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Pluralsight, Inc. (NASDAQ:PS)
Q3 2020 Earnings Call
Nov 6, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Q3 2020 Pluralsight Earnings Conference call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Mr. Mark McReynolds, Director of Investor Relations. Please go ahead, sir.

Mark McReynolds -- Investor Relations

Thanks, Maria. Good afternoon, and welcome to Pluralsight's Third Quarter 2020 Earnings Call. Joining me remotely are Aaron Skonnard, Co-Founder and CEO; and James Budge, CFO. Our remarks today may include forward-looking statements, including those about guidance and future results of operations. Our actual results may be materially different 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 our beliefs and assumptions today, and we assume no obligation to update any forward-looking statements. During this call, we will 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. Unless otherwise stated, growth comparisons are measured against the same period of the prior year. A reconciliation of these measures is included in today's earnings release, which you can find on our Investor Relations website.

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

Aaron Skonnard -- Chief Executive Officer

Thanks, Mark. Hello, everyone, and thanks for joining us. We're proud of the progress we've made in the quarter, while still in the midst of COVID-19 pandemic. We handily beat our revenue, earnings and cash expectations in Q3. And given the strength we see in our pipeline and forecast for Q4, we have confidence in the raised annual revenue and earnings expectations we included in today's earnings release. Q3 billings came in lighter than we had expected due to two factors: first, the continued impact from COVID; and second, shifting PS LIVE from August to October this year. The latter caused a corresponding timing shift in the benefits from PS LIVE from Q3 to Q4. Let me share some quick stats on PS LIVE. We had over 29,000 participants in our virtual PS LIVE experience this year compared to about 3,000 at last year's event. Additionally, we had over 2.4 million live stream views through social media. And the pipeline represented by the participants this year exceeded 250 million compared to 95 million last year. All of these are positive signs.

However, given that this is our first virtual PS LIVE, we don't know yet how the higher participation and pipeline will translate into billing. But we are encouraged by the significant numbers and enthusiasm from customers attending this year's event. We'll learn more in the coming months and quarters. At PS LIVE, we announced a big step forward in providing additional customer value with the launch of our cloud labs product. cloud labs allows our users to practice and apply cloud skills in real-world pre-configured cloud environments. We provide step-by-step instructions for solving common challenges and tasks in the cloud, which allows our learners to transform their new knowledge into practical skills. And our partnerships with the three largest cloud providers empowers our customers and their teams to prepare for the most in-demand cloud certification, with hundreds of supporting hands-on learning experiences.

We've also built tooling that makes it simple and fast for our author community to create this type of hands-on learning content, which allows us to quickly scale with highly relevant and current content in the months and years ahead. Ultimately, companies need more learning modalities and faster ways to upskill, reskill and onboard teams responsible for executing these complex digital transformation, and cloud labs provides just that. Cloud labs will be priced and packaged as a separate product SKU, enabling us to capture even more value from our offerings. Also at PS LIVE, we announced priorities for Skills and the delivery module for Flow. Priorities allows technology leaders to align their skill development programs with their top business priorities, such as moving from one cloud vendor to another. It builds on our Pluralsight IQ foundation, and makes it possible for executives to track skill progression metrics against a specified time frame.

The delivery module measures data from JIRA to visualize the human interactions that occurred during the software development process. This capability helps engineering teams understand how they're progressing against their goals and identify opportunities to optimize collaboration and workload. The need for this knowledge will only increase in importance for our customers as they continue to adapt to the new reality of remote working. And finally, as I shared at PS LIVE a few weeks ago, we're very excited about our recent acquisition of DevelopIntelligence. DevelopIntelligence, or DI, is a leader in designing and executing live, upskilling, reskilling and onboarding programs for enterprise customers. They also provide strategic skills consulting for enterprise tech teams. DI is known for delivering high-quality experiences to Fortune 500 customers. For companies undergoing significant transformation or that have recurring skill development needs, such as onboarding new engineers or ongoing reskilling programs, DI provides the quickest and most effective way to upskill teams around those initiatives.

