Q4 2022 Docebo Inc Earnings Call
Good morning, everyone and welcome to the <unk>, Inc, Q4, 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.
Instructions will be provided at that time for research analysts to ask questions. We ask that analysts please limit themselves to two questions and return to the queue for any follow ups I would now like to turn the call over to Jay <unk>, Vice President of Investor Relations. Mike Mccarthy. Please go ahead, Mike. Thank you operator before we begin.
Chairman I would like to remind listeners that certain information discussed today may be forward looking in nature.
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 relating to forward looking statements. Please refer to the tables public filings, which are available on SEDAR and Edgar.
During the call, we will reference certain non <unk> financial measures.
We believe measures provide useful supplemental information about our financial performance.
You guys measures do not have standardized meanings under ifr.
Please see our MD&A for additional information regarding our non <unk> financial measures, including reconciliations to the nearest probably FRS 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 Claudio.
Hello, everybody and thanks for joining us for our fourth quarter, Nicole with me today.
Our president and CEO and Scott Amit, though.
Sure.
Let's go right into the results on a constant currency basis revenue for the year was up 41%, while the fourth quarter revenue grew 35% I'm also pleased to announce.
All that adjusted EBITDA margin for the fourth quarter was six per plant and 1% for fiscal year 2022.
Bill would you give any of the strong revenue growth and improving profitability on a reflection of our consistent execution and operating discipline with Q4 results again exceeding donnelley's. Please.
Our performance through 2022, well strong Gwen gave the macroeconomic headwinds.
In terms of the demand.
Not much has changed since the last quarter, we continue to see longer deal cycles, multi suite involved in decision, making and increase that budget.
Those clients carried into the fourth quarter, but its not worthy to share that they did not get worse.
Looking ahead to 2023 growth remains a top priority for <unk>.
He is well within our reach given the size of our market opportunity the strength of our balance sheet and our improving profitability.
Tim will continue to prioritize the hydro with extreme efficiency, we emphasize the hybrid bottom all support our employees and maintain a flat organizational structure with fewer.
Lee you need the money.
<unk>.
Additionally, we are deploying technology internally to our opex back to scale and gain operating leverage.
The next phase of growth.
Simple in Q1, 2023 we implemented a major CRM.
Upgrade before our quote to cash process that will drive report that efficiency Sugata, we provide quarterly based on efficiency initiatives in 2023.
In terms of innovation the table have been in <unk>.
For the past four years, we see the next wave of investment in general.
It's fundamental or now cable bill EPS learning solutions.
We were early to the market with solutions like which will shape our January <unk> basic content creation model with.
Kim will shape up.
Therefore attachment rate in Q4, and we are glad to see this strategic investment that we have made are starting to pay back.
Next week I will be hosting a webinar to discuss in more detail.
<unk>, yes, it will impact <unk>.
Some initial registration details for this event are available on our Investor Relations website.
During the quarter, we also launched the table there in the data.
He is a powerful enterprise solution that seamlessly integrate our customer business intelligent vehicles.
The tables are learning data and provide PPI for <unk> phosphate inside and the high quality that you were making.
In terms will remain eight we believe that the well design of the tuck in strategy that supports our belief that this was by methodology will be accretive to our shareholders.
M&A roadmap is carefully too.
And continued to be weak.
Got it from the lens solution by Dave such as customer education, Onboarding and sales enablement.
We prioritize the reimbursement or to provide the fast time to market and to deliver new capabilities to our customers.
In 2023, we expect valuations in the private market to become more realizable and we are taking a closer look at tuck in deals that support two principally first.
I'll, just send product and features and second innovative teams that fit the placebo culture.
In closing I want to emphasize that we are very excited about the year ahead. Our investment has built a strong foundation for the table and EPS, our disciplined execution that will enable us to remain a disruptor in the market for enterprise.
Now I would like to turn the call over to Alan CTO, who will give you an operational update.
Thank you Claudio and good morning, everyone.
Throughout 2020, Q, the trouble executed effectively as we invested to support the future growth of our business in an environment shaped by economic headwinds and longer enterprise deal cycles.
As Cotter noted we saw the deal elongation trends are carrying into the fourth quarter, but they did not get worse.
In quarter, four our company wide average contract value or <unk> increased 10% to just over 46000 from approximately 42000 at the end of the fourth quarter of 2021.
HCV for new customers in the quarter was approximately 53400 compared with 41700 in the previous quarter.
We signed 149 net new customers during the quarter, including a number of notable enterprise deals.
In North America Enterprises continue to select the <unk> for our ability to seamlessly support multiple use cases.
Why don't these customers was Vmware and enterprise cloud computing company also well known for their performance and innovation.
They are using the <unk> to support their customers and partner training.
We also landed hey, your U S supply and solutions the company that acquired the appliance the appliances business from General electric.
They selected the table for multiple external and internal use cases, including customer and partner education sales enablement and on boarding.
In Canada, we won a major enterprise deal with a large entity within the government of Quebec.
This organization selected the <unk> because of our ability to provide considerable learning solutions that are being tailored to multiple audiences that include the external customer and internal employees shrink.
