Docebo Inc.

Good morning, everyone, and welcome to the Dachabu Inc. fourth quarter and year-end 2021 earnings call. All participants are currently in the lesson early mode. Following the presentation, we will open the line for a question and answer session for analysts. 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 the queue for any follow-up. I'd now like to turn the call over to Docebo's Vice President of Investor Relations, Mike McCarthy. Please go ahead, Mike.

Thank you, Operator. Before we begin, Docebo would like to remind listeners that certain information discussed today may be forward-looking in nature. Such forward-looking information reflects the company's current views with respect to future events. Any such information is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on the risks, uncertainties, and assumptions relating to forward-looking statements, please refer to Docebo's public filings, which are available on CDAR and EDGAR. During the call, we will reference certain non-IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, they are not recognized measures and do not have standardized meanings under IFRS. Please see our MD&A for additional information regarding our non- IFRS financial measures, including reconciliations to the nearest IFRS measures. Please note that unless otherwise stated, all references to any financial figures are U.S. dollars. Now, I'd like to turn over the call to Docebo's CEO, Claudio Urba.

Ciao, everybody, and thank you for joining us on our 2021 year-end earning call. With me today is Alessio Tuffo, our president and CRO, as well as Sukaran Mehta. I'm happy to share that Sukaran, who has been an incredibly valuable leader at the table since prior to our TSX-ITO in 2019, has been promoted to CFO from Interim CFO. Congratulations, Sukaran. Before I begin my prepared remarks this morning, I wanted to first take a few moments to express our concern and support for the people of Ukraine. While our business presence in the Ukraine and Russia is extremely small, as a global company with a European heritage and roots, many Dochevians, including me, have deep ties to the people of the region. We have made a corporate donation and we are matching employees' donations to the International Committee for the Red Cross, which is helping people affected by the conflict and is supporting the work of the Ukrainian Red Cross. We will continue to support them where we are able. While we find ourselves in these volatile times, we understand the importance of continuing to deliver consistent operating results. And I think we successfully accomplished this in 2021. Revenue for the full year growth, 66%. A significant improvement from the also strong 52% growth in revenue we generated in 2020. A big reason for our success has been the horizontal nature of our platform, which is industry and content agnostic. We are winning new logos that is both employee and customer focused. and setting the stage for our land and expense strategy. We had record new logo performance, which included 169 net new customers, and the sales momentum we saw from enterprise customers in the third quarter continued during the quarters. At the same time, our traditional sweet spot of mid-sized enterprises and departmental wins continue to be a steady growth engine for us, accounting for more than half of our new logo business. Focused on setting the stage for our land and expense strategy. In Q4, we signed a new customer agreement with the global medical device company, Align Technologies. Align chose Decebo to provide external training for their orthodontics firm and also create customized learning experience for their internal teams. Dine Brands Global, the company behind iHope and Applebee's franchise, selected Decebo to train the team members across their restaurant chain. In the fourth quarter, we signed a new customer agreement with the NCAA to deliver a solution to scale its learning and development program for up to 40,000 athletes, coaches, and school administrators. Large implementation like this proved the scalability of our platform at the enterprise level, allowing us to serve some of the leading organizations in the sport world. In addition, To the strong new load of performance, we are seeing great success in our land and expense strategy. By leveraging our content offering, including the Chabot shape, we've expanded our relationship with BMW to train all departments and their manufacturing facility in Greensville, North Carolina. We are pleased to have expanded our agreement with United Nations Global Compact, the world's largest corporate sustainability initiative. This expanded agreement will drive the training for more than 30,000 of its members. We are also signing the new customer agreement with SolarEdge, a global leader in smart energy technology and developer of an intelligent inverter solution that changes the way solar power is harvested and managed. They will be using the table for both employees and customer training. In January, We signed a strategic partner with Pavilion, the world's leading private membership community for high-growth professionals. As part of our partnership, Docebo will provide to Pavilion a full Docebo suite of products to create, deliver, analyze, and measure the impact for its 7,000 members. In 2021, we introduced new products and modules as part of the Docebo Learning Suite. many of which were launched in the second half of the year. Some of these new products have exceeded expectations out of the gate, and with others, we are adjusting the formula. Those are the types of learning we expected, and we are pleased to see new products now starting to contribute nicely to our ACV groups. Our product innovations have also received great recognition this year from a number of independent third parties. We were ranked first in the category of Enterprise Corporate LMS and Leader Europe LMS on the G2 Crowd Winter Report, which is based on review from actual customers. We won nine Brandon Hall Group Excellence in Technology Awards, including Awards for the Learning Suite, Learn LMS, Chase, Learning Analytics, and Learning Impact, with six of the awards being gold. With the addition of Rudy Valdez, As our CEO last fall, we continue to strengthen our team in a way that more closely aligns our core product development and research and development work. In January, we announced the addition of a new chief product officer who had a change in personal circumstances and will not be joining us. Leadership of our product development will continue to be the joint responsibility of Ruby and our CTO and co-founder, Fabio Pirovano, and we will continue to invest in top talent to remain at the forefront of learning innovation. The general turnover in the labor market has presented us with challenges as well as opportunities, as we have been able to add seasoned sales and marketing professionals that will help elevate the next leg of our growth. North America was more than 70% of our sales in 2021 and grew more than 70% year over year. It is our largest market and continues to be our greatest source of growth. But we also see expansion opportunities for Decebo around the world that we intend to capture. In 2021, we established a new office in Germany, which is showing early traction. We believe Germany in particular can become one of our largest markets outside of the U.S. In January, we have also acquired SkillsLive in Australia as a table value-added reseller since 2018 that accelerates our time to market by immediately adding specialized talent and print infrastructure to address the APAC region. Lastly, I have talked about the importance of ASG on past conference calls. We hope to have our first ESG report published by the time we speak to you on our next earning call. That report will share some of the work we do to empower our people, maintain integrity for our stakeholders, manage our environmental footprint, and contribute to the community. Docebo has an opportunity to make the greatest impact as a corporate citizen to innovate and provide learning technology that helps other organizations achieve some of their own ESG objectives. This is work we already do for many of our customers, and we will provide additional color over time. With that, I will now pass the call to Sukaran to speak about the financial.