DI has a network of exceptional instructors who are also practitioners, just like the Pluralsight author community, and many of our customers already work with them to pair tailored virtual IoT programs with Pluralsight Skills. Typical ILT providers operate on a transactional basis that can create unpredictable revenue streams. DI, on the other hand, has established relationships with large enterprise tech teams. Their biggest customers typically sign on for annual deals where they handle all onboarding, reskilling and upskilling programs. And we've already started negotiations with some exciting enterprises on a combination of DI services with Skills and Flow. COVID is forcing companies to permanently move from traditional classroom training to virtual or digital experiences.

With this acquisition, we now offer a more comprehensive set of skill development solutions our customers need to navigate this new future. These new product and delivery capabilities combined with our existing platform capabilities, enable all of our customers and especially our largest customers and their teams, to accelerate Skills transformation. Our customers no longer have to work with multiple vendors to build tech skills because we're the all-in-one technology workforce development company.

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

James Budge -- Chief Financial Officer

Thanks, Aaron, and hello to everyone tuning in. In the face of another full quarter of COVID impact, I'm pleased that we were able to sequentially improve on nearly all the results we delivered last quarter. B2B billings grew to $88.6 million, and total billings grew to $100 million, our first quarter other than Q4 to have hit nine figures in billings. And represents an $11 million billings increase in Q3 over Q2. Our pipeline is strong coming out of a successful PS LIVE, and we are confident that we will achieve our annual goals with another strong Q4. Historically, by far, our best-performing quarter of the year. As a result, we expect to accelerate our total Q4 2020 billings to approximately 12% to 13% year-over-year growth. We continue to expand deeper into our largest customers, ending Q3 with 86% more customers with annual billings greater than $1 million. Q3 revenue grew by 20% to $99.5 million, about $4 million over the high end of the range we previously provided.

As expected, our rolling four-quarter average gross and net retention decreased. We are replacing pre-COVID quarters in the four -quarter average with COVID impacted quarters. The four -quarter rolling average at the end of Q3 from gross retention was 83%, and net revenue retention was 113%, with retention figures from our enterprise business being quite a bit higher in the average. We expect our four -quarter rolling renewal rates could begin to expand again in 2021 as we move beyond COVID and see spending patterns begin to return to normal. Our go-to-market investments in Q3 continued to be overweighted toward our enterprise and high-end commercial customers, which resulted in our highest average deal size to date, up about 20% over last year. The trade-off in Q3 was a higher percentage of churn in our smaller accounts, which offset the new high-end commercial and enterprise logos we added in the quarter.

Our Q3 gross margin increased to 81%, up from 80%, and net loss per share in Q3 was breakeven, a significant improvement over last year and a huge milestone for us, our first quarter of breakeven P&L profitability since we began developing our enterprise go-to-market motion in 2016. Our gross margin and EPS continue to overperform and give us confidence that we will trend toward sustainable earnings and cash flow profitability in 2021. Our collections and the timing of those collections are coming in ahead of our expectations, and we remain well capitalized with $537 million in cash and investments on our balance sheet. Cash used in operations was only $2.4 million, and free cash flow was negative $14.9 million, inclusive of about $8 million for our new building in Q3. Both operating and free cash flow measures were well ahead of what we expected, and demonstrate our accelerating path to repeatable cash profitability.

We now expect to remain operating cash flow positive for the full year 2020, and expect that trend to continue into 2021. Turning now to guidance. For the full year 2020 revenue, we are increasing the midpoint of our range by $6 million. And with one quarter left in the year, tightening the range to $387 million to $390 million, an increase of 23% at the midpoint of the range. This means that for Q4 2020, we expect revenue to be in the range of $101 million to $102 million. On the bottom line for the full year 2020, given the year-to-date results through Q3 and what we see for Q4, we are increasing the midpoint of the range by $0.10 and tightening the full year non-GAAP net loss per share to be in the range of $0.12 to $0.14. The full year 2020 EPS estimate assumes a weighted average shares outstanding number of approximately $143.5 million.

This means that for Q4, we expect net loss per share to be in the range of $0.01 to $0.03, assuming weighted average shares outstanding of approximately 144 million. The slight increase in expense in Q4 over Q3 is mainly related to PS LIVE and pulling forward some of our 2021 sales hires into Q4. As we look to 2021 and begin to move beyond these challenging COVID times, we expect the top line billings growth rate to increase into the high teens gradually throughout the year. We expect revenue growth rates around the mid-teens, consistent with 2020 and early 2021 billings growth being recognized into 2021 revenues. And we expect our improving earnings and cash flow trends to continue into and throughout 2021. To summarize our current visibility and strong pipeline coming out of PS LIVE give us confidence that we'll be able to meet our expectations for the remainder of 2020 and be in a strong position to improve our top and bottom line momentum through 2021.

