Q3 2022 Docebo Inc Earnings Call

Good morning, everyone and welcome to the Doe Cable Inc. Q3, 2022 earnings call. All participants are currently in a listen only mode. We will open the line for a question and answer session for analysts following the presentation instead.

Instructions will be provided at that time for research analysts to ask questions.

We ask that analysts please limit themselves to two questions and return to the queue for any follow up.

I would now like to turn the conference call over to do tables, Vice President of Investor Relations. Mr. Mike Mccarthy. Please go ahead Mike.

Thank you operator before we begin the XJ, what we'd 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.

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

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

We believe these measures provide useful supplemental information about our financial performance. They are not recognized measures and do not have standardized meanings under that for us. Please.

Please see our MD&A for additional information regarding our non Ifr's financial measures.

Reconciliations to the nearest U S. R S 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 and founder Claudio.

<unk>.

Hello, everybody and thank you for joining us for our third quarter earnings call with me today is the last year or two for our president and COO and Scott on meet our CFO .

The team continues to execute well in an environment that is increasingly impacted by macroeconomic headwinds.

Even in the face of those challenges, we delivered strong revenue growth and free cash flow. We are especially pleased to report positive adjusted EBITDA that was ahead of schedule and surpassing consensus estimates.

Adjusting for foreign exchange it with an even better year over year growth of 44% consistent with what we saw a sport that deal cycle elongated inserting segment as global macroeconomic issue is wasted on decision making.

But it will remain a top priority for the table. What is also important for US is to continue to demonstrate the operating leverage and drive profitability as a means of unlocking value for our shareholders.

This is Don system with the stable long term journey, which is back to characterize it as one of balanced growth complemented by our strong balance sheet World class capital efficiency and the large underpenetrated thought that addressable market.

Our competitors continue to offer a legacy solution.

We did a decent business.

Now in consolidation mode that we had was first of all the advantage that is driving organic growth and defining Oh gosh. The last can you get to implement the shape of modern architecture.

These are the time to push our strong competitive position.

These people innovation and we are concentrating on a few key areas as follows.

Paul one lead by innovation and you still gave Oh Wow, our solutions address the needs of the customer specific use case.

When she debuts this outcome. We are doing these are quite effectively in areas such as the customer education franchisee and quick service.

Yeah.

<unk> doubled down in our enterprise segment, while we continue to see large greenfield and external use case opportunities ahead.

And finally doing stuff did you get responsible hiring the necessity to drive long term growth objective in both R&D and sales and marketing.

As some of you may have seen during our <unk> user conference last month.

Please mcdonalds joined at the table Fabio appear out of bundle fees.

<unk> product all pizza.

As a senior vice President he brings with him a wealth of product design and strategy experience joining us from what they were in was part of the product leadership team for what they've flagship core HCM product.

And we need a few months ago and Ryan Brock.

Ingalls senior leadership roles in sales and marketing.

Delighted to announce that we have expanded the leg feels the role as our president and Chief operating Officer, you will work, even more closely with me to drive the operational efficiencies revenue growth necessary for the chamber to achieve ease of Bichons.

We also extend our thanks and appreciation to people that bought his contribution and wish him well in his new sharples.

In closing I want to emphasize that we remain growth Falcon. Our commitment is to continue to deliver sustainable growth, we've steadily improving profitability, while the near term outlook may become incrementally more challenging.

Customer employee shuttle.

Yeah sure it does need to be proactive in making the adjustments necessary to achieve those objectives.

And now I'll end the call, but the cool Alexia.

Yeah.

Thank you Claudio and good morning, everyone.

Before I begin I want to thank my colleagues and board members for Entrusting me with their role and responsibility as President and Chief operating Officer.

Sales and marketing will continue to report to me through the strong leaders were put in place.

Going forward, though I'm working more directly to align the tables day to day operations with Claudio strategic vision.

Now onto the discussion about our third quarter results.

Quarter three was another strong quarter for the chip, reflecting our continued focus on innovation and execution.

This is especially true with our larger customers that are tapping into our external and hybrid capabilities and then leveraging our internal use case solutions.

This enables them to reduce complexity in their tech stacks and drive better return on investment during this period of uncertainty.

Q3 is generally a seasonally slower quarter.

And much as we experienced in quarter, two we saw deal cycles elongate.

We are calibrating, our execution to the ever evolving macro environment and as we look forward, we take confidence in the quality of our growing pipeline and our win rate, which remains very very strong.

As we grow we continue to strengthen our view on how to succeed in the longer term.

Today, approximately 50% of our customer base is using that for three or more use cases.

What we also see is that these customers drive best in class gross retention and net retention in excess of 120%.

Many of these use cases positioned strategically critical areas that customers are focusing on to enhance existing revenue stream, while opening up new ones.

What these data points also highlight is that we havent bask lend and expand cross sell opportunity that we have now structured the organization to go after methodical.

