Q3 2023 Docebo Inc Earnings Call
Okay.
Speaker 1: Good morning everyone and welcome to the Doce Chavos 2023 per quarter earnings call. Our participants are currently in a lesson-only mode. We will all-
Good morning, everyone and welcome.
20, <unk> quarter earnings call.
Sir.
Yeah.
We will open the lines for a question and answer session.
Following the presentation.
Instructions will be provided at that time for research analysts to ask questions.
Speaker 1: will be provided at that time for research analysts to ask questions. We ask that analyst, please limit themselves to two questions.
We ask that analysts please limit themselves to two questions.
For any follow ups I would now like to turn the call over to Doug.
Speaker 1: I'd like to turn the call over to Docebo, Vice President of Investor Relations, Mike McCartes.
Vice President of Investor Relations, Mike Mccarthy. Please go ahead Mike.
Thank you operator before we begin their table would like to remind listeners that certain information discussed today may be forward looking 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 forward looking.
Speaker 2: Before we begin though, chaber would like to remind listeners that certain information discussed today maybe forward looking.
Speaker 2: such forward-looking information reports of the company's current views which respect the future of that. Any such information is subject to risks on certainties and assumptions that could cause actual results to differ materially from those projected in a forward-looking statement.
Statements.
Speaker 2: For more information on the risks, uncertainties and assumptions relating to Ford.
More information on the risks uncertainties and assumptions relating to forward looking statements. Please refer to <unk> public filings, which are available on SEDAR and Edgar.
Speaker 2: Please refer to the Chamber's public filings, which are available on Cedar Plus.
Speaker 2: During the call, we will reference non-IFRS financial measure.
During the call, we will reference certain non <unk> financial measures.
While we believe these measures provide useful supplemental information about our financial performance. They are not recognized measures do not have standardized meanings under ifr S.
Speaker 2: Although we believe these measures provide useful supplemental information about our financial performance, they are not recognized measures and do not have standardized meanings under IFRF.
Speaker 2: Please see our MDNA for additional information regarding our non-PISRS financial measures, including recommendations to the-
Please see our MD&A for additional information regarding.
Our estimates for purchase.
Including reconciliations to the nearest FRS measures.
Speaker 2: Please note that unless otherwise stated, all references to any financial figures are in US dollars. Now I'd like to turn the call over to Dr. Shabo's CEO , Claudio Erba. Claudio.
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 Chambers CEO Claudio.
Claudio.
Speaker 3: Thank you for joining us for our third quarter earning call. With me today, I'm Alexio Tufo, our president and COO, and Sukaram Mehta, our CEO .
Hello, everybody and thank you for joining Gulfport, our third quarter earnings call with me today.
Yeah.
Our president and COO and Scott.
CFO.
Speaker 3: I will begin our cold this morning with a short summary of our Q3 results and visit updates.
I will begin our call this morning.
Somebody of our Q3 results and business update.
Speaker 3: We are pleased to report the subscription revenue increased by 27%. And total revenue grew by 26% in September , quarter, with the total revenues exceeding the up-to-end of our guidance range.
We're pleased to report that subscription revenue increased by 27% and total revenues grew by 26%. Your September quarter. We did talk about maybe just exceeding the upper end of our guidance range.
Speaker 3: Netter RR added during the quarter was 10.1 million after adjusting for the impact of foreign exchange.
Net.
During the quarter was $10 1 million.
After adjusting for the impact.
Change.
Speaker 3: ARO growth will solid reflecting our training horizontal good to market motion across the enterprise segment as well as the government.
Our growth was solid reflecting our strengthening our go to market motion across the enterprise segment as well as the government vertical.
Speaker 3: The cable continues to demonstrate the profitable high-gror business with a disaster BDA exceeding our guys.
<unk> will continue to demonstrate the profitable hydro gives you with a doctor EBITDA exceeding our guidance, we delivered an adjusted EBITDA margin of nine 7% as well as a solid free cash flow of 18% of revenue during the quarter.
Speaker 3: We delivered an adjusted BDA margin of 9.7 percent, as well as a solid pre-cash flow of 18% of revenue during the course.
Speaker 3: In general, global macroeconomic trends have remained consistent through the year, with larger, more complex deals still taking time to finalize. But we did not see any noticeable deterioration in our pipeline, and the price segment remains strong.
In general the global macroeconomic trends have remained consistent through the year with larger more complex deals still taking time to finalize it but we did not see any notable deterioration in our pipeline segment remains strong.
Speaker 3: doesn't be customer continued to be cautious. Geographically, the US was a more active market compared to Europe , which was reasonably slowward.
F&B got some medical gear to be cautious geographically the U S was a more active market compared to Europe, which would seem terribly well we're doing two things.
Speaker 3: After three years in a totally neutral format, we also the record number of participants at our annual customer conference, the series Spire in May.
After three years of good quality.
We also had a record number of participants.
I'd like to talk about companies just simply expire in Nashville.
Speaker 3: It was exciting to see this community of current and potential new customer bring with them they ran to the hospital for learning and they're interested in the Chibos.
It was exciting to see this community of current and potential new got somatic BRCA data into the formula.
Linger and their interest in the table cloths totaled.
Speaker 3: During this event, we announced a four new platform update that included the table for Microsoft team, the table community app, the table learning site, and the preview of the table shape to point out.
During this event, we announced four new platform update that you can look at the table for Microsoft.
<unk> community job the table revenue side and the preview of the table shape to point to.
