Q1 2022 Docebo Inc Earnings Call
Yes.
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Sure.
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Good morning, everyone and welcome to the <unk>, Inc. First quarter 2022 earnings call. All participants are currently in a listen only mode. Following the presentation. We will conduct a question and answer session for analysts and.
Instructions will be provided at that time for research analysts to ask questions.
I would now like to turn the conference call over to Joe <unk>, Vice President of Investor Relations. Mr. Mike Mccarthy. Please go ahead Mike.
Thank you operator before we begin <unk> would like to remind listeners that certain information discussed today may be 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 the forward looking statements.
More information on the risks uncertainties and assumptions relating 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 do not have standardized meanings under Ifr S. Please see our MD&A for additional financial information regarding our non <unk> financial measures, including reconciliations to the nearest Rs measures. 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 Doug <unk> CEO cloudy out fair Bob.
Hello, everybody and thank you for joining our first quarter earnings call with me today is Alicia our president and CFO and Scott on Lisa our CFO .
We are extremely pleased to report another strong quarter. This morning, that's driven by continued strength in demand for our products and services.
All market segments, we are particularly excited about the accelerating momentum two months.
So Brian just Beckman is enabling the channel can lead the charge in the fast growing market characterized by segment and micro obtained weakened and expanding business fundamentals, allowing for rapid global scale.
Hey.
We continue to benefit from the availability of our police week of product and momentum in the enterprise segment we.
We saw one distributed their implementation cost seamless through that with you guys.
And continue to see more than 60% of our customers are using our platform to enable external trade.
The hybrid training U K.
There will be use cases, and strategically important to the table as they are today. The all while a lot of customers are using that wants to see.
Mission critical requirements.
The urge to create a more intimate relationship then leads to increase in the ECB and I'll, just say a hydrogen lifetime value to our customer relationships.
And consistent with prior quarter, almost all of our net.
<unk> came from complementary ACB over $100000. It is also worth nothing that we haven't seen an 83% year over yet.
The number of customers generating <unk> of more than $100000.
Finally profitability continued to improve in this case, we remain on a trajectory to turn adjusted EBITDA positive as we exit the year as a number of things that we are maintaining capital efficiency and growth.
Remain in our DNA.
<unk> will discuss our financial performance in more detail momentarily.
Take a moment to discuss why we are so excited about what the future holds.
Or anything in the macro environment that is best characterized as one of the sustained demand for BMT.
Organizational challenges with inflation dialing combination of scale yet.
All the while operating in a change of environment, we're engaging with employees of customary Bob in a hybrid work environment is the new normal.
As a result, we are focused on investing in technology utilized which able to drive critical business outcome, whether it's improving the efficiency and execution of the workforce, while strengthening the customer and partner relationships.
We see these trends cutting across the industry vertical NGL gutsy.
It is becoming clear that learning and training and deflationary investment nearly jumped on the nature of the chamber platform support the diversity that they need it.
It eliminates another key customers have been seeing wins supporting multiple learning management system across multiple departments and use cases, partnering with new checkbook organizational implementing it fit their economic model, where the single element of a fab as immediately part of Macy's.
With multiple owners.
That's kind of loving technology is accelerating in this phase.
Phase of exploration, we believe we can grow from the 100 million philosophy of our company we have to be <unk>.
<unk> revenue company of the future.
Now speaking about two multiple customer win this quarter, we signed with a new customer agreement reached on America, a leader in sustainable mobility solution, but install selected the cable.
IBM partner for employees and mixed Atmel channel partner training, the <unk> business to offer intuitive and Samsung Elisa learning experience to more than 20000 dedicated employees.
We continue to see any tail business deploy external training is a key theme that will be a customer growth and engagement strategy.
I know that immune <unk>, we like to call out for you. This morning is the global leader in workflow automation stopped specializing among out there. So we feel like the last most customer employee experience data table in the full disable learning suite due to bear on these products and user experience and integral.
Nathan capability to connect with bloggers businesses comply with software deployed across the ecosystem.
Capital net expansions were also strong contributors to the quarter and we are seeing continued traction in our land and expand strategy. We believe that our goal to transform cask, commenting to raising funds will become critical to our long term growth strategy.
In case in point, we broaden out.
Our partnership with a leading north American basis luxury retailer just six months after the initial or good evening discount somewhat expanded their use of our <unk> into their entire radian group for Onboarding and up scaling of the in store associates to a table as a mobile first solution angry.
Subscription value by 137%.
So the remainder to contribution from products launched last year, we are happy to see continued progression and thoughtfully in particular, the triple shape Goldman Sachs and connect.
And content have exceeded our expectations out of the gate.
For example, the Trimble connect is being deployed by one of the largest crypto currency exchange in the United States that we also signed yet this quarter our solution will enable automation of deep learning processes that touch their application in data software stack, while getting learning data what it needs to be.