From a go to market perspective, we're concentrating investment in certain key areas.

One we are creating a tight correlation between that use kidney and the chip a blocker.

This solution based approach to use cases, such as customer education.

Sales enablement franchisee and partner training package to the table learning suite is a solution that delivers business outcomes that our customers want.

Second we are integrating value engineering resources to working collaboratively with our sales teams the documents and demonstrate all ROI tied to business outcomes.

And finally, we're building out a more sophisticated that digital demand generation engine combined with a comprehensive planned investment in brands.

With new marketing leadership in place, we're now announcing the system and processes necessary.

During the quarter, we signed 139 net new customers, including three notable enterprise deals.

First is the.

The awards, leading sound experience company any inventor of multi room wireless audio.

It shows the table for multiple internal and external use cases that include compliance sales enablement customer and partner training.

Next is advance auto parts, a leading automotive aftermarket parts supplier.

They selected the Chambal for multiple internal use cases, including sales enablement leadership training Onboarding and compliance.

And the third is a leading European based sports authority.

Customer selected the table to implement a unified digital learning solution for both external and internal stakeholders.

Upsells continue to be very healthy for us as customers are already using the table are finding additional benefits to be gained by implementing our platform across multiple use cases and expand the current product offering.

This includes the Libra and innovative on demand food delivery company operating in 11 countries globally.

Not too long ago, the lever at multiple legacy and internally developed allomap as you'd like.

Today, the table addresses their needs with a singular message for internal and external stakeholders.

We also saw a significant expansion into I'm HR, one of our OEM partners in the U K, while we have been providing them with additional products and modules beyond the core element.

Geographically North America remains our largest market with external and multi use case opportunities, providing an excellent greenfield opportunities.

In EMEA and APAC, we're steadily expanding across the region in a measured fashion consistent with our long term balanced growth strategy in particular I'm very pleased with the strong prospects, we're seeing in the Nordics as we increase our presence in the region with strategic partners such as picked up.

In conclusion, we see a demand environment that what our fundamental growth drivers are stronger than near term economic.

Economic headwinds our focus is on controlling the things, we can thereby improving our position and execution.

Our long term balanced growth strategy is just beginning to show the results that we desire and we will continue evolving the table to ensure we're prepared for the next leg of our journey.

I would like to hand, the call over just the car 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 nine months ended September 32022 can be found in our press release, MD&A and financial statements, which are now available on our website and are also filed on SEDAR and Edgar.

The slide deck accompanying this earnings call was made available on our Investor Relations website. This morning.

As reported total revenue for the third quarter grew to $37 million, an increase of 37% from the prior year.

Total revenue increased by 42% after adjusting the impact of foreign exchange.

Subscription revenues.

$4 3 million, representing 93% of total revenue for the quarter.

Recurring revenue was $144 6 million, an increase of 44% after adjusting for foreign exchange impact from the strengthening of the U S dollar which was about 4%.

Our company wide average contract value or a C V increased 17% after adjusting for the impact from foreign exchange.

As reported company wide ACD was up 13% to approximately 45000 from 79000 at the end of the third quarter of 2021.

New and cross sell logos with greater than $100000 represented approximately 30% of the net new era in Q3 as the elongation of the enterprise sales cycle previously discussed extend it through the quarter.

Customers using the table for external or hybrid training increased to 65% of our total ore and what is important to note here is that these multi use case customers drive best in class gross and net retention rates.

Gross profit margin for the third quarter improved sequentially to 81% of revenue.

This was in part driven by continued focus on optimizing hosting architecture and higher subscription revenue.

Total operating expenses for the third quarter increased to $20 8 million from $19 9 million for the prior year Peter.

Included in the $20 8 million of operating expenses is a foreign exchange gain of $10 2 million that related primarily to the cash on our balance sheet and is therefore for the most part unrealized.

Operating costs. Excluding this gain was 31 million slightly higher than the 38 million and operating costs reported on a comparable basis in the second quarter of 2022.

A full summary of operating expense line.

Presented in our Investor day.

G&A as a percentage of revenue declined to 21, 2% for the third.

This quarter compared to 21, 7% for the second quarter as we continue to drive incremental benefit from scale.

This is an area that we will continue to manage to drive leverage going forward.

Sales and marketing expense decreased slightly as a percentage of revenue to 42% from 42, 6% for the second quarter and we expect to naturally drive efficiency in this area as we scale.

R&D investments in the third quarter were $6 1 million or 16, 5% of revenue.

R&D investments were flat on an absolute basis compared to the second quarter.

I see U S. Dollar strengthened we experienced a two percentage point benefit as a percentage of our revenue due to the core R&D operations being based in Europe .

We are extremely pleased to report a positive adjusted EBITDA of 2.6 million for the third quarter of 2022 compared to an adjusted EBITDA loss of <unk> 3 million for the second quarter.