Speaker 3: The Turbo for Microsoft team enable a learning in the flow of work. It had to streamline learning communication and collaboration by eliminating the need for separate platforms while saving time and they're sharing a productive experience for the learner. Customizable dashboard with the teams can be personalized for different internal and external use cases, driving high-grade.
The typical Microsoft team.
Table, the learnings and deploy work it does come in line.
Dedication and collaboration by eliminating the need for separate platforms, while <unk> diamond they shouldn't get productive experience for the customer.
Customizable dashboard that we the teams can be personalize it for different in that really big step, but use cases driving high jet adoption.
The simple convenient job. He is an expansion of our cloud designed to allow customers to create community knowledgeable chegg deals they've thought it didn't make sense.
Speaker 3: We are community art, is an extension of our platform, design and tool out, customer to create community of knowledge, world champions and Sergeant Madurai.
Speaker 3: If purple is to facilitate knowledge sharing, announce collaboration and engagement, and empower our customer to expand their internal and external learning programs through connection.
To facilitate knowledge sharing and collaboration and engagement and then follow on work.
Customers can expand their internal index that learning programs through connections.
Speaker 3: This update was led by the Peer.TV, which we have acquired in the first half of 2020.
This update.
Led by the <unk>, but which we acquired in the first half of 2023.
Speaker 3: Each occasion is our efficient and many strategy illustrator in the Czechosquique integration and utilization of newly acquired technology and
Okay I wanted to be for Liberty strategy illustrated in the table, we can integrate and utilization of newly acquired technology and engineers.
As our platform expands in depth and breadth, we are collecting a increasing amount of data about loopnet and the outcome of our Taco Bell trainee programs with the launch of the table learning site.
Speaker 3: As our platform expands in depth and in breadth, we are collecting an increasing amount of data about learners and the outcome of our customer training.
Speaker 3: With the lounge of the table learning site, powered in partnership with QuickSight from Amazon Web Services, we are helping our customers utilize these data efficiently within their learning.
In partnership with quick site.
What services, we are helping our customers utilize these data efficiently within the data elements.
Speaker 3: by simply find the creation of custom dayboards and providing relevant reports. We are empowering our customer to track the impact of their training programs more at the end.
By simplifying the creation of Gaslog dashboard, and providing really about report we are empowering our customers to track the impact of training programs more effectively.
Finally, <unk> seen a goodyear tire digital shape, we've fundamentally changed our training materials created and consumed.
Speaker 3: Finally, as some of you have seen a duchybou style, the duchybou shape will fundamentally change how training material is created and consumed. We announced the number of features that we will start rolling out in 2024. To feature the time particular excited about, are we...
The number of features that when we start rolling out in 2024.
Two features that I'm, particularly excited about our ability.
Talk about please.
Deposit features.
Speaker 3: If shape users can create a roleplay scenario with an AI virtual agent, this allows learners to practice specific conversation skills. In each of these, we have focused on the save enablement of scales, creating clear to our roleplay AI brain that helps to save practice their save speech, but we see multiple use-case applications that will incorporate in our product.
You have taken the growth rate scenario.
I'd call Egypt.
We will all learn to practice specific compensation scales.
We are focused on the phase of enablement U K, creating two hour.
Great.
Correct.
Active database beach, but we see multiple use case application that will incorporate in our product.
What all data with shape AI panel calculator.
Speaker 3: Moreover, with Shape AI panel, customers have full control over how their proprietary data is used and shared among their needs.
Control, although all day proprietary data use it they started the bulk deal.
Yes.
Speaker 3: Now to capital allocation, our balance sheet, strength and financial profit profile enables.
Now to capital allocation, our balance sheet strength and financial property profile enables <unk> to invest in innovation and great quarter growled, while competitors are consolidating and cutting costs, our capital allocation strategy remains unchanged and we focus on to Es selective M&A.
Speaker 3: We are able to invest in innovation and gain further ground while competitors are consolidating and capping costs. Our capital allocation strategy remains unchanged and it focuss on two years. Selective M&A and the official return of capital to our show day.
And DSP fair return of capital to our shareholders.
Speaker 3: In conclusion, despite facing macroeconomic and global political challenges, our priority is to provide innovative and efficient solutions for our customers. Our customers view both external and internal learning as crucial in this environment.
In conclusion, despite facing macroeconomic and global political challenges our priority is to provide innovative depreciated solutions for our customers.
Our customer view, both externally and internally.
Crucial in this environment, we continue to strive to deliver cutting edge innovation to our customers with the goal of providing quality profitable growth for our shareholders.
Speaker 3: We continue to strive to deliver cutting-edge innovation to our customers with the goal of providing quality profitable growth for our shareholders.
Now I would like to turn the call to overall next year will give you an operational update.
Speaker 3: Now, I would like to turn the call to Alessio, who will give you an operational update. Thank you, Claudio.
Thank you Claudio and good morning, everyone.
Speaker 4: Let me first go over some of our key KPIs this course.
Let me first go over some of our key Kpis this quarter.
Speaker 4: Company-wide average contract value increased 11% to $49,400 from around $44,600 in Q3 of last year.
Companywide average contract value increased 11% to $49000 400 from around $44000 600 in quarter three of last year.
Speaker 4: A, C, D, for new customers in the quarter was about seventy thousand dollars and five hundred compared to sixty one thousand in the June period. Enterprise customers, we deal values over a hundred thousand dollars in accounting for approximately fifty five percent of gross error generated in the third.