All at scale.
Another example is assembled nets.
Using the chair will shape, but to create content quickly consistently and that gives me pause.
Time to dilute some day.
Yes.
They are a key reason that these by leveraging artificial intelligence to create interactive learning experiences that facilitates social learning without burdening your content creation team.
Alongside our product investment the investment we are making in our people. This past quarter, we have made significant process in expanding our senior and middle level leadership organization.
Yes.
To us from industry and customer alike, and bringing it out.
Total leadership this is essential in executing our mission.
This is also a great Testament to our lives and profile and reputation as an innovator in this market.
One of those new additions to the team you mean us in multiple ways.
Joining as our as our Chief sales officer, Nina user largest scale build there. She has an impressive track record with companies like SVP, Nike and non accrual and will be irresponsible to scaling up our biotech and direct sales organization to meet the growth objectives ahead of us.
Also joining our team called Williams as VP of revenue strategy and operations nickel brings to the table many years of experience in our industry at cognizant on demand and we don't want revenue strategy enablement and operational function.
We are happy to report the DJ Booth finalizing our very first ESG report, which should be published before our shareholder meeting in June .
Well to say that anybody they champion take our responsibility as comprehensive as it too hard in everything we say and do.
The impact that learning how does that.
Localization is not we will make on Amit.
We're proud to have our platform are utilized by many of our customers.
Advanced learning objectives achieved ESG and Nathan bills, we look forward to sharing some more of these examples with you when we publish the report I will now pass the call to Scott to speak to the financials.
Thank you Claudia and good morning, everyone.
Those interested a detailed breakdown of our financial results for the three months ended March 31, 2022 can be find in our press release, MD&A and financial statements, which are now available on our website and also filed on SEDAR and Edgar.
The slide deck accompanying this earnings call available on our Investor Relations website. This morning.
Q1 was a great demonstration of the continued momentum in our business after a record Q4.
This is a great time to be an innovative and disruptive force in the learning industry.
Enterprises are investing in learning technology to help them create favorable business outcome across all of their organization.
These customers are at the core of the long term secular growth opportunity that we are well positioned to capitalize on.
Regardless of the economic environment, given the tremendous value, we provide to our customers and our current market penetration we continue to be excited about our future.
Now to the results.
Despite FX headwinds total revenue for the fourth quarter grew to $32 1 million, an increase of 47% from the prior year.
Subscription revenues were $29 1 million, representing 91% of total revenue for the quarter.
Professional services in the first quarter were $2 9 million, an increase of 49% from the prior period.
We added $11 6 million in net new <unk> during the first quarter to bring our total to $129 3 million, an increase of 55% year over year.
We are especially pleased with this performance Q1 coming off our seasonally strong strongest quarter.
New and cross sell logo with a greater than $100000 represented.
Approximately 50% of the net new <unk>.
Underscoring continued momentum with larger commercial and enterprise customers and we take confidence in the fact that our pipeline continues to be strong.
Total customers at the end of the first quarter of 2022 or 2947.
Our company wide average contract value, our ACD increased to approximately 44000 up 23% from the 36000 at the end of the first quarter of 2021.
ACD for new customers in the quarter was approximately $60000 driven by a continued shift in mix to enterprise size deals and adding incremental product.
And as we add more enterprise customers the quality of our EHR base continues to strengthen.
We believe the lifetime value of these customers reflect positively on the growth of our business, including expansion opportunities within our current customer base.
Gross profit margin for the fourth quarter was 80% of our revenue, which compares to 80% for the fourth quarter and 82% for the prior year period.
We expect to maintain gross margins in the low 80% range over time as we continue to invest in best in class enterprise support customer success and implementation services.
Total operating expenses for the fourth quarter increased to $32 4 million compared to $23 5 million for the prior year period.
Included in the $32 4 million of operating expenses is a foreign exchange loss of $3 4 million that relates primarily to the cash on our balance sheet and is therefore for the most part unrealized.
Operating costs. Excluding this loss were 29 million slightly higher than the $26 6 million and operating costs reported on a comparable basis in the fourth quarter of 2021.
A full summary of operating expense lines are presented in our Investor day.
G&A has continued to decline as a percentage of revenue to 23% for the first quarter compared to 24, 4% sequentially.
This is an area, where we continue to deliver operating leverage and as previously noted expect to see ongoing leverage as we scale.
Sales and marketing expense increased slightly as a percentage of revenue to 42, 9% from 42, 4% for the fourth quarter.
We expect our unit economics to remain efficient as we continue to invest in our sales engine.
This includes hiring seniority quota carrying executives as well as adding depth in our account management team to drive expansion and higher net dollar retention.
