Q2 2022 Docebo Inc Earnings Call
Please refer to the Doe Gebo 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 ifr S. P.
Please see our MD&A for additional information regarding our non <unk> financial measures, including reconciliations to the nearest <unk> RF 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 <unk> CEO Claudia.
Joe or Bob.
Hello, everybody and thank you for joining us for our second quarter earnings with.
With me today is our president and CFO and Scott our CFO .
For June represented another quarter of consistent execution and solid overall performance for the company.
Adjusted for the impact of foreign exchange.
Revenue for the quarter was in line with our expectation and we are pleased to report a positive free cash flow generation better than our commitment to modest growth with profitability.
We did experience some impact problems that athene enterprise deals.
These stretch it out of the quarter, we continued towards the evolving macro dynamics, let's say that the demand for our solution suite is solid and our fundamental growth drivers are intact and I'm.
I'm going to buy our ability to support the complex experiments in parallel and hybrid needs of our customers are learning journey.
This provides us a long runway for organic growth that is supported by a total addressable market that enables our enterprise customers to deliver extended learning that is core to their revenue generating operation and continuous productivity enhancement.
It is important to note that the total addressable market for our federal training, whereas the table is best in class is about supplies as big as the Intel or use case.
In addition to the high profile labor training and retention challenges being accelerated by the macroeconomic environment. There are several fundamental strategic driver we will keep you focused adult.
These include the training to drive customer and partner success as well as revenue enablement.
So Matt I have growing reliance on training with their own political system and they require a consequent about offering that are easy to deploy and cost effective.
Such drivers you gave that one size fits all legacy centralize the system are unable to meet the needs of today and tomorrow certifying Greenfield upsell and displacement opportunities simply layering on a nice pick up ability cannot address a lack of feature of the ability to integrate them.
To a complex evolving software stack it fearing that in another 10 days after like the table is easily position it gain mind and market share.
While implementing our solution canceling it or not weighted down by silos Martinez.
Leverage at Federated ownership model, where a single LMS Saturday as they move to the bottom end system with multiple odor addressing both external and internal use cases, as well as displacement and greenfield opportunities.
These are integrated ownership expand our rental platform our reach across multiple buyer persona inside the organization each with data own unique voices and nuances.
In addition to creating this key care customer. This is also adding to the number of internet customer engagement in the sales process, including the CTO, our CFO , whose focus is to streamline and consolidate their tax tax.
And while this makes for a longer sales cycle. He can bring game pause as to the nature of this strategic partnership that those customers are looking for.
In short our opportunities are many and we are executing well against the growth strategy. We have set in place to capitalize on them. We are doing this by gaining share in a large underpenetrated market, where the current macro environment provides an opportunity to gain valuable minsheng.
Keeping our priority focus on growth and making the investment to drive that outcome without sacrificing profitability and maintaining a strong balance sheet now supported by positive free cash flow generation.
Through our balance of investment we are positioning ourselves extremely well for the upcoming cycle and we are generally excited about how this environment will serve as a catalyst for further innovation and disruption to the legacy LMS is status quo.
Now I would like to turn the call over to Phil who will give you an operational update.
Thank you Claudia and good morning, everyone.
In my prepared remarks for you today I want to lay out three points upfront.
First.
The business of customer education, and revenue enablement, our priority investments for our increasing base of enterprise customers.
Second.
External use cases.
Clearly stronger in our analysis of the market with a large greenfield opportunity to capitalize on and a Tam that is twice as large as the internal use case market.
Third.
Customers that adopt more than one use case yields a better unit economics and are exponentially more sticky.
During the quarter, we saw deal cycle lengthening the enterprise segment with more decision makers, specifically CTO and cfo's getting pulled in for approvals.
We do expect to see this trend continue as a result of the wider macroeconomic pressure.
That set or engage more frequently with corporate executive teams to provide a learning platform that spans across the wider organization.
The move to consolidate their technology stack in this economic environment plays really well to our strengths as follows.
First learning solutions must be flexible enough to integrate into and serve the needs of both internal employees and their customers network.
Really handling multiple use cases on a global scale.
Second we are increasing productivity and efficiency both for our customers as they look to move away from unsustainable all school leg of solar masses in favor of a more modern architecture.
Finally, the table provides ease of deployment and delivers a favorable ROI in a fast time to value.
During the June quarter, we added 169, net new customers with more than 60% of our deals are coming from our mid market and enterprise segments.
Cross sells and Upsells, both performed well as our sales team improve their effectiveness in how they position our expanded learning suite.