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

Aaron Skonnard -- Chief Executive Officer

Thanks, James. To close, I'm pleased with what we were able to accomplish in Q3, and I'm excited for the quarter and the year ahead of us. Our market continues to grow. We've strengthened our platform and offerings for our customers, and we're confident that we'll be able to close out the year with strong momentum to carry us through 2021. We built Pluralsight to help our customers create empowered technology team that drive improved performance. There has never been a time when our products have been more relevant than now. Pluralsight exists to be a trusted partner for technologists and their leaders to build better skills, better ways of working and better products. I'd like to thank our customers, partners, 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] And your first question comes from the line of Sterling Auty from JP Morgan. Your line is open.

Sterling Auty -- JP Morgan -- Analyst

Yes, thanks. Hi, guys. So just wondering with the billings result in the quarter, but you're still raising guidance, you talked about your confidence in being able to deliver the increased forecast for the fourth quarter. Maybe can you give us a little bit more color as to the experience in the first month of the quarter? Or what you've seen after Pluralsight LIVE? And maybe the pipeline and conversion, something that feeds into the confidence that you can deliver? Obviously, this quarter, you just did 20% revenue growth off of 10% billings growth last quarter, so it's doable. But just help us kind of bridge the gap.

James Budge -- Chief Financial Officer

Yes. Thanks, Sterling. It's James here. A couple of things I'd highlight. PS LIVE was big. I mean, you heard the numbers from Aaron. And the number of participants in the pipeline associated with those participants was a huge number. Now of course, it's a virtual event. We don't know how that's really going to translate into billings, but it's certainly going to help, in many ways, to our billings expectations for the fourth quarter. It's the best closing event we have for four years running now that we've been running PS LIVE, and that will probably be the same result here in the fourth quarter. So PS LIVE is one that I would highlight. And had some impact, quite frankly, a little more impact on the third quarter relative to the fourth quarter than we previously expected, to be honest. Obviously, we knew, we always knew we're going to have the PS LIVE event in October. But what we didn't expect that some of those deals that would have had strong closing event from PS LIVE in August that those would slip into the fourth quarter.

So still highly confident that we'll get those done coming off of the strong closing event that we now had from PS LIVE in the fourth quarter. The second item I'd highlight here is we've talked about Free April in the past. That's certainly been a benefit to us in our B2C. Our B2C numbers would have been less good if we didn't have Free April. And I would say that last couple of quarters, we kind of said, hey, we're in the early days of seeing how PS LIVE on the B2B side translates into pipeline and ultimately, billings. And we see that starting to firm up and become strong for us here in the fourth quarter. So those two items on the billings side, I would say, give us some pretty good momentum, really good momentum, going into the fourth quarter, PS LIVE and strength from Free April from the B2B pipeline build throughout the year.

Sterling Auty -- JP Morgan -- Analyst

Great. And then, Aaron, one for you. With the acquisitions that you've made, it looks like you're kind of building a hybrid model almost in terms of tapping into some of the ILT opportunity. How quickly should we see some of the moves that you've made actually translate into revenue contribution?

Aaron Skonnard -- Chief Executive Officer

You'll see it translate pretty quickly, Sterling. The way we recognize revenue with that business is upon delivery of those services. And we have several very large enterprise accounts that we're working with right now in Q4 to bring in new customers for this new offering beyond what already exists in the current customer base. So you'll see billings and revenue -- billings will essentially be revenue upon delivery of those services. So the dynamics of that billing stream is different than what you see in our Skills business. And we have a lot of exciting opportunities already in the queue. And the deal cycle, I would say, is about similar to a Skills deal. It takes about as long to get one of these annual agreements in place and get those programs designed and running. But we've got a lot of momentum already right out of the gate with the acquisition.

Sterling Auty -- JP Morgan -- Analyst

Great. Thank you.