And finally, Europe , we closed the deal with <unk> <unk>.
Healthcare insurance company.
<unk> chose the table to educate their 5 million plus customer base by integrating the chair will directly into their own insurance portal.
This was a channel deal brought to us by our European partner Tac.
This is a flagship deal for us in a number of ways.
It is the largest deal we have closed in the Nordic region and is one of the largest the chegg will flow deals being implemented in Europe today.
The typical flow is a solution that brings online learning directly into any software, providing the learner to knowledge in their slow work.
What makes this implementation unique is the customer education is expected to increase insurance claims and measurable economic benefit to <unk>, while also resulting in more attractive premiums to their customers a true win win.
In terms of the geographies North America continues to be our largest and strongest markets with Europe and Asia continuing to scale into the investments we have made in those regions.
OEM partners delivered another solid quarter led by Ceridian.
We continue to see good traction into the customer base, adding depth and quality to our pipeline, while expanding our reach into the enterprise space.
As we move into the first half of 2023, we see a healthy level of demand and our focus on investing in areas that provide resiliency to grow our business in the current macroeconomic environment.
Let me frame out a couple of strategic initiatives that will enable this for 2023.
First.
We're focusing on the productivity and efficiency of our business development organization.
And while doing this we brought in leadership and senior operators with very valuable enterprise selling experience.
We expect these investments to pay off in 2023 and prepare for a strong 24.
Second is the use of the shallow partners system integrators and partnerships to replicate the success, we've had across the EMEA region.
Our channel partners have been effective in sourcing more deals at a local country level, what they have a better feel for the nuances of the country's culture and optimize the positioning of our solution.
Tictac in Europe is a very good example of one such channel relationships.
Earlier this week, we announced our partnership with E Learning company that focuses on bespoke learning development and learning experiences for enterprises with strong presence in the fortune 500.
The combination of the two companies core business is one of our impact for all customers aiming to implement the complex learning projects.
But the Chegg platform combined with <unk> innovative content development services provides our customers with an end to end services and technology solution that is unique in the market.
Although this partnership is still in its very early stages, we expect it to grow throughout the year in.
In conclusion I want to emphasize two reasons why we are excited about 2023.
First our market is large and ripe with greenfield opportunities, especially for external use cases, what do we continue to build on our leadership position and product focus every day.
And second we're making the strategic investments necessary in both innovation and systems processes and people needed to continue to disrupt the enterprise learning market.
With that I would like to hand, the call over to Suren.
Thank you Alicia and good morning, everyone.
Was interested a detailed breakdown of our financial results for the three months and fiscal year ended December 31, 2022 can be found in our press release, MD&A and financial statements, which are now available on our website and also filed on SEDAR and Edgar.
As reported total revenue for the fourth quarter grew to $39 million, an increase of 31% from the prior year.
Total revenue increased by 35% after adjusting for the impact of foreign exchange.
Subscription revenues were $36 3 million, representing 93% of total revenue for the quarter.
Annual recurring revenue was $1 $57 1 million, an increase of 36% after adjusting for the foreign exchange impact from the strengthening of the U S dollar which was about 2%.
Customers using placebo for external or hybrid training represented 65% of our total air are flat with Q3.
In 2022, we reported a net dollar retention rate of 109% down from 113% in 2021.
The decrease was primarily related to macroeconomic conditions that impacted expansion of the current customer base.
However, gross retention actually improved year over year weekend.
We can attribute this improvement to a couple of key factors first external use cases are tied to revenue generating activities that are strategic and supporting core operations with key stakeholders, such as customers channel and supply chain partners.
We have it all in one solution that is designed to handle both internal and external use cases.
About 80% of our <unk> is derived from customers using the cheaper for two or more used cases, where we become embedded in their tech stack as a core platform to their operations.
Gross profit margin for the fourth quarter improved by approximately 100 basis points year over year to 81% of revenue.
This was in part driven by our ongoing work to optimize hosting architecture efficiency and higher subscription revenue.
Total operating expenses for the fourth quarter increased to $31 5 million from $26 7 million for the prior year period.
G&A as a percentage of revenue declined to 19% for the fourth quarter compared to 21, 2% for the third quarter.
Growth and scale are driving natural leverage in the G&A line and I will speak to some of these 2023 initiatives later in my remarks.
Sales and marketing expense decreased as a percentage of revenue to 39, 8% from 42% for the fourth quarter.
The sequential reduction in expense reflects cost discipline and timing of certain marketing events in Q3 compared to Q4.
R&D investments in the fourth quarter were $6 4 million or 16, 4% of revenue and flat as a percentage of sales compared to the third quarter.
As a reminder, our core R&D operations are based in Europe .
During Q4, the strong U S. Dollar resulted in a one percentage point benefit as a percentage of revenue to the R&D cost structure.
Moving on from the expense side, we are extremely pleased to report a positive adjusted EBITDA of $2 3 million for the fourth quarter of 2022 compared to an adjusted EBITDA of <unk> 6 million for the third quarter.