While our go to market motion is improving we know we have a tremendous opportunity for upside, especially as we focus on ramping our sellers and Upskill our organization.
A good example of the excellent progress we made this past quarter is chipotle is decision to implement a <unk> to replace their existing LMS.
Their goal is to offer immersive learning and development opportunities by up skilling their employees for future roles within the company.
With this win we're emerging as a leader in the quick service restaurant industry, what we signed over 50 customers.
In addition to Chipotle. Other notable customers include Dennis IHOP, Smoothie, King and one of the largest burger fast food chains in the world comprising of several well known name brands.
Geographical expansion has always been one of our pillars of growth.
A demonstration of our increased presence in the European markets in the fully loaded deal, we signed with British United Provident Associations limited more widely known as bupa.
<unk> is an international healthcare service company, serving over 38 million customers worldwide that shows the chamber full suite offering for its innovative design and easy to visualize analytics.
We were extremely happy to displace the legacy competitor and when the Onboarding use case of a large publicly traded U S based mortgage services organization we.
We initially signed with this customer a year ago for an external solution for trained our customers.
Quarter, two we expanded this relationship to support their internal Onboarding compliance and professional development use cases.
It is a combination of our selling motion product architecture and that too functionality that enables us to displace legacy incumbent like in this project.
This is a great example of how we work to create a very sticky long term relationship with large enterprise customers.
And lastly, a week ago Amazon Web services went live with the launch of AWS kills build their subscriptions.
By the shovel.
AWS introduces this premium paid subscription for individuals and teams looking to bulk storage or cloud computing skills.
This launch demonstrates that there is a table learn platform is enabling the success of one of our most advanced customer environments and is a testament to the dedication of our product engineering and professional services organization.
Turning to our product investments and strategy. The past two years I've served as a tremendous learning cycle for our entire product management and development work.
We're improving new module performance with direct customer feedback on the learning experience and our roadmap is focused on both our monetization of capabilities within use cases, and innovation, which is core to our DNA.
We're also seeing new and existing enterprise customers choosing to include products like the Trimble connect whichever content in shape for the trading programs that right from the start, especially after having made a commitment to upgrade from their under featured legacy system.
Geographically North America continues to be our strongest and best developed market with the largest greenfield opportunity.
Turning to Europe traction in both the U K and Nordics market has been excellent.
Both had strong quarters characterized by some large enterprise deal wins.
We will leverage the success as we look to other European markets, such as our recently formed the dark region.
In the APAC region, we're seeing our modern architecture stand out incredibly well the team with built in Australia is particularly strong and works exceptionally well with our growing partner network across Australia, New Zealand and a wider APAC region.
OEM partners delivered a very solid quarter, adding depth and quality to our pipeline as they expand our reach into the enterprise space.
We're pleased that <unk> has joined the table to lead the OEM technology partnership practice.
Aaron brings over 25 years of SaaS and software sales and partnership experience across many industries and technologies from startups to mature companies such as SAP.
Eric will concentrate on increasing existing partnered value as well as bringing onboard select strategic partners.
Turning to more directly into our sales team. We're pleased that with the key people additions, we've made and the traction they've delivered so far.
The executive talent that we've been able to recruit will further mature our go to market motion and customer experience.
More recently this has included investments in marketing, where Ryan Brock was named our new CMO.
Bryan joins our team after serving in marketing leadership roles at companies like data miner.
Pete.
He is immediate focus will be on driving demand generation and elevating our brand visibility as well as partnering tightly with our chief sales officer, Nina Tomasko to accelerate growth and announce our go to market machine.
In conclusion I want to summarize why we're so excited about the future of our company.
Through the table learning suite.
Italy position support our customers' end to end learning needs.
While others in the tech industry are slowing or even stopping investments in hiring the tebo will continue to invest responsibly by managing performance very closely and hiring key talent to drive long term growth.
I would now like to hand, the call over to <unk> for a review of our financial performance.
Thank you Alicia and good morning, everyone for those interested a detailed breakdown of our financial results for the three and six months ended June 32022 can be found in our press release <unk>.
<unk> and financial statements, which are now available on our website and also filed on SEDAR and Edgar.
A slide deck accompanying this earnings call was made available on our Investor Relations website. This morning.
We were pleased with results for the quarter with revenue growth and profitability, reflecting the balanced approach to the way, we invest and manage our business.
The weight of the macroeconomic factors aside there is one thing our new and existing customers are making very clear.
Technology investments more specifically software investments that increased productivity enhanced sales enablement and drive revenue generation or the investments that they are committing to their organization.