ACB from your customers in the quarter was about $70000 and 500 compared to 61000 in the June period enterprise customers, we deal values over $100000 in Edr accounting for approximately 55% of gross IRR generated in the third quarter.
41% of these new customers have chosen the checkbook for three or more use cases again, highlighting the real impact of our platform as well as our ability to meet the complex needs of our customers.
Speaker 4: 41% of these new customers have chosen Docebo for three or more use cases. Again, highlighting the real impact of our platform as well as our ability to meet the complex needs of our.
External and hybrid use cases make up more than <unk> of our pipeline.
Speaker 4: External and hybrid use cases make up more than half of our pipeline.
Expanding our reach into these enterprise customers is also enabled by our growing partnerships with large system integrators.
Speaker 4: Extending our reach into these enterprise customers is also enabled by our growing partnerships with large system integrators, where a strategic part of both enterprise and government contract wins during quarter.
There is strategic part of both enterprise and government contract wins during quarter three.
From a customer retention perspective, gross and net retention kpis held relatively flat from quarter two.
Speaker 4: From a customer retention perspective, growth and net retention APIs held relatively flat from quarter to quarter.
In terms of customer acquisition costs and.
Speaker 4: In terms of customer acquisition costs, CAC, and sales efficiency.
And sales efficiency, we achieved significant improvements in our quarter three results.
Speaker 4: we achieved a significant improvement in our quarter three results.
Speaker 4: Shows the marketing accounted for 34.9% of total revenue, and the increase from 37.8% in the previous court.
Sales and marketing accounted for 34% to 9% of total revenue a decrease from 37, 8% in the previous quarter.
These improvements are a result of specific actions taken earlier this year, which focused on enhancing the effectiveness of our enterprise go to market strategy and optimizing the design of our global sales organization.
Speaker 4: These improvements are a result of specific actions taken earlier this year, which focus on enhancing the effectiveness of our enterprise go to market strategy and optimizing the design of our global sales organization. These actions.
These actions include number one.
Significant improvements in our demand generation results in the enterprise segment through business development and account management AVN.
However, there is still plenty of room for further improvement in other areas.
Secondly.
We're benefiting from the successful implementation of our data and overall go to market systems, including but not limited to our updated CRM salesforce.
These systems were introduced at the start of the year and enable our team to access actionable data faster, increasing productivity and reinforcing a customer centric organization.
Finally, we're strengthening our relationship with system integrators strategic technology companies and Oems.
These partners significantly broaden our reach to the largest and most demanding enterprise worldwide across various use cases.
Now I would like to highlight this with a few new customer wins Upsells and cross sells.
The most significant win of the quarter was a substantial deal we finalized and reported to you in August.
Together with the largest system integrator, we secured the contract of a top five U S based global technology leader.
This deal allows us to support that that there is excuse me, including providing training for advanced external obvious.
Other notable large enterprise wins included the enterprise holdings.
A leading provider of mobility solutions, including car rental fleet management car sharing band pooling truck rental luxury rental retail car sales and vehicle subscription as well as travel management and other transportation technology services and solutions.
Surprised that selected the table for their Onboarding compliance and professional development learning required.
Founded 24, let me walk you through a global leader in providing innovative solutions to professional construction trades.
We improved productivity and safety decided to partner with a table for multiple use cases.
Leveraging our leadership in the quick serve restaurant vertical we signed Bojangles and North Carolina born restaurant chain known 40 scratch made southern food served at approximately 800 locations. They selected the checkbook for franchisee and internal use case trading Andy.
In Europe with type one.
One of the leading international operators in deregulated gaming sector.
Even Italy, Morocco and Turkey.
Offering that includes the lotteries batting online game and amusement Ashish.
These collected at the table learning platform to address the external use cases of retail and franchisee learning and for a number of internal use cases.
During the quarter, we had several significant themselves.
While notable customer is AWS, while we expanded our relationship as they increase their use of our products and services.
Additionally, we cross sold into AWS Engineering marketing Department has been for the ship.
As we called out during our Investor Cessionary inspire we expanded our four pillars of growth to five when we started to focus on the public sector and begin the process to achieve the fed ramp certification.
As a reminder, those four pillars include the external use case and the continued greenfield opportunity what the table is the leader.
Expanding our presence in large enterprise customers as demonstrated by the wins highlighted in the quarter.
Upselling and cross selling into our installed base land and expense and finally, expanding our partnership with Oems and system integrators.
All fed ramp certification the project is on track.
As indicated before we expect this to be completed in 2024, which will enable us to participate in more federal and state level opportunities, where this is a requirement.
From our government business development standpoint, our award with a big four system integrator and our preferred distributor keira soft cause.
To help us build a very healthy funnel out of achieving fed ramp certification.
<unk>, both flat and FET.
We have closed or extended yielded several different U S states during the quarter.
One such deal was with a U S Department of energy for one of 17 National Research labs that they manage with more than 5700, researchers and support staff focused on innovation in nuclear research renewable energy systems and security solution is national lab is using the turbocar external and.
Internal use cases now to Oems.
We were extremely pleased with the contribution from our OEM partners. So region NME chart during the quarter.
With the signing of Darwin box last quarter, our OEM alliances represents another strategic channel into both the enterprise segment, and new geographies, representing yet another way for us to leverage multiple growth pillars simultaneously.
We also signed a global OEM alliance with a big four system integrator in quarter two early spring gang Eli.
We are white labeling the table as the underlying technology used to address their customers' and Workforces upskilling and reskilling requirements.
