Docebo Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 11, 2023

There are 10 speakers on the call.

Operator

Good morning, everyone, and welcome to the Docebo Q1 2023 Earnings Call. All participants are currently in listen only mode. We will open the lines for a question and answer session for analysts following the presentation. Instructions will be provided at that time for research analysts to ask questions. We ask that analysts please limit themselves to 2 questions And we turn to the queue for any follow ups.

Operator

I'd now like to turn the call over to Deutsche Bank of America's Vice President of Investor Relations, Mike McCarthy, please go ahead, Mike.

Speaker 1

Thank you, operator. Before we begin, Docebo would like to remind listeners that certain information discussed today Maybe forward looking in nature. Such forward looking information reflects the company's current views with respect to future events. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in forward looking statements. For more information on the risks, uncertainties and assumptions relating to forward looking statements, please refer to Docebo's public filings, which are available on SEDAR and EDGAR.

Speaker 1

During the call, we will reference certain non IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, Please note that unless otherwise stated, all references to any financial figures are in U. S. Dollars. Now, I'd like to turn the call over to the Chabot's CEO, Claudio

Speaker 2

Herba. And thank you for joining us for our Q1 earnings call. With me today are Alejandro Tufo, Our President and COO and Sukara Mehta, our CFO. I will start my comments this morning with a brief high level summary of our results. We are pleased to report revenue growth with March quarter results coming in at the upper end of our guidance range, up 32% on a constant currency basis.

Speaker 2

Our profitability exceeded our guidance With our adjusted EBITDA margin reaching 5.3%. As the share expands its reach, We saw a wider customer base in Q1 across various industry and learner types. Our platform versatility allows us to take advantage of global opportunities across use cases. In terms of regions, our business has a good mix Maintained its performance from Q4 and achieved high attachment rate in Q1. Docebo offers AI technology that is essential to delivering these things learning solutions.

Speaker 2

Over the past 4 years, Our work in AI has enabled us to fine tune our offering in data model, particularly in content automation And embedded search with leveraging multiple languages. As customer data moves through the LMS, announcement to our product will ensure every learning journey Is hyper personalized. This is in turn boosts productivity for our customers. Furthermore, The management of a proprietary data is an important requirement for enterprise customer and the Deutsche Bo technology It's built around this key need. As we look at the broader operating environment, we continue to see longer deal cycle, Especially in the enterprise segment, we are pleased that in the face of such headwind, we have largely executed our growth strategy and are positioned to deliver Revenue growth with stable improving profitability as we move through this year.

Speaker 2

Looking forward, Our main goal is to grow the company effectively no matter what the economic condition may be. We are also focused on improving operational efficiency. At the start of this quarter, we took actions that we believe will optimize the performance of our organization. A key aspect of these involves strengthening our organization hierarchy, which allow for faster decision making closer to the customer. By streamlining processes and reducing middle management layer, we are better positioned to quickly respond to customer need, Drive innovation and foster a culture of high performance.

Speaker 2

Regarding our capital allocation, Our strategy remains focused on tuck in deals that support 2 principles. 1st, we seek great Adyachem products and features that support our build versus buy needs. 2nd, we look for innovative team that fit the Docebo culture. Shortly after the end of the quarter, we announced the acquisition of PeerBoard. These acquisition aligns with our strategy of seeking out great technology that complements Docebo core offering, while also adding engineering talent to our team.

Speaker 2

With the community learning assets field for Wing, We are materially strengthening our customer and partner training use case as we bring the desk community learning features to grow in number of enterprise customer being served by Docebo. In regard to future M and A opportunity, we will evaluate each option based on It's potential to address multiple use cases that leverage our increasing use of AI. This will enable us to deliver new innovation in areas such As Haider personalizes learning, sales enablement, reskilling and upskilling. In conclusion, Although the microeconomic environment might continue to be challenging, we are well placed to take advantage of opportunities that provide sustainable balance of growth. Our emphasis on growth combined with operational efficiency and adherence to stricter, more demanding performance standard We've always had to strengthen our position as a clear winner emerging from this economic cycle.

Speaker 2

Now, I would like I'll turn the call over to Alexis, who will give you an operational update.