This equates to an adjusted EBITDA margin of 6% for the fourth quarter.
We are deeply committed to driving performance in the areas, we can control and expect to exit Q4, 2023 with a low double digit adjusted EBITDA margin.
We reported net income of $1 6 million for the fourth quarter of 2022 compared to $10 3 million and net income for the third quarter.
Adjusted net income for the fourth quarter of $3 4 million increased sequentially compared to $1 5 million for the third quarter.
We generated positive free cash flow for the third consecutive quarter of $2 million, which equated to 5% of revenue at.
At the end of Q4, we had cash and cash equivalents of $216 million.
Share based compensation accounted for a modest two 8% of Q4 revenue flat to Q3 quarter.
Adjusting for the impact of share based compensation free cash flow would have been two 2%.
We are acutely aware of the impact of equity compensation on cash and dilution and we will continue to be responsible stewards to ensure that equity grants are selectively given two high performers that aligned with our long term objectives.
Starting with the reporting of our Q4 results were going to begin providing quarterly guidance. So let's turn to our Q1 2023 outlook.
We expect total revenues to range between $41 3 million to $41 6 million, representing 29% growth at the midpoint of.
Adjusting for foreign exchange impact this represents 32% growth.
We expect gross margin to range between 80% and 81% we.
We expect adjusted EBITDA margin to range between 4% and 5%.
Our.
<unk> reflects two noteworthy points.
There are two fewer days in the first quarter compared to the prior quarter impacting subscription revenue by $800000 and we are impacted by the timing of payroll taxes, which are higher in each one of each fiscal year.
Before opening the call to questions I want to emphasize a few points.
Our top priority is still growth and we are set up to enable to achieve this while delivering a balanced rule of 40 performance over the long term.
Operationally, our focus is on improving profitability by controlling what we can do.
It starts with aligning our workforce with scale with our profitable growth strategy.
We have created a high performance environment with a relatively flat structure that reduces middle management to accelerate decision, making and innovation.
One of the key drivers of efficiency is our investment in technology.
The table utilizes its own platform and leading partners vendors to automate processes and systems.
One example is the major Salesforce CRM system upgrades implemented in Q1 2023 to automate a large portion of our quote to cash process and to provide greater visibility to our organization in one place.
This in effect enables smart and faster decision, making and we have several similar initiatives planned for 2023 that will drive even greater operating leverage.
In addition, we have optimized our real estate portfolio to better serve our hybrid employee strategy by consolidating leases and partnering with New York.
In conclusion, I would like to highlight the fact that as we approach. The end of Q4 of this year. We are confident we can deliver low double digit EBITDA margin levels, while maintaining investments to drive future profitable growth.
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 the one on your Touchtone phone.
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Before pressing any teeth as a reminder, please limit yourself to one question and one follow up.
Your first question comes from Robert Young Canaccord Genuity. Please go ahead.
Great. Thanks. Good morning, Thanks, a lot for the Q1 guidance can you just give us a sense into how you are constructing that guidance given that's new.
Is that based on your current deals or are you projecting will close by the end of Q1, and then the EBITDA margins are down a little bit quarter over quarter I don't know if thats FX, maybe you just give us a sense of how thats constructed.
Yes, I'll take that Rob morning, So current here.
How we construct the guidance speak to revenue first when you just think about revenue.
Straightforward and our world take the IRR for the prior quarter.
By that by nearly 365 months, if I wasn't a number of days in the quarter. It gives you kind of your base our subscription revenue.
Chunk I would say a good 70% of our deals closed in the latter part of the quarter meeting last month.
Which is typical for enterprise companies and so we factor in a very minimal amount of revenue flowing in from deals in quarter into revenue and then from a professional services perspective really is a factor of <unk>.
Onboarding on new deals as well as some custom so there'll be is that we do so you would say that generally you can look at it from a perspective of what the IRR is in the prior quarter, which will flow into the following quarter from a peer perspective.
In terms of your question around expense be.
EBITDA margin, it's really it's really straightforward you have two factors I called out in the guidance to one is the two less days in Q1 compared to the prior quarter.
Which almost close to a $1 million or $800000 in revenue, that's less compared to the prior quarter just by the number of days.
Because of February and then secondly, Rob you would note that in North America, specifically, the first half of the year, you have higher social payroll taxes.
And so some of that gets you at the front end of the year, but you kind of normalize it as we go through the year. So.
Apples to apples it would be slight improvement if you didn't have these two factors.
Okay, great. Thanks for that color My second question Claudio.
You gave a little bit of color on your efforts in generative of AI in the prepared remarks that.
Rapidly changing exciting and evolving space clearly.
For those investors, who are tracking your AI roadmap.
Already I think you said that you had record attach on shape I am not sure if I heard that right, but if you could tell us.
Give us a sneak peek on where it was heading on this generative AI roadmap that'd be really helpful. Now Paas line.
Yeah. It all but thank you for the question because this is a final question for me you Annoy my product Guy.
Sure.
Actually we have invested initially in the simple shape. It needs. We started the R&D 40 years ago when our agenda.