With this secular trend as a tailwind we remain confident about our long term growth prospects.
Now to the results.
Revenue increased by 47% after adjusting the impact of foreign exchange and excluding a onetime cumulative catch up of $1 1 million that was previously disclosed in our Q2 2021 filings.
As reported total revenue for the first quarter grew to $34 9 million an increase of 36% from the prior year subscription revenues were $31 9 million, representing 91% of our total revenue for the quarter.
Annual recurring revenue for the quarter was $138 2 million an increase of 51% after adjusting for the negative impact of approximately three percentage points given the significant strengthening of the U S dollar relative to foreign currencies.
Our company wide average contract value or <unk> increased 21% after adjusting for the impact of foreign exchange.
As reported companywide Adv was up 18% to approximately 45000 from 38000 at the end of the second quarter of 2021.
ACB for new customers in the quarter was approximately $45000, new and cross sell logos with a greater than $100000 represented approximately 30% of the net new IRR.
<unk> from new customers declined sequentially as a result of the lower contribution from deals valued over $100000.
This is a direct result of the elongation of the enterprise sales cycle, we previously discussed.
Although this percentage may fluctuate from quarter to quarter. The sales pipeline in the enterprise segment remains healthy and our win rates are strong, particularly when external and hybrid use cases are involved.
For a bit of additional context more than 80% of our IRR comes from customers with multiple use cases with 61% of our total book of business coming from external hybrid use cases.
And in effect reflects the stickiness in our platform and strategic role we play with our customers.
Gross profit margin for the second quarter improved sequentially to 80% of revenue, which is consistent with the prior year period.
Total operating expenses for the second quarter decreased to $25 9 million from $26 8 million for the prior year period.
Included in the $25 9 million of operating expenses is a foreign exchange gain of $4 9 million relates primarily to the cash on our balance sheet and therefore for the most part unrealized.
Operating costs. Excluding this gain were $30 8 million slightly higher than the 29 million in operating costs reported on a comparable basis in the first quarter of 2022.
G&A as a percentage of revenue declined to 21, 7% for the second quarter compared to 23% for the first quarter.
Sales and marketing expense decreased slightly as a percentage of revenue to 42, 6% from 42, 9% for the first quarter.
R&D investments in the second quarter were $6 1 million or 17, 5% of revenue compared to 19, 3% in the first quarter of the current year.
With the bulk of our R&D team residing in Europe , and the strengthening of the U S. Dollar we experienced a two percentage point benefit in our R&D organization.
Adjusted EBITDA came in at a loss of <unk> 3 million for the second quarter of 2022 compared to the adjusted EBITDA loss of $1 3 million for the first quarter.
We reported a net income of $2 1 million for the second quarter of 2022 compared to $7 million net loss for the first quarter.
We ended the quarter with a healthy cash position with net cash and cash equivalents of $212 million. While the cash continues to generate positive interest income in this rate cycle, our strong capital structure gives us the flexibility to invest strategically.
I'm also pleased to report positive free cash flow.
<unk> dollars 9 million in the second quarter, which was ahead of plan.
The natural growth in our business has allowed us to achieve the level of scale that is beginning to deliver operating leverage.
Before opening line to questions I want to close with some thoughts on three items.
First share based compensation a question that has been coming up more frequently since we reported Q1 results back in may as investors evaluate some of the embedded cost high growth companies have had to bear to attract and retain top talent.
Our share based comp as a percentage of revenue was approximately 4% in the second quarter, a relatively modest number when compared to peers with similar high growth rate to the table.
To ensure interests are aligned we will always balance the use of equity compensation to drive performance with the goal of maximizing value for our shareholders.
The second point I want to leave you with is that as the U S. Dollar continued to strengthen into the second half of the year.
Our as reported revenues and expenses will be impacted.
With rates at current levels.
Revenue growth will see similar headwinds, while R&D investments, we'll see some benefit as these roads are mostly located in Europe .
And lastly, we expect to deliver modest improvements in EBITDA and free cash flow as we move forward through the second half of this year.
Our focus remains on making investments that will drive long term growth, while maintaining optimum unit economics.
That concludes my prepared remarks, I'd like to turn it over to the operator now to take some questions from the analysts.
Operator.
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 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 <unk>.
Using a speaker phone please lift your handset before pressing any keys as a reminder, we do ask that you limit yourself to one question and one follow up one moment for your first question.
Your first question comes from Daniel Chan with TD Securities. Please go ahead.
Hi, good morning, guys.