In conclusion, while mitigating the challenging macroeconomic landscape our commitment remains on being focused on driving growth, but doing so with efficient execution, creating value for our customers diligent performance management and overall optimization of every single operational are in our control to ensure that buyer.
Applying disciplined in our execution and focusing on customer needs. We are confident in our ability to continue to drive sustainable long term growth.
With that I would like to hand, the call over to Scott.
Thank you Alethia and good morning, everyone for those interested a detailed breakdown of our financial results for the three and nine months ended September 32023 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.
Total revenue for the third quarter grew to $46 5 million, an increase of 26% from the prior year and exceeded our guided range.
<unk> revenues were $43 6 million, representing 94% of total revenue for the quarter and an increase of 27% from the prior year.
Annual recurring revenue added during the quarter was $10 1 million after adjusting for the negative impact of $1 2 million given the strengthening of the U S dollar relative to foreign currencies.
At the close of Q3 was $181 8 million an increase of 26%.
We added 88 net new customers in Q3 and ended the quarter with a total of 3679 customers an increase of 13% year over year.
Average contract value was approximately 49000 for the third quarter and increased from 48000 in the second quarter of 2023, and an increase of 11% year over year.
The growth in average contract value is being driven by our continued expansion into the enterprise customer segment with <unk> of $100000 and above.
Gross profit margin for the third quarter improved by 40 basis points year over year to 81, 1% of revenue and was relatively consistent with the prior quarter.
Total operating expenses for the third quarter increased to $34 6 million from $20 8 million in the prior year period.
During the third quarter, we recorded $1 6 million in one time costs, mainly related to the acquisition related earn out that are excluded from adjusted EBITDA calculation.
Our restructuring activities were completed during the quarter.
G&A as a percentage of revenue decreased to 17, 9% for the third quarter compared to 21, 4% for the second quarter of 2023.
Adjusted for the transaction related expenses G&A represented 17, 2% of revenue.
Sales and marketing expense as a percentage of revenue was 34, 9% for the third quarter compared to 37, 8% for the second quarter.
Given our investments made in our it systems restructuring activity and reduced seller attrition, we have seen an increase in productivity per head count, resulting in improved CAC and sales and marketing as a percentage of revenue.
That being said, we will continue to incrementally invest in areas to drive growth such as the enterprise and government vertical.
R&D investments in the third quarter were $10 3 million or 22, 1% of revenue an increase of $8 8 million for the second quarter.
R&D expense included $1 3 billion of the previously mentioned onetime costs and excluding these costs R&D represented 19, 4% of total revenue.
Adjusted EBITDA performance of $4 $5 billion for the third quarter of 2023 or nine 7% of revenue was above our guided range of seven 5% to 8% of revenue.
We reported net income of $4 million for the third quarter of 2023 compared to $10 3 million for the third quarter of 2022.
Net income for the third quarter was $5 million compared to $1 5 million for the third quarter of 2022.
<unk>.
We generated free cash flow of $8 4 million or 18% of revenue compared to 16, 2% for the second quarter of 2023, and one 7% for the third quarter of 2022.
We also earned $2 million in interest income in Q3.
In addition, as part of our <unk> program at the end of the third quarter, we had repurchased a total of 1 million 333 three.
361 common shares for cancellation at an average price of $38 43 for total cash consideration of $51 2 million.
Share based compensation accounted for a modest 4% of third quarter revenue compared to two 7% in the third quarter of 2022.
For the trailing 12 months, the post dilution impact was less than 1%.
Now for our Q4 2023 outlook, where our guidance is above the street consensus for both the top and bottom line here are the key takeaways, we expect total revenues to range between $48 3 million and $48 $5 million.
We expect gross margin to range between 85% and 81, 5%.
We expect adjusted EBITDA margin to range between 10 and 10, 5%.
A few points. In addition to note regarding the fourth quarter guidance.
We expect subscription revenue to be about two percentage points higher than overall company revenue, while professional services revenue to decrease sequentially from Q3.
This is being driven by our increasing work with system integrators, who are a critical part both of our expansion into the large enterprise accounts as well as the fed since that date.
In conclusion, I would like to highlight three key points.
One our market leading position that stabilization in the enterprise space drove improved unit economics across our business during the quarter.
This is further evidenced by the fact that the number of customers who generated greater than $100000 in.
<unk> increased 55% year over year too, we are generating meaningful free cash flow.
Using this metric combined with subscription revenue growth, we have exceeded the rule of 40 for the past two quarters.
Cash allocation strategy remains focused on strategically investing into our five pillars of growth tuck in acquisitions that align with our innovative product strategy and returning excess cash to shareholders through our NCI program.
Finally, we now have a clear path to exceed the profitability guidance. We provided earlier this year as we now expect to exit the year with adjusted EBITDA between 10% to 11%, while continuing to maintain incremental investments and innovation fed ramp.
Vacation and our go to market motion in the government in the enterprise sector.
That concludes my prepared remarks, operator, please open the lines. So that we can take some questions from the analysts.
Thank you ladies and gentlemen, so do you have a question. Please press the star followed by the one on your Touchtone phone. If you would like to withdraw your question. Please press the star followed by the two eight.
You are using a speaker phone please lift the handset before pressing any keys one moment. Please for your first question.
Your first question comes from Susan So Kumar from Stifel. Please go ahead.
Good morning, guys and congrats on the very strong results. This morning.
President <unk>.
Then, we our ads coming quite strong that along with a nice uptick in your HCV.
I had a question as it serves a broader overall go to market. It's good to hear that your direct sales motion is having more impact, but also sounds like you're growing rolled out your Si partners are playing here.