Operator

And your next question comes from the line of Saket Kalia from Barclays. Your line is open.

Saket Kalia -- Barclays -- Analyst

Okay, great. Thank you for taking my questions here. Aaron, maybe for you. Can you just talk a little bit about the competitive landscape? It's a fun question to ask every quarter to sort of see if anything's changed. But just -- I was wondering if you could just maybe connect that to whether you think the competitive landscape maybe played a bigger role in the third quarter B2B performance? Or if this was really just sort of the timing issue with kind of that PS LIVE pipeline?

Aaron Skonnard -- Chief Executive Officer

No. Thanks for the question, Saket. I think competition definitely played a bigger role in the third quarter than it has in prior quarters, but only in the small business segment. That's where we saw the most logo churn especially because of the COVID impact on those segments. In some cases, those customers just stopped using any vendor or they switched to a lower cost vendor. And so we continue to see that pressure in the SMB segment. And our focus remains squarely focused on the high end of our segments, the enterprise and Com three segment specifically. And overall, our win rates remain very high against competitors in our strategic segments, and that's where we're laser-focused in putting most of our resources today. Our strategy remains the same. We're focused on a vertical, highly differentiated value-oriented solution, where we're helping the largest companies in the world perform complex skill transformations over many, many years. And that's where we're going to continue to be moving forward.

Saket Kalia -- Barclays -- Analyst

Got it. Makes a lot of sense. James, maybe a follow-up for you. Maybe just off of Sterling's latter question there. The shift in pipeline, and by the way, the year-over-year kind of change in pipeline is impressive. And I understand the shift from August to October. I expect you plan for that shift. So I'm just wondering here in Q3, was there anything else that perhaps impacted the B2B billings number, excluding sort of that shift from one quarter to the next?

James Budge -- Chief Financial Officer

Not a lot. I mean, definitely a little bit in the SMB side. As Aaron just described, probably a little bit more there than we might have expected. But I think we just -- we under anticipated the amount of deals from those closing events from PS live that would shift from Q3 to Q4. So fortunately, we -- those deals are in our pipeline. The pipeline is as strong as it's been in 18 months as far as the weighted pipe relative to our billings expectations. And we feel really good about where we are heading into the fourth quarter for the remainder of the year.

Saket Kalia -- Barclays -- Analyst

Very helpful. Thanks, guys.

Operator

And your next question comes from the line of Hannah Rudoff from D.A. Davidson. Your line is open.

Hannah Rudoff -- D.A. Davidson -- Analyst

Hi, guys. Thank you for taking my questions today. Just wanted to start off. Could you just talk about how much conservatism you're really baking into guidance for 4Q? And what you're kind of modeling in terms of churn and willingness to spend on the company side there?

James Budge -- Chief Financial Officer

Yes. I mean, it's hard to give you something specific on conservatism because that would give away all of our secrets here. But I would say this, for every quarter that we have been a public company, since May of 2018, we have over-delivered on revenue. And in the third quarter, we over-delivered to the tune of $4 million higher than the high end of the range that we gave. Not suggesting in any way, we're going to replicate that here in the fourth quarter. But I think we have a very consistent pattern in our EPS and in our revenue estimates of over-delivering what we say we're going to deliver. And I don't think that will change in the fourth quarter.

Hannah Rudoff -- D.A. Davidson -- Analyst

Great. And then could you talk about how the cloud partnerships trended in the quarter and the SI partnerships?

Aaron Skonnard -- Chief Executive Officer

You bet. The cloud partnerships continue to evolve very nicely. Our new cloud lab offering plays right into that. So our conversations with Microsoft, Google and Amazon around cloud enablement, specifically, is in further strength because of the additional strength we now have with our hands-on learning experiences for each of their cloud platforms. So we're excited about what that means for how those partnerships continue to evolve over time. And with the SIs, we're seeing some really exciting things unfold right now. We've mentioned Accenture in the past, PwC and others. And we have several very large Fortune 500 accounts, where we're working on large-scale cloud transformations, agile transformations, secure micro services transformations, and we partner with those SIs on those engagements in a very natural way because they're focused on the talent and human capabilities. We're focused on the tech skills component of it, which is really core to a digital transformation at the end. And during PS LIVE, we actually highlighted one of the initiatives that we've been working on with Accenture.