He was not the thing.
The first paper in general.
We're probably should be probably 'twenty 'twenty 2019.
<unk>.
We have deployed many I agree in Gucci book and I think that you can get to go what is.
That will have an impact in the organization in two main categories, while he's up in <unk>.
The automation means you know AI does the work of the human.
And these are the.
We have in place are a key word of tagging skill stop being transcript translations.
And they leave and improvement on productivity, which will benefit the end provide direct ROI to the companies to our customers.
He is another segment, which is Betty which is way more disruptive which is content generation, where degenerative AI plays a role.
Generation is not only you asked the question and Jen and Chad.
<unk> that I agree, but create the training for you, but allows you to create a mood.
<unk> on the simulation into the slides like asking us provide direct being moved to an AI and I'll provide the Diana didn't look back be back to you and this is where the industry is going.
What we have discovered them.
Isn't that the GPT is a super powerful.
Especially you set a pain areas like it provides.
Very reliable outcomes when the text.
We're working on is very low quality.
I want I believe for example, the keyword Zynga now pardon the better the entire GBT when the tax the ease of sophisticated and long.
That saying that we think that injecting charge EBITDA and <unk>.
Like we are working also having some fun with done E, which is the main generation open AI.
<unk> increased the potential of the chip will shape not all in the chip will shape, but we are already working on some other initiatives.
On a specific board of some use case and they don't want a spoiler, but sales enablement is a some area we are having fun making experiments.
And on boarding.
Now that add out yesterday, we were joking with Alaska.
We will then recognize an accident.
We will fix the problem of many people not pronouncing correctly. The chatbot for example, let's say that I mean, when they say experiment.
Not that.
We are doing something that will go live in three yes.
These are kind of the technology as it can.
Can go in and then I'll follow then we beef Beijing six months, we have a very clear idea.
Where to implement additionally, eic's them another point, Rob, but it's important to understand and understand that we are in the very early stage of adoption in the word of those technologies that those technologies are not plug and play.
I mean, they think well I mean, we have a for example, a great experience on deploying these on skill.
Set of being million use that.
I mean.
This will require a knowledge that the companies that don't have deployed yet AI inside their software require us to deploy because I mean, the scalability means auto scaling means you create an aggregate and those are going need to parse.
At billion altogether, Lilian megabyte Nathan.
Got it.
Not just simple job and they're not a way other.
We are the.
Elements that we will be happy to discuss during our webinar next week.
Okay.
Thanks, I look forward the webinar.
Thank you. The next question comes from Josh Baer of Morgan Stanley . Please go ahead.
Great. Thank you for your question.
You mentioned that the <unk>.
Long getting deal trends continued in Q4, but did not get worse from Q3, just wondering how those trends.
Have have on into Q1 now that we're almost on the quarter.
Sort of the same stabilization, there or better or worse.
Good good morning, I'll ask Joe speaking.
We we haven't seen them.
Material changes changes in those trends and the one thing that.
I would note is we've continued our men frankly double down our efforts in in the generation and strengthening our enterprise pipeline quantity team and and then quality of execution.
We are focused constantly in order to edge against the macro that as you explained the sheer tends to drag.
Cycles them is getting really good at outlining volume.
The one thing we're focused on is being really good industrial Lee methodically.
To explain that the cebula.
Is is not a nice to have.
The turbo saves money and makes money to companies and we do have examples of how that Athens across our internal.
The option of the use cases of our customers and external use cases.
So the answer to your question is no specific changes in that trend.
Growth in enterprise pipeline and a focus on winning the business.
Enterprise customers in particular like getting really good at value engineering and it.
And outlining volume.
That's really helpful.
Follow up is on point that you brought up about <unk>.
Nice to have versus versus must have and I think that that dynamic is reflected in the comment that you made that gross retention rates actually improved this year just wondering if.
Like if that piece.
The results for this year was a surprise to you or any other context for an actual improvement in gross retention in a really tough macro thank you.
Yes, I can jump in first and then I'm sorry go ahead.
Please go ahead, Karen I may I may add something if you don't address it please carry on.
So yes, Dr picked up nicely I think from a growth.
Factors do you think about gross retention improving year over year.
<unk> is reflecting.
Items that we've talked about earlier, which is a lot of majority of our customers 65% of our customer base. We are supporting them on external in the hybrid use cases.
80% of our customers use us for two or more use cases, the more problems, we solve for our customers. The more we are embedded in their core operations generating revenue protecting revenue, whether it's customer education partner supplier education et cetera, or we are also enhancing the employee workforce from a compliance professional development perspective, so when you.
Do you have an all in one solution like the table, which is embedded in multiple departments multiple stakeholders and in multiple tech stacks within that same enterprise company. This is a much much stickier.
Solution that is strategic to an organization and these companies take significant amount of time and thoughts on how they want to run those around those learning programs across the organization. So that is a reflection of what youre seeing in terms of gross retention from my perspective.
Great. Thank you.
So far I was just going to have to two things just to wrap on this.
Number one the concept.
