Mike Walrath: Yes. So, no, I wouldn’t say there’s any significant change to our approach there. I think we’re being very targeted with where we add resources. I think we’re also being very thoughtful about where we are getting the performance that we need from resources. I think what you’re seeing there is probably a seasonal adjustment to our people-related OpEx, which is obviously the majority of it as we do our compensation cycle in the second quarter. And so if you – historically, you’ll always see that second quarter compensation expenses are going to be – are going to tick up because that’s when we do our primary promotion compensation cycle.
Rohit Kulkarni: I see. Okay. Thanks, Mike. Thank you.
Mike Walrath: Sure.
Operator: The next question is from Naved Khan with B. Riley Securities. Please go ahead.
Naved Khan: Yes. Hi. Thanks a lot. Just to maybe expense-related item. So if I look at the sales and marketing line ticked up a little bit, are there any campaign-related costs in there that you might have done in Q2? Or is it mostly around say out commissions or additional headcount? How should I think about increase there sequentially? And then I have a follow-up.
Mike Walrath: Yes. I mean we did launch some campaigns, but I wouldn’t call that [technical difficulty]. I think the primary thing is what I was just mentioning that because of the compensation cycle and because of when it falls, that’s when we’ll typically see the seasonal uptick in our overall compensation expense, which obviously, sales and marketing is the largest piece of. And so it’s not a specific amount of hiring or a specific initiative that’s causing that. It’s just the natural seasonality of when that compensation cycle happens.
Naved Khan: Understood. And then with regard to your ability to leverage packaging and pricing to basically do renewals, or drive retention and even new wins. Just maybe give us your thoughts there in terms of how much are you pulling on this lever and maybe there is an ability to do even more there.
Mike Walrath: Yes. You’re talking about – basically using the renewal as an opportunity to consolidate.
Naved Khan: Well, it’s more about pricing packaging as a lever to basically drive either renewals or maybe even new wins.
Mike Walrath: Yes. So I think in this environment where we – where there is a lot of scrutiny around budgets and there is — it’s harder for again in the enterprise, particularly for our buying customers to just identify incremental budgets. There are a couple of conversations that we want to have there. One is clearly how many different capabilities with the platform can we package together in order to create more value for the customer, and potentially help them save money while holding some of the pressure that we might be feeling or even expanding our relationships with those customers. And that’s the motion that I think we are focusing on improving and it’s a big part of the focus in the channel. And we need to be ahead of those renewal discussions in order to be in a position to do that.
So those things don’t come together at the last minute. I think Marc referenced one of the customers. He was talking about it was the nine-month cycle leading up to their renewal. So we’ll get – we’ll continue to focus on getting better at that motion as we really get the sales team structure and operating appropriately. I feel like I say this every call and soon I won’t be able to say this but Tom is still in seat less than a year. I think we’re doing a lot of great work. We’re seeing some of the productivity enhancements and things like that, but we are still early in this transformation.
Naved Khan: Got it. And maybe one last one if I may. I know there has been some impact from total discontinuation of the lower-margin services business. Maybe just quantify how much the impact was on the growth with that and just trying to parse out what’s organic versus inorganic?
Darryl Bond: Yes. Hi, Naved. It’s Darryl. When we initially laid out the components of the headwinds that we’re going to see in the fiscal year, it was in the low single-digit percentage point on growth, and as Mike mentioned earlier a lot of those renewals will come up – as it relates to services, a lot of those renewals will come up in Q3 and Q4, and that’s where we’ll see the impact in revenue ARR and retention.
Naved Khan: Got it. So as far as this last quarter goes, it was less than 1%. Is that fair?
Darryl Bond: We haven’t broken it out. I mean the low-single-digit is really on a year-over-year growth rate, but like we said it’s certainly back-end loaded.
Naved Khan: Understood. Thank you, guys.
Mike Walrath: Thanks, Naved.
Operator: The next question is from Arjun Bhatia with William Blair. Please go ahead.
Chris Madison: Hi. This is Chris on for Arjun. Thanks for taking my question. The first one for me, how much more room do you have to continue driving margin expansion from here without a top line pickup? Are there still levers you can pull to continue improving op margin without additional leverage from the top line?
Mike Walrath: Yes. I think there are always levers there. I think the question that we’re asking ourselves daily, weekly, monthly here is at what point does extracting more margin overall operating margin for the business, costs, the opportunity to get the revenue accelerating. So we think about this all the time. We talked about this at our Investor Day. When I talk in my comments about seeing sales productivity increase, seeing qualified demand there. If we did nothing more than continue to increase sales productivity and increase qualified demand, we would actually – I think you get – you start to see that revenue growth that we are or that ARR re-acceleration we are looking for. We could clearly cut expenses to get more, but the question ultimately is do you sacrifice revenue growth there?
So I think we grapple with this question all the time and in a difficult macro environment it’s a little – it’s probably a little harder question, especially when we have this kind of mixed signal where the macro environment is very difficult, but the qualified demand and overall demand is clearly building and we’re seeing progress on that side. And so this is not an easy one. We’re going to keep evaluating it. We’re going to keep looking at it. We know we’ve made a lot of progress, but depending on how the environment develops and how much demand develops, then we’ll be thinking about optimizing between incremental operating margin and revenue growth.
Chris Madison: Got it, and makes a lot of sense. And the second question I had was on the revenue outlook. So it looks basically flat each quarter from 2Q to the end of the year. How much of the growth recovery at this point is directly tied to an improving macro environment? So what are you hearing from customers that gives you confidence that we’ll actually see ARR growth return when the macro starts to improve?