We reported a net income of $10 3 million for the third quarter of 2022 compared to $2 1 billion net income for the second quarter.

We generated positive free cash flow for the second consecutive quarter of $6 million.

At the end of Q3, we had cash and cash equivalence of $213 million.

Our strong capital structure gives us the flexibility to invest strategically and navigate through this challenging macroeconomic environment.

Share based compensation as a percentage of Q3 revenue was a very modest two 7%.

Before opening the line to questions I want to close with these cards.

We are committed to delivering steadily improving operating leverage and profitability as an essential part of our healthy rule of 40 performance.

Consistent execution and operational excellence has enabled us to achieve positive adjusted EBITDA target a full quarter early.

We are not only pleased to be adjusted EBITDA positive, but with our intense focus on shareholder return. We are also GAAP net income positive for the period that includes the impact of share based compensation and even after excluding the foreign exchange gain.

Finally, as we look forward in these uncertain times.

See a marked slowdown in growth, we have the discipline to drive operational efficiency and profitability to remain.

40.

That said the achiever remains a long term growth story, and we will lean towards growth as being the primary contributor to the rule of 40.

That concludes my prepared remarks.

To turn it over to the operator now to take some questions from the analysts.

Thank you ladies and gentlemen, we will now begin the question and answer session. If you have a question. Please press star followed by one on your Touchtone phone, you'll hear three ton prompt acknowledging a request in your questions will be pulled in the order. They are received should you wish to decline from the cooling process. Please press star followed by you and if he is he can speak.

Your phone please lift your handset before pressing any keys one moment for your first question.

Your first question comes from Rob Young with Canaccord. Please go ahead.

Hi, good morning.

You already noted the elongation in sales cycles makes sense continuing.

But I always thought you did talk a little bit about the pipeline are you still seeing the same emphasis on external Alaska sales enablement to hire a variety of use cases.

And do you see opportunities to close larger deals.

And the pipeline.

Okay.

Hey, Rob This is Mike could you repeat that question for us. Please.

Sure.

Sure. Okay. So you already noted the change in customer behavior around the.

Deal closing times and slower signings and so I'm just curious about what that means relative to the pipeline are you still seeing the same strength pipeline.

Is it still its you know.

Emphasis on external Allomap use cases use.

Use cases are you seeing opportunity for large deals in the pipeline still.

Robin the last few years. Thank you for repeating we are the issue that we've resolved since.

Rob our pipeline remains remains very good at is a buy button that as we explained in the past that we are the good grasp on over the next one to two quarters I had about the mix.

Ross.

Segment that remains very healthy and the combination of use cases across the pipeline is consistent with what we've seen all along.

In terms of.

You know is there an opportunity to continue to win large deals.

You know there is the end.

And historically I think this is a fair to say the trend.

Quarter, three is less of a enterprise quarter in quarter, four and quarter, one tend to be we're truly looking forward to.

Delivering great news.

Incredible outcomes.

In the near future, but that said, we remain very optimistic and satisfied with.

With both the quality and the quantity of our pipeline and I feel on top of that.

Is it safe to say that we loved multi department to deal some.

Especially when they did the blend is definitely mix, but and dynamic that we have seen is also that on top of all this.

On the top of your pay down dip you, Amit I mean, they're very big big deals.

We are seeing is cheap.

From the other vendors was due to the consolidation that is happening between our legacy play yes. They talk now, creating a single N D E and as there are complementary not that'd be about that and that is shifting and we are seeing an inflow of those kind of records both migraine.

100%.

Okay. Great next question for me would just be around the cost of acquisition in the quarter.

The sales and marketing relative to the.

Incremental air or that you brought in in the quarter, it's very high level of spend for each incremental dollar of IRR. So I'm curious.

Looking to Q4, I mean, you noted that the seasonality is intact.

How do we think about this cost of acquisition going forward.

Rob morning, So garnering here I'll start this and then.

I'd like to come in.

Firstly I think when you look at kind of I would say.

CAC is.

Relative you want them to probably focus on rather than quantity more of an annual basis.

Do you have seasonality between quarters as you kind of think about we moving forward.

You've seen this in the results will continue to show discipline.

We've made some investments at the start of the year in sales and marketing and.

And we you know as we've kind of gone through the latter part of this year, we've shown the discipline across other areas, but you should see that.

Some of that fruits of those investments come through as we move into next year Ali I don't if you want to comment anything else.

Not a lot to add other than we're extremely focused and spending a lot of time in tuning both our sales and marketing machine.

To reap the benefits of the investments, we've already made and to truly focus our investments on the areas that matter I personally am spending a lot of time with our new CMO volume brought on this.

This optimization and calibration of the machine nuts, and again consistent with the pipeline comment. We believe we are setting up the engine for long term growth.

Okay. Thanks for the questions.

Thanks sure. Thanks, Rob.

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

Hi, good morning.

