Q2 2021 Docebo Inc Earnings Call

Good morning, everyone and welcome to the <unk>, Inc. Second quarter 2021 earnings call.

All participants are currently in a listen only mode.

Following the presentation, we will open the lines for a Q&A session for analysts.

Instructions will be provided at that time for research analysts to ask questions. We ask that analysts please limit themselves to two questions and return to the queue for any follow ups I'd now like to turn the call over to <unk> Investor Relations Dennis Hwang. Please go ahead Dennis.

Thank you operator before we begin we'd like to remind listeners that certain information discussed today.

We're looking in nature.

Such forward looking information reflects the company's 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 the forward looking statements.

For more information on the risks uncertainties and assumptions related to forward looking statements. Please refer to <unk> public filings, which are available on SEDAR and Edgar.

During the call, we will reference certain non <unk> financial measures.

Although we believe these measures provide useful supplemental information about our financial performance.

They are not recognized measures and do not have standardized meanings under audit for us.

Please see our MD&A for additional information regarding our non <unk> financial measures.

For reconciliations to the nearest <unk> measures.

Please note that unless otherwise stated all references to any financial figures are U S dollars.

Now I'd like to turn the call over to Doug able CEO quality urban.

Good morning, everyone and thank you for joining us on our second quarter of 2021, earning call we've.

With me today is Ian.

<unk> <unk>, our Chief Financial Officer, and now, let's turn to our President and Chief revenue Officer.

The strong momentum that we demonstrated in the first quarter continued through the second quarter and in fact begin to accelerate.

<unk> in our second consecutive quarter of record revenue.

Our growth.

For the last two years, we have consistently stated that enterprises are investing in the triple cloud four months for strategic reasons and not out of short term requirements that will drive asset once we recover from the pandemic. The truth. Indeed, the statement has been clearly demonstrated in our performance over the past.

Six months.

Further we continue to believe the long term adoption trends for digital learning tools like ours is accelerating and we expect that these will contribute to our future success.

Unlike a traditional LMS that is specifically designed for use in HR environment for employees sub skills training and compliance our castle matter I'm using the table as a productivity enablement tool across a wider range of use cases from internal upskilling two season.

And importantly, as a tool to strengthen our relationship with customers and partners through online training.

This.

Has been a fundamental differentiator for us, but also significantly expand our total addressable market and potentially UCB.

The rate of our cost of let it grow inside of our ACB continued to increase as more and more organizations became aware that the platform like good <unk> in the second quarter, we added 150.

Net new customers.

We'll do some grab new logos that exemplify the traction we are getting across many industries to golfs. One. Great example is our remarks, the leading global real estate franchise.

<unk> selected the table as they are learning solution to grow user adoption address user management need and create a custom dashboard for their use cases.

Read the Triple IMAX will be able to set up is a rapidly growing user base and create impactful learn their experiences. We are also seeing business pick up in industry Bad I think all the recovery from the pandemic and adjusting to the new normal sector like retail travel and Malo factoring.

In the second quarter rural them on the war, leading Atlantic apparel retailer selected <unk> to provide the comprehensive learning solution.

Train and engage their employees around the globe.

We also added three new logos in the travel industry included a red roof Inn right, but also it is an award winning leader in the lodging industry with more than 650 properties in the U S, Brazil and Japan.

Alright.

Selected us as their learning suite to enhance the entire customer experience.

With a simple senior loan process organization of content mobile accessibility automated reporting that more dicamba allows a red roof to allocate more albeit for resources to the development and delivery of content vessel spending excessive hours managing the plots for them.

We are just then a leading global muddle factor or the high performers seemed Daniela and expand your building products Jasmine implies approximately 21000 people and it has manufacturing distribution and showroom locations across the U S and 24 countries. They selected the chamber.

Consolidate their learning system to deliver worldwide learning instructor led training and the combination of course and micro learning for ongoing professional development.

Most of you will recall that last quarter, we talked about the launch of the table learning suite, which was an important milestone for us at the end of the first quarter, we started selling the table learning impact and we launched the trouble shape, our AI powered content totaling tool as a free trial shape.

Transitioning out of the trial phase and we are selling it to customers. In addition, the geopolitics. Our most recent product lounge will also begin to sell by the end of the third quarter.

We are still very early with the launch of the learning suite, but I'm happy to share that we have already pre sold licenses to each of those new products. Even ahead of some of the off each other and eases.

All adult learning impact is not expected to be a material contributor for several quarters. We are pleased with the structural so far and we were able to sign several new customers. One of those new customer was an up sell to skin cell tickell, who has been the triple customer since 2018.

