology of our author community. And overall, I would say that remains very strong.

Our Author NPS, which is a metric we tracked very closely has remained steady through all of this, roughly around the 60 level. And we haven't noticed any material changes to that. And if anything, I think our authors are seeing even more, we're seeing even more appetite from them to want to do more with us during this time, because it is an activity they can do effectively in this work from home environment to monetize on their expertise.

James W. Budge -- Chief Financials Officer

Yeah. I might just jump in on the royalty piece there, Nick. I think you've seen our target model was to get to 80% gross margins are big -- by far the biggest chunk of our cost of goods sold are the royalties. We just produce 81% in the second quarter, we produced 81% in the first quarter, we're clearly tracking ahead of 80% target. And that's largely a result of the average royalty fee coming down over time. While at the same time to the benefit of our authors, we're actually producing bigger paychecks for them since it's a function of our increasing revenue.

So Authors making more money, that's a big component that goes into the high Author NPS that Aaron mentioned, it's a great platform for them. And the benefit for us in some of those declining average royalties as we're seeing it show up in a bigger way in our gross margin. So super happy about that.

Nick Negulic -- SunTrust -- Analyst

Got it. That's helpful. And I guess, just as a follow-up. How is a partner engagement have been tracking over the past few months -- over the past few months? And how has engagement been with some of the larger SIs? I think you guys called out some of the larger partner led deals a quarter of two ago. So just wondering if you can give an update there? Thank you.

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

Yeah. The SI partners, specifically continues to trend in a very positive direction. We're continuing to work closely with Accenture, who we have a big initiative under way with right now in the quarter. And Fujitsu, who we've mentioned on past calls, that relationship continues strong. And just in Q2, we signed PwC and we were really excited about the work we're going to be doing with them over the next few quarters.

So overall, the SI relationships continue to strengthen. We're excited about what it means in terms of future shared deals and shared account opportunities. And we see longer term doing more and more with them is the bottom line.

Nick Negulic -- SunTrust -- Analyst

Got it. Okay, thanks guys.

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

You bet. Thank you.

Operator

And I'm showing no further questions at this time.

Mark McReynolds -- Director of Investor Relations

All right. Wonderful. Well, thank you everyone. I want to thank everyone for joining our call again. And we look forward to speaking with you again next quarter. Take care and be safe until then.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Mark McReynolds -- Director of Investor Relations

Aaron B. Skonnard -- Co-Founder, Chief Executive Officer and Chairman

James W. Budge -- Chief Financials Officer

Sterling Auty -- JP Morgan -- Analyst

Saket Kalia -- Barclays -- Analyst

Brian Peterson -- Raymond James -- Analyst

Scott Berg -- Needham -- Analyst

Jeff Miller -- Baird -- Analyst

Stephen Sheldon -- William Blair -- Analyst

Arvind Ramnani -- Piper Sandler -- Analyst

Jason Celino -- KeyBanc Capital Market -- Analyst

Josh Harris -- Morgan Stanley -- Analyst

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

Hanna Vidal -- D.A. Davidson -- Analyst

Brett Knoblauch -- Berenberg Capital -- Analyst

Nick Negulic -- SunTrust -- Analyst

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