Get advantage of being in horizontal player that edges against any particular one industry.
And we are reaping the benefits of that positioning in the market.
The other thing that I was.
Again mentioning in the topical value and on the topic of not being a nice to have and the follow on on gross retention. If you think about it.
A couple of examples there all public on our website, but I think it's important to kind of re surface them companies in the four to 5000 employees days like <unk>. They reported that since the implemented are they cut down employee churn by about 40%. If you run the math of that result.
It's significant for a company of that size, if you think about zoom.
According to their public data employs more than 200 CSM that reports.
<unk> hundreds of hours per ear per CSM that those are real.
[noise] topline savings.
Taebo, where our data is that you know very known to us we.
<unk>.
We are.
In excess of $1.5 million in savings in support costs alone because we've implemented our software that university and and we deflected our implementation efforts reduce them by more than 15% and save 20% of <unk> time by using our software on the Academy.
And University side, so the area, where we have to get really good at and we are in the Jordan you that is being able to recognize that we affected the unit economics of all the companies that we work with and we de lever true economic value and return and.
We are in the Jordan of really creating an engine that not only is able to implement the product, but also can explain it and then market to the advantages of it.
Okay.
Thank you. The next question comes from Stephanie price CIBC. Please go ahead.
Hi, Good morning. This is Scott put her on for Stephanie price.
Wanted to ask a question over just the pace of margin improvements you talked about ending the year.
Double digit.
Is that should we expect sort of a consistent increase from the sort of 4% to 5% in Q1 over the course of the year.
Yes, good morning.
So current here I would say the way to think about.
The way to think about how the trajectory has so if you look at if you look at the past year as well the the biggest improvement you would've seen is coming of course from G&A line, that's something that we should be delivering and we will continue to deliver if you look at a company like us.
And as it scales, you should be dropping that closer to lower double.
Double digits, where we are today at 19% to a much lower maybe by eight or 9% now I'm not saying that that's going to happen this year in its own right, but on G&A.
On my side of the scales will be close to 10, 12% G&A margin over let's just say medium to long term. So there's going to be that illumina is going to be the biggest area from where which youre going to get leverage coming in from as well as as you've seen small incremental improvements both in our Cogs line, where we've done an incredible amount of work in our hosting architecture. So.
Gross profit gross margin has improved.
Even though <unk> five 1% Youre seeing out there as you look through sales and marketing and throughout this year, you'll see some efficiencies come through and that element too, but all of that while we are focused on growth and that growth.
Continues to move forward.
And we continue to drive disciplined and G&A as well.
Some of the other elements you can kind of drive the math pretty quickly to see that we'll get to low double digits as we exit 2023.
Okay. Thanks, and then I wanted to ask on the on the partner.
A piece of the business, obviously, you had a nice win with.
You announced in the quarter can.
Can you sort of speak to what is it.
Driving that sort of improvement in the partner experience is it more just I'm getting more comfortable selling selling your product or is there a different strategy or approach that you've sort of worked with them to take to help improve the performance.
We are maturing Hello, it felt like to speaking we're maturing our overall posture and envision of our partner business well beyond the OEM that <unk>.
It remains.
A critical area of focus for us in order to continue to win the businesses of the likes of civilian M. HR and we're making very significant process in that area with the continually growing pipeline with that said the OEM is not anymore. The sole here our focus we believe that even in an environment in.
We'd ship, creating demand it becomes a more and more costly.
There are different avenues to optimize demand creation in a more efficient way and to create if you will pipeline in ways that are a partner friendly.
We are the announced the partnership with the Premier player in the content World.
The <unk>, formerly known as the learning broader as you may have noticed the.
The PR about it and this is just an example of our efforts to partner with companies that are adjacent to our capabilities.
<unk> means that they may complementary capability strategically or they may be softer technologies.
There are in adjacent spaces.
This can be a rewards.
Product coaching platform as Alex Pease.
Tally mobility platforms. The customer success law firms were extremely active on all fronts, because we believe that when companies they share common audiences partner the flywheel that we can generate together.
Comes becomes very interesting.
And finally, I would say partners are not only about demand generation, but they are also about implementation capabilities in the enterprise segment, we understand that the Eni breed model of implementation, adding beetroot consultative capabilities.
As necessary and so we're strengthening our R. R.
Our our ability to.
Not only be very good at implementing a complex projects directly but also really leverage some of the best companies in the world in value added services.
And all it.
Something about you know these integration ecosystem because OEM partnership.
That integration, it's all part of a big network of ecosystem and also auditing training capabilities.
Two other software like I haven't seen that.
Our prototype of the table for Microsoft teams.
These dodge the software to the enterprise software stack and enterprise ecosystem.
Where our people can train inside other software so I mean.
The OEM is one angle the eye as we in partnership is another or the integration with the software. It's also another part.
Okay.
Great. That's really that's really helpful color. Thank you.
Thank you.
The next question comes from.
Daniel Chen.
Please go ahead.
Thanks, Good morning, So ACB expanded nicely just wondering if you could provide any color on what drove that expansion I think you mentioned that new customers came in much higher than the average ACB.