So you commented on the macro uncertainty uncertainty lengthening the deal sales cycle can you comment on the pipeline. However are you seeing a change in the composition of your pipeline in terms of enterprise mix.
So danielle.
No I'll just speaking.
Actually the pipeline is growing.
We were focusing on in our lives in the pipeline in the past few days.
Because we wanted to understand if the macro environment has impacted the demand.
Only extended at this stage the psychology.
Especially in the larger enterprise deals.
Which we see.
Deals above $100000.
CTO and <unk> stepped in to.
Negotiate the best there.
The deal in the contract so.
We see an extension on the in the in the in the procurement phase we do not see any decrease in the pipeline in terms of growth.
And <unk> did you cite the fact that the total addressable market expansion is the Standalone used case is mostly greenfield. So there is demand for the product.
I don't know by end of this out a little bit more careful because they don't know when.
You can actually the hedging that auto where.
No.
Macroeconomic situation will shape in the next few quarters.
Do you want to chime in and and extend our vehicle margin.
Yes.
100%.
On top of what cardio shared.
I'd like to add.
Not only were seeing.
<unk> pipeline remains strong. We're also recognizing that we have margins for improvement and upside we have instilled a new CMO and our bolstering water demand Gen and business development teams investing in these teams to really continue to focus on pipeline creation.
So net net these pipeline continues to grow.
Margin for upside and we're working very hard on it.
Yes, sorry, one one points to your China.
Do you say a good point, which is yes the pipeline is growing.
Do we add the opportunity to make a deep pipeline. If we were to back that into Anthony with the coordination between sales marketing demand generation et cetera et cetera, yes.
We do have the room to improve.
But I think we made with an eye on that.
With me.
And also we can still hadn't zone and not leaping to Titan zones in Europe and Italy.
The efforts that we're putting in place to increase the pipeline because I mean, it's up.
It's still a greenfield market, especially the extent now use gala and the total addressable market is so big that.
We have all the leverage we need to improve internal operations and create a bigger pipeline, let's say.
The size of the pipeline today compare to the past year is easing planning season, we are happy about that.
That's very helpful. Thanks, guys.
Also mentioned that the OEM channel was very strong can.
Can you just give us an update on how meaningful ceridian as to your sales. They continue to perform very well last quarter with a large proportion of their customers taking on their full suite, which I believe includes your solutions.
Just wondering if there is still a large contributor.
As they had been in the past thank you.
Yes, John I'll take this one so Karen good morning.
The OEM side really strong performance across the board from the third and you mentioned, an MSR that broad scale, while we had a pretty good quarter with ceridian.
I don't know generally are giving you an inside their fab.
After that one of the bigger contributors to the IRR story in this stay consistent that way. So we were very pleased with the performance this quarter.
Yes.
Okay.
Okay.
Thanks.
Yeah.
Your next question comes from Martin <unk> with ATB capital markets. Please go ahead.
Good morning, everyone and thanks for taking my question.
We've had this question so many times in the past it's great to see you guys give some.
Detail on size external enterprise.
Can you kind of unpack that Tam a little bit for us can you give us some further detail.
Got it and can I can I say something that we are moving to the investor.
Relation.
<unk> cloud, we can see some of the stuff. Okay go ahead.
Martin you May you may begin.
So speaking of ultimate macroeconomic news on Sundays depressing total addressable market is exciting so.
What we see is first of all you have to know that 61% of our revenues and 80% of our use cases, so Karen correct me, if I'm wrong with the numbers.
Uh huh.
Hi, Brito that means that we are co.
Covering at least one external use case.
So to the bottom line. So one is definitely one standalone is heightened before us.
External use case only in United States is two time of lending.
<unk> one so if we see as the total addressable market in the United States like North America U S and Canada, mainly.
<unk> 8 billion to 10 of these.
Is external novel, but the exciting data is not the only debt.
Is external and we are very good on those use cases, much 70% Greenfield.
I wasn't speaking with the BTR team yesterday in Toronto, and just say you know every time a customer called me for an integral escape and teaching them also for the next several months training.
We are shocked because they never think that there is an external training opportunity and so for us. It is a great segue to increase the ACD during our sales pitch.
Potential during the speech so just to recap.
North America Peter external.
Peter this 70% Greenfield markets means gas taller.
Yes.
Or not yet.
Using <unk> managed to train the bottleneck cash collateral or other audiences.
AWS training.
There's still build a payment service that day loans.
<unk> is not about getting only customer, but also people that want to be tactical out engineers.
The audience is incredibly good.