Speaker 3

Thank you, Claudio, and good morning, everyone. In quarter 1, our company wide average contract value or ACV increased 7% to $47,000 from approximately $43,800 at the end of the Q1 of 2022. ACV for new customers in the quarter was approximately $50,000 During the quarter, we signed 112 net new customers, including several valuable enterprise deals. This is reflected in our continued growth in annual contract value, ACV. Customers continue to derive immeasurable value from the Docebo Loring platform, particularly in multiple use case environments.

Speaker 3

Notable customer wins in quarter 1 include Vimeo, a platform for innovative video experiences. Vimeo has chosen Docebo to help with their compliance, professional development and onboarding needs. Docebo also partnered with Terex Corporation, a global manufacturer of materials processing machinery and aerial work classes. Terex chose the Dolcebo to address their customer and partner training needs as well as Onboarding and professional development for their employees. In addition, Docebo's learning platform has been selected by Freedom Mortgage, 1 of the largest full service mortgage companies and a top Veterans Administration, VA and Federal Housing Administration, FHA lender in the United States.

Speaker 3

Freedom Mortgage chose Docebo for multiple internal and external use case. In Europe, we landed 1 of our biggest enterprise deals in the region when we signed a large French Based a transportation and logistics solutions company operating in over 160 countries, who partner with Deutsche Bo to address the combination of internal Finally, in Germany, we signed a deal with Nolf Gips KG, one of the world's leading manufacturers of construction materials for interior design, building insulation and design ceilings. Now Gibbs KG Chose Docebo to address multiple internal and external learning use cases, including sales enablement in retail, customer and channel partner training requirements. We are very pleased to see our early investments in this country continue to build momentum with these large enterprise wins. It's important to know that the company is partnering with the Achiebo have diverse needs for training both internal and external learners across different industries.

Speaker 3

When viewed together, this demonstrates the broad horizontal appeal of our solutions. Despite economic challenges and longer deal cycles, Dolcebo executed effectively and invested in supporting future business growth. Though deal elongation remained consistent in the quarter, it did not worsen and Docebo navigated well to deliver healthy growth. This highlights the company's resilience and ability to adapt to the changing business environment while staying focused on its growth objectives. In his previous comments, Claudio discussed actions we have taken to improve operating efficiency and to hold ourselves to more demanding performance parameters.

Speaker 3

Allow me to elaborate on these actions and provide further context on what we're doing. Our sales and marketing focus is on operating more efficiently as we move forward. We examine our cost of customer acquisition, CAC, lifetime value to CAC and other leading indicators that drive these results. Although we don't judge performance based on a single quarter, we will make adjustments necessary to achieve higher growth combined with better cap efficiency. As you may recall from the previous quarter, we have invested in technology, systems and processes to gain operating leverage.

Speaker 3

This has enabled us to operate as a more leaner organization and at the same time eliminate Non productive layers of management. We've also optimized our inbound and outbound lead generation engines. These actions aim to strengthen our pipeline coverage and support our most productive sales executives. Back in March, I concluded my prepared comments by sharing two reasons why we are excited about 2023. These reasons are unchanged as we position Docebo for the future.

Speaker 3

First, our market is vast And present numerous greenfield opportunities, particularly when considering the external learner. As the leading platform For customers with multiple use case needs, internal employees and external learners, the Chebo is a trusted partner for consolidation of tech staff and delivering better returns on invested dollars for our customers. And second, we are making the strategic investments necessary in both innovation and systems, processes and people that are needed to continue to disrupt the enterprise landscape. Partnerships like ELB and acquisitions such as PeerBoard are making a strong Docebo even stronger. With that, I would like to hand the call over to Sukharan.

Speaker 4

Thank you, Alexio, and good morning, everyone. For those interested, a detailed breakdown of our financial results for the 3 months ended March 31, 2023 can be found in our press release, and the financial statements, which are now available on our website and are also filed on SEDAR and EDGAR. As reported, total revenue for the Q1 grew to $41,500,000 an increase of 29% from the prior year. Total revenue increased by 32% after adjusting for the impact of foreign exchange. Subscription revenues were 38,800,000 representing 94% of total revenue for the quarter.