After finding great success launching data training cloud for them today or in parallel team clients and global partners distribution network scheme. So to go will be expanding data agreement. We did table to include learning impact.

Our new learning suite product are designed to be both integrated with our LMS or sold as a standalone product in the second quarter total energy, a leading French multinational integrated oil gas and new energies company selected the checkbook to measure and improve the effect.

Most of their learning programs, we did triple learning impact we are happy to have one of the largest companies in Europe select one of our new learning suite product use cases are working alongside another LMS. It also serves as a testament to our expanding French operations.

With the development of new products. We are also investing to advance the customer experience in the second quarter. We were pleased to launch our new cable community. The triple community enable customers to connect with their customer have bottomed out and go to by experts to share best practice.

And finally aspiration to get the most out of day of the trip experience all the while leveling up their skill and opening carrier options. It allows our product team to prioritize our request based on customer feedback and these are centralized place for our growing base of customers around the world to network.

Collaborate and grow.

The growing our bottom there'll be.

This is also beginning to accelerate as more bottom there come onboard as the potential market is broader than just the HCM Award.

Since we last spoke in May we have the four OEM partnership this quarter demonstrate the breadth of opportunity we have to expand our geographic reach and that there are different pockets of the enterprise market we.

We're working with a leading multinational IP consulting service firm to develop and manage a service based on the detachable amass this debt would be offered to their global customer base.

We signed a partnership agreement with Kona body to develop and offer a unique software and service solution for learning technology in Brazil, and South America, Brazil is by far the largest market in South America for corporate training and color body local and strategy technology expertise makes them a needle bottomed there to continue.

Our global expansion in what these are new and untapped market for us.

We sign you to an OEM agreement with workspace and business management platform that as technology companies manage and maximize the value of their partner ecosystem. These new partners Embeds the table market, leading learning management services are not terribly work spun, allowing enterprise organization to seamless you're allowed to.

And your partner programs to the thousands of partners in the workflow network.

We also signed an OEM partnership agreement with orchestrate HR, and HR technology, and consulting company with over 5000 customers and ultimately Wolters Kluwer States.

We now have more OEM that are outside of the HRS space than OEM that are in it proving that the opportunity to embed the learning technology in enterprise environment is Universal Lastly, I want to speak about the investment we are making to position the table for our next phase of growth.

Today, we have over 630 people in our organization and since the third quarter of last year, we have increased our head count by more than 50%.

This growth has been critical to accommodate the increasing of revenue we are experiencing over the past year and the girl we expect over the next 18 months.

<unk> is such a rapid organic change is not easy, but it is something we continue to get better at and we think this is being reflected by the consistency of our result hiring great and talented people is paramount to our success and we are adding transformational leader to help set the foundation for our next phase of growth last.

We were pleased to announce the appointment of Rudy Valdez as our new sequel Oh.

Through this spent the past 16 years at Amazon AWS, where he helped to establish and build the sales and business development function AWS AWS working closely with they are allowed to just cloud customer towards the transformational growth years more recently.

The development of our AWS training and certification programs, helping to educate millions of customer environment. Indeed, ws ecosystem on cloud technologies and approaches we draw the appointment will be able to move martino by Genie into the newness former role of Chief Corporate development officer before joining <unk>.

Martino has a background in venture capital and this will allow us to put greater emphasis and focus on advancing that executing our M&A strategy is another go backs are off the table.

Before I pass the call to Ian I want to touch on a topic that is very important to me into our board and then he is ESG, we understand our responsibility as a global technology company to make a positive impact on our employees and customers that we touch.

We have a number of programs in place for example, two of our six offices have transitional to 100% renewable energy, we work and support a number of it organizations that promote diversity and inclusion and to reduce the agenda of GAAP in technology.

Before Congress announced that it really started to see him the triple may jumping and honestly shallow holiday and encourage our employees to take the day to learn more about these it started milestone and to reflect on the past. So we can build a better future for tomorrow.

We get about our external impact, but it is the health and wellbeing of our employees that is critical to our success, we have with family focused culture and want to make good shape, a destination of choice for employees and carrier growth many of our HR policies expand whether it be on the statutory requirement for example, we provide supplemental bend.

If it can be for U S employees on maternity leave at 100% of Gaza wages for up to 20 weeks and for paternity leave at 85% graph wages for up to 12 weeks, we understand that our stakeholders, including our investors care about the impact we have on our employees customers and the rest.

The work this year under the direction of the board we have engaged an experienced a consultant to help advise them to embed best ESG practices into our business and we look forward to more formally reporting to you on our ESG achievement in the future.