So the existing customer expansion go and then CBS .
<unk> is a lot of that coming from more seats or customers taking on more product.
I'll start that so starting here on that.
I would say from an ACB perspective, it's a mix of items you would think.
And in terms of the ACB number.
It was referred to the fact that new logos enterprise contributing to higher deals. This quarter I would expect that drove some of that expansion and some of the deals that we've talked about also in the.
Enterprise space also drove some of that higher ACB within the inquiries that I also gave in my prepared remarks, I think I left here given his prepared remarks that is more so driven by that because that only includes new logos and cross sell so that is primarily driven by enterprise he's done a larger insight.
And in terms of color I'm sure I'll actually would give some color, but I think that that kind of speaks to the fact that we saw some strength in tobacco Q4 in the enterprise segment.
That helps lift that number and as you know the mix between sales and the mix between.
SMB or what we call commercial major and enterprise can drive that number up or down but the more enterprise Skus you have in a quarter of the higher that ACI will be.
Ali I don't even want to Colorado.
Hum.
Agreed on the on the general sense that it's a mixture of a few factors alongside the fact that quarter four.
Usually the lands with more enterprise and impart in I'd say also that given the comments made before is our enterprise pipeline continues to grow we certainly look forward to continue to performance.
Well in terms of ACD averages as we learn more and more enterprise deals in the future. Yes, and then there is another point.
We now have.
A lot of a lot of them.
A lot of enterprise deals in the pipeline that out as a.
Leaping from one quarter to another so maybe in the future we will lend more enterprises DLR together that will create a spike in the ACD and then we will see these ACB going back because you know these are macroeconomic downturn is not killing deals is just delaying deals.
Martin the pipeline of inflow continue so there is a.
It said imitation of large enterprise deals that are still LT in are in the pipeline, but did not happen.
That's very helpful. Thank you so much for that and then maybe just any more color on the pipeline you talked about it growing any metrics you can provide around that you also talked about.
65% are using it for external 80% coming in with two or more use cases. When you look at the pipeline would you say that the customers and there are actually using it using your system.
What are you seeing in your current customer base.
Let's say the following that we continue to see very algorithmic soon all the companies that are looking to solve a mix between what we refer to as the entire amount of training and learning issues as opposed to external.
And.
And and.
The impact issues raised so so there's a healthy mix in terms of the use cases in the pipeline.
One thing that I'd like to point out is that our efforts of focusing on solutions and marketing solutions, meaning going use cases.
As Ed began them not too long ago. We we are extremely now focused.
On a joint product management and product marketing.
Function that that allows us to tell better stories of all we solve against various problems, we're not necessarily focused on trying and winning the business of every function in the company. What are we like when we land them. We have said this over and over we.
Others solve the one problem in time, and then create fidelity India count.
And grow them over time.
So that's our approach right now.
Yeah.
Thank you.
Thank you. The next question comes from Martin Toner of ETE.
Capital markets. Please go ahead.
Thanks, everyone and congrats on a good quarter.
Most of my questions have been answered, but I think it might be useful to give you guys a chance to reiterate.
Conservative nature of how you build the Q1 guide can you repeat.
The what.
As in the guide for a sort of like the rest of the quarter from here.
Mentioned minimal deals flowing into revenue.
<unk>.
And the remaining part of the quarter.
Yes Martin.
Re trade that so when you think about forecasting revenue for a quarter.
Starting point is always the prior quarter's ending and so from a subscription perspective subscription revenue perspective.
We're not.
At a minimal is saying what's my ear are started the quarter divided by the number of days in the quarter multiply it by.
The days divided by 365, sorry, multiply by the number of days in the quarter.
It gives you a baseline for your subscription revenue in terms of in quarter deals as you know a large.
Part of our deals are enterprise and they closed stores a lot of part of the quarter because our enterprise buyers are also smart in terms of when they procure it and align their budgets et cetera. So you should expect a good portion of our ALR clauses within the quarter towards the end.
With enterprise being the heavy lift there.
And so therefore give or take close to 70% of our deals if they if they are signed within the last month of the quarter, you don't necessarily see a benefit to the revenue until the following quarter because you take that ratably over the course of the contract.
And then you add PS revenue, which I talked about.
Earlier Owen Rob asked the question, which is which is a bi factor similar to the last quarter. If that Arris is let's just call. It X.
$10 million, if you generate X dollars of revenue that's what we take into the order because the paas revenue split give or take between three to six months based on the Onboarding packages. We are we sell to a customer certain customers up slightly higher.
Limitation period, if its a major enterprise deal so just adding those two.
We will give you your revenue for the quarter, but in a simple nutshell such as subscription revenue is just pretty much what you had in the prior quarter with some small incremental swing in the quarter and then PX revenue as a flat three to six month projections that we do.
Perfect. Thanks, so much.
Any thoughts on capital allocation going forward.
Yeah, I'll start with this I'm sure Claudio will have some thoughts on it I think as you think about.
Our cash we've got $260 million on the balance sheet right now we are.
We've talked about the fact that on an M&A front we.