We also added a number of sales and marketing personnel as part of our <unk> acquisition that will drive future growth in the APAC region.
R&D investments in the fourth and the first quarter was $6 2 million or 919, 3% of revenue compared to 18, 5% in the fourth quarter.
In the fourth quarter of 2021, we recognized a one time year end benefit from R&D tax credits of approximately 800 case.
Adjusted EBITDA came in at a loss of $1 3 million for the first quarter of 2021 compared to loss of $2 5 million in the prior year period.
We reported a net loss of $7 million for the fourth quarter of 2000 to 2022 compared to $5 6 million net loss for the prior year period.
Our strong capital structure is a function of a very healthy balance sheet, which shows net cash and cash equivalents of $212 million at the end of the quarter.
Free cash flow was negative $2 3 million in the first quarter.
In closing I want to emphasize that we believe we are extremely well positioned to capitalize on what Claudia called a macro trend that is creating a prolonged demand environment for the table.
We will continue to invest responsibly in a way that maximizes high quality growth while at the same time, ensuring our ability to maintain our best in class unit economics and sales efficiency.
This will be matched with continued operating leverage that will naturally lead us to turn EBITDA and free cash flow positive as we exit the year.
That concludes my prepared remarks, and I'd like to turn it over to the operator now let's take some questions from the analysts.
Thank you ladies and gentlemen, we will now begin the question and answer session. If you do have a question. Please press star followed by one on your Touchtone phone, you'll hear three ton prompt acknowledging your request and your questions will be pulled in the order. They are received should you wish to decline from the polling process. Please press star followed by.
If you're using a speaker phone. Please lift your handset before pressing any Keith also please limit yourself to one question and one follow up one moment for your first question.
Yes.
Your first question comes from Josh Baer with Morgan Stanley . Please go ahead.
Great. Thank you for the question and congrats on a nice quarter.
I wanted to start high level you mentioned.
The ability to reach $1 billion.
Our thinking bigger picture and longer term just wanted to get some context really four at a high level, what it would take to get there when thinking about <unk>.
Product segments and geographies customers.
And just any more kind of color on what it would take to get to $1 billion, obviously overtime.
Yes.
Josh first of all right.
The table in the digital World that I know you already give you your first earnings call. This is Claudia.
So no we.
We continue to execute the olive garden leave so I will focus my answer only from the organic perspective, so not concede that if any class of automotive event.
The industry, he's a hyper fragmenting.
And.
The total addressable market.
He's a wrinkle.
<unk> seen that.
Not only from the internal training, but also the external training is now part of our total addressable market. So.
But the size of the market that we already really unlimited.
Big Big market.
What are the action that we need that today, we are taking and we can take to get to $1 billion.
First of all Lisa product continue to innovate.
Both.
Our core products, which are the LMA of season, those the new product that we have built but also imagining that training is not only daily delivery of multimedia content, but you know coaching ease of steep part of the informal training concepts.
Like.
In Florida My content sharing like we have done that I see with a typical change Uh huh.
So there are way more possibility way more channels to train the people that can be transformed into product into software.
Then there are other aberrant because whether we really are not there and then thinking about the government I mean government sector is a usually a legacy industry that needs to be used after the by innovation and we think that we are innovative enough to give us food for thought.
The two biggest government entities and to provide them some fresh new way to train their people.
Geographic expansion I mean.
The more you go east.
The more they were the ease of getting it ready.
Just sophisticated in more depth in a way to train their people, we are still focused to Europe and do you know.
We still we are as the sole and origins euro.
Europe .
But most of our revenues are coming from from from North America. So if you put together all of these elements, which are all organic new products, new verticals and new geographies, we do add a lot of the bus there too.
Increased this side and getting a tool they want being during the week if you think.
The total addressable market, which is way bigger today 1 billion 1 billion users and mine ore Frac shown them all of the total market site.
Great. Thanks, Cardio really helpful.
Then follow up sort of unrelated but more near term focus wanted to just ask if we should expect.
Changes to the go to market following some of the recent leadership additions on the on the sales side. Thank you.
So first of all you know.
Me Ali.
And all that.
I can see that.
Only 10 years ago, and I can assure you that all the founder of the company and we are alone.
But.
You really need the closer to me I'll, let bren broader scope because with very very often.
We recognize that as revenue lead there, but for me, yes capabilities alike.
Looking get part of the organization, adding product ideas and I want to keep all of it.
You'll see the revenue theme because you know neenah, we called that all exceed so we'll not call that a.
Marketing will not go where professional services and all of the all of them still are reported as a chief revenue officer, but they want to leverage my friend colleague and partner also although not their duties, which I need to help but so I won't to leveraging not only as a rather.
A new leader, but also as a precedent, but now in the organization that you can see that revenue in precedent, but for me, it's more precedent in the rest of it deal alert.