With that I will now pass the call to young to speak to the financials.

Thank you Claudio and good morning, everyone.

For those interested the detailed breakdown of our financial results for the three and six months ended June 30 of 2021 can be found in our press release, MD&A and financial statements, which are now available on our website and are also filed on SEDAR and Edgar.

The slide deck accompanying this earnings call was made available on our Investor Relations website. This morning for those who want to follow along I'm going to start my remarks on slide three.

The strong momentum that we demonstrated in the first quarter carried over nicely into our second quarter with total revenue for the period growing to $25.6 million, an increase of 76% from the prior year.

Subscription revenues also grew 76% from the prior year and were $23.6 million, representing 92% of total revenue for the quarter.

Professional services revenue in the second quarter was $2 million, even an increase of 75% from the prior year period.

As we noted in our press release. This quarter's results included $1.1 million of revenue, resulting from a one time catch up related to a customer contract signed in 2020.

As far as accounting rules did not allow us to begin formally recognizing this revenue until this quarter.

This contract was an unusual situation that we currently do not have any other such agreements.

Excluding this catch up about our revenue growth was 69% over the prior year and were very pleased with this rate of increase. Furthermore, as we look forward all signs support our confidence in continued momentum over the over the foreseeable future.

The acceleration in our business becomes apparent when you considered the net growth in our quarterly.

As shown on slide four.

We achieved $93.4 million and they are at the end of the second quarter, an increase of 64% over the $57 million and they are our end of the second quarter of 2020.

When compared to the first quarter of 2021.

Added 10.0 million in revenue sorry in our in the most recent court and increase.

From the $9.4 million in a R. R that we added in the first quarter importantly.

There were no large deals driving our AOR growth this quarter and it supports our contention over the past year that there is a growing awareness of the applicability of the adult cable platform.

Both internal and external departmental learning objectives.

We had 2485 customers at the end of the second quarter and our company wide average contract value or <unk> increased to approximately $38000 up 27% from 30000 at the end.

We ended the second quarter of 2020, the ACB from our new customers added this quarter was approximately $46000 and nearly 78% of our new logo and upsell contracts.

That'll multiyear deals.

Moving to slide five you can see gross profit margin for the second quarter was at 80% of sales.

Flat compared to the prior year period, and a slight decline from 82% for the first quarter.

The decline in gross profit margin was due to a significant investments that we have continued to make in staffing to support the increased volume and complexity for the implementation team as we adapt to become a multi product vendor as well as costs related to new seller arrangements I remain comfortable with our.

Longer term gross margin targets being within the 80% to 85% range and we expect to get back to those levels over the next two to three quarters.

On slide six you can see a summary of our operating expense lines total operating expenses for the second quarter increased to $26.8 million as compared to $14.9 million for the prior year.

Included in the $26.8 million of operating expenses is a foreign exchange loss of $3.2 million that relates primarily to the cash on our balance sheet and is therefore for the most part unrealized.

Operating costs, excluding this foreign exchange loss were $23.6 million slightly higher than the 21 five that we reported on our comp will be comparable basis in the first quarter of this year.

G&A expense of $6.9 million declined as a percentage of revenue from 34.2 in the first quarter to 27% for the second quarter as we resumed being able to realize benefits of increased scale on the revenue side.

When compared to the first quarter sales and marketing expense declined as a percentage of revenue to 48% as compared to 41, 9% for the first quarter.

R&D expense increased slightly.

The second quarter as a percentage of revenue to 24%.

As compared to 19, 1% for the first quarter.

Our medium term expectation for sales and marketing expense as a percentage of total revenue remains unchanged at 35% to 40%.

And our R&D expenditures continue to remain near our expert patients 20% of revenue.

We reported an adjusted EBITDA loss of $2 million for the second quarter.

Compared to a loss of 0.9 million in the prior year period.

We also reported a net loss of $7.2 million for the second quarter compared to a 3.5 million net loss for the prior year period.

As already noted.

Please recall that the net loss for the second quarter does reflect the $3.2 million foreign exchange loss.

Finally free cash flow margin was.

Negative zero point $8 million in the second quarter, and our balance sheet remains healthy with net cash and cash equivalents of $260 million.

Going forward, our primary focus will be to continue to drive our growth, but we're finally getting to the point, where we expect to begin to realize greater benefits from our scale, we will likely take a breather and our expansion into the third quarter as we start thinking about our hiring plans for next year and our hiring.

We'll resume later in the fourth.

Order as we enter 2022.