And.
I'll just say, we'll leave some of the finer details for our Investor day, which will which will happen in the latter part of this year.
More details will unpack at that point.
That's great.
Give a follow up to that.
Technology vertical is quite significant for you guys and I believe it skews to less mature companies.
Those companies are.
Sharpening their pencils more than most.
Can you talk a little bit about the strength.
Or if you're seeing any weakness in that vertical.
Do you want to take it.
Yes.
Look when we talk about our ability to manage multiple use cases, we also oftentimes refer to the concept of <unk>.
Hybrid use case.
We use that terminology internally to refer to the ability of an organization to effectively consolidate multiple needs whether its various internal use cases, such as Onboarding enablement professional education compliance to name a few or external use cases customer.
At the partner AD and others to name a few into an all in one solution. We've referred in the past to this all in one of Federated solution, meaning a platform that effectively manages multiple call centers learning needs in one platform that itself is a research.
To improve the approach to the market because it allows an organization that may have in fact, the different point solution to reducing complexity and working with one quality vendor with one quality platform to deliver effectively the same our goals. So our let's say recession proof.
Bonds is two.
Navigate those customers that are having challenges.
Challenges or concerns and actually transforming that concern in an opportunity for us.
Yeah.
Okay, great. Thank you that's all for me I'll pass along.
Your next question comes from Stephanie price with CIBC. Please go ahead.
Good morning, Congrats on that Chipotle ran the press release mentioned that it was a replacement can you talk a little bit about why chipotle chose to shape out and maybe as a follow up can you talk a bit about the percentage of wins that are full LMS system versus a more targeted use cases, but I think you typically provide.
Stephanie.
I will answer the last part of the Gladstone and that as we go.
I can only use case.
I see the marketing do Lee.
Uh huh.
We don't like it.
It's a big lift for us as legacy Decentralizing project, which you define few elements. We are excited to own department that means customer net buying.
Let's say able to train on hard skills.
We are also excited about external obtaining so what did issue. This morning LMS in General Global project. This is not the outlet sweet spot on it and you got to take the Chipotle one.
Sure.
Tony.
We're also super proud of winning the business of Chipotle and whilst you can appreciate the can say, which vendor we have displaced.
It can also tell you it is one of the.
More frequent enterprise base.
<unk>.
Vendors that we deal with.
I'd say the theme around the displacement is also very coherent and consistent with others that we see particularly in the enterprise space.
And those teams are the ones the cloudy or partially mentioned our ability to flex architecture to provide a distributed environment to be generally speaking more agile in both the deployment and in the capabilities of the system.
I could oversimplify by saying a modern system versus a old school legacy system, that's more rigid more interestingly, perhaps from a <unk> standpoint.
So kind of double clicking on the specifics of Chipotle is.
<unk> at certain needs in the area of reporting and in the area of analytics management that are quite specific to how they run their business manage the franchisees and have to run analysis of productivity of their people on a location basis for example, and so the table provides a certain type.
Of management in our organization chart grouping, it's fairly hard to do that positions us from a capabilities can go into in a very unique place and there is no.
It's not a surprise that as we quoted in the in the script. We've won a lot of business in <unk> and we believe that space continues to be really hard for us.
We are making.
Intentional marketing effort to win more and more of it.
I hope that answers Stephanie.
It does thank you very much.
Thank you Stefan.
Your next question comes from Richard <unk> with National Bank Financial. Please go ahead.
Yes. Thank you so it looks like you are still fairly.
Motivated in terms of spending to serve harvest the opportunity what are your thoughts here on your LTV to CAC as you sort of move up can you maybe share some trends that you've seen.
Finally, and perhaps what youre sort of targeting for as we look ahead.
Yes, Richard I'll take that question for Karen here.
In general we will provide some more information about our LTV to CAC. When we report Investor day, but I think there are some data points that will help you think about it.
And I'll come back to the question overall about growth versus profitability youre getting to from a.
Without getting to that through the CAC, which we havent disclose publicly yet, but I think one general a data point that will help you is that as we think about how we are tracking from a net dollar retention perspective, we're tracking consistent or slightly higher above what we had reported last year of course, we disclose that once a year, but that gives you a flavor of that we continue to see strength on the expansion side of the business as well as.
What is important to note in one of the data points that give an addition.
<unk> was that 80% of our customers use us for multiple use cases with 61% of that customer using us for external and hybrid use case and so when you think about that that also drive.
That net retention ratio strong for us effectively gross retention is extremely strong for us and that's important to note when we think about the overall.