Remarks mentioned, the MH or relationships that they've added some to chip solution that you could maybe expand on that and talk a little bit about that relationship here.

Sure Hi, Stephanie.

We are absolutely.

Thankful for the partnership with them HR and.

You know like we said in the past what we like about partners like M. HR that they operate in an environment and with the type of buyer persona, but does not.

If you win a raise in any so called the channel conflict that HR is a leader in their markets and their space in the region and and we have many nationally complement their offering.

With something that wasn't native to their technology.

With that said you know additional color on our mature per se is that we maintain a great connection with their leadership team.

And and continue to nurture that relationship like we do with every strategic partner and we just every strategic customer.

Sure.

Yeah, that's that's as much as I can share about in HR.

Oh, we.

We do meet shot M E channel segment.

We'd show for us.

Not for me, which is government.

A lot of government and the that they are sending signals that government spending.

He is very interesting as this segment as an industry and.

We are looking and starting a diesel.

These are segment to invest in the future in these areas, which are almost nothing greenfield.

Yeah, Oh gosh.

To.

Manager or sentiment by very legacy unexpected legacy player and by the way.

That's good color. Thank you and then you mentioned several customer wins, where they don't care about for both internal and external use cases, hoping you can touch a bit more on the opportunity. You know is it vendor consolidation you're seeing from clients in and what's the cross sell opportunity there for internal use cases.

Sure.

Yeah.

The the trend.

Consolidation than sort of the trend of multi use cases.

Not only continues.

What becomes.

And the element of strength in an environment, Stephanie we'd ship.

Companies I'm, particularly enterprises.

I'm looking to extract more value and rationalize.

What that means is.

C E OS, but also cfos are looking for economies of scale.

And when you look at the learning Tech stocks.

Trying to understand if the expenditures they have.

Is it.

Manageable to where they can extract more value from single vendor that may be doing more and remove duplicate.

It is in that context that our ability to solve the more than one problem, whether it's internal or external combined we saw the four eight and nine the key use cases across the entire learning to leave it lifecycle that quality that is embedded in our DNA.

He becomes our best or one of the best that's edging strategies in a recessionary environment because once again, we're a vendor that can solve the problem. It solves all in that problem and he is Charlie just solving other problems that they have not built for we can flex that around the theaters.

Problems to solve and that is winning business and Stephanie just to add to that that is why one of the numbers that I think that unless you are I spoke about it but as we went from 61% to 65% in terms of our total book of business, which is external hybrid use case. What also we were trying to make sure. It's understood is that the more you do that.

Departments externally trying to use case that is what drives best in class gross retention on that potential.

Great. Thanks for the color.

Thank you Stephanie.

Yeah.

Your next question comes from Richard stay with National Bank Financial. Please go ahead.

Yes. Thank you.

With respect to the strategy to kind of a move up market into larger enterprises, you, obviously had a quite a bit of progress there how does that sort of change. Your go to market model. You know I recognize that you are spending a bit more but like tactically.

It seems like it's a little bit different from what you were doing years ago, but if you can maybe sort of elaborate a little bit on that that'd be helpful.

Hum.

Richard Thank you.

Tactically we are implementing.

I believe the script I mentioned that we are calibrating, our approach and execution to.

To conform also to the ever evolving changes in the market.

Recently and.

I would just characterize some of the changes that I'm about to Lisa.

More related to the current environment the damage you've seen our strategy from the past that we continue to execute.

Market for the past several years and our move into enterprise. It is the only very natural and eat as a reflection of our brand of automation and strengthening in the market. Then it's not the first foreign Boucher in any direction with that said Jim.

There are some things we're doing.

Are you getting more efficient smarter and more productive the.

Number one we.

We are spending more time in the morning intentional in how we get to the C suite and the very senior leadership sooner.

And Baxter.

Is something that may be because of our mid market SMB pasta, we were not as used to do an episodic basis.

Number two.

We are training our people to get into core differentiation of sooner, meaning being able to speak to why we are different in the current environment and what the benefits do we provide the sooner than later in the cycle and separating Gaza from if you will the back or the legacy bank.

There's.

Number three we mentioned is with Bob Engineering.

We are working already very hard and we get better and better over the next few months.

Outlining quantifiable value return savings and optimization opportunities with numbers on the table. So that at the time to the CIO and CFO asks why there is a very clear numbers driven answer as opposed to a quality learning answer.

And we believe we can do a lot in this area.

And finally in general or simplifying the field sales motion, we want to empower what our sellers with a story that is simpler.

In a way and just to give an example, operating and get on pricing complexity and making sure that we are.

More.

Easier for sellers to execute and finally this is lost going probably strategically could be the first point strategically we are working very very very hard to say.

Surrounding ourselves with an environment of that.

Strategic partners.

That we are doing in kind of a business, which I'm talking not only strategic Oems and which continue to be a huge asset for us.