You need to look at opportunities this year will be an interesting year for us as we look at.
Great product modules.
And teams that can support our organic engine and so you should expect that we are at least is much more wide open than we were before as we look into 2023 and there are certainly some interesting technologies that.
But I am sure Claudia if you want to jump in and give a perspective on.
Yeah.
We do a lot and it's not only AI related.
The disease on the out to improve our product in order to provide better value to our customers.
Mainly actually.
We are focusing on the three main use cases.
Prioritizing three main use cases saves enable mentor customer empowerment education that means external training and we are having a good feedback from the market in terms of Onboarding, which sounds like a paradox because people are laying off employees and stuff like that but there is a good good interest.
On employee Onboarding.
So our idea is to explore the opportunity to do tuck in M&A to add the functionality is a feature set new training opportunities new value to our customers.
In those three particular use cases, let's say there are many other use cases, which are very interesting well performing in the table.
But I'm actually going to comply and training that is very.
We're also devoting gave that we were.
Working on in 2005, when I founded the company is still hot so I mean, we are exploring different opportunities, but all of those opportunities will be tied to offer additional our new model.
<unk> experiences to our customer we don't want to become a dialogue.
So we need to invest and continue to innovate.
That's great. Thanks, so much Cloudier last one for me how closer are you that you're.
Europe will be a strong contributor to revenue growth three two or three.
Yes.
Okay.
Alright.
We couldn't hear them, we couldnt hear the question on the site.
Are you that Europe will be a strong contributor to revenue growth in 2023.
Thank you for the question, yes sure.
On Europe , we actually have.
Hey.
A pretty high degree of confidence on the days of the Fox that.
Our our teams that have been.
I have been staffing up we have been ramping our leadership and we've seen them.
Very good results coming from the growing regions as you may recall, our newest team is.
Is the one in the dock region.
And we're seeing very encouraging signs on the demand and execution side.
Both.
The France and Benelux region.
And the very very positive uptick in our in our demand in our pipeline and and we've signed there's some.
Significant.
Larger deals in Europe , which historically large deals were in the majority in North America. So now the sign that we continue to see a large enterprise deals Anthony Europe also law was and give us the position.
And in the region to continue to bear.
Bear the fruits of that segment with the enterprise segment.
Finally, I would say that in Europe , but we have a very strong.
A channel play that we've invested in for the past two years. We do are the partners that we mentioned in the script to like a tic Tac and others that continue to give us the benefit of getting deep in the dynamics of each and every country and so we're liable.
<unk> got a logged in they are part of the success, we're having to even with these large enterprise deals. So the level of confidence is high the trend of performance is very good.
And we continue to invest and manage performance very tightly.
Also the U K is holding up well yep yep.
Okay.
Thank you once again, ladies and gentlemen, if you do have a question. Please press star one at this time.
The next question comes from Susan <unk>.
Please go ahead.
Good morning Gents.
Congrats on the strong Q4.
It's good to see.
Strong customer win activity, despite what's going on in the macro if you could talk a little bit about what you're hearing from customers today with respect to the.
The new wins that you secured in the expansion opportunities with existing customers.
In the latter was a little softer.
This past year.
You touched on vendor consolidation is a theme in the past just curious if there's been any changes there.
Sure.
There is.
The trends we're seeing.
Consistent on one side we.
With.
Some macro aspects.
Hospital consolidation that you just mentioned.
He is a frequent one meaning companies that are trying to reduce the complexity of they are alerting the economy and trying to centralize their learning operations with less supply forums in you know in a more cost efficient about also.
More productive environment and this is why.
We more and more frequently engage with CA OS and CFO as opposed to what perhaps was happening years ago.
On the other end another trend we're seeing good that continues to be material is the chamber is a more and more recognized them as a leader in training the support.
Not only internal N. D teams, we are the very significant I would call them. Our go to market project when the very large companies, whose goal is to maximize the return from the marketing G&A in a way or another of their knowledge.
And training capability, whether it's b to B to C. Seniors that will lead to me to be scenarios and there is a lot of the variety there and finally, even those institutions that have any internal only problem, where historically the table.
Would say Ah gave a lot of can add it to the more institutional.
Our players in our industry, we're seeing a trend very strong in financial services and automotive where these mega companies are frankly more there.
By using for many years out of date to systems.
We are looking for a new a fresher interfaces they want to increase employee engagement.
And to do so they opt for a modern alert and platforms and so we're having conversations with the again.
The very large fortunes in banking insurance and automotive them.
And.
Just for internal projects. So it's a mix of these trends in particular that we're seeing in the demand.
And Susan Allison you're pretty equivalent.
And I'll just quickly add that if you just take a step back what's important to remember even with well unless you talked in his prepared remarks about that deal from I agree. It's a good reminder of the external use case, when we talk about the fact that anything that touches beyond the employee which is what we call external use case.
Customer education being one example.
As you noted is trying to train all of the pet insurance customers in Europe over 8 million using our platform. That's a much bigger total addressable market compared to just the employee base that I grew up with half. So when you think about the market opportunity. When we when you spoke about the time, even just in the U S was $8 6 billion two thirds.