Speaker 4

Annual recurring revenue was $164,900,000 an increase of 29% After adjusting for the foreign exchange impact from the strengthening of the U. S. Dollar, we added 112 net new customers in the Q1 As we ended the quarter at 3,506 customers, an increase of 19% year over year, Average contract value was approximately $47,000 for the Q1, an increase from $46,000 for the Q4 of 2022 and a 7% year over year growth. We continue to see Docebo being adopted as multi use case platform With almost 80% of our customers using Docebo for 2 or more use cases and 55% of customers using Docebo for 3 or more use cases. Gross retention was flat compared to the prior quarter and net retention declined modestly in Q1 driven by slower seat and module expansion.

Speaker 4

Gross profit margin for the Q1 improved by 120 basis points year over year to 81% of revenue and was consistent with the prior quarter. Total operating expenses for the Q1 increased to $33,800,000 from $32,400,000 for the prior year period. G and A as a percentage of revenue declined to 18.2% for the Q1 compared to 19% for the Q4 of 2022. Adjusted for one time acquisition costs, G and A was 17.6% of revenue. As we go forward this year and next, investors can expect that G and A is an area where we will demonstrate the highest operating leverage.

Speaker 4

Sales and marketing expense as a percentage of revenue was 40.5% for the Q1 as compared to 39.8% for the 4th quarter, Mainly due to higher seasonal payroll taxes in Q1 of each year, the streamlining actions Claudio and Alessio spoke to earlier occurred at the start of Q2 with a headcount reduction of approximately 5% And this primarily is related to sales and marketing and G and A. There will be a partial impact of savings in the second quarter, But the full impact of savings shall come through in the Q3. R and D investments in the Q1 were 7,400,000 are 17.8 percent of revenue, an increase from $6,400,000 from the Q1. The sequential increase was primarily as a result of the strengthening of Europe. Moving on from the expense line, Even with the fewer revenue days and with seasonally higher social taxes, we are pleased to report a beat in our adjusted EBITDA performance to CAD2.2 million for the Q1 of 2023.

Speaker 4

This equates to an adjusted EBITDA margin of 5.3%, Which is up 9% compared to the prior year. Reiterating what was said in March, We are deeply committed to driving growth and performance in the areas we can control and expect to exit Q4 2023 with a low double digit Adjusted EBITDA margin. We reported net income of $1,200,000 for the Q1 of 2023 compared to $7,000,000 net loss for the Q1 of 2022. Adjusted net income for the Q1 of 3,200,000 increased compared to a net loss of $1,300,000 for the Q1 of 2022. We generated negative free cash flow of $2,300,000 in the Q1, which was driven by the timing of annual bonus, Prepaid insurance and software expenses in Q1.

Speaker 4

At the end of Q1, we held cash and cash equivalents of 216,000,000 Share based compensation accounted for a modest 3.1% of 1st quarter revenue compared to 3.4% in the Q1 of 2022. In April 2023, the company acquired PeerBoard, A plug and play community as a service platform for a total purchase consideration of $4,000,000 We do not expect the acquisition to materially impact the fiscal year 2023 revenues or adjusted EBITDA. Now for our Q2 2023 outlook. We are operating in a difficult macro environment with deal elongation similar to the second half of twenty twenty two. Our guidance is based on the assumption that current unfavorable macroeconomic conditions will continue.

Speaker 4

We expect total revenues to range between $42,900,000 $43,200,000 We expect gross margin to range between 80% 81%. We expect adjusted EBITDA margin to range between 5.5% and 6.5%. A few noteworthy points on the Q2 guidance. We expect subscription revenue to be 4% to 5% points Higher than the overall company revenue, while professional services revenue will decline sequentially due to lower customer adds. During the Q2, we expect to incur approximately $3,500,000 in one time charges related to the organizational streamlining initiatives that we discussed earlier.

Speaker 4

This is not reflected in the adjusted EBITDA margin guidance. In conclusion, I want to focus your attention on a strategic point that is foundational to the JVOA's DNA. Growth It's always our top priority and we have equipped our team to deliver good profitable growth regardless of where we are in any economic cycle. I also want to emphasize that we are bringing material competitive strength to bear as we execute this profitable growth strategy. First, we have a strong debt free balance sheet with $250,000,000 in cash.