Thank you, Claudio, and good morning, everyone. For those interested, a detailed breakdown of our financial results for the three-month and fiscal year ended December 31st, 2021 can be found in our press release MD&A financial statements, which are now available on our website and are also filed on CDAR and EDGAR. The slide deck accompanying this earnings call was made available on our investor relations website this morning. We were very pleased with our strong results for the fourth quarter and the fiscal year 2021. This performance sets us up for another year of strong growth with a natural transition to positive adjusted EBITDA as we exit 2022. Total revenue for the fourth quarter grew to 29.8 million, an increase of 59% from the prior year. Subscription revenues were 27.5 million, representing 92% of total revenue for the quarter and equating to growth of 64% from the prior year. Net new ARR was 14.2 million in the fourth quarter and is approximately 40% higher than the net ARR we added in the third quarter of 2021, continuing the robust trend of quarterly net new ARR additions as shown in slide four. We exited 2021 with 117.7 million in ARR, an increase of 59% over the 74 million reported at the end of 2020. With over 2,800 customers at the end of fourth quarter of 2021, our company-wide average contract value, or ACV, increased approximately 42,000, up 24% from 34,000 at the end of the fourth quarter of 2020. As Claudia noted, we continue to see traction from enterprise customers as Docebo is being selected for more complex multiple use case deployments. This is reflected in the ACV for new logos and cross-sells added in the fourth quarter, which was close to 60,000. In addition, approximately 45% of the ARR generated from new and cross-sell logos this quarter came from deals valued at over $100,000 with no single transactions being recorded in excess of a million dollars. This growth in ACV from new logos tells only the beginning of the story with our customers because it captures the size of the relationship we have at the onset. As Alessio will tell you, once we establish a relationship with a great new logo, we are very well positioned to expand ACV by demonstrating value over time. The metric that best highlights ACV expansion after we land a customer is the net dollar retention rate. In 2021, we reported a net dollar retention rate of 113% and increased from 108% in 2020. The investments we've made in our account executives and customer success teams are bearing fruit as our NDRR continues to expand, but I would like to make two additional points on the NDRR. First, we have continued to add more enterprise customers to our base, and these accounts naturally have more divisions and opportunities for upsells and cross-sells. Second, our upsell-cross-sell motion has been historically driven by expansion of the use cases for Docebo Learn LMS, and now with the launch of the Learning Suite, there are other avenues for expansion. Growth profit margin for the fourth quarter was 80% of revenue, which compares to 79% for the third quarter and 84% for the prior year period. As we have said in previous quarters, we made investments this year in our customer success and professional services team to facilitate the rollout of our multi-product strategy and to further enhance customer support. We're starting to see leverage on these investments, resulting in sequential improvement from the third quarter and we expect to maintain low 80% gross margin profit levels over time. On slide six, you can see a summary of our operating expense lines. Total operating expenses for the fourth quarter increased to $26.7 million compared to $20.2 million for the prior year period. G&A has continued to decline as a percentage of revenue to 24.4% for the fourth quarter compared to 25.2% for the third quarter as we continue to realize efficiencies from increased scale. Sales and marketing expense increased as a percentage of revenue to 42.4% from 41.2% for the third quarter. The sequential increase was in part the result of seasonal investments in marketing activities during the fourth quarter that included our annual Docebo-inspired conference. R&D expenditure was $5.5 million. or 18.5% of revenue compared to 20.2% in the third quarter. In the fourth quarter of 2021, we also recognized a one-time year-end benefit from R&D tax credit of approximately $800,000. We reported an adjusted EBITDA loss of 1.5 million for the fourth quarter of 2021 compared to income of 0.1 million in the prior year period we reported a net profit of $1.4 million for the fourth quarter of 2021 compared to $4.1 million net loss for the prior year period. Finally, free cash flow was essentially neutral in the fourth quarter and we continue to have a very healthy balance sheet with net cash and cash equivalents of $215 million. Looking forward into 2022, we continue to focus on growing this business as fast as we responsibly can and we're continuing to recruit the high-performance talent we need to support our growth target. However, like every other technology company, we find ourselves in a competitive market and are experiencing the same pressures from wage inflation. Notwithstanding this, we expect to reach a point where the growth in our revenue will naturally transition us into positive adjusted EBITDA and free cash flow as we exit 2022. As you would expect in a maturing company, we will continue to see operating leverage in G&A improve. In terms of R&D, we expect our expenditure to remain within the 18% to 20% of revenue. Sales and marketing is an area that we will continue to invest as long as our unit economics remain attractive. Near term, we will likely run in the low 40% range. At these levels, our cash ratio continues to be best in class. with $1 invested in sales and marketing, generating $1 in ARR. For the full year 2021, we invested $43.3 million in sales and marketing and added $43.7 million in ARR, with nearly 80% of our new logo and cross-sell contracts being multi-year deals. That concludes my prepared remarks. I'd like to turn it over to the operator now to take some questions from the analysts.