Do you want to add something on that Hey, Josh.
Thank you for asking that look.
As we continue to grow and continue to prepare ourselves for the extra Jordan over the next call. It three to five years the road to $1 billion made.
No all the all the things that causes spoke to before which it's execution right getting better products with better attach rates better <unk> expansion all of that I think its execution.
But then you get a lag or on top of that organizational innovation and our organizational scale and when we when we think about the next five years, what we really believe that human capital is critical so people like Nina people like Nicole that adds a lad our scale.
Organizationally I know what it takes to go from 100 to play boundaries five hundreds of billions of dollars will be invaluable assets to get their lift that although the.
I would say areas of improvement that we may have as management, we remain humble we got $100 million in revenue not having done it before we're very clear on what it takes to get to a $1 billion and we know that the sum of our parts are stronger that each and every one of us and so to surround ourselves with really great people, we're going to get their battery faster.
Great. Thank you.
Your next question comes from students, who Kumar with Stifel. Please go ahead.
Good morning Gents.
Congrats on another.
Another strong print this quarter.
I wanted to touch on the stronger level of net new <unk> you guys had this quarter.
To be quite stronger than what you posted last year and what looks to be a seasonally slower period.
Curious what are you guys seeing in the demand environment that keeps you really excited on the outlook with respect to what kind of buyer profile behavior in spending trends and and should we be expecting seasonal strength to kind of pick up over the year similar to prior years.
Okay.
So I would think that the outlook bar.
<unk> spending in macroeconomic environment, and then I'll ask Joe will jump on them on detailing the revenue and <unk>.
So in term of outlook.
We think.
That the companies are now oriented.
A couple of points, one is spending a recession or downturn in the others, but.
I believe there is another factor that is.
More of what is on for them, which is talent and people and not only program the inflection or a raise of salary, but because of the shortage of talent and.
So.
They need that to adopt and to increase the adoption of an online learning system like the table is a defensive strategy to mitigate the talent.
Great resignation or a more towards trend, which is continuing to happen.
Despite the macroeconomic downturn.
But.
Don't forget the Chambal. He's also in expanding our training to wechat.
Hey, Kelly.
The news too deep and establish deeper relationship with a customer and partner base and then you have to look at these two also as Youll see the ASP.
Strategy to reduce or to stay closer to the customer to better work with the partner established that.
Let's say that we see the table well positioned than I have.
I've been in the company in 2008 and 2012 in many economic downturn.
And I have to always have seen people companies investing on people. During these periods Alan do you want to add.
Something about the revenue.
Yeah, So look.
But then you said it right.
Just as a recap we printed 11 11 six last year.
Unless I'm mistaken, we printed same time period 94.
And for that same time period, we recorded and chairs at that 94 included a seven figure contract.
Large.
A chain Ford restaurant chain provider.
We are beyond the pleased with the results we're thrilled about it we think it's an exceptional outcome.
And when I think about the why it happened and why we expect for it to continue and to actually get better.
I'll just I'll just refer to what we shared on the customer use cases like rich then but also smoothie king.
Those same customers that had we signed those even a year ago, we wouldn't have been able to satisfy their needs for a broader scope solution.
These are organizations that are going to be leveraging connected theyre going to be leveraging flow theyre going to be leveraging capabilities that extend well beyond the learning Allomap says you guys used to NOLA thoughts now our tickets are going up quarter over quarter, we see that those charts and the constitution of our net new deals going up.
And our expansion capabilities building out so all in all we are not only pleased though we're ecstatic about the growth rate. We believe it's going to continue and the way it's happening. It's according to plan Alright. Paul says this is validated by the results.
Thank you for the color.
As a as a follow up.
Could you provide an update on sort of the the demand side on.
Kind of what you're seeing in the indirect channel, especially with the OEM partners to introduce Peter if theres been any any changes in the trends that you've been seeing.
In prior quarters.
Yes.
So we we first of all have continued to grow year over year, our OEM book of business in the percentage of makes us extremely happy it means that our partners not only continue to be satisfied with our existing services, but.
They're adding on capabilities in fact, it was a 70% growth year over year for that book of business now on the demand side, we're extremely extremely focused on partnering with the right organization that will yield material results in the future.
These relationships are very deep in the organization and we're very very confident and excited in our pipeline and are executing around that though.
Just as a reminder, when we think about adding people like Nina Moscow and beyond that we're thinking about that also in the context of their expertise their background their capabilities their network here in Bryn Kinga.
Go to the table not only names, but the capabilities executing in designing the organization properly. So as a recap we're staffing ourselves to execute in that world better and better we like the demand and our existing partners are performing great.
Great.
Thank you for US taking my question. Thanks, John So I'll pass the line.
Thank you Susan.