The investment that we will continue to make I think the cornerstone of our long term strategy has always been to manage the table as a rule of 40 company and we will continue to do so when you heard you talk about the fundamental growth drivers being.
And they're intact, where we see the external use case being twice the size of the internal use case.
I think it's fair to assume that the table will remain a rule of 40 business.
With growth being the bigger contributor and the focus from our perspective with us driving some incremental leverage operating leverage and profitability into the rule of 40.
Scott on the May add one point that you made.
There is a direct correlation to the number of use cases, we cover and keep your eye performance average Upi performance that means the more use cases with gogo.
For all the positive you can keep your eyes goes to them.
From <unk> strong NPV HCV shall endeavor thing so.
You've got a correlation and this is why I am happy with the table not only Cobra.
Sales and marketing Dunlop Brunswick Standalone.
Okay. Thanks, and then my follow up question is sort of tied to that.
If I sort of look at the name you know, let's say four five years ago. When we start looking at it it seems like you've made some I think meaningful.
Meaningful changes as you get bigger in terms of the go to market.
Maybe talk about how that's evolved over time.
And then what we should expect here going forward over the next 12 to 24 months.
Well.
Hey.
There is a that Jamie is a direct correlation.
Product capabilities and the market you can call them at the table is a very endesa endesa.
In a positive way sophisticated solution memorial sophisticated LIBOR, you called that an EBIT sophisticated buyers.
Business.
People company don't need the Chipmos com.
Complex business that require scalability of Moody's gave us.
Yes, the market with the world.
The concept of <unk> learning that means a one technology that over multiple use cases and that from the internal uses standpoint does that mean he is perceive it as is all technology because it is so tied to these days that the admin C diff.
The table as is all technology doesn't ended that that's another piece.
<unk> is using the same technology with the deep learning solution or use case. So the more we evolved the model we go up market.
Next challenge is not only going upmarket, but the more we evolve the model we wanted to cope with multiple use cases in the organization.
Yet to say what is the biggest.
Duty of the chip in the next three year, either expanded used cases across customer organization.
So not only expanding up market in terms of sites, but expanding use cases.
All of the organizations.
Great. Thank you that's helpful.
Your next question comes from Josh Baer with Morgan Stanley . Please go ahead.
Okay.
Hi, It's Matt Wilson on for Josh Baer. Thank you for taking our question.
Thanks, a lot.
<unk> sales cycle it sounds like it's mostly impacting larger customers at this point and you talked about expectations for longer sales cycles to persist throughout the year.
Do you think this trend could move down market and impact kind of like your smaller customers and.
And maybe just a little bit more details about the nature of the deals that are kind of getting pushed back is there a certain customer verticals or geographies, where you're seeing these.
Elongated sales cycles more more more frequently.
Thank you so much.
Alex <unk> speaking.
Sales cycles have been have been a theme in this environment Youre absolutely right.
The reason why we're seeing that in.
Generally speaking deals above 100, K and or you can associate that what are more of an enterprise type customer.
Customer is we are seeing.
Companies are changing or making the buying process more complex within their own environment.
And.
Among those changes is the inclusion of our introduction of C suite there wasn't prior necessarily involved in certain spend the thresholds.
At all levels and this is causing more.
Authority matrix.
Involvement that do affect the way the sellers bring a deal over the finish line.
We believe this type of behavior is matrix of approvals.
Is more typical of larger companies than the smaller companies and we attribute the fact that we haven't quite seen that issue in the smaller market again for the same reason I just mentioned I can't predict the future and I don't know that anybody really can and I can say, whether this is going to chase.
<unk> in the small market and mid market are not as of right now we haven't seen that signal, but if we do we will certainly report that.
With regards to what we're doing about it right.
We're getting earlier in the cycle to try and understand exactly what the process in the company is and we're not just to check in but we are double checking and triple checking in checking multiple times with the ROE that the signature is over.
What we're finding interesting sometimes the buyers in this environment, even quite low themselves because things are changing on the Rand without frankly, a clear communication inside these companies and so the elongated cycles are also a byproduct of the confusion that governs inside these companies the wear.
Three months ago, you used to buy in one way and now its different.
But we remain optimistic because we believe it's a timing factor and we will control everything that we can and I think the only point that out to that is that in this cycle.
From our perspective, it gives us a position of strength as you think about the tables of Federated LMS, where we can consolidate various platform. What is also happening is that <unk> and CFO stepping in and asking the question of why this <unk> concept all their needs and why they need to have multiple platforms.