There's this thing that they've branded internally, Accenture TQ, which stands for technology quotient. It's built on Pluralsight's IQ foundation, and it gives Accenture the ability to measure the technology proficiency across all Accenture team members, all 500,000 of them. And this is an initiative that started at the top with the CEO. We worked really closely with their CTO. And now that we're seeing the success of this working within the company, we're now exploring talks around how we can potentially take this out to some of our shared customers. So we're really excited about those possibilities. I think that's just one of many examples of what's possible with the SIs over time. So as we look at the SI, as a potential channel, it's going to be those types of initiatives around very specific use cases for the enterprise that will likely bear fruit long term.

Hannah Rudoff -- D.A. Davidson -- Analyst

Great. That's really helpful. Thank you.

Aaron Skonnard -- Chief Executive Officer

You bet.

Operator

And your next question comes from the line of Brian Peterson from Raymond James. Your line is open.

Brian Peterson -- Raymond James -- Analyst

Hi, gentlemen. Thank you for taking my questions. So Aaron, I wanted to start with one for you. Kind of an industry question, but obviously, we've seen a lot change in terms of the pandemic. And if we think about the budget spent on in-classroom training, I think it's fair to say that enterprises across the board are probably not able to do that today. So thinking about the benefit of where their budget dollars have been spent and how that will migrate to different forms of technology, I'm curious, when do you think that happens, right? We're all kind of reacting to the new normal today. But are those conversations happening in earnest right now? Or does that happen next year? I'm just curious when we'll start to see those budget dollars really shift from a macro perspective?

Aaron Skonnard -- Chief Executive Officer

Yes, great question. Those conversations are happening right now with some companies. But not more broadly, like I'm hearing you referred to as a sort of an industry trend. There's still a clear COVID frost in place. But COVID is definitely accelerating the transition away from that traditional ILT model toward the virtual ILT and digital solutions like what we offer with Pluralsight Skills. And now with DI, we have the virtual ILT offering. So we do see some strength around it now, because some of those companies have to start shifting those dollars and they have to train the new engineers that they're hiring, especially in the large tech companies, the large enterprises, they hire lots of engineers all the time. But I think it's going to be a little bit longer before we see it really kick in, and it really becomes a strong tailwind for the business. And I would expect that, that happens sometime in Q1 or toward the end of Q1, based on what we're seeing in the macro environment. We believe we're really strongly positioned to help those companies make that transition. And back to the acquisition announcement. That's exactly why we did that, because we believe we can help companies do that transformation, like and accelerate that transition away from traditional classroom approaches to these new hybrid approaches. And then over the years ahead, we can help them even more fully move into pure digital solutions over time.

Brian Peterson -- Raymond James -- Analyst

Right. And it's a good segue to my next question. But for customers that may have overlapped, for kind of a virtual and classroom learning in the legacy Skills platform. How does their value proposition change, right? You think about the idea of maybe facilitating that back in the classroom and being able to reinforce what they're learning there? I'm just curious how you think that changes the value proposition if you can sell both platforms to the existing customers? Thanks

Aaron Skonnard -- Chief Executive Officer

.Yes. A couple of things. You bet. One, they now get to work with a single vendor. They haven't been able to do that ever before. Single vendor, strategic relationship, so that's value right there. We can bring the overall cost down for them over time. That's value #2. And three, we can help them strategically design those programs to take advantage of the best of both worlds. The best things they're looking for from the live virtual instruction, combined with what we offer in our digital skill solution. So that custom enterprise centric approach is really the value proposition in the end and being able to be that all-in-one solution for the customer. And this further differentiates us from the competition. This is an approach very unique to us and our capabilities and drives us even further into that Fortune 500 Global 2000 space.

Brian Peterson -- Raymond James -- Analyst

Good to hear. Thanks, Aaron.

Aaron Skonnard -- Chief Executive Officer

Yes. Thank you.

Operator

And your next question comes from the line of Jason Celino from KeyBanc Capital. Your line is open.

Devon -- KeyBanc Capital -- Analyst

Hi. This is actually Devon on for Jason tonight. Just one for me, just on usage. Could you just touch on kind of the customer usage of the platform in the past quarter? And how that kind of compared to first half or maybe in the second quarter? Any notable trends you're seeing in the U.S.? And I guess, outside the U.S. as well?