Your next question comes from Rob Young with Canaccord Genuity. Please go ahead.
Hi, Good morning, everyone. Maybe first question for me just a mechanical when I was hoping you could give some insight into the.
The divergence in the growth rate.
<unk> in revenue, it's a little different than I've seen in the past quarters is that just the timing of new enterprise skewing towards the end of the quarter as our Q1 dynamic there. So that you can explain.
That and how you expect things to develop over the near term.
Yeah morning, Rob So Garnier I'll take that one so if you think about I can't give you a simplified into kind of two or three things.
We'll have some of this divergence.
Firstly as you move up the chain into the enterprise segment of the market Youre going to see customers that we'll negotiate the contracts that it becomes like obviously, the customer is becoming smarter and enterprise customers. Our procurement teams tend to more negotiated the contracts towards the end of the quarter. So some of that benefit that you would see.
Cherokee would have been more that.
That mix would have been coming in at the start of the quarter. So you've got some of that revenue doesn't come through until <unk>.
Until the following quarter per se.
And the other thing I would say as we've matured into starting at the enterprise segment of the market and this is a bit of a Rev. Rec thing.
For your benefit I'll spend a few minutes on it is that not to go to 20 seconds on it is that when you do enterprise segment deals. You also have the concept of ramp deal. So an example here would be acute with our chain that signs up for a three year deal. They are locked in for three years, but it's a ramp deal in terms of monthly active users because they have to build it.
In year, one and then the scale up to year, two and the scale up beyond that in year, three and they are locked in for each of those tiers for three years.
Yeah or in that concept, we can't get at the straight average, whereas the revenue recognition is if its first year of 10000 20000 30000 10000 in year, one revenue and 20000 near 230000, New York City. So that's why you see a bit of a differentiation on the Rev. Rec.
But I think if you think about it.
In the next few quarters, you will we will pretty much get to a closer.
It's probably closer to <unk>.
Rev Rec conversion ratio.
Okay. Okay. That's very helpful and I've got two more if you allow it but I was hoping that you could.
Give us some insight into your thoughts on that.
<unk> acquisition by cornerstone I know you had a relationship that was relatively new in the press release, you highlighted that you had.
One customer that chose don't table for LMS, Alex Pel RF functions and so I'm just curious how.
That added cost acquisition changes your relationship there or maybe if there's any change in the market that would be helpful.
Yeah.
Yeah sure Rob Thank you.
First off we congratulate our Oh.
Trends that had cost for their new Jordan <unk> with the cornerstone demand.
With regards to us.
I would say one word that immaterial.
Why.
One.
The nature of our relationship with such that again.
Again, it doesn't make a difference to our business.
For two the capabilities.
That we have in our platform. We believe are second to no one in the space second to no one in our repeat and you know.
When it comes to.
What others do we were very focused on our roadmap. We're very focused on our plans, we're very focused on our win rates and when we look at our win rates.
For the future we're excited for what's ahead so.
<unk>.
Again, very very happy for our headsets friends, but it's it's not something that we.
That makes any change for us and I think the from a product standpoint, the one consideration.
Usually oh.
Mass abengoa.
I'm not looking for and for Alex <unk>.
Because usually the new next generation from kind of the LMS is already fresh and provider most always the Alex speak capabilities right.
NXP dot and tab and stronger became the to manage the complexity of the admin of their capital matter and then they are looking to partner with the Saudi the LMS.
Because they need that it became that that allow us to organize that group our views about whether U S.
Gene mapping.
The auto Division intelligence.
Create scale mapping inside the learning object.
So you have to imagine that the channel is so powerful in the BK that which covers probably 80% of our development efforts.
The NXP.
King for these kinds of capabilities, because basically NMS. It cannot studies 5 billion EBIT gastro matter, which is important 2000 company.
Okay. Thank you very much for that and then just last quick one for <unk>.
Notice that you expect EBITDA to go positive.
For the year consistent with last quarter, but.
Given wage inflation and some of the cost inflation are you building in some consideration for that and then when you say exit the year do you mean Q4 will be EBITDA positive or is it some.
We'd be thinking about.
Q1, and I'll pass one.
Yeah, Rob I can be.
We have considered wage inflation et cetera, as we thought about the structure this year.
Maybe I will simplify the way we are.
We are indicating Q4 will be the Q4, we will exit as EBITDA positive yes.
And it will happen naturally as I said, that's the point I want to reiterate here at that.
The business was always.
Always.
Opera and we operate in a very efficient manner, you know that and we've always managed our growth.
In maintaining those unit economics, and this is a natural transition that's happening and I am sure. If you do some of your math and your modeling you'll get there yourself too.
Okay. Thank you very much.
Thank you.
Your next question comes from Stephanie price with CIBC. Please go ahead.
Hi, good morning.