At the same time I wanted I want to reiterate that I don't see anything in the near to medium term that would suggest the strong momentum we've been seeing in our sales pipeline and reflecting in our <unk> performance has materially changed.

We have multiple growth levers that are all tracking well, including new logo sales Upsells and cross sells and OEM partnership revenue.

The coming quarters likely Q4, this year or over the first quarter next we.

We expect to have more specific information to share on the progress of our new products and we will look forward to doing so.

With that I'll turn it over to the operator now to take some questions from the analysts.

Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone, you'll hear a three ton prompt acknowledging your request and your questions will be pulled in the order. They are received we do ask that you limit yourself to one question and one follow up and return to the.

Q.

If you're using a speaker phone please lift your handset before pressing any keys. Your first question comes from Robert Young with Canaccord. Please go ahead.

Hi, Good morning, I wanted to dig into your statement that there's no large deals in the quarter.

<unk> doubled quarter.

But you announced a number of impressive logos like lose 11, Remax and so I'm just trying to is there any way to sort of dig into that statement a little more what does the large deal mean, because I think it's important to understand just on the pace of incremental or are you able to add each quarter. What the influence of these large deals is.

So any other detail there would be helpful.

Okay.

Yeah Ah trial at all but can you hear me cloud speaking.

Can you hear me yes.

Yes.

Oh yeah.

Great to be together.

So these are core.

The quarter, which I like to define that he held key because there are not out of line.

Ola logged all the logos.

No the intermodal side, but it's our sweet spot and it's proving that we are continuously growing organically the ankles instantly.

These are from you know quarter framework perspective, I leave about three on the two details like the size of the logos and the deals actually.

Sure.

So rob when when when I think about an outlier I think about a contract that is.

As like $1 billion plus.

And this quarter, we didn't have a contract that was anything larger than half a million dollars.

And we had correct me if I'm wrong, Glasgow, but I think it was like 445 that where hundreds of thousands of dollars, which as Claudio said.

You know that's right down the middle of the fairway for us. So that's the kind of transaction that we'd love to do.

Okay. That's really helpful agreed and then.

Thanks, Celesio and then the.

Do any large deals that you've talked about in the release fall into Q3 like Remax was after at the end of the quarter with 80000 users that seems like a larger deal can be does anything fall out of the quarter.

I'm not sure what.

When you say.

Like anything has been with anything be driving IRR in the Q3, rather than Q2.

No no and any transaction that we've talked about have been have been signed in Q3.

Okay.

Sorry, sorry, sorry, sorry, Q to Q2.

Correct.

You expect to get larger deals in the back half of the year.

Q2, just a slower quarter.

For large deals.

Well I mean.

Look.

We are always working on on on large transactions, but they can take six months to two or three years the clubs.

Right and.

That's why when we look at the health of our business, we're focused on what I would characterize as the.

I hate this word, but what I'll say smaller transactions because obviously those are significant but let me pass it to alessio.

To try to give you up.

Sorry, well, it's a long cycle, one cycle and I want to I want to push back a little bit all of the different Michelle all with lower quarter.

Pardon me, what do you define low quarter for me than healthy quarter, I know that people likes big checks, but for me it's the ETA.

More healthy in Panama, proving a bit for Microsoft They save machine and marketing machine and that in the organization itself to sign yet cloud.

Contract.

That together is one maybe on the the one contract that you use 1 million you cannot forecast your growth on alkali, yes, you don't need to grow into forecast Europe for farmers, the Hong Kong see still see so I mean 60 something percent and I'm very happy that you also use it to our grid.

But part of months to define a little better this quarter.

Okay, that's all great.

Sure.

Hey, Rob and just and just to steal this for a second.

We're actually really happy about numbers at each and every segment level. We spoke about this multiple times, we are looking at the market for our smaller smaller and medium size customers out of medium and large size customers in our large customers. We're not in the business all of them necessarily doing the big kill upfront.

The business of long term value in the business of customer experience. So.

We're in the business of building long term relationship with customers and up selling them. So we're totally heartbeat, starting get you know with a few hundred thousand dollars in growing relationships later on in the millions rather than starting with say the big Shebang and <unk> and then having to realize value immediately which is harder than downloads.

Time.

Okay. Thanks, that's all really good maybe second question would just be related to the expansion components. It sounds like that's more balanced last quarter.

The expansion of existing customers seem to be driven by one large deal with the <unk> and so is that getting more balances are a positive trend to highlight there around growth with existing customers and then I'll pass the line.

Got.