Of that with external learner. This is really where it shows you why that greenfield opportunity.
Two thirds of the time, where we can target certain external use cases that drive higher <unk>.
Clear ROI and value for the customer, but a much higher total addressable market than just the internal employee too.
Okay.
Okay.
I appreciate the color guys.
The platform will be.
No it doesn't.
That was an interesting win with the government of Quebec can.
Can you talk a little bit about the public sector market.
I'm curious how much does that account.
So in terms of business mix today.
What does the opportunity you see with the public sector longer term.
Yes.
Very good question and.
Let me, let me share a couple of thoughts on this.
So as of right now the turbo.
As you know I would say any material a sub 5%.
Total business across the government.
Or state local education, what we could refer to government type of debt.
Does that include the necessarily those big federal agencies.
We believe this is a market that.
That is very interesting.
And you know the winning winning it.
The deals like the one of the governmental Quebec is is just proof that our solution.
Meet the needs of these organizations.
Okay.
We have and are actively doing a lot of research in the overall government space that spans from sled through federal.
And and are in the discovery phase of the opportunity and the cost.
And our initial findings are that this is very interesting for us.
But we remain extremely focused on what we do and.
When and if the time is right, we'll be sharing updates as to further investments in that area, but at this point, we remain extremely opportunistic we catch and bid all those rfps that we are good at it.
Acquirements to win.
In terms of the future mid term future. Yes. We believe this is a market that can yield a lot of success for us.
But today, we're not prepared to say more than that.
Okay, great. Thank you for taking my questions and I'll pass the line.
Thank you. The next question comes from Christian <unk> of eight capital. Please go ahead.
Hi, Good morning, I wanted to ask a question about <unk>.
Winning new enterprise business and the use cases.
But are sold at the time of deal signing.
On average as a comment to when a new enterprise customer with no one two or three use cases in place what trends are you seeing with the number of use cases that they're taking on at the onset.
Sure.
<unk>.
It is common can see enterprise came in with a very large amount of users.
For a single use case.
That is not uncommon.
What we see though is that as we further conversations and as we get more intimate and grow frankly.
Are the level of trust them respecting that account.
The people that we work with there are humans.
They as they get to understand our company and our product better and they get deeper they immediately connect our capabilities to what they do in other functions and it's very common that are.
Process that our methodology leaves them to introducing us to other functions in that organization that again. This is a mega large company that may have in short order initiatives of looking at additional vendors. So I would say the entry point is usually one.
Unit, but it's very common that once we do already at the same time zero net new logo odd there isn't showing the conversation now.
That that that in itself of course is in a really good dynamic.
Where we are cautious easy ensuring that this is not a cause for deal elongation because as you may infer that causes the various buyers who want to add more debt and an analysis of silver requirements and you know it is not uncommon to go through a deal.
Done almost ready to sign and now a new group with additional 100 requirements comes to the table and so we navigate that by trying to.
You know.
The methodical and again ever methodology.
Both the deal and then continue to grow it.
At the root of elongation of deal cycles and enterprise. This multi audience dynamic is also a factor again, it's a positive factor because we see the deal volume to delayer our grow.
At the same time it can be a causal push so I don't know if that answers your question.
But but that's that's kind of what we see let me make a joke.
We have a such a great product that when we are in the negotiation stage.
Department goals and ask either the bottom into join the deal really is switches because let's say it was great but on the other side. These are longer sales cycle. So we don't like when the gasoline get too excited about us.
He wants a mixed feelings about it.
Yes.
It's a good problem to have and for my follow on.
On the same vein.
Maybe you can give an example, or if there's a trend you can speak to it but you know what's the most common first use case, you see winning new business and then what becomes the most natural upsell or the next conversation or you have I'm curious to see where it starts and where it goes quickly what makes sense for your team.
We started analyzing this and.
Currently I don't have a definitive one or the other.
You see a mix of entry points in the external use cases, where folks are implementing a customer related or partner related projects.
Then eventually open up on the flip side into internal initiative is that all the cells of mastery or Onboarding and learning and development professional education and and the flip side is also very true now.
I don't want to get in the weeds too much. This dynamic is multi factorial and <unk>.
And changes can change depending on the industry in this sector. So we see certain dynamics in patterns in say technology and services.
And different patterns in manufacturing and pharmaceutical and outer so it's again pretty complex too.
They're all spectrum of entry point in all of it.
Evolves over time depends on the business in the industry or the company itself.
But again, we like the fact that a varied because it gives us a very good hedge Inc.
Against the one specific industry behavior.
Thank you very much wants to know if that's all very helpful. Thanks for taking my questions. This morning.
Thank you so much.
Thank you.
There are no further questions at this time I will turn the call over to Claudio urban for closing remarks.
Thanks again for listening to our Q4 call. We look forward to having you join us on the <unk>.
<unk> been out on March 14 registration information is available on our IR website. The tabletop Inc. Thank you so much.
Ladies and gentlemen, this does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
Yes.
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