A few questions on the sales side. The first is as you move to the enterprise just curious if youre seeing a difference in how customers are coming onto the platform I think IPL months, we're coming in through the web site.
Just wondering if that's still the case or if that sounds correct.
These larger clients.
Okay.
Stephanie just just to make sure that I fully captured your question about the makeup of our of our customers as we move more and more in the enterprise space.
Hum.
And then did you.
Okay.
Lead lead generation lead generation, Okay, sorry.
Sorry, the line cut cut through the question.
Okay.
From a lead Gen standpoint, our strategy continues to be an execution that is multi play across.
Our inbound marketing and outbound marketing no for sure.
Generating demand.
On the upper end of the market the fortune 1000 and requires a certain level of tactics.
It's probably a little bit more sophisticated as opposed to the more natural inbound marketing flow. The majority with inbound marketing flow. This is not a surprising any softer industry belongs more to the sub south thousands of employees company. However, some of the biggest brands Robert.
Three quarters, we have mentioned at times have actually originated through inbound so that equation, where large enterprise equals outbound our reach costly long long.
Long found though is that it's kind of a false miss having said that too.
Two areas, we're investing on.
And getting better and better and I think we will execute even more in the future. One is like we said many times specializing with enterprise sellers at Endo Enterprise Str's no doubt about it.
Those deals are different there is different by a persona the buying could meet is larger.
It requires a different skillset for sure. The second thing is that we spend our most add up.
<unk> based marketing resources on those accounts what that means is we implement strategies to look and feel and show up and have landing pages.
Speak a very they're very tailored to the story with that customer.
And we do that in a rather sophisticated way without sharing too much of the magic sauce, because they can I can expect some competitors wanting to still is the art of the of the possible here, but I would say without going too deep that intense data leverage it used in the right time in the right way.
Customer journey is very powerful and then when you combine a b M with its strong branding messaging with good product marketing collateral with good alignment between field and DDR, that's kind of the magic sauce thing and by the way, we're not perfect, but we believe that we're very happy with what we're seeing in and just.
Doubling a doubling on enterprise because it is giving us a lot of the confidence for the future and great results right Blake.
The breach those of the world that buy the entire suite of our products for us.
It's just we're very proud very proud.
Your next question comes from Martin <unk> with ATB capital markets. Please go ahead.
Good morning, folks and congrats on another strong quarter gross margin.
It declined a little bit.
Year over year to year talk to the driver there.
Yes, Martin I would I think the way I would think about gross margin sequentially as we've talked about it last year, but I believe that was 82% is still a loss share, but we've continued to talk about the fact that you know.
I think we were pretty much pretty much flat sequentially to the quarter I think we'll see some operating leverage in the gross margin.
Some leverage on the gross margin side, as we move up a bit, but I'm pretty happy with how I guided as we think about going forward. We are happy with our gross margins being in the low 80% then theyre getting them they'll get there in the next few quarters.
The investments, we're making deliberately.
We move up the chain in the enterprise segment.
To make sure that we implement our customers right. We are supporting them through their journey because of happy customers.
Around.
Happy expansion and benefits us from a product suite perspective.
Yes.
Fantastic. Thank you referred to.
Winning sort of whales versus many wells with the many ones being in the grid.
Greater than 100000 level can you talk to them.
How those types of customers contributing to <unk> in the quarter.
I can speak to some number of them left if you want any more to say about how they can jump in but.
Pretty similar story actually slightly better so in the quarter.
New logo ACB new.
New and cross sell our logo ACB was.
It'd be higher at $60 $60000.
And then if you think about the composition of that.
Half of that net add in the quarter was from logos about $100000, but under $1 million no seven figure deals again. So consistency is the theme that we've spoken about in the past quarters. There are no big home runs here, but I do want to highlight one thing that people.
People should understand that the story of that customer doesn't stop at the outset, whilst you guys why don't you guys Bill.
We will factor that we look at the fact that we've landed a customer in that $100 million to $1 million sweet spot that story.
Just to start the journey and we continue to see if you look at one of them.
One of the luxury retail change that we would have named in the six six months or so ago. They came back to us within six months and they wanted to our platform to be implemented to their sister chain and that's the kind of sweet spot, we sit in and that's where <unk> doesn't stop at the outset.
Okay.
Great. Thank you very much and finally anything you can share on.
The progress that you're making with.
Some of your new products and selling products suite.
Yeah.
So yeah.
I mean, we are learning how to sell multiple products.
All of our customer base.
With the new logos.
There are some products we are extremely excited and are already proving.
Profit progression in the attachment rate and they can name shape of connecting content.
Probably beyond that.
These are stage, all the maturity and adoption, but we are continuously investing in the learning on the on our labor I'd also learning analytics and any learnings you can buck the connector if I have to near two <unk> probably.