It is balanced and it is according to the XI and according to plan. The introduction of the new products is a supporting our not only our strategy, but really philosophy about creating long lasting value for customers that we stopped selling the chubb alerting impact and we're excited about the results we're getting out of it.

It's very very very early days for shaping analytics, but the signals that our early stage pipeline are all good and positive for sure. There's a lot of work to do on structuring ourselves machine and that was very focused on LMS only to now selling a learning suite I will not deny to you.

Change management to do and this takes time, but we're really excited about what's ahead.

Okay. Thanks, a lot I'll pass it on.

Your next question comes from Stephanie price with CIBC. Please go ahead.

Hi, Good morning, I wanted to dig into the OEM strategy, a little bit more here. Just curious if you can give us an update on the MH RV OEM agreements and whether you're seeing a similar ramp up to what you saw with ceridian once it was implemented.

Hi, Stephanie and good morning back to you.

The question about the MH Ara answering young men.

These partners are the ones that are also being done.

For the longest Stein akathisia, we dogs for sure said he'd be in a way longer than it may chalk.

Those two relationships.

To be very strong the results and the performance.

According to the Atlanta established with the firms.

We.

The following that.

Our integration capabilities that we did get a product to continue to get better and expand and as a result of what's going to create incremental value at an accelerated pace.

At this point Citied in EMEA charter constituted the large majority of our OEM revenue, but as you have seen in the press release, we are quite consistently adding new partners in different categories, not only HR like city that I made shot and orchestrate them and we believe that the mix of Stryker.

Jim in which we will oh, the good shape, what's the productivity enablement technology to companies like war extend and and others. We also have mentioned the silent local I'm sure you guys have seen it although relevant system integrator that he's going to use the table for our managed services practice, we believe that the <unk>.

<unk> business. Some OEM is is really powerful for us I hope that answered Stephanie.

It does thank you and maybe just a follow up to that just curious around what areas.

The ATR and space that youre kind of overtime it sounds like the systems integrators and services.

How do you kind of see that strategy rolling out going forward yeah. Yeah. We're working on this actively we actually other vision aware.

We view the OEM a business that really in terms of territories and in industries and their goals and we can approach all these markets with a different value proposition depending on what these vendors are needed to accomplish in their respective industry.

With that in mind, we've seen increased interest in the Si space.

We've seen a lot of interest in them in order.

Markets that are not HR like risks for example, we have some signed Bartow P. L. A and in works than there are in the business without being companies leverage partners.

We really believe that the future is really bright there.

And I think as we mature.

Those industries and categories in the future, we'll be able to be even more of them. If you will.

Clear as to what our segments and industries are we're seeing more traction.

Great. Thanks, so much.

Thank you Stephanie.

Your next question comes from Richard <unk> with National Bank. Please go ahead, yes. Thank you. So you had some really impressive wins here just wondering if maybe give us a color in terms of these wins are they competitive displacements or something else here.

Okay.

Hum.

Okay.

Sure sure and thank you for the question on on these placements replacement the look.

We we said in the past that essentially when we win business from somebody that are really three categories that we see automotive prevalent.

The first one is.

His replacement from tier one.

The light point to LMS solutions. These are those vendors that perhaps are in the earlier stages of the experience of the customer that we the learning suite are alerting thoughtful.

They usually are outgrown that within a certain amount of time.

Yeah.

The second category and we see this category more than the smaller and mid sized companies.

Homegrown solutions, often times that we displaced a customization on top of open source software or sharepoint or other artifacts that use of the leave it alerting.

This is true in certain industries and generally broadly speaking.

The in the mid market.

In the enterprise market.

I mean, what we're displacing enterprise competitors that sort of reality cut.

Customers that we speak to are looking for for better customer experience. They.

They are looking for better software for software that is more flexible.

And they are looking for focus on learning.

In.

And we're winning business from companies the threats at the.

Focus that is not just a learning bolt on talent.

And these enterprises see value in partnering with the table.

Okay Super helpful. Thanks.

And then in terms of the partnerships like there's a notable increase in partnerships across the board and your outside and Oems.

So given that you've had the growth rate that you've had up until now without sort of meaningful scale up in partnerships is it fair to say that as we look out maybe 12 months from now we're actually going to see a step function up in terms of accelerating growth profile because of those partnerships.

So cloud just speaking of I think I mean.

The correct statement, saying that they're more BARDA, we onboard them the more bottom that will bring value in the future I don't know.

When the when that happened we had some benchmark with the Lake Charles City.

This cannot be a nine month or and I don't know 15 months.

And another point is that we.

We hope that every bottom that would be extremely successful, but based on the market side of deep selling sex or and on that day.