Thank you, sir. Ladies and gentlemen, we will now conduct the question and answer session. If you'd like to ask a question, please press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press star two. If you are using a speakerphone, please leave the handset before pressing any keys. We also ask that you limit your time to one question plus one follow-up before cycling back into the queue. One moment, please, for your first question. Your first question comes from Robert Young with Khan Academy of Genuity. Please go ahead.

Hi, good morning. My first question will be around the sustainability of this strong incremental ARR ad in the quarter. You said that there were no transactions over a million, so I guess that's implying that there's no materially large deals, but I'm curious if larger deals were a big driver behind the incremental ARR. Is it sustainable? Did that come near the end of the quarter? And that's the question.

Hello, Rob.

Alessio speaking. The mix of deals in quarter four was according to plan. What we're seeing, Rob, is the continued success in our strategy of adding a healthy mix across our three main commercial segments, those being commercial or small business, mid-market, and enterprise. It is no secret that we are seeing an up-trending success in the enterprise segment. But our strategy has never been to increase try and do the necessarily the very very large deals up front because as stated multiple times our goal is to win the customer and grow it over time with our new products on a point of acv mix for the past consecutive quarters uh four consecutive quarters so for the entire fiscal year 2021 our deals exceeding $50,000 in ACV remain well above 50% of our ARR in terms of units. That, to me, is a metric that shows an incredible consistency in execution and an alignment of the entire go-to-market machine towards the average customer size that we really like, which is that 50 to 100K average ACV. Still, we're investing heavily in enterprise and we're seeing a tremendous market fit. And you should expect in the future that deals above 100K in ACV continue to become a recurring event. And those will continue to grow over time thanks to multi-use case and multi-products.

Yeah, Rob, and Rob, I'll just speak to Alessio's point just around that. The number we talked about is almost half of the ARR coming in the quarter is from deals of 100K in ACV. So we're moving nicely up the enterprise market. Yeah, and what we also like is the consistency, right? There are no seven-figure deals, but there's a lot of deals that are above 100K that are adding almost 50% of what we have in the quarter. And so for me, and as we think about consistency, this continues to show traction as we penetrate the enterprise segment of the market.

Okay, great. So nothing out of the ordinary for the quarter, just strong demand. And then my second question would be around the sales efficiency that you were talking about. You said it was $1 for $1 of ARR, but that was lower this quarter, despite, I think you said, that there was a seasonally higher level of sales and marketing spend. And so I get around $0.90 for each incremental dollar of ARR. And so is that why you're trending towards positive free cash flow in 2022? Is there actually a little bit of a lower level of investment in sales and marketing, or should we expect that to bump up through the year a little bit?