The one that is exciting need the most.
He is providing you know a gateway to integrate all of the.
Enterprises solve to stack the chambal inside an enterprise software stack, providing too thanks stickiness because the more you are integrated in the price of the effect the more difficult to remove.
So deeply nested didn't integrate themselves.
From assortment from our company and second and three being the company with additional data.
I think the single ssangyong their skills.
And many other data that's part of the platform.
To perform better because I mean, the more we give data to our AI the more of our AI can automate the more processes inside the LMS itself.
Great. Thank you very much and congrats on the results and congrats on adding team members I'll pass along.
Thank you thank you Brian .
Your next question comes from Richard Tse with National Bank Financial. Please go ahead.
Hey, good morning, this is mihir, calling in for Richard.
So I guess first off I, just kind of wanted to ask you moving through the pandemic, our kind of getting towards the tail end are you seeing more of your work coming from displacements person's lifespan.
If you guys could just talk about any trends you're seeing there.
Sure.
It's a fairly.
Fairly simple.
Distribution, we see more than 80% displacement in the mid market and enterprise with say $50 50 displacement and net new fields in the small business segment.
The enterprise space, we track it.
It's kind of a little bit easier to execute because the amount of players in that space is smaller and so we get.
A lot more laser focused.
Competitive strategies, and our competitive capabilities and differentiation elements.
No doubt that our commercial space or the so called or SMB space.
It's more crowded it is there are more players and I would say we approach that that market with the intent of always lending type organizations as customers that are the right fit for us because you know what.
There are organizations for example that our small employee base think about how association's but there are business model yields a really large amounts of end users.
And we certainly do really well there.
As you know as opposed to just an organization of about 100 employees that he is looking for the first time, a la Massa and they're very cost conscious at that stage, we not may not be the number one choice and we don't actually aim to be well positioned.
To satisfy batter high growth companies and again more focused on the Midmarket and enterprise and large enterprise space, that's at a high level.
Okay, Thanks and.
For my follow up I, just wanted to ask and it kind of touches on the gold and gold copper, reaching $1 billion.
But with valuations coming down across the tech space.
How are you guys thinking about your build versus buy strategy.
More opportunity there just acquire some smaller companies and kind of kick start some of your newer product modules Butler.
So first of all are the more the multiple draw.
The more you find me interestingly the on the go outside and hunting.
Let's say that as of today.
Multiples drop it in the public market.
This is not yet that's been there in the Thai baht, the market, where there's more of the targets are.
Let's see.
We are looking carefully both public and private markets because now probably we can find great deal. So there is a caveat here I mean, a great deal does not only adds a great.
Great low multiples, but neither also to have a great product.
Right.
And great Economics, I mean, the chapel always had the culture of capital efficiency and so you will not.
Probably find the table buying a company, which is not capital efficient so we need to find the perfect match between Rod.
That's the theme of feet.
And Oh show NASA on the economic and economic fundamentals.
That's right I mean these are situations that are incredibly exciting because I mean, when the world is falling apart the only the Braves will win.
Got it thanks, so much for answering my questions about popcorn.
Yeah.
Ladies and gentlemen, as a reminder, if you do you have any questions. Please press star one.
Next question comes from Daniel Chan with TD. Please go ahead.
Good morning, Karen I, just wanted a clarification on the unresponsive to Rob's question earlier.
There's all the AAR are from some of these enterprise deals in the current metric so youre, saying that the enterprise deals could take three years before you get to full recognition as you said you ramp up over that time.
But as the final.
<unk>.
In the current metric.
Yes. So let me just give you example to make sure everyone understands it so let's say a deal a deal ramp up deal is what I was talking about is where a customer was signed for an example would be 10000 monthly active users in Q1 2000 monthly active the near 2% and 30000 monthly active users in tier three.
From a reporting perspective, if that is the minimum floor for each of the years. The customer has been locked in for they cannot downgrade below that and that's a minimum floor. So when we calculate the IRR, it's a straight average of that.
Scripture TCE of that contract divided by three.
But when you'd recognize revenue on it under our first 15, you take the revenue for the first 10000 monthly active users in year, one and then subsequently here too.
20000, subsequent year 230000, and so youll see a differentiation in terms of <unk> versus revenue recognition if that makes sense then.
Yes, that's very helpful. Thank you for that okay switching gears a bit there are there are reports that SAP you may be selling lit. Most just wondering whether you have a view on whether that changes the competitive dynamics, if its sort to say a private equity firm.
On my side from the market standpoint, the leap cloud any consideration from a M&A standpoint.
First of all we would say that we remember when lead most of it was a new Zealand company well before being sold to colleges and then Karl reduced cloud wrapped it in a deal with SAP. So we remember the top Jordan and we remember that up until let's say year 2017 2018.