Efficiency of the partnership, but some bottleneck will perform better than other farmers.

So that that's safe.

Welcome makes me happy is the absolute number of the partner if you remember.

In 2019 of 2020 now our first earnings call.

One part of their only and not only we have like more than 567 and that's the.

We of course do you wont really feeding the pipeline of new partners.

And we are also.

Bogs in the technology to support the new partner because not every part of implementing the solution for their playing these games are in the same way.

And so when I when you start thinking about the product I go to to nurse, So sorry, and I hope that does that mean.

It will help you with on this fight above guidance.

That's great. Thank you appreciate it.

Your next question comes from Daniel Chan with TD. Please go ahead.

Hi, good morning, Congrats on the strong quarter I wonder if they get into the I wanted to get to the channel partner.

Channel as well.

And.

You've got a number of partners now to help you address different global opportunities in Ceridian just closed the acquisition of a center in March which really builds out their Asia Pac presence.

So can you give us an update on what your global expansion strategy is and whether you're going to be leaning on some of these partners to help you get into some of these geographies you're not currently in.

And then maybe in addition to that is your product ready for these new markets or is there still work to be done.

Oh, so that our than childless with Europe there are.

No how neutral it in term of geography.

There is.

We are opening an office in Germany, which will be a diet adult pizza and as you know, Germany, even my backyard the organic months, we'd say that Italy is in their backyard.

Thereof, Nordics and there is Australia, and New Zealand that Mark.

Those markets are markets that are finally, wawa marketing and communication style. They can digest the way West family company communicate so if we have to prioritize through partners or directly some geography.

I'll tell you look we love the Germany Nordics.

A lot of our top Yati PS.

And probably as a consequence when you are in Australia, New Zealand.

Probably it's easy to expand that even some other AD out of Asia Pacific.

What they believe the voice the ease.

Colby the try to penetrate the markets that require a lot of the PZ two set top they all fleets.

Lockhart networking.

No no no.

And this is.

What do we call it bad debt I said little strategy works very well for us.

For sure it's been a partner like city than they thought as you know specific country.

We think we can support and also you know foundries.

Isn't that different from the ones that dilation.

Actually because do not forget that the triple since probably yes support 32 languages.

Support.

You're right to lack the.

<unk> shown the support.

The western a cut off there.

Like do some.

Chinese.

You name it.

And as you know so.

Well, we don't work cloud capability basically ws that we can act a lot like a local vendor.

We do however.

Hey, John.

That we have opened up to support the Brexit.

When a British company had the doctor centered in Ireland.

We have the ones that are fun getting kind of that so basically thanks to the partnership with AWS and we did technology. We have the kind. We can also be trying to move from a data perspective, which is really and I'm going to escalate the point, but I mean, you can sometimes there's lots of folks that are in EMEA U K Europe comp.

Fly has do with the UK privacy data. So I think we are ready we will but we had also pragmatic and we want to prioritize.

What are the companies that are from all our feeling of data and are you know.

Our capacity to communicate wheel.

We have more chance to be successful.

That's very helpful. Thank you.

I also wanted to dig in on the ACB growth I mean that that was a really good metric to us.

Is that mostly being driven by new modules more seats or a combination of the two thank you.

It's it's the Saudi Alessio you want me to take that.

Sure.

It's it's not being driven by by more seats and it's it's it's a combination really.

Larger use cases driving larger.

And you will <unk>.

Or is embedded in the contracts.

And.

In the future and today I would say that's like 90% of it.

Going forward, we obviously hope that that upsells are going to contribute a larger proportion of that.

And what we saw this quarter would certainly support that.

Yeah.

Okay.

Your next question comes from Philip Ladies with Bamberg Capital. Please go ahead.

Hey, guys. Thanks for taking my question just based on your prepared remarks. It sounds like you hinted that M&A would become a bigger part of your strategy for the company going forward can you give us some color on maybe what kind of M&A targets or assets would be of interest.

Yeah.

Is it cloud we're speaking.

My mantra my mom can I use I don't want to make mistakes.

So that's.

The fact that by your body Martino, which work with me as the CEO. He's now in court, but I think I mean, the fact that we know each other since then he has and the fact that you had the venture capital background makes me optimistic that now that he can focus.

100% on opportunities, we will Oh, we will we have the and more.

You know couple of basic capability rough sense.

Opportunity that.

Linda and I wanted to ask or we want to pursue proactively.

That's great.

A lot of different opportunities out there from a cui higher to I guess shouldn't market to lock up they look to expand these specific geography.