What are the sort of helping helping you evolve your overall go to market strategy in the enterprise.
And as you work with these partners are they helping you provide you guys with more visibility.
Into next year, just given where enterprise spending trends are going.
Curious any thoughts there.
Hello, So Doug Thank you for the question.
Appreciated the nice words.
Partnering with the size and has always been a goal of ours.
This is required then some overarching maturity products and services why is that because in order to be a compelling partner for a nice site you have to add a certain size as a company.
<unk> target customers and the product suite itself.
Delivering a high value for these companies that are looking to maximize under services revenue and consulting capabilities and with that said then there is no doubt that working with these companies and gives us a longer term view on our enterprise opportunities when we work with them on deals I believe.
We're quite early in our journey of working with their size and Theres a lot more work that needs and will be done that needs to be done and we'll be done I would say in the era of a size one of the latest evidence season.
The early success is what we are also accomplishing.
Not only in the commercial segment, but also in the government segment, where we have got an extremely close with.
The top four.
<unk> consulting firm.
It is giving us the ability to really.
Accelerate our entry in both the slides and fed market. So overall.
I would say our view of the market to ease and area of investment that is already returning results, but that we believe is great great great return for the future.
Yeah.
Great. Thank you for that color.
Sure.
My next question is going to be on the opportunity that you guys have ahead of you in the public sector.
You guys announced the U S Department of energy went this quarter.
And you guys are still sort of in that.
It sounds like you're still on track for from a from a fed ramp certification process can you.
Provide an update here in terms of.
<unk>.
What youre able to do today from a go to market.
From a go to market motion perspective in the U S government because it sounds like you are able to win deals.
Today, both on the federal and state side.
Without.
Good rapid hand.
Can you talk a little bit about.
That progress there and really what changes when CUSA.
Well as we stated in the past for US winning in this led portion of the global <unk> market is not completely news, we already at a relatively healthy portion of our customer base in that segment.
It's exciting to US is that we have accomplished at that percentage with minimum to know deepa focusing that and so like whenever you focus you.
Usually improve in operating machine and that's what we did that by sending out the government.
Capability.
On the sled side specifically.
<unk> is enormous.
I must say that aided because theyre not always led organizations.
Why.
Fed ramp like real estate ramp like certification, some do and we will reap the benefits of further ramp in their case also on the state side.
We are not only deep in deals in sled. Thanks to the partner that I mentioned before but in general we brought onboard individuals like RVP.
In government.
The deep knowledge of the space and know how to.
Execute on teaming agreements that are essential for the execution in more complex, even state deals and so what we've been at work at.
On deeply is really developing the one one and our overall marketing couple.
Capabilities the messaging, we've learned a lot about what the state like organizations need to and we have further conversations with many partners and distributors like <unk> software that are making this is preparedness for large scale I would say and.
And I believe we're on the right track when fed ramp complete suite.
We will be even more in a better position.
Okay, great. Thank you. Thank you for the color John.
Yeah.
Congrats again on the quarter I'll pass the line. Thank you.
Thank you to them.
Your next question comes from Josh Baer from Morgan Stanley. Please go ahead.
Great. Thank you for the question I wanted to ask about the expansion that you talked about in your prepared remarks with Amazon.
Wondering if that was new in the quarter. If you could talk a little bit more about the use case and the timing and the impact of that expansion.
Sure.
Thank you for the questions.
Donna is a flagship customer for <unk>, we started with Amazon AWS and we've added on.
Several.
Areas of the business within Amazon and the latest Amazon SMB is is another example of that although all of them.
<unk>.
I would say that.
He gets the project in terms of size and scope remains of our Amazon AWS initiative.
This is the latest Amazon SMB project, which is relatively smaller in size them is just one of a few that we have targeted within the Muslim Corporation. So.
Our job is to continue to penetrating this account and in order to do that our focus is on making AWS very happy and.
We are strategically focused on it.
And sorry.
Good morning, Scott I, just wanted to ask quickly on that just from an AWS perspective it was.
Of course have the the major installation, which is which is W. Skills builder, where we could this is not a win on the engineering side, which is the department that we won within AWS, but we also expanded within the current contract that we have on the AWS skills builder, which is the customer Academy. So we continue to build.
And expand within the current contract in other departments. So there are several ways to fund.
Excellent I wanted to ask one more on competition and thinking about it from the lens that Gen. II continues to evolve and impact the world the need for Skilling and Reskilling is increasing and so im wondering if youre seeing any changes from the broader HCM suite players if they're more.
Focused on their learning modules and generally if those larger HCM suites are putting more attention to the learning segment of the market. Thank you.
Yes, Claudio speaking.
So first of all.
We are capitalizing on mistakes that some competitor is doing.
Mainly.
No no no.
The dynamic we see in the HCM space.
Thank you.
Yes, one data LMS component to that Paul.
And then it gets C.
Training topics like subscales comply.
<unk> and <unk>.
Language training.
Rod.
Thanks, Tom I just thought of.
Having a sophisticated needs.
That and the scalability.
Gullibility multi user pro visa will get more deal deals and you need to or is there any sophisticated needs.
Yes.
The only.
That'd be color, mostly playing in the market can provide.
Yes.
As more and more are not sub despite these neat.
Enterprise needs. Some time, we can see that tuscola adopt.
These are small component.
Let's say, yes.
And then they realize that.
It's been mostly but it does this by complex brain Lee.