And we are logging in what we're seeing in the pipeline, but I'm talking about the industry leading strategic.

Our system integrators that do leave inside the Fortune 1000, and then now we're friendly. We then we go and do business with so these are some of the things that that we execute on every day, there's more but I hope that helps.

The nice thing going on this journey I mean, she bring a lot of new ledger and we are learning a lot from her and we are trying to implement and the speed of light all the changes that will improve the achievable upmarket strategy.

That's all set Claudia and and that's anyhow, Yeah, Yes, Minister Masker, CSO, she's bringing that expertise from a from the likes of their as they because they know they're a great company and she's a brain it out and and we're really relying on their expertise to execute a lot of what I just said.

Okay. That's great Super helpful. Thanks for all that color my second question's, a little bit tied to that one.

When it comes to the new wins.

I'm guessing most of them are competitive displacements I'm wondering sort of give us a sense of you know who you may be just placing the most of that might be sort of a difficult question to answer, but just kind of no.

Who is there and not difficult question because there are two that are there are three things that we'd be in this environment, we beat complacency of known decision, which.

Which is for sure an environment in which and once again, our CFO I'm the new CFO .

I'd say just with a smile non decision can be a factor and so how do you do that you do that with them.

Like soap show, we embody you and showing optimization.

As I mentioned previously we beta.

And defeat the single point solutions home me I've been a very good that that's insulting you want a specific problem, but when looking at that solution. The only 234 year horizon. It appears clearly there are benefits.

They fall short as opposed to the strategy of the company and we really focus on that and finally, we'd be legacy vendors on the basis of the fact that look we I don't personally love to talk about legacy vendors because everybody runs their business in the way they deem appropriate we're not financially folk.

In terms of you know building a company that is financially engineer that we're focused on building great products that are in can I do believe I didn't think it did then.

Flow very well in the market that are not an overlap, but we focus on product management efforts.

<unk> technology, and and we feel very good about that and we saw that very hard this customer's hearing.

That's great that's super helpful. Thank you very much.

Okay.

Yeah.

Your next question comes from Tito <unk> with Stifel. Please go ahead.

Good morning, gentlemen.

Wanted to touch on the strong expansion.

Activities you guys described in the opening remarks, but.

Can you touch on what what use cases are seeing more traction now.

Within your broader product suite and how is that how is net new customer behavior evolving I mean.

ECB growth was it was fairly healthy at a constant currency basis. Just wondering is there is there more interest in some of these additional use cases right out of the gate with an initial sale.

So Sudan.

We are excited to get logos from every opportunity that are out there strategically in the future will be more important than ive noticed that and they want to reiterate what we have highlighted in the past, earning calls about this all kind of addressable market.

<unk> moved.

Moved it department and the external training ease, whereas the reality venues because of training people from department ophthalmic stem is.

Is that providing direct to analyze the business I mean training your customer training, you'll see that organization that is giving a direct right.

The training investment and that's what we love it because it's measurable on top of that.

The extent of total addressable market is bigger training your customer and your partner is a thing of the future and that the Greenfield. They are it's great and that they know they they already called out as part of the market we choose a built in house technologies.

On a very basic solution and you know, especially downtown downturn moment, but not all of the training you got some matter and keep your partner close is way more important so what are the strategic I'm speaking of external training event and not at all.

The interest we love the mast extended training.

We the other department doesn't meant that even.

Our next step.

The reality is the real final good because the more department, we train inside your organization the more I Wanna be risky pie goes up.

In addition, one element that without a doubt.

Questions. Sudan is also that learning monetization you were looking for specific use cases learning monetization becomes with index Cerner real we're seeing more of them are more of a pattern companies are learning how to monetize from learning they may do that with the chamber alone.

Or integrate with external monetization solution and E Commerce solutions.

<unk> seen that trend continue and that trend continued leaned. It hasnt response in our plans and roadmaps to strengthen our position in that capability.

And then in North Dakota, I was speaking with someone that says it jumped Dodge monetization and did they see that the monetization is not the first step when you start the training your customer mix that money you start trading them for free you avionics.

Spend that you can do you can get value from Gotham and our partners and it's an interesting she said an interesting segment.

Great. Thank you for the color guys.

Wanted to touch on the part of the channels in Mexico, because it provided an update on the partner ecosystem.

Particularly the OEM channel and in terms of what was the impact contribution this past quarter and how is that channel has been progressing and how is your the pipeline of new potential partners in evolving over time.

Yeah suite down first of all no I take the opportunity to say that.

This is also an area in which Oh, what a CSO Nina makes sense as well.

Well, there's a lead that are shipped in partnership with Karen and Arizona are very very focused on we look at the partner apps World really.

In a few different buckets and not one is more important than in all of that in fact, the one that taps into one another and we see it very elastically.

Historically in the earnings call that we receive are more questions and more focus on the OEM business that is now owned are entirely in strategy and execution.