Speaker 4

2nd, We have delivered profitability ahead of our schedule and are steadily improving adjusted EBITDA and free cash flow every quarter. What is most notable about this performance is that we are realizing these results without compromising key investments in sales and marketing and R and D. And 3rd, dilution from stock based comp is one of the lowest in the SaaS universe today. Operator, please open the line so that we can take some questions from the analysts.

Operator

Thank you. Ladies and gentlemen, as stated, We will take questions from analysts. You will then hear a 3 tone prompt acknowledging your request. And if using a speakerphone, we do ask that you please lift the handset before pressing any keys. And a reminder to please limit yourself to 2 questions Thank

Speaker 2

you.

Operator

Your first question will be from Robert Young at Canaccord Genuity. Please go ahead.

Speaker 5

Hi, good morning. Two questions. First one, higher level. During this reporting cycle, there's a bit of concern Raised around the negative impact of AI on e learning and given that you've been on working on AI for a long time and have products in the market, I thought you It'd be great to get your thoughts on the near term impact you see positive or negative from AI on Docebo.

Speaker 2

Ciao, Rob. Claudio speaking. First of all, I think that if I was a publisher, I will be very scared on the impact of the AI, because I mean AI will build courses and content on its own. But do not forget that the LMS is a delivery system that now is also becoming a content AI driven generating system. So that's why I'm incredibly excited about AI By this AI move, because the state is the content generating system and we are adding features.

Speaker 2

That's fair. I think that AI is not only limited to content. And for example, we are embedding in Docebo A skill matching system that will integrate all the talent management and ATS and skill management system inside Docebo Through a matching system where AI will synchronize the skill ontology Of all the platform out there with the Cboe allowing the customer to use their own ontology inside the Cboe. On top of that, and I understand it's not very sexy, but what we are working is an AI control panel That will give the customer full control on how the AI will use the data. Before implementing every AI strategy, is all over the world, the regulation are different between Europe and North America.

Speaker 2

So AI is a broad topic, but it's a topic we love Because it's allowing Docebo to experiment a new way to train people and go over the 20 years old Very boring click and leap training approach, adding simulations, adding new way to interact with the content,

Speaker 6

Okay.

Speaker 5

Thanks for all that. Second question for me is more specific to the quarter. I mean, the incremental amount of ARR added And the incremental customers that were lower than we'd seen before. And so if you could talk about that, in particular, the cadence through Was that the regional banking crisis at the end of the quarter? And so should we when we look at how to model ARR, should we think of most of The deal is coming at the front of

Speaker 4

the quarter or the back of the

Speaker 5

quarter is spread evenly. Just any comments there on the slower amount of customers added in the cadence?

Speaker 3

Q1 does have some seasonal component built within. And in addition to that, we've experienced the results of some of the Average ARR and new logo ARR both ACV. And in addition to that, our gross retention rates On the small and mid market, but our pipeline growth that we're seeing and experiencing makes us extremely confident.

Operator

Did that answer your question, Ms. Seung? Thank you. Next question will be from Josh Baer at Morgan Stanley. Please go ahead.

Speaker 7

Great. Thank you for the question. I was hoping you could expand a little bit on the efficiency actions and headcount reduction referenced in the prepared remarks.

Speaker 2

Kavya speaking. I provide the first part of the answer and I think that Sukaram can go deep on that. From the entrepreneurial perspective, I founded the company and I found frustrating that the great ideas that come from the field, Contributors in term of everything, products, the methodologies, M and A and so on and so on, we're stuck in the middle Communication channel broken between executives and high level managers and contributors. Contributors are the foundation of the company. So what I had presented was let the organization, let's stay more in touch With the team, let's fluidify the communication reducing the layers.

Speaker 2

So from an entrepreneurial and philosophy perspective, This is the reason of this action, but I will leave the rest to Sukkar and that we can articulate better from his point of view.

Speaker 4

Thanks, Clive. Good morning, Josh. I would say that to start with, we regularly review the operating efficiency of the organization. And I think part of the efforts this quarter, there's a couple of factors. One is we as you may have noted in the last quarter, we Implemented some significant technology investments that went live in our CRM and our order to cash process that gives us some opportunities to Streamline and make our organization efficient.

Speaker 4

So to that extent, that is that was factored in, but I would say there is incremental efficiencies that we have Implemented at the start of this quarter, which is April, to make the organization leaner And more efficient. And so I would say there is an element of a reasonable element of that cost that will be more not in the ecosystem, Specifically in sales and marketing and G and A.