James Budge -- Chief Financial Officer

Yes, great question. So I think as you probably noticed from last quarters, once Free April picked up, there was a lot more people using at home. Our usage metrics, as we've talked about in past quarters. Expanded quite dramatically. And that continued into the third quarter. We actually had more minutes and hours viewed with our B2B customers in the third quarter than any quarter in the history of our business. And to just give you a number around that, 139 million minutes were viewed in the third quarter, and that's up from around 125 million in the second quarter, which was massively higher than any quarter we'd ever had before that. So really good usage patterns are continuing.

We think that is a great lens into what the renewals might look like as we come into them in the middle of next year and later part of next year. Lots of usage and lots of value in the platform. We'll continue to drive better engagements going forward, higher retention rates, all the goodness that comes from that. Maybe a second metric I'd give you as well is we had an incredible number of Skill IQs created in the second quarter. While we didn't surpass what we achieved in the second quarter with Skill IQ, it was -- the third quarter was our second highest quarter ever of creation of Skill IQs. So really good strength across the platform and the view time on our content.

Operator

And your next question comes from the line of Terry Tillman from Truist. Your line is open.

David Unger -- Truist -- Analyst

This is David Unger filling in Tillman. I appreciate it. A couple of straightforward ones for me. Just in the SI world, so is there any notable engagement that you're seeing with the existing SIs that are performing above general expectations? Maybe we could just start there.

Aaron Skonnard -- Chief Executive Officer

With the existing SIs, we're -- like I mentioned in one of the prior questions, we're partnering on several large enterprise accounts. These are million plus ACV accounts for us as a business, and they charge separately for their services as well. And nothing has -- I would say, we're sort of in a good, steady motion with that right now. And we're in the talks to deepen those relationships to build that so we can bring each other more deals in the future. And that's where the current discussions currently sit.

David Unger -- Truist -- Analyst

Got it. Just shifting gears a little bit. The big deal you did last quarter, the 7-figure deal -- Flow deal, has that enabled you to increase engagement with some of those larger customers that you're working with?

Aaron Skonnard -- Chief Executive Officer

Yes, it has allowed us to increase engagement. By engagement, I assume you're meeting engagement of all of our products, both Skills and Flow, unless you want to clarify it for me what you mean? Am I missing the mark on that question?

David Unger -- Truist -- Analyst

No, I mean, I was just -- you had a big deal last quarter with flow, and it was an existing skills customer. So I just -- I'm curious if that's kind of got people's attention and gotten them excited in your conversations, broadly speaking?

Aaron Skonnard -- Chief Executive Officer

Absolutely. Yes, that's helpful. It absolutely has. And in that particular case, that was a multiproduct account. So we brought -- we cross-sell from Skills into Flow in this very large bank. And that has driven our relationship with that account much deeper. We're now further into the technology and engineering organization. And we're developing relationships, expanding that spirit of influence in a very significant way. It's also driving deeper engagement across all the technologists within that account, who are using both Skills and Flow. It's a good example of our hypothesis and action that by having this large base of nearly 18,000 skilled customers, that we can bring them Flow and further deepen the value proposition we can deliver to all of those technologies to really uplift the entire technology workforce within those companies.

David Unger -- Truist -- Analyst

Okay, that's great. Thank you, guys. Have a great night.

Aaron Skonnard -- Chief Executive Officer

Thank you.

Operator

[Operator Instructions] And your next question comes from the line of Stephen Sheldon from William Blair. Your line open.

Stephen Sheldon -- William Blair -- Analyst

Hi, guys. Thank you for taking my questions. I guess, first, can you give an update on the rough number of B2B users on the platform now? And then with the increase so far this year, and with some of those users coming on at lower price points, when you could potentially drive more monetization of those users would it potentially come in the renewal process near the end of 1Q or early 2Q in 2021, given the big jump you saw in those quarters?