And we will evaluate everything without the need to all of the hurry to deploy the capital.

An inefficient way, we what we wanted to deploy our capital only if we have if we are sure that ones that we'd be in the tremendous upside there.

And a great return on investment for our shareholders that's fake one.

It makes me optimistic is that we have executed that.

But our expectation.

This brought a matrix integration in the table why don't I have seen them, but you know all my HR team My D. HR team its smelter mine.

The HR team.

Finance team the safety the professional services the I T O bearish on working together to integrate another company and the first integration of all of our schools our post acquisition.

Like our ecosystem.

People love culture of product there.

Makes me optimistic that the next acquisition.

Would it be I hope successful.

First one that we have nothing to hurt it we don't want to make mistakes.

Got it. Thank you that's helpful.

Your next question comes from Nick Agostino with Laurentian Bank. Please go ahead.

Yes, good morning, and good afternoon Gaudio. This is <unk> on behalf of thank Augustine.

So few questions from my end first of all it's about the competitive landscape have you seen any changes lately because some.

Some competitors seem to be returning to the public markets again, citing high growth in the learning space E learning space.

Does that signify has strong prospects and thereby strong competition ahead.

Yeah.

So the market.

Things like maintenance that bill and ease of not tied only to the Nuomi management system space I mean training that can have.

Everyone now.

Most of the training that we've come in there is that related to pro forma two enablement to experience.

And in the end.

It's coming from other soup season.

For this time that competitor because every company at the end of the day need and a lot of them on Azure.

And learning ecosystem inside the I T ecosystem.

Hum.

By the same competitors that we usually disclose every quarter. The big news was cornerstone that was taken private by Scott.

And I.

I do like in a couple of companies out there, but there's a lot of the older.

All the all the competitors that we see.

Okay. That's very helpful and my second question is.

You're scaling commentary earlier, you mentioned that the company continues to scale up and increase head count. So are you facing any headwinds or issues with finding talent, especially in tech talent. There. There has been a tech crunch lately do you see this as a deer Grove.

So filing competition in technologies and can I do both I mean, everyone need the software engineer everyone needs.

As a direct auto save literally ever hear all that ease of use ease.

In the Scott safety mode.

Yeah.

Thinking about the actual employees. So we see any churn from the employees, but not at the level of Red flags.

Did the chairman that happens and people are you know departments.

Usually at a high churn, let's say I I think that.

Inflection is that I mean, the talent competition, even though I didn't especially when there are no any more geographical about yes, I mean, you kind of hire engineers on the ninth of land already knew or whatever you want all these weeks alone.

Because now.

We have a moat is that.

Is it keeps ending point when you want why are people.

So yes.

No other company out there we see talent competition.

Okay. That's very helpful. Thanks, again and congrats on the results.

Thank you.

Your next question comes from Paul steep with Scotia capital. Please go ahead.

Great. Good morning, I'll, just toss them both in one here. The first one would be just could you talk a little bit about the go to market for upsell or how you organize the salesforce more importantly, how we think about the timing of the ramp in revenues.

Obviously end of preferred to in the Q4 Q1 update but just how meaningful would you think that is in terms of contribution coming on second quick follow up would be on extranet type deals for Ian could you just remind us on the scaling of those versus typical but how we should think about revenue recognition and also the rollout of those thanks guys.

I was thinking about without the scheme of things machine, maybe its better loosened from the Google Oracle, Our I was muted I'm sorry, guys. I was trying to I was talking and nobody would be an attention to me now I realize why.

Alright, So can you guys hear me okay, yes.

So.

Good question on the organization of the of the Union.

Account management team and land and expand strategy.

So.

First I'd say our goal is.

To create demand.

With.

Our approach is both in the base.

And in the Greenfield.

When we think of the base, we think of the base in a couple of different ways.

For one we think of the customer.

And an organization having multiple buyers.

Within the same organization.

Practically what that means is that.

Whenever we sign it.

A company say Lulu lemon.

Which we announced this quarter.

We understand that in that same company there are multiple stakeholders.

That are receptive.

Our conversations.

For the chip of products and services.

We can't we can't categorize that as the upsell.

Activity, which is tough and assigned and owned by <unk> manager.

And part of the account planning exercise that we do.

Further to that Theres, an additional layer.

We look at every organization in that 360 <unk> way.

We map out not only the internal individuals that may have need for learning but.

But we look at the 360 structure of the company in terms of sister companies affiliated.

Parents.

And we create a wider net which we approach.

With digital marketing account based marketing and targeted strategic marketing with your account development team.

That would not be possible.

Or.