Speaker 7

That's helpful. And just any sense for what the plan is for headcount growth In 2023, incorporating these actions?

Speaker 4

Yes. So when we think about headcount, You think about mostly if I kind of break it down between the various operating lines, as we grow customers, we still look at Making sure that from a services not services, actually from a customer support and enterprise support perspective, we have the right Infrastructure, as we are growing our book of business. So we'll see some incremental hiring there. And then generally Across the board what you will see is this year is it will be some tactical investments in R and D as we are investing, Claudia spoke about from an AI perspective and other areas. Across the board and sales and marketing and G and A is where you'll see significant efficiencies.

Speaker 7

Great. And just one quick one on the opportunity side. Sounds like a lot of interest in Docebo Shape. Just wondering if like a customer, for example, is spending $100 annually, What happens to that annual contract value when a customer adds shape? Thank you.

Speaker 4

Yes. So that's a good question. So we don't give this out, Josh, in terms of the breakout of individual products and attach rates. But you can expect that As part of Learn, Docebo Shape has a reasonably good attach rate as well as a reasonably good ARR dollars. And Deutsche Boishev, as you think about the differentiation in our model compared to the industry in offering tools is that we also go to market from Enabling social learning to all of the organization rather than having only a number of individuals that create that content, Which is the administrators or the content offers.

Speaker 4

But what we do with Docebo Shape is empower the whole organization to utilize So utilize shape and create content and be the champions of social learning. So that gives us higher what effectively that means is that gives us higher tickets It has a fee to licenses to our customers and that's also a differentiator not only just the attach rate.

Speaker 2

Such an interesting attachment rate that was not there 2 quarters ago. What we have now to understand is All our learners are using and you are our the trainers that are using shade because it's not the classical trainer That created the old school learning object. Our more users, trainers that are on the field And wanted to automate leveraging generative AI inside Shape. What I want to give them from a Tool perspective, and sorry if I'm using old school words like tool, as a functional as a feature perspective, is go beyond Pitching something to the AI and get the AI feedback. This is where the industry is going.

Speaker 2

And this is where we are investing in shape. That's rated the attachment rate is speaking on its own. When I'm seeing the attachment rate this quarter, I'm saying, okay, this is happening after 4 years. We are in front of an inflection point And I was happy at the end. We struggle for years to build a great product at the end of the day staying.

Speaker 7

Thank you. Really appreciate it.

Operator

Thank you. Next question will be from Suthan Sukumar at Stifel. Please go ahead.

Speaker 8

Good morning, gents. Just wanted to touch on the global expansion opportunity. Last quarter, you talked about Yes, encouraging traction in certain European markets and you guys also highlighted a large deal You closed this quarter in the region. Can you talk a little bit about what's driving this momentum? And Lenny, what are your expectations

Speaker 3

Of course, after having the heritage where we have an office and a market in the Southern EMEA region in Italy. I learned that it takes time for the brand to affirm itself in the regional markets that are Fragmented. They buy slightly differently. There is a different language in the region. And so In the France region, a very significant organization is just the natural consequence of our In the region for quite some time now.

Speaker 3

Now we're also noticing That Docebo is solving problems with the platform. There is multi use case that in the European market, Install days and these are starting to pay fruit, not only in the small and medium market, which frankly The majority of our wins in the European region, but we're starting to see enterprise pipeline growth even in this region, And we're very pleased with that.

Speaker 2

Yes. And Ale, on top of that, I mean, we have such an healthy balance and healthy KPIs That we can be ambitious on expanding abroad like we did with the German office and the Australian office, but we have learned With the France office and the UK office that starts renting and becoming a prominent player in those Countries take a little bit of time, but at the end of the day, paid back. I mean, at the end of the day, the Formative acquisition allowed us To lend in France, boot on the ground, sell and get great contracts. And this is what we are executing both in Australia and in Germany now.

Speaker 3

We are looking forward to sharing more wins in the newer regions

Speaker 2

in the coming quarters.

Speaker 8

Okay, great. Thank you for the feedback. My second question is on the partner channel. Can you guys Share an update on, I'm sorry, the impact that partner channel had on the quarter and what you're seeing there in terms In terms of pipeline of opportunities going forward?