And Josh just to also add to that just from reference ability is that if you look at a couple of wins, specifically that you know, whether it's Milwaukee tool and secondly, I would say enterprise. These are folks exactly doing what cloud you spoke about it theyre hit a moment in which they need to move to a platform that can serve their needs from a learning perspective.
From legacy platforms.
Okay.
Great. Thank you.
Your next question comes from Kevin Kumar from Goldman Sachs. Please go ahead.
Alright, Thanks for taking the question I wanted to ask about the enterprise.
Higher sales cycles kind of trending in the shape of the pipeline any color there would be helpful. As it pertains to that.
Can you talk a little bit about the recent big side U S. Based technology company that you won I guess kind of the main use cases, they're in the process of winning that deal and anything on the relative size of the deal would be helpful. Thanks.
Hello.
<unk>. Thank you for the question so.
Look Kevin.
I'll start from the latter part of the question on the strategic deal that you referenced.
Whilst we are unable to share the exact logo name.
We are extremely proud of serving.
One of the worldwide leaders in their respective spacing, which they play into.
I will say a few things.
With this prospect in particular that key highlights.
We've been navigating.
Deep degree of complexity that he's an organizational complexity of the customer.
Deep degree of complexity due to the varying needs.
Sure.
Being.
Addressed in terms of use case, you were asking which ones and the primary targets, where sales mastery sales enablement and customer training. So the perfect equation of I've read the positioning that we have in the market.
And I would say the third degree of complexity, but also leveraged it was.
Whilst we were working with this organization also developing the relative relationship with a system integrator that at a.
<unk> in the company.
In order to to win fundamentally there Theres selection.
Because the ESI was also utilized for intellectual opinion during the RFP RFID phase.
All that to say we were proud to be the best in class the largest companies in.
In the LMS space.
And to substitute and displace.
Technology is in learning there has been a.
Serving this company for many years.
That's I think as much as I can say.
Without entering into specifics that would however that would otherwise.
<unk>.
Kind of the.
Beyond their NDA.
Okay.
We did more general enterprise posture. We are we're so excited we believe that we are positioned in a really ideal.
Way to continue to win.
The best companies.
In the world because of this ability to adapt to multiple <unk>.
Is it C reference ability is a really huge zinc and advocacy and enterprise and so being able to demonstrate and speak to deployments like the ones. We just discussed.
It goes well beyond any demo was there any product conversation.
Our product notwithstanding that as matured as our operation globally has matured.
Overall the company posture is just an ideal states to continue to win.
Share of wallet in the enterprise space and our demand is reflecting that because our business development team is is.
Crushing results on our enterprise segment so.
You'll find me extremely excited and Thats and we continue we will continue to deliver results.
Yes.
From another angle on the from the product angle our roadmap is.
Also focus.
Oh no.
Supporting that.
Is that is sophisticated enterprise needs.
Tom said that on that point of view precursor security and scalability on adopt any I had seen the casco, Matt I bet, he loves uncle priced up.
A weeks ago Lee on migrating to the new database architecture, Fabio and the team have built.
We were late for the illegal.
When we deployed the new solution that we have seen the scalability going.
Skyrocketing.
With technology, we have.
The Super scalable.
All right.
The problem for a very large amount of news media and media will mediums.
Yeah.
That's great I appreciate the color there.
And then I wanted to ask about I think last quarter, there was a comment on.
SMB churn kind of impacting kind of brand new customer adds in.
And so curious if thats persisting, if it's impacting any of the other metrics like IRR growth or retention. Thank you.
Yeah, Kevin I'll take that one so I think just to kind of mind. So when you think about SMB and our world.
Just from a perspective overall almost 50% of what we do in the quarters in the large enterprise segment, that's contracts over $100000 and above and SMB will be sub 20% of what we have done in the past the way we spoken about in the past as well as consistent as that SMB is a customer that is primarily driven through inbound.
It is the first time adopter requires a lot of touch from a unit economics perspective, there are certainly I would say it is not as optimal as Mick.
Mid market enterprise.
Enterprise customers are and what you will see from assets that we will continue to play in that space to the extent that the unit economics makes sense as well as we watch for innovation in that space, because that's really where the next foreseeable has come from and we really want to understand if there's certain areas where we can.
We watch for from a competitive landscape, but otherwise the first time customer we will continue to focus from an inbound point of view, but primarily the higher investments that are paying off as you can see in the cycle.
Earnings in past quarter is focusing on mid market on enterprise moving up market, because that's where the gross retention net retention the ability for us to be in multiple use cases, if you look at the statistics that I spoke to.
80% of our customers are in three or more departments.
One more department that 50% and three or more departments and that really gets you. The stickiness gross retention has held relatively flat to the prior quarter.
As I spoke and Thats, a reflection of us moving up market.
<unk>.
Great. Thanks for taking the questions and congrats on the quarter.
Thank you.
Your next question comes from Martin <unk> from <unk> capital markets. Please go ahead.
Yeah.
Thanks, So much for taking my question you have typically given in our Q4 and can you give us a bit of a sneak preview there.
Martin I Love the question, but as you know we provide that.
At the end of the year annually. So we will we will provide that number when we report Q4, but like I said, if you add all.
From a perspective of gross retention housing holding flat.
The only thing I can add that May help you is that we had a very strong one of the best quarters, We had an up sell cross sell motion.
During the year.
Great. Thank you very much when I look at your guidance going into the.
The big Q4 looks.
It looks a little it looks kind of conservative.
First glance just wondering if you can.
Just give us some color on how Q4 shaping up.