Better stated we would not add positive results. If we didn't have strong focus on the customer experience. So.

So we have a CX team that he is in charge of the adoption side and making sure that the actual customer.

He's using the software.

He's.

Being helps to go lives and not just configured but we'd go from.

Soft launch to go live in from go live to real adoption.

And so.

When you do that and you have good account planning strategies and good business development strategies and good demand generation strategies in debates our addressable market in the base becomes huge.

In.

Look.

We're relatively relatively new to this engine, it's not high.

Hyper mature, we're working very hard to make it better and better.

And I think you know all the efforts that we're making will pay dividends in the quarters to come.

Yeah.

Paul does that answer the first part of the question.

Yeah, that's great. Thank you.

And Paul but.

The second part.

You could restate it because I just wasn't positive what you made about the extra net revenue.

I guess I'm, just referring to organizations, while they might be employees a number of them are franchise type models.

A large <unk> or real estate type organization we're.

Presumably you have to get the franchise owner onboard or is this should we think of those wins is embedded in the core franchise fees. So does you don't have to guidance window on it.

Hand to hand combat each deal. Thank you rights so.

Specifically with respect to.

Cause that type of transaction.

Correct me if I'm wrong allows you, but all of the ones that we have signed along that line.

And.

Yeah.

Have been fixed upfront for an absolute dollar amount.

It's it's not on us to go win the franchise.

The franchise or deals with their franchisees.

Yeah, we implement the framework agreement that which then enables the holding to do deals with the franchisees separately, we don't control that right. There, but there is an element to your question Paul that I think is really good and really important.

And.

When when we think about the OEM side.

We have announced some significant OEM partnerships.

This quarter.

Or a or are associated with those.

Relationships today is zero.

Because they are using us to go create a business.

How that business unfolds.

We'll be.

You know yet to be determined and we will we will work with them to support the development of that business.

So something like a ceridian, our a R R with iridium.

Isn't isn't a predetermined bucket like it is with a typical customer.

We partner with somebody in the area.

Our grows over time.

That's helpful. Thanks, Ian Thanks Alexia.

Ladies and gentlemen, as it.

Ladies and gentlemen, as a reminder, should do you have a question. Please press star One. Your next question comes from Christian <unk> with eight capital. Please go ahead.

Hi, Good morning, Thanks for taking my question I just wanted to ask one this morning.

When you guys think about the direct sales pipeline, where are you seen interest these days either geographically or by vertical what's been strong lately.

Yeah.

Hello Christian.

Alex speaking.

We manage pipeline.

Looking at it you know.

Our pipeline forensics.

L. A is that our positioning.

All the orange zones, the player that addresses alerting needs across many multiple industries.

It remains unchanged.

No.

What we look at is also the constitution of the pipeline in terms of.

Average deal size per segment and what we're seeing is that we have it fairly linear constitution.

Albeit what that means is.

We have.

Companies that for each and every commercial segment.

Or in a range and value that is within the expectations of that very segment now.

We like that the linearity, because we don't like peaks and valleys that then eventually a result.

In peaks and valleys also on the booking side.

Vertical wise.

I said what are the result, and that's true.

But.

Strong momentum remains on technology.

Stronger in momentum.

<unk> continues to exist.

And in manufacturing.

It seems that interesting.

Our growth and return of men.

Pathology, we believe we announced red roof.

Was there any pull back.

Hmm.

Retail as well.

Lulu is another good example of that.

<unk>.

Continues to perform very strong if you look at our pipeline and you take.

The top 10 verticals.

Technology companies consulting companies and companies that really leverage the table.

The go to market technology.

Are the ones that.

That make up for the largest amount of E. R. R.

Ore body.

And whats interesting is that we.

We're seeing that ability to turn that learning into a library age or in enablement. It productivity technology is something that makes money, whether it's to retain it or make it across many verticals and he used to not be the case he used to be that SaaS companies, you start academies to regain customers or <unk>.

New customers, but now we see the same logic applied across Dod.

And in some verticals and and that's fascinating and that's why we think our addressable market in two ways.

Huge.

That's great Alessio Christian all that questions and answers.

That's terrific. Thank you Christian.

There are no further questions at this time. Please proceed.

Oh can you hear me guidance.

Perfect.

So I just I just want to thank you everyone that today I think we keep both record record quarter.

The question from my knowledge so.

So we performed well in both of them. Thank you. So much pools at play here I didn't hear you as usual and then let speaking November where we hope to do it in the tariffs on the AR from Toronto.

Thank you everyone. Thank you all.

Thank you ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a great day.