James Budge -- Chief Financial Officer

Yes. Great question. So we're up over -- just over 1.5 million now, Stephen. And that's at about 60% to 70% more than the users that we had at the end of the third quarter last year to give a comparison there. As far as the time for upsell, yes, renewal time is always the best opportunity to go have either an upsell in sea counts or an increase in price after they've seen the value there. It will probably be a little bit easier with renewals coming up as we move beyond COVID. I'm not sure we're quite there yet in Q1. But certainly, where the bulk of our renewals come forward in Q3 and Q4 next year, we would expect to have conversations where the kind of the artificially low price points we gave to our consumers during COVID that they would -- those price points would start to rise back up over time. So it's probably more of a second half story. But absolutely, we expect to bring price points back up.

Stephen Sheldon -- William Blair -- Analyst

Got it. That's helpful. And then on the Develop Intelligence acquisition, apologies if I missed this. But can you give any detail there on the rough annual revenue and profit contribution that we should be expecting from that?

James Budge -- Chief Financial Officer

Yes. Think of it as -- we just bought it. So it's not going to be a huge contribution to the fourth quarter. Next year, it's about $10 million in annual revenue, and it's roughly a breakeven business.

Stephen Sheldon -- William Blair -- Analyst

Great. Thank you.

Operator

And your next question comes from the line of Arvind Ramnani from Piper Sandler. Your line is open. Mr. Ramnani, your line is now open. You may now ask your questions.

Arvind Ramnani -- Piper Sandler -- Analyst

Sorry. I wanted to ask about your bookings number. How many Verizon type large deals do you have in the billings numbers? And are you expected to see traction with some of these larger accounts?

James Budge -- Chief Financial Officer

Yes, absolutely, Arvind. So just to give you a few numbers around it. We have, I think, around 50 to 55 customers now paying us over $1 million. As I mentioned, that's up 86% year-over-year. So really good improvement there. The average increase for our top 25 customers, just to give you another number, from their first purchase to what they're paying us now is on average about 40 times their original purchase. So really great strength in our top customers. We continue to add at the high end and high-end of commercial that is where all the goodness is in our business. So we feel really good about that. And as we go into our pipeline, here in the fourth quarter. I won't give you an exact amount, but we have probably about 50% more deals, over $1 million to be had in the fourth quarter than any quarter we've ever had. So not only is the strength as the overall numbers of the overall weighted pipeline, not only does that look really good, but the qualitative aspects of the pipeline as well as far as having more and more large transactions from upsells is we think -- something we think is a really good indicator.

Arvind Ramnani -- Piper Sandler -- Analyst

Great. Great. And as you work with these systems integrators, you mentioned a couple of times, firms such as Accenture. Are the economics or margins roughly the same? Or when you work with these SIs, there's some level of revenue sharing that takes place?

James Budge -- Chief Financial Officer

Yes. Well, there's definitely revenue sharing, but they have a lot more to gain out of these deals than we do. We're coming in with our technology play. They have a whole massive services element that means they capture more of the revenue. But as far as the economics to us, these are huge deals. We talked about how we had a big customer that Verizon helped us with a couple of quarters ago, where we were bringing in on our own before we teamed up with Accenture, we were bringing in about $1 million a year from that customer. As we partnered up with the big SI, we turned that into a $4 million a year transaction. Now the SI there is making a lot more as far as revenue, but we quadrupled the amount because of that relationship that we brought -- was brought to us from the SI. The economics, down at the bottom line, it's a much more productive transaction. I mean you get massively more opportunity for upsizing your billings and subsequent revenue. And the cost is a fair bit lower as well. So those are really good transactions for us to continue to team up with the Accentures, the PwCs, the Deloitte's, the Fujitsu's, others that we have relationships with...

Arvind Ramnani -- Piper Sandler -- Analyst

Great. Terrific. Thank you very much.

James Budge -- Chief Financial Officer

Thank you.

Operator

And your last question comes from the line of Josh Baer from Morgan Stanley. Your line is open.

Josh Baer -- Morgan Stanley -- Analyst

Hi. Thanks for taking my questions. Just wondering if you could talk a little bit about the initial interest in cloud labs. I think you mentioned different pricing and packaging as a separate SKU. How do you think about the opportunity? How should we think about timing? Potential contribution from cloud Labs?