E.

Lead that interim practice, what they've seen in that world. There is a renewed interest and a strengthening of our pipeline that we the companies across the sectors like HCM and rewards and others.

And in need of finding ways to auditing topline, we'd minimum costa and I CAC metrics and other hedging strategy for example.

So we are really loving the pipeline in that regard and working very actively on.

You know what I mean, what do you think.

But I don't want to use the word material, but I would say opportunities that we are very proud of how about that.

Like I said the partnerships not all not only about the OEM that.

We bought the tone on developing growing funding partners in regions like EMEA in the Nordics, We've mentioned Oh, what a deep appreciation of business sees like ticked up but I can mention also omni plex.

Walter and others.

And across the world.

And these partnerships not only growing increasing anybody investing in it and they're eating a lot of results finally.

The one area in which neenah and ER and the leadership team are very focused on is like I mentioned before to a question from Stephanie.

He's really getting deeper in the business of system integrators.

We believe that there is a tremendous amount of opportunity.

And and and and and we're very focused on getting.

I'm very focused on getting.

Pre deep strategic partnerships going with such companies.

We believe you will appreciate the outcomes of those relationships in the quarters to come.

Unless you stick stock not it's funny, because we are in the building with text docs offices or so.

[laughter] are.

It makes that our dear friends and partners at Tictoc not picked up.

[laughter] alright, great. Thanks for the clarification of prepay.

Appreciate it guys. Thanks for taking my questions ill pass the line.

Your next question hanging from it.

Your next question comes from Josh Baer with Morgan Stanley . Please go ahead.

Great. Thanks for the question.

That you you're continuing to add an impressive number of customers quarter over quarter. I was hoping you could provide a little context. There what are you seeing as far as churn versus gross adds.

And where are these new customers coming from just from a geographical or a use case perspective any color would be appreciated. Thanks.

Good morning, Josh cigar in here.

The part about retaining and retention.

And then I'll, let him give you colors on a nephew at.

We talked about the fact that you know the company well we saw spot from a customer perspective, it's multiple use cases I mean do you think about it you know.

The more you are solving for mission critical operations and you are in multiple departments up an organization, but then to their various ecosystems that drive.

That drive their productivity in terms of retaining customers increasing costs revenue et cetera, you can imagine that that has a direct correlation on driving best in class gross retention, which is what we're seeing.

And and that is driving net retention, which was which is consistent with what we are.

We would see lost share as an example, so if you think about that hopefully it gives you a sense that we are integral to our customer base in this environment and that has a direct impact on maintaining those gross retention net retention numbers I'll, let Simon I'm sure I'm going to touch on that we believe are in the <unk>.

<unk> system.

Net dollar retention and so our ability to continue to grow our base in a healthy way Josh.

You know we were always very critical of ourselves and in the sense that we believe we want to always do more than that or we should have knowledge of the dollar retention in the Andean automatic sir.

We remain very very strong we're very happy with it.

From a strategic standpoint to Josh you're right. We are the impressive amount of logos and to be clear as you very well know we cannot even share most of the time that some of the names that we're partnering with them and some of these names that were not even in a position to share our very large companies. The companies that we can grow into.

So then the question becomes how are we going to address that.

We're going to do a little bit differently in the future.

And evolution, we're going to be focusing our teams are.

Two really methodically account plan and extend these companies and spend our energy is more on the farming side. The in terms of growth with a supporting element behind them of customer success.

For the past.

Quarters focused the most.

Or on a blended approach where our account managers. The undertook also a lot of customer success management platforms, we believe that by focusing account management.

What they do best when she's developed relationships with marquee account 60 view and really get deep across departments subsidiaries theater into and the individuals companies out of it we will accelerate in the quarters and years to come and that.

As an objective and we're very focused on that outcome.

Great great. Thanks for the color. Thanks.

Thanks, Josh I'm Josh.

Yeah.

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

Hey, good morning, maybe related to the idea of our ACB continue to grow nicely year over year, but was steady quarter over quarter. After many quarters of sequential expansion. So how do we reconcile the quarter over quarter ACB coming in flat against comments with upsell doing well. It's also a focus on N D. R.

Alright.

So Dan I guess the question just to understand the question, you're saying is the add on ECB was quite of a corner was flat and what does that have a core how does that work into net retention.

Now how does that work he is talking about upsell doing well.

We'd see that.

We see that represented in the ACB value and if we look back since you've been public ECB hasn't been growing sequentially.

Pretty much every quarter. So just wonder if there's anything to read to read through into that.

Yeah, Yeah, and I think down the way you want to think about ECB is if you. If you look at the enterprise segment, the more that contributes to a quarter that will also drive that higher.

In Q3, there was I'd say that segment was the one that was a slightly weaker and sore and so as you move into the cycle. It can fluctuate there used to be because of what contribution you have from a certain segment in terms of what you don't see in the <unk> number, but what you will see net retention is the upsell part and and.