Firstly, where our platform solves for our revenue generating operations of their businesses. This from our perspective, the consolidation of the LMS space will also help us as we move through this kind of cycle of more C suite stepping into the approval process.
Okay.
Thank you that was helpful. And then maybe one more we saw the chief marketing officer announcement yesterday and congrats on announcing that.
You hired a chief sales officer earlier. This year can you kind of talk about the strategic priorities going forward for the go to market where are the incremental areas of investment.
I'll, let Neil.
I mean for us.
Monarch Plaza.
Our pleasure perspective, sorry, global perspective that we need that we need symbiotic in the organization, we need ultimately we need the people that join the organization look at out of that.
Yes.
From a different angle don't forget that cloud <unk>.
So and this is not that large month I mean, three years also garner looks like 15, yes.
<unk>.
We need to do the outflow and.
Yesterday, Nina stopped with me.
Yes.
The office in Toronto, and then she started.
We have this opportunity that opportunity that opportunity.
When you are doing it by all the activity and you look at the table and as you have always would get from the day. One that you don't see it and you don't have <unk> so for us again.
Get out and we want this kind of Super <unk> culture to execute test drives people in the organization and its already taken place.
Awesome. Thank you Paul.
Great question really appreciate it first off I just want to reiterate how proud we are to have.
Those folks having joined US Ryan Neenah, and other senior management leaders.
The goals you asked and what are the priorities at a very high level. We're preparing the organization for the next phase of growth we stated in the past.
We're a 100 plus maybe you didnt hear or what do we need to get the 500 stage and beyond.
That's point number one.
For two.
And of course cloud point is also equally Paramount right the general needle seniority.
Point number two is preparing the company to continue and what is needed to execute at scale and continuing to go up market.
Creating a true enterprise motion implies a lot of work on many fronts not only sales we need to revise the overtime and evolve how we show up and we need to work hard on continuing to affirm our brand globally.
Which is a lot of work and requires people that know how to do it and build the teams around that.
That can easily continuing to scale demand is a hard job and the balance between demand and salaries and seat is a job that requires deep alignment between CMO CSO.
And we believe that we Ryan in Mena, we have the right people to execute on that.
Nina.
Brings the experience of working in very large organizations like S&P like MTT.
And you know when you work with these leaders you understand very quickly they see immediately the opportunities of scale.
And so all in all this is Matt.
Any opportunities.
Focusing on verticals, focusing and approaching certain markets like government to that.
We just need to execute with leaders that have been there that have done it and to grow faster.
Yes.
Thank you.
Ladies and gentlemen, as a reminder, if you do have any questions. Please press star one.
Next question comes from Christian <unk> with eight capital. Please go ahead.
Hi, good morning, and thanks for taking my questions I just wanted to ask on the competitive landscape. There maybe you could frame that in the context of how.
Many bidders you're seeing at the table for work or win rates. Just are you seeing any changes in the competitive landscape for your product.
So.
We see competitors without becoming more and more aggressive and more good means to that today.
Learning how to compete against US, which is a great thing because it means.
The competition puts pressure also to us to improve our sales just too.
But are you a teacher use case by use case.
<unk> la budgets Gaza, He's a consolidation game cornerstone edge.
All of the legacy.
I always use the word dinos.
Our legacy competitors.
So <unk> some thoughts on that now part of.
These are again inflation.
There is only another player which is the Sap's axa sponsored but this is a game that we play but we play in.
And then as a strategy, which is the OEM ing with HCM.
Which is a strategy that pays back very well.
Departmental use case, we see stronger competition in lung vertical segment, specifically, we changed the sales enablement.
It's a big and fragmented market, we mainly play yet.
<unk>.
It's not all in the last name I mean sales enablement.
Set of tools from coaching to content to add them that.
That when you have a great story that linger.
That speaks only one language the language of the sales enablement training Department.
We sometimes suffer.
Gains that those competitors this eva.
Then there is a consolidation of the move to department purchase.
Those players cannot extend inside the organization.
Also customer community is external use cases.
And acquire vertical features and specific knowledge.
These are this is a competitive landscape and competitive dynamics.
And I think Thats the feature gap compared to say the enablement is equal.
We think that the we were already especially with such a learning disabled contingent switchable cogent shadow very well positioned to support this Bob.
If I have to imagine competitive landscape I would say that the biggest pressure is a seasonal momentum cancel that economy.
Let's say that I do want to go more in detail about that.
I'd just like to ask Claudio just incrementally that changes and we are right Chris.
Christian we remain really really happy about our win rate.
We are well above industry standards and.