Speaker 3

Lots of exciting things. The partner channel is And we have identified targets for integration opportunities with adjacent players In the form of ISV partnerships and forming a framework of mutual co marketing, We have announced not too long ago a partnership with a services and software vendor called ELB. And from this partnership, we have been noticing very good outcomes from the very early days. Because at the end of the day, there is an incredible opportunity in working with companies that have adjacent offering and Of candidate prospects of OEM and I'm looking forward to telling you more As we have the right to share so. Finally, I also want to share that we've been very active on the content side, and we have initiated and if you will evolve the Conversations that position us even stronger in our Docebo content offering.

Speaker 3

We plan to continue to have growth from this module that has done really well for us. And based on our plans and increased the partner offering, we plan to improve even more the penetration of that product in our installed base. We have premier prospects and logos where we are teaming up with significant system integrators. These teaming up motions are just the beginning of a long term strategic partnership relations, And we're seeing that across the board from commercial enterprises throughout government opportunities. So

Speaker 8

That's perfect. Thank you for taking my questions. I'll pass the line guys.

Operator

Thank you. Next question will be from Daniel Chen at TD Cowen. Please go ahead.

Speaker 8

Thanks. Hi, good morning. Sukarn, last quarter you mentioned that the revenue guidance that you provide is driven by the ARR. So if we look at your Q2 revenue guidance, midpoint is looking for about 23% year over year growth, but AR grew about 28%. So just wondering what's accounting for the difference.

Speaker 8

I know you called out professional services there. Just wondering if there's anything else in there?

Speaker 4

That's it, Dan. It's primarily for our professional services. We should still see in line, reasonably in line for the subscription revenue growth for the year. As you think about The number of units that they're coming through from a services perspective and also how we strategically invest in our customers as we onboard them, PS is really what's driving it is down predominantly.

Speaker 8

Okay. Thanks for that.

Speaker 4

Claude, did you want to take that just overall market sentiment?

Speaker 2

Claudio speaking. Actually,

Operator

we are

Speaker 2

You asked a little bit more subject to volatility, especially in the commercial segment. Alliances with the bigger consulting firms. They want to shift from all the legacy vendors to the chip. Australia is probably is doing well in Q2? Yes, I mean, they are active.

Speaker 2

We are now in exhibition in Singapore with partners. I don't want to provide the designers about Australia, sorry. But one thing good thing set and I'm excited. And then another thing that is an organizational Compared to the inbound and this is a direct consequence on us moving upmarket. Upmarket is not an inbound generation Segment and different it's more an outbound generation activity.

Speaker 2

And that's why we have also Reorganize the team being more pushy on the outbound with the outbound initiatives. So I think that on the mid long term, we are excited to have an Ethereum business with a lot of initiatives, lot of new partners, a lot of segments we are investing in, but this is a topic for the next quarter. And

Speaker 4

Thank you.

Operator

And your next question will be from Stephanie Price at CIBC. Please go ahead.

Speaker 9

Hi, good morning. Docebo has a very strong CAC and I'm just curious around the if you could give us some more details on the sales and marketing optimization And how you think about it affecting the CAC going forward?

Speaker 3

Absolutely, Stephanie. To focus on creating efficiency and as we grow that concept of efficiency, we want to maintain it. Having said that, we continue to monitor very carefully Particularly in the enterprise segment, it's not always beneficial to Kaka, of course. But at the same time, I want to stress out the concept that elongation Has not been in addition to notable deal losses. And this is very important because The pipeline continues to grow and it's actually been growing.

Speaker 3

Claudia has made a reference to outbound both Quarter over quarter significantly as well as year over year. And so efficiency is a factor of Bringing the deals at home and having good enough demand to serve our capable sales executives. And so on one hand, we are focused on doing everything possible to giving the right opportunities to the right salespeople. And on the other end, feeding the funnel with the demand needed to maintain their efficiency. So there's a lot of work on that.

Speaker 3

I would also only add one more thing. We realize in this environment, in order to be more efficient, We need them to tell a story. You need a sales cycle that is a bit more return over investment focused. With stories that are more value focused versus only feature focused. And so that makes us Add another assumption to our thesis of efficiency, by doing all these things, our CAC will continue to improve over time.