Of course that includes down and turn in it. So there is that that kind of number can be.

See that number as we printed in Q4.

And you know the ECB also has an impact from a currency had been perspective, which you may not be factoring in as well I'm sorry from a from a.

Execution standpoint in the field.

Then when we think upsell deals.

We think of deals that we can form.

Lack of better words, we go in the company when we are already in and we're growing and expanding that business.

The ACB of that transaction.

<unk> necessarily mean that we are selling in my seat deal again, we're continuing to add modules or capabilities and so the impact of that sales motion of upsell wouldn't necessarily correlate a two way I increase E C D, whereas it would come.

W two and improvement and yet our metrics.

Yes.

Okay. That's helpful. I was just wondering if there was anything to read into that.

As to whether your customers or your sales team is the scoping some deals to get them over the line, whether it's macro related.

And budgets are coming down.

Anything like that.

No no none of that as we kind of think about.

Think about done moving forward.

A way to think about this is as you move into Q.

Q3 into Q4, you should see that as long as the enterprise segment will contribute to what you should see that pick up.

Nothing else.

Great. Thank you.

Okay.

Your next question comes from Christian <unk> with eight capital. Please go ahead.

Hi, Good morning, I'll continue on the topic of seasonality for my first question.

Maybe a two parter first I'm wondering if the Q3 quarter can be right in the summer I'm wondering if any deal slipped or if there's anything to call out either way.

I think earlier, you mentioned that Q4 and Q1 can both be strong on the enterprise side.

Or was this just for Q4, but it sounds like Q1 as well somebody those two questions to start.

Christian you I appreciate the attention that you have been listening to try your responses and jokes aside the answer is yes to everything you just said the.

For sure when we say the deal cycles elongate the.

We're also implying that in some instances the deals.

Leap onto other quarters, I know, you're not experiencing knockout tracking this is not uncommon in quarter three.

The seasonality of all the days that the post Covid era.

<unk> seem to have.

Got it and then a little bit more time off for them in the prior years and they finally got out of the house.

I would say yeah. We are we've got some slips.

And Hum, but.

With regards to your reference to quarter, four and quarter one.

While we certainly don't disclose numbers that we worked very hard to deliver good numbers and.

And we like the type of deals that we are in the pipeline for those I don't know if <unk> wants to add any color there yeah, Chris I think that the.

You know as we said generally we've said in the past you have a couple.

Couple of corner view on where the pipe is Q4 is seasonally strong quarter.

Or the comments unless he is making is in light of.

You know what we see for the next two quarters ahead of US and I think as you said Q3, just just a quick point, yes, we explore but from a win rate in pipe perspective, we still see strength in our win rates on our pipe is still strong as far as we can see in the next couple of quarters.

Okay, Great and one follow on and I'll, let you made reference earlier to invest.

Investments in the company's brand and marketing strategy and I know it sounds like it's evolving.

But wondering if there's any early thoughts you can share on how you might think about.

Positioning to table I don't know maybe part of that is you know rebranding to focus more on enterprise. That's part of the focus there any color you could share there would be awesome.

Sure thing.

Hum.

A couple of thoughts on this.

Also eight eight.

Project at the wheel.

Preceding seizes, but two things that.

There are that we're very sure about is we want to.

<unk> evolved.

The way, we show up from a branding standpoint.

In two ways, primarily one today.

<unk>.

Look at the way we show publicly the messaging.

He is very much.

Lead wheat products.

<unk>.

And capabilities.

This is very evident even in our website and I would say generally comps.

Yeah.

We believe.

Our natural evolution is to move.

And transition to focus more on solving real business problems for customers.

Indeed eloquent in the way, we do that thanks to technical capabilities and it's a little bit you know branding is not a black and white science.

There are varying colors.

And the way, we're going to execute that is to strike a good balance between innovation that the company has in its DNA, but maintaining a focus on the buyers and what problems, we solve for them and how we believe theres a lot of work to do there and we're already on it now as we speak and we have been for months.

Number two.

A more oh, the overall other hall, our posture towards the enterprises, you know, we should be showing up more.

Hum.

In places, where the CIO of the Fortune 500.

Neat and debate that we have a lot of opportunity to strengthen our brand it.

And the decision, making tables all of the best companies in the world because we do business with them as they look at US and we are just having a missing link of showing up.

The category do we are effectively already in it's only a matter of execution and we're executing.

Perfect. Thank you for all the cardiovascular and thanks for taking my questions. This morning.

Thank you.

Your next question comes from Kevin Cristian <unk> with Scotiabank. Please go ahead.

Hey, there good morning, I'm not sure. If this is disclosed but could you remind us.

The C V from new customers.

In the quarter.

Yeah.

I'm going to I'm.

I'm going to double check that.

Kevin I think are not top of mind, let me come back to you on that.