And continue to watch it and monitor it but we're very positive that despite the dynamics. The cloud you mentioned win rates are still really good.
That's great. Thanks for the color and then I'll ask one follow on.
Maybe more for Karen just on the gross margin profile of the business.
In the near term to help us think about the model, where gross margins can lines and I imagine that would be balancing scale with the support work or where do you think that could trend from this quarter.
Yes, I think.
Yes.
Christian we generally don't give guide, but I think in general I've been consistent and we stay consistent messaging, we're very comfortable in where the gross margin is low 80 percents.
You'll see some operating leverage as we move into the future not in the immediate future, but I think where we landed this quarter, we're very happy with it.
More than happy to leave it there and continue to help our customers from investing in professional services as we help them from a customer success perspective that actually yields.
Our long term opportunities to make sure that we are happy customers.
Help them through their learning journey and expand them over time, so more than happy to give our gross margin in low 80 percents.
That's helpful. Thanks for taking my questions.
Your next question comes from Susan Sue Kumar with Stifel. Please go ahead.
Good morning, guys and congrats on the quarter I wanted to touch on.
EBITDA EBITDA and cash flow for a second year I think you said in your opening remarks that you guys do expect to see modest improvements.
And EBITDA and free cash flow in the quarters ahead, which I believe you said, obviously ahead of schedule I'm, just wondering if there's been any change or or.
Timing change and kind of pace or timing of investments or is this really just a reflection of the operating leverage that's building into the business.
Yeah. Good question I think.
Jen answer from our perspective as we.
As you think about us.
Operating leverage that's come in the system. We of course work very hard to continue to optimize those unit economics majority of the leverage that you're seeing come through as you can see in the numbers is G&A right and some from R&D as well and so as you think about the future quarters as well I think that the general operating leverage will continue.
To come from G&A, and small bits from R&D and.
And in Cogs, I think from a free cash flow perspective.
I'd like to look at it from an annualized basis and you would've seen in first quarter, we had some prepayments et cetera that go out and so it's lumpy, but I think.
From a directional perspective free cash flow.
EBITA will incrementally or modestly improve as we move forward.
Okay, Okay, great that's helpful.
And.
Also did you guys touched on some metrics with respect to to cross sell.
Can you talk a little bit about some of the traction that youre seeing on the expansion front, especially with the new product suite and are curious to know what sort.
Products and modules are you guys seeing strong attach rates with.
Sure.
Has done a lesser speaking.
When it comes to expansion.
I think you correctly sort of imply that and we view that world in Upsells are meeting their needs to grow in existing customer and cross sells or develop relations and net new contracts.
That stem from an existing entity on both fronts, so things are going really well.
And the second one is a slightly different sales motion right. It is a lot closer to what one would call in that new logo in the sense that we're having conversations with lawyers that are effectively using the platform yet.
It's not one of their sister companies are affiliated entities are using us so we leverage that and we get better and better at doing that on a scale of these as we we've introduced technologies and methods for.
Proper account planning, that's a tactic that kind of a prerequisite to scaling through improper cross selling and we're pleased with initial results of that of that App.
On the upsell from Youre, correct that new products and new modules are a big driver of it it's not the only one that because we monitor and manage adoption of our softer and we like to report that many of our Upsells are actually users plan increases, which is a testament to the fact that.
Our customers not only by a softer they use it they adopted exceeded users plan and they come back in for more usage.
We'd like to improve in the future, where we believe we have an opportunity in product strategy and the end and go to market motion improvement is to really tie batter our ability for increased use cases, and let's say jobs to be done in a rewards.
We have capabilities that yield incremental value and incremental monetization.
So thats, a little bit our thinking about it but today products like connect product like the cable content.
Really really fantastic outcomes.
But that is started as a <unk>.
Other green product, but continues to evolve.
And capture and capture.
Market share those are the ones that we're seeing.
Across the newer ones.
Seeding the most and then we have.
Our existing products in our in our product mix like extended enterprise and coaching share and Salesforce dot com that are continuing to do really well.
The recap when both Upsells and cross sells.
Great.
Thank you for the color.
Ill pass the line.
Sounds great.
Mr. <unk> there are no further questions at this time. Please proceed.
Ken here.
Yes, I think you're on mute.
Alright, sorry I.
I will say that first of all thank you for standing there Nicole <unk> got many questions. So you kept us very busy today.
Which is good because this evening and thank you so much for attending these earning call.
Our next quarter. Thank you so much.
Thanks, everyone. Thank you.
Yes.
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.