Speaker 2

Yes. And Ale, I want to add one thing about the CAC. CAC is also impacted by Investment that you do in the sales organization and opening offices abroad to try to conquer the world It's impacting on CAC, but it's not paying back for a couple of years. If you want to look from another angle is we are so capital efficient That we can sacrifice some point of CAC to open new offices in tough moments because we are not approaching The market only from the short term, which we can do it because we are efficient on the capital, but also in the long term being strategic And try to call their market, which are big opportunities. Guys, Salesforce in Germany is selling 1,000,000,000.

Speaker 2

So there are markets that are incredibly appealing for us.

Speaker 9

Thanks for the color. And then just for my second question, curious around the PeerBoard acquisition and how you think about folding it into Teva and what it brings?

Speaker 2

Yes. So as you know, PeerBoard, we are investing on external training, customer and partner communities. Partner community needs collaboration. Collaboration and we see how active the Docebo customer community forum start from a forum And then goes to learning. Collaboration between customer and partner is incredibly important because they help each other.

Speaker 2

So we have found Peterboard, which was led by Mikhail is led by Mikhail, which was already a plug in play a plug in But also Mikhail was the manager behind a big, big, big, big social network community. So it created the group of a big, big social network. So the second step of this integration is improve our rebuild. Docebo coaching share, learning part. Thanks to me having knowledge and the technology of PeerBerry behind.

Speaker 2

So it will be done in 2 phases. Phase number 1, let's build the community for our customers that uses Docebo as customer community customer training and partner training.

Speaker 3

And Stephanie, in addition to that, when we think of the customer makeup of the Docebo, of the 3,000 plus customers, we said in the past That more than 50% of our customers use Docebo for at least one external use case. And when you think about those that use Docebo for an external use case, the large majority of those, roughly 80%, Hundreds of customers cohorts, the capability of a community technology It's top of mind. We have found that that's the most requested capability. And finally, At the Cebo, Claudio said it correctly, we have the Cebo community under our initiative, the Cebo Academy. And up until now, we've used a third party vendor, frankly, because we didn't have that capability.

Speaker 3

So we have experienced ourselves Within our own customer education initiative, the need and the benefits for A community technology and the savings that have resulted out of it have made us want to own that technology. So now we have it. So now we can go to all those hundreds of customers and tell them that story, show them the product and we can use it ourselves for our own use.

Speaker 9

Thank you so much.

Operator

Thank you. Next question will be from Christian Escrow at 8 Capital. Please go ahead.

Speaker 6

Approaching that software profile. So my question is, is it default way to think of the next couple of years as a steadily expanding Margin profile, or will you see how a normalized environment looks before you make that growth versus profitability decision? What are your thoughts longer term?

Speaker 4

Good morning, Christian. Sakaranya, I'll take this one. Yes, I think that listen, I think that when you think about Docebo, we've always said Growth is the number one primary factor of this organization, but we've also always said that profitable growth is part of the story. As you look at The operating leverage that's also coming in the ecosystem for the last two quarters, What you'll very quickly realize is that we've not only hit that inflection point, but now you're seeing consistent operating leverage primarily coming out of some Slight improvements in cost of goods sold, but the majority of it is coming from our discipline in G and A and certain discipline that you will also continue to see in sales and marketing. And as you think about the current macroeconomic cycle, as we continue to invest in our Future product roadmap in terms of R and D as well as continue to invest in sales and marketing to drive that long term growth, We can achieve good consistent growth even in a macro that's challenging, but deliver even better operating leverage.

Speaker 4

And that's just the beauty of being an 80% gross margin business as well. So I would say that there's nothing really changing. All that We will see from us is consistent execution on growth and we will do what's in our control to deliver good quality growth in this macro. And As we come out of the cycle, we will come out as true winners looking at the technology we have, the strength of our balance sheet And all the investments we're making in R and D, but at the same time we will deliver consistent EBITDA moving up And that's a very and I'll leave you with this thought. That's a very straightforward math.

Speaker 4

If you look at my G and A as a percentage of revenue, we have been dropping that 1% every quarter, maybe slightly higher this quarter. And so that on a long term basis should be in and around 10% to 12% mark, and that's where you will see the biggest operating leverage in this year and next year.