They were a serious competitor, particularly in the SMB and mid market space.
I don't think its a secret for for any of us that for the past years.
We have not had a chance to really compete much according to our data and therefore.
And therefore, we don't have a strong opinion about that with that said, though we understand that is a process.
Boeing and.
Part of it to make any further comments.
Well no I second line that I mean.
We think that to me. The most is the most refocuses on their small business and sometimes they do have enterprise customers.
Let's say that you know.
Always happy when a competitor is taken over by a private equity firm because usually they are very they focus in for one or two yes on reorganizing themselves.
So for total from the competitive standpoint, I'm very happy that the great competitors.
Companies like them very efficient will be the focus for a couple of years doing the private equity gains.
On the private equity assuming that they are buying they are they are.
Quiet and Biopharma.
So once they go right like it's it's immaterial for us yes.
Okay. Thank you.
Your next question comes from Christian <unk> with eight capital. Please go ahead.
Hi, Good morning, you had mentioned previously that many geographies are behind North America in terms of their maturity with corporate LMS. So my question is which geographies you'd call out as being most behind them and maybe how the company's positioned to attack those regions in the next say three to five years.
Okay.
Well actually.
All the fees that the more you go if they're more firstly, you'll find the first time adopt.
Let's say Australia is another award because in Perth, Australia, probably 1999 Moodle was created so Australia is a very friendly to alert me in guys.
New Zealand as well.
I'd say that my my my my My My focus now is on creating a solid foundation in Germany in France, because this is where we have offices.
If I just to make a theoretical speculation on that.
During these geopolitical sheep, there I think that the middle East.
Will become the new frontier of the new bridge between the east and West and.
I do think that.
Sooner or later, we have to take a look there but as of today you guys. We do have a lot on our plate in.
In Germany, U K middle East that is including Gibson Island as well sorry.
And as you know.
As a company, we usually don't want to be distracted the many activities in parallel because I mean, the more you are distracted or the talk was that.
Last you will perform so.
One step at a time and Christian I mean, like just as a good segue to put his concept.
<unk> focus and prioritization.
No doubt the North America kind of lead the charge.
Say that there is tremendous power in branding.
Recommendation as well right in and entering into territory. What we've learned over time is it's not only about our ink our in field force and hiring folks and it's also about the breaking through the geographical brand perception and that all in all regardless of how you go about it agency non agency direct takes time, so let's see.
Even with our latest move in APAC with our office in Melbourne. Following the <unk> acquisition, we understand the model out that that grows that needs to go through a market recognition and branding affirmation that that is that is all the work and so you can't do that I guess my point is you can't do that at this stage.
Tying many places where you guys kind of build the franchise <unk> franchise model, where you go and execute according to formula and the Formula has to be repeatable and that Formula has the timeline and then we check against the timeline and that formula and it will all come back to <unk>.
Progressively.
The way, we look at it Christian I'll just end it to say that.
Always never forget that North America grew at 70% last year, there's a lot of a lot of momentum desktop Oh yeah.
Hey, good traction all over and over so youre getting at.
Follow on here, just curious on skills wise it sounds like that acquisition made a lot of sense a couple of months now.
Stood up a team in Australia overnight, so just wondering.
One if you know how that's all coming along how the integration is coming along and then maybe as a follow on if that's the type of acquisition you might be looking out for in the future.
Yeah. So so yes, yes, yes.
Yes.
For the future to enter new territories.
As a vehicle to enter territories that accelerates execution, no doubt that needs to be again, a fit rate of people of timing of geography of the market analysis of their territory and all of that no doubt.
Then with regard to skills like in itself not only we stood up a group of capable folks that have a deep expertise in the industry that and understand the chamber really well to what are already actively selling to table, the new old implement and support the shape of those things that can take anywhere between 12 to 18 months to master and we were able to accomplish that pretty quick.
With that said we are already actively creating pipeline were live as we speak or maybe it was yesterday I can remember in HR Tech Asia, and we're collecting a good amount of leads and our team is just the.
Really excited about it and.
We added also an industry leader that comes from competition to lead our field sales team. In addition to the management that existed the skills life, we really wanted to build a stellar team.
Mr Warren joined Us.
Ah recently any I mean, he is the master indie APG region at scale teams, they're significantly so.
Look we love it we think it's going to be a great success and we're going to.
Go head down and execute go Australia group.
[laughter] Thats all perfect. Thanks for taking my questions.
Yes. Thank you.
Mr. <unk> there are no further questions at this time. Please proceed.
Thank you everyone too.
To listen to us today.
Stay safe and speak in August probably well buy it.
Okay.
Ladies and gentlemen, this concludes your conference call for today.
Thank you for participating and ask that you. Please disconnect your lines have a great day.