How incremental <unk> might look relative to some of the previous year's Q4.
Yes, no listen Martin from our point of view and listen.
When you think about <unk> and subscription revenue is relatively straightforward and you take the or the start of the quarter and it gives you a sense of what the subscription revenue at a minimum would be and really to the extent that we closed a number of the deals that will be in Q4.
That came in earlier in the quarter that can have some impact into adding some subscription revenue during the quarter, but.
We of course always trying to make sure that when we guide from a revenue perspective it gives.
We feel confident about it.
And have the ability to do as best as we can.
So we see that from a profitability.
<unk> ability point of view I will say that.
I think we demonstrated I think if you've seen the numbers relative to consensus we were 170 basis points ahead.
So I had spoken to the street that I would be at 10% exiting Q4, but you know we are pretty much at 10% at this point.
We'll probably make some investments as we think about some fed ramp investments that we talked about in Q4.
That will be more Q4 specific items and some things in R&D, but we feel pretty confident about the number I put out there.
And the consensus for EBITDA.
We'll see if we can do better than that but we feel very comfortable where we are in terms of the numbers. We provided both for revenue gross margin and EBITDA.
That's great. Thank you very much last one from me has there been any change to the timing for federal approval that you communicated that the customer conference.
Good morning.
Let's see you want to take that alright, I can kind of give some <unk>.
So I'm, sorry could you repeat that real quick sorry.
Yes.
Has that changed.
Just wondering has there been any change.
Compared to what you communicated at the customer conference.
Yeah.
No changes.
Perfect. Thank you Martin in terms of that just to just to make sure. We understand this is that on the federal side.
<unk> spoken about 2020 for us, but thats, obviously, a factor that can either accelerate or not.
Our b onto <unk> in 2024, because one of the important aspects to remember just want to call. It out for the street not to get too head is.
Is that there is a program where you to the extent you get a sponsor theres a possibility that can accelerate but if there is no sponsor then it takes a quarter or two longer but generally it was 2024 is the year, where we should.
Indicated we will get there.
To the extent, we get any news on sponsors we will share that with the investor base.
Yes.
Thank you very much and congrats on a good quarter.
Your next question comes from Robert Young from Canaccord Genuity. Please go ahead hi.
Good morning, you've already talked a lot about your success with large enterprise across multiple use case.
I wanted to dig into a flavor of that it appears with enterprise in Milwaukee here in the quarter that the enter the entry point here is changing a bit I think you said, 50% of the pipe is external but in the past.
The external has always been your entry point in enterprise as I understand it now looks as though your.
Very much broadening that out and I'm just curious what's driving that is that just the outbound effort.
Or is that the way that the market is looking at you or is it partners that are pulling new entities sort of internal non external.
Large enterprise opportunities.
Claudio speaking.
So what's happening is that the data.
So in the industry on.
I would need data and the best of breed.
So now if you want to add.
The best advice.
In the market.
In the world by the way.
And you want.
You have to choose the table.
For sure.
Sure.
<unk> got to be and all said.
These are usually when it does come at a right to another.
Right, but not for a single Department, where do we stop and then we upsell and cross we cross sell through either the past loans.
Come on now.
He is also the choice for the global projects.
Global project.
Couple of ways. One was there is that it.
It seems like this is Amit Kara that want to deploy a global at NASA.
And as it had been.
It does happen.
A few weeks ago with the big technological skills.
There's a group of people that those two together.
Together to a single SaaS with deep.
Experiencing more minutes.
That is based.
On the department to get logs in the east.
Syed.
Did you say.
I don't know if <unk> want to provide more flavor on that.
Yes, I will just add one thing in the macro environment.
The other shift in addition to what the one that <unk> was mentioning.
Is the role of.
The role of CFO and CIO has increased in these strategic decisions.
And and the impact of that trend.
Is that were sitting more often.
With individuals that come from our perspective, there is not necessarily the internal perspective or the external perspective, but it is making the best decision for the corporation.
In order to get the best technology that has the best.
Path forward towards being game really.
Sure technology among the group so we're sitting golf in which <unk> to say, Hey, I had a point solution on the internal side and Theres a vision of doing customer Academy two years I need a product that does both really well.
And.
And oftentimes that is even CFO push so from a business development standpoint, the impact of that is we are testing.
<unk> <unk>.
So to speak or buyer personas that in the past we are less.
Relevant for us, but we're working those a lot and we're seeing great results.
Okay. Thank you for that and maybe just a colorado that would be around if the entry point is the CFO or the C suite I mean, obviously that's success on the retooling of your sales go to market, but I'm also curious.
Where the opportunity is in HRS system, or a broader HR tool and learning is one element of it how it is dose.
Dolce boat deal with that or is that something that you would walk away and focus on best of breed application of <unk>.
Training and learning.
Well I think.
Probably you go ahead.
I was going to say.
I think we presented data really well before but I'll. Let you go ahead and cover kind of the topic.
So that's actually why.
The way we deal with.
H C.
Systems.
Oh, yes.
And usually are.
Also local play yes cannot build their own LMS in the daughters of the word.
Our integrated into.
Our integrating the table.
All the parties of the chip.
Right.
We have these big marketplace.
So that connect with all of the HCM, they're all with the HR ecosystem.
Ecosystem, because each our ecosystem is not only HCM.
Talent there is many many other angles that we need to integrate.
No.
Organically inside the organization what is powerful about connected.
Is that we do not provide the spartech integration.
Integration is just this is the integration.
Go.