Okay, I guess, where I'm going with this is do we think about going forward.

You know, we should should we expect to see.

That go up quarter over quarter, given that the mix.

And this will likely SKU better to enterprise in Q4.

Number one and then number two the $1 39 that you added in Q3 seasonally light quarter.

No reasonable to assume that that goes up I'm, just trying to understand for modeling purposes, we get kind of a double positive there as we think about Q4.

Yeah. So it's Kevin sorry, It took me a second to just double check the number this quarter due to new AC was 42, okay.

And you're right. So when you think about the mix there generally.

Cause if you if you think about large enterprise deals can move that up or down and as you as you move into Q4.

And you see a larger subset coming from enterprise segment, you will see that number move up and so you know as we.

As we think about moving into the next quarter or two you should expect that to go up.

Right Yeah, just to the 42 is one of the you know it is one of the weaker net new ACD.

You know numbers I think per your disclosure as you were in the 50 range 45 range last quarter and that was mainly due to the skewing down two at.

Tap to SMB and mid market and then related to that right yes.

So the strength on the commercial mid market segment is basically what youre seeing that number driving that in Q3, but as you move into Q4 and enterprise chips and more as a proportion of your IRR that number will tick up.

Got it and I'm wondering just on the commentary just to be very clear here on the sales cycle being elongated.

Is it relative to Q2 in Q3 as it did you see it getting even longer.

You think about that going into Q4, and you know it.

Is that popping up in both the net adds being pushed out or and or perhaps the starting point.

The <unk> of H C V at a new N being being a little bit slower with expansion opportunities to come down the road.

Kevin a lesser speaking, it's primarily where a new more material spend for the company needs to be made that there is more scrutiny than our new processes buyers themselves don't even know most times what processes in place and with the Approver. We go in shale Chase.

There is individuals because processes are influx at companies, then and the resulting effect in many companies the slippage because the buyer themselves have a difficult time pinning down within their organization when they can cut deals.

And that is that is what we're seeing.

Okay understood. Thank you I appreciate the color.

Thanks, Kevin.

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

Yes, Sir good morning, everybody. So just you talked earlier about increasing spend on the sales and marketing side earlier this year and I think on prior calls.

I put a greater emphasis on outbound sales can you just talk about where you are today as far as.

Size of the team and maybe the contributions that you saw in the quarter from your outbound activity and maybe what you need to do further on the outbound side too.

That side of the business to where you want it to be.

Sure.

Nick and thank you for the question.

With regards to outbound it is.

It is.

In terms of my commentary on our sales and marketing expenditures and focus.

Hum.

Outbound continues.

<unk> performed on average about a depending on the segments and so the math becomes.

<unk> segment base.

Anywhere between 20% to 30% of our water pipeline contribution.

We believe.

That by getting outbound closer the sales machine that we can reap even more benefits in the future.

We believe that by strengthening our position and brand.

We are going to have an even stronger story to tell.

And so the comments that I've made before around our positioning around our demand generation efforts.

Part of the Oh, they only stick picture English outbound is one piece of a much bigger demand Gen. Puzzle remains an area of focus remains an area of investment and we like it because it frankly it allows us to the larger size deals. So current Nick I'd also just to give you a <unk>.

General context, when you think about our contribution you've got inbound outbound sales force and partners and you think about outbound you also have to layer on how a lot of our enterprise. So it doesn't work.

Similar to other great companies is self sourcing deals as well as working with great partners. Some that unless you mentioned in his remarks earlier and that will also bring us deals on the enterprise segment.

Okay, Great and just one follow up with regards to the M.

That May chart.

Spansion partnership can you just remind us.

Where where is that OEM in context like how far along are you with that OEM. When you compare that against Ceridian at the same point in time in other words are you guys getting more and more traction with MH charter at the same point in time.

On par with where you would have been with the Ceridian at same point in time, just a relative just to understand how quickly you are bringing up all these other Oems for future growth.

Yeah look I think the way to think about it Nick is that are we.

Obviously <unk> was a first and as we've learned through this journey and Mitch or is growing at a fast rate they're still in terms of relative size is smaller so there's a long way to go with them.

And an opportunity to penetrate more the other interesting thing is that the integrations that we build as we move forward also is enabling us to layer on more products.

That'd be have built into our ecosystem with with immature and maturity in the future and.

And so that also helps expand that not only to new customer base within our mature, but within the current customer base of immature as well as.

There is certainly and Claudia alluded to earlier there is certainly as you know Amazon has almost 40%.

Market share in the U K and serves a lot of the public sector. It also has seen some increased demand from our public sector perspective.

Yeah.

Okay, great. Thank you.

Okay.

I would now like to turn the call back to Mr. Weber for any closing comments.

Yeah. Thanks for attending these earning calls.

Let's meet a in one quarter.

Hi, everyone and thanks.

Yeah.

Yeah.

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.

Yes.