Aaron Skonnard -- Chief Executive Officer

Yes. I'll start, and James can add on if you want. Thanks for the question, Josh. In general, we have seen strong demand for this type of hands-on learning experience within -- across all of our SKUs. And so what we've decided to do with this offering is included in our enterprise SKU for up to a certain number of licenses. So we provide a percentage of licenses in the SKU as part of the enterprise value proposition with an upsell opportunity that sell to the entirety of their base. With all other SKUs, it's a complete add on. And so it's priced and packaged as a separate capability that can be included on any deal that we sell. And the initial response has been one of high interest, a lot of desire to dig in, understand it.

Obviously, early days. We just announced it a few weeks ago. But we expect it to be a driver of additional growth. And the partnerships we have with AWS, Azure and GCP further strengthen the credibility as well as the reach we have in terms of content coverage, certifications and everything we can deliver in those large accounts. And even more powerful when you combine in the DevelopIntelligence services that we can add into that. So we're excited about cloud labs. We believe it's going to be a key driver of future growth in 2021 and 2022, but still pretty early. James, anything you would add?

James Budge -- Chief Financial Officer

Just a little bit. I would just say, it's really a combination. When you look at what gives us a lot of optimism in the statements we make about improving or accelerating our growth in the fourth quarter and seeing that acceleration continue throughout 2021, you can -- whether you want to point to cloud labs or DevelopIntelligence or continued improvements in our gross and net retention that we're now seeing, we believe, getting past the worst of COVID all of that factors into the strength and the positivity that we have going into 2021. So Cloud Labs, yes, we think it's going to be huge. And it definitely helps drive that improved performance through 2021.

Josh Baer -- Morgan Stanley -- Analyst

Great. Thank you.

Aaron Skonnard -- Chief Executive Officer

Thanks, Josh.

Operator

And your next question comes from the line of Andrew Petri from BTIG. Your line is open. Mr. Petri, your line is now open. You may now ask your questions.

Andrew Petri -- BTIG -- Analyst

Hi, guys. Sorry about that. This is Andrew on for Matt [Petri]. Kind of circling back to the DevelopIntelligence acquisition, and it sounds like that's driving a lot of confidence for you guys. Just thinking more broadly about the M&A strategy moving forward. Has this changed how you might think about consolidating the market, given the huge opportunity in front of you guys? Any color there would be helpful. Thank you.

Aaron Skonnard -- Chief Executive Officer

Yes. You bet. Thank you, Andrew. It hasn't shifted our thinking more broadly about how we think about consolidating the broader tech skills landscape. We do look at our strategy and our road map and look at the best assets to plug-in the capabilities that will bring immediate value to our customers and also to our shareholders. And we will continue to do that. This particular move is not a signal that we will be investing more of those dollars in more of human-based services, that's not what you should read into this.

We will be buying other digital assets that further complement our strategic focus for the large enterprise accounts we serve. But this was a very important piece of the puzzle for us to be able to maximize the opportunity in front of us right now with the COVID impact, the shifting trends, to put ourselves in a better position to provide that holistic solution. We believe we have the foundation for that with this acquisition in place. And you'll see us, in the future, make the types of acquisitions we do in the future will be more consistent with some of the things we've done in the past, I would say.

Andrew Petri -- BTIG -- Analyst

Great. Thank you.

Aaron Skonnard -- Chief Executive Officer

You bet.

Operator

And I'm showing no further questions at this time. I would now like to turn the conference back to Mr. Aaron Skonnard for closing remarks.

Aaron Skonnard -- Chief Executive Officer

All right, everyone. Thank you so much for all of your questions and for joining us today. We look forward to speaking with all of you again next quarter. Be well, and stay safe.

Operator

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

Mark McReynolds -- Investor Relations

Aaron Skonnard -- Chief Executive Officer

James Budge -- Chief Financial Officer

Sterling Auty -- JP Morgan -- Analyst

Saket Kalia -- Barclays -- Analyst

Hannah Rudoff -- D.A. Davidson -- Analyst

Brian Peterson -- Raymond James -- Analyst

Devon -- KeyBanc Capital -- Analyst

David Unger -- Truist -- Analyst

Stephen Sheldon -- William Blair -- Analyst

Arvind Ramnani -- Piper Sandler -- Analyst

Josh Baer -- Morgan Stanley -- Analyst

Andrew Petri -- BTIG -- Analyst

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