Mark with the Starwood integration.
Can change it for you David on your needs so different workload different rules, David on the customer needs. So we approach the HCN.
Software ecosystem from two angles.
Yes.
Integrate.
Okay. Thanks.
Thanks, a lot for taking the questions.
Your next question comes from Richard <unk> from National Bank Financial. Please go ahead.
Yes. Thank you. So it was pretty clear from your conference that you've got an incredible amount of momentum and it's still very early days, but.
What I'm trying to understand is that it.
If you can give us a sense of your market share today, you know really trying to assess the runway here in front of you and as you add sort of more markets I'm trying to get a grasp on what that share would be.
Yes, Richard I'll speak to some numbers I think the printed and we'd be happy to kind of recycle. It a few quarters ago just to give you. Some perspective and then we did some work in the U S market and then just globally, but I'll, even just speak to the U S market niches and the top of my head and the numbers are.
If you think about the external versus internal use because we've always spoken about that.
50% of my pipe will lead from an external use case, where the win rates are the highest in our slide you spoke about in last year in terms of the internal use cases, we're seeing a lot of opportunities come on to our desk, because CIO as they're thinking about.
Long term multiple multiple problems not just one problem and so.
Some numbers.
About the U S market next five years $8 $5 billion up for grab almost 70% of that is greenfield and the external use case and then one third of that number is is what we call the switcher market.
Primarily the internal use case employee on boarding and so on and so forth and so the way I just simplify the math in that aspect is that if you continue to be the leaders on both externally and trying to use case that multiple used cases, we do not need.
The whole market, but if we continue to maintain our leadership in RFID, 10% of that market leadership that has a significant number is still ahead of us that will be close to a half a billion dollars or more in the IRR. If you just continue to do that and execute so.
I'm, just giving you high level numbers, but I think what is also important to note is that the breadth of our horizontal nature. If you look at this quarter.
What I generally look at more closely also had pleased is that if you look at 2021% to 2023 and now we continue to be in multiple horizontal departments. This quarter, yes, we call. It the big five tech customer win, but we had major wins with enterprise car rental Milwaukee tool.
No.
We also had some ways that we can call it like the world anti doping agency. So we have a multiple horizontal framework.
And then government is coming into that for a which again as we highlighted during inspire is a large market. The U S. Federal government last year spent $230 million in the last three years spent $230 million in element spend. So it gives you a perspective of that market. Once we get into fed ramp certification enables open up multiple pipeline opportunities with.
We can't participate in today, but it's a matter of few quarters when we will.
Okay Super Super helpful. Thank you and.
And thanks for those comments today with respect to EBITDA and sort of giving you a perspective, even with the investments, but as you look ahead.
Ed.
Beyond next quarter.
As an organization how are you thinking about through capital allocation and the run rate of EBITDA like is that kind of you're at the point now that you've sort of proving that you can surface that operating leverage and now you're going to sort of continue to sort of maybe pick up your investment in growth or should.
Should we think about that over the next two.
12, plus months here.
I'll start that and kind of fixed line last year come in I would say first and foremost.
I would speak to EBITDA growth is the number one in primary objective, which we start with.
And our investments in R&D and in sales and marketing specifically as we called out enterprise segment Guffman fed ramp we are making those investments and still delivering this EBIT. So it gives you a sense that you know.
I kind of gave some numbers to folks that are probably give up 2% of my EBITDA. This year in fed ramp certification, which tells you that could've been higher than that if I didnt make those investments, but those investments are necessary to drive the long term revenue CAGR I don't provide long term have you provided some guidance in terms of in terms of what we had said at its fire that you can expect this company.
<unk>.
More closer to 281% margin business and we are exiting in north of 10% 10, 5% that I called out in Q4 and next quarter. Then you should expect that this business can continue to demonstrate leverage.
And the easiest part here to kind of simplify the math is that you are seeing G&A dropped a percent a quarter. That's probably another I know you should expect us at AR.
Out of 250 million plus IRR to be a business that is generating.
The G&A of close to let's say, 10% or so so.
What I'm really saying is that 7%, 8% coming from G&A and operating leverage without even touching sales and marketing R&D, but.
As we've spoken about in the past I think.
We feel pretty confident about maintaining a healthy revenue CAGR where growth is the higher component of the rule of 40 and adjusted EBITDA free.
Free cash flow.
It should be as we called out in our investor presentation out as far.
20% is not unreasonable and in the next few years.
Okay.
Also I also look at free cash flow and my apologies just quick point free cash flow is also important to me free cash flow per share is equally important to me and as you can look at it.
But that's an important discipline that we've shown that free cash flow was 18% this quarter and 16% last quarter.
Yes, it's about capital capital allocation.
From the M&A angle.
We have been.
We became very very good on tuck in M&A.
I mean, I would love to see.
After the acquisition of <unk> and.
The goal we have been capable to.
Integrated to the team.
And that too, but at least the first of all for that show.
Broad off in less than four months and the house update or backwards.
We have executed these at the speed of light.
So for.
M&A is something that we are becoming extremely good.
So probably probably we are also partner to explore other opportunities without.
Uh huh.
After we have digested the.
The acquisition that we have made in 2022.
Okay. Thank you very much I appreciate it.
Thank you I will now turn the call back over to Claudio <unk> CEO for closing remarks.
Yeah. Thanks, everyone.
Let's speak.
Again next quarter.
Ladies and gentlemen, this concludes your conference call for today, we thank you for joining and you may now disconnect your lines. Thank you.
[music].