Speaker 6

Thank you. That's very helpful. And then my second question, I'll switch over both to the partner channel as well as your professional services work. It's just to refresh us, it's probably an active strategy to Shift some of the work to partners, to system integrators. Do you see Docebo long term a ninety-ten subscription pro services business or Could that over time just continue to tilt more and more subscription as you scale, find more ways to offload some of that work?

Speaker 3

More and more every day is that organization that learning projects, particularly as it pertains to They need more services and more sophistication in the consulting aspects. Now Yes. We have leveraged partners, and we will continue to do so. Services like, for example, managed services Factor to maintaining high and positive gross retention because the reality is a learning platform So stronger strategy in the implementation, again, particularly in the enterprise. It usually leads to an impact on the retention side.

Speaker 3

So, yes, we believe a balanced mix with partners will continue to exist, but we believe there are more It's to offer value services that impact both revenue and retention.

Speaker 6

Understood. Thanks for the color, Alessia. I'll pass the line.

Speaker 3

Thank you.

Operator

Next question will be from Gavin Fairweather at Cormark. Please go ahead.

Speaker 6

Hey, good morning. Thanks for taking my Just on NDRR, I think you mentioned that it moderated a little bit this quarter. Can you just discuss kind of how the upsell environment is evolving and how you're tweaking your tactics Navigate that and that's it for me. Thank you.

Speaker 3

Sure, Gavin, 100%. By adding users, modules to existing customers and by cross selling. Cross selling is an area that as we were organized, in my opinion, we have not reaped The last benefits, yes, I think we're very focused on changing that trend. So we are very, very focused on improving Our NDRR numbers on the basis of this possibility alone. But for sure, Claudio spoke about our enthusiasm on Shape.

Speaker 3

Shape, in addition to Connect, in addition to Cocebo content, in addition to other things that we will be doing, thanks to PeerBoard, Give us the possibility to go back to the base and sell valuable additional modules. So all in all, acknowledging The moderate NERR, we have the means to do more and we have plans to do so.

Speaker 4

And I think one just quick call out Gavin is as we said, gross retention, I gave some other metrics On top of it, it gives you a sense of gross retention was flat quarter over quarter. We continue to see 80% of our customers use Docebo for 2 or more of their problems And almost 55% of our customers use Docebo for 3 or more of their use cases. So when you think about the problems We saw for our customers specifically revenue generating parts of their organization. We continue to expand Our expand Docebo within the organization and solve more departments problems that creates us as a much secure platform.

Speaker 6

Thanks much.

Operator

Thank you. Next question will be from Martin Toerner at APB Capital Markets. Please

Speaker 9

go ahead.

Speaker 8

Thanks so much. Is the macro causing growth in the pipeline to slow In addition to elongating sales cycle?

Speaker 3

Martin, we are seeing the pipeline remain strong. For sure, There is there are different ways that we are accomplishing growth in pipeline as mentioned by Claudio before. Another thing that we're doing to contrast what is inbound channel being frothy At one of the largest learning events in the world where we have collected The amount of leads in the history of that conference, we doubled it. So I would say certainly we're seeing a different dynamic in the demand world. And as a result of the different dynamic, we are approaching it in slightly different ways.

Speaker 3

We're being very agile And using events and outbound as a growth mechanic.

Speaker 2

Yes, but Ale, events and outbound are the channel To drive mid and large enterprise buyers that are not the buyers that click Google and ask for a demo. I mean, also the move of the offering upmarket with sophisticated products like learner data, like Docebo Connect Is the consequence of having a different composition of the pipeline that now is made more By mid enterprise, large enterprise deals, then commercial segment Deals, but it's obvious it's physiological that when you have this kind of deal, the sales cycles is elongating. So it's also due to a new positioning of Docebo, which is communicating and working with different kinds of customers, Which is reflected by the ACV, which is growing.

Speaker 8

That's great. Thanks so much. That's all for me.

Operator

Thank you. And at this time, I would like to turn the call back to Mr. Urba. Please go ahead.

Speaker 2

Thank you for being here again. I don't remember how many earning calls we did already, but can be probably 16, 14. Thank you again and speaking of the quarter. Thank you so much.

Operator

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and we do ask that you please disconnect your lines.

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Earnings Conference Call
Docebo Q1 2023
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