I'll speak to it first, and then Ali, if you're going to jump in. You're right. So if you look at just Q4 in isolation, the calculation is, slightly more efficient, but overall, you know, for the full year, the calculation is in around $1 spend to generate $1 ARR. You've got to take into account, as you think about calculations, that seasonality, right? So you have, you know, sales and marketing expense coming in, but you may have seasonality in terms of ARR performance between the quarters. So I prefer to look at it from an annual perspective. As we think about 2022, we would say that there are certainly investments we will continue to make to support this initiative as we penetrate the enterprise segment of the market, as well as the things that we are doing, and Alessi can speak to it, around making sure that the 2800 book of business that we have, the customers that we have, we have the right strategy and the right team in place from an account management and customer success perspective. Alessi, I'll leave it to you to kind of expand a bit more on that.

around extracting the maximum amount of value from the customer base along with staying with high levels of performance of customers' happiness is core for our growth strategy. We've said it multiple times, happy customers renew, happy customers grow with us. We have made investments to ensure a really good mature level of relationship and ratio between our customers and our account management organization. And this is going to bear fruits in the future because as we get a better picture of our customers' needs, we're also going to see a return in the level of penetration of these customers, not only from an upsell standpoint, but also from a cross-sell standpoint. So in summary, better ratios means better presence, means better intimacy, and better unit economics in the future.

Thanks for taking the question. Thank you. Your next question comes from Daniel Chen with TD Securities. Please go ahead.

Hi, good morning. I'd like to discuss your geographic expansion plans. You acquired Skills Life to accelerate your APAC presence. Can you talk about your organic expansion plans internationally and what role partners play in this? I think some of your partners are also focused on expanding geographically. Thanks.

Daniel, good to meet you, Claudio. market is north america and then europe and australia new zealand those are the core markets we are investing in for several reasons especially because we can leverage our marketing and our sales machine in countries that have the culture footprint that is similar to our culture footprint that we can use in North America and in Europe. Let's say that Germany also geopolitically is stepping in with a lot of additional investment in almost everything in this geopolitical rebalance. And you know that we have opened the markets in Germany six months ago, and Nordics are interesting markets. You're right. Other markets, especially in Asia-Pacific, are covered by partners and resellers, but I want to stress that most of our revenues comes from Western countries and Australia and New Zealand, and this is where we are investing in, especially in direct sales. Ale, do you want to add something on that?

Sure.

In addition to that, we believe the latest acquisition of skills life gives us acceleration. We've learned a lot out of spinning up offices originally, initially in the UK after, of course, our North American presence, and then Germany, and then even before then during the Formatrix acquisition, which also gave us the opportunity to establish a physical presence in France. We've learned that organic building of a net new office takes time, hiring leadership, onboarding them, ramping them up, having them understand our product culture and everything takes time. The skills life team was just a tremendous opportunity of A, phenomenal people, B, great learning and development professionals with an incredible network in the region and C, like I said before, gave us access to already onboarded people that already had a network and relationships. So in just a matter of a couple of months, we have them already operating in our sales instances. They're already reporting on pipelines. They're already developing business. We have a sales leader in place. This would have taken years. And on the support and implementation flip side, it gives us the ability to spin up quickly a 24-7 coverage that remains transparent a critical objective for our goals of global expansion and supporting enterprise clientele that frankly expected 24-7 support as part of our capabilities, and we're now in a position to offer that.

Thanks. That's very helpful.

I wanted to change gears a little bit. Throughout the pandemic, you provided some metrics that showed customer engagement was elevated significantly Just wonder if you can give us an update on some of those metrics have customer engagement with the platform remained at that level, even as things start to normalize Thank you.

um. Claudio speaking.

I'm not sure we can share this data on a number basis because we shared anecdotically during the pandemic. I'm not sure if we shared with specific numbers. That said, the usage of the system is becoming more sophisticated. Because our user now is used to use e-learning more than at the pre-pandemic level. More use cases, more ways to learn, more synchronization and data exchange with other systems. It's not only a matter on how many users are logged in the system, but the way they use. For example, the usage of the learning impact system to assess not only the usage, but the quality impact of learning is an example on how we measure the adoption of the learning, not only from the quantity perspective, but also the quality of the training that our customer delivers. That said, we can provide the post-call some of the data if necessary.

Thanks. It's helpful.

Thank you. Your next question comes from Richard C. with National Bank Financial. Please go ahead.

Yes. Thank you. As you guys make incremental gains into the enterprise, does it change how you operationally organize the business when it comes to functions like R&D and sales and marketing?

Yeah, Claudio speaking. I mean, the more we create new products, the more we approach different markets and different industries with different needs and require a transformation, a continuous transformation inside the organization. And when I say continuous transformation, Alessio is working hard on the sales and marketing team on better covering vertical use cases and vertical industries and vertical products because you can imagine, and this is something we are also learning on our own, that selling learning analytics products require different skills than selling learning management systems. On the product side, the same. We require different leaders in terms of different skills, different product line managers for different products because they require different expertise. And in the same time, you need to imagine that those two main clustering organization, means sales, sales, marketing, and product require communication channels between them in order to, you know, uh, work better together, catch market needs and be synchronized and aligned on what to prioritize and what not to prioritize. So absolutely, yes. And I think that once we have reshaped the organization to cover the multi-product, multi-industry needs, we will reshape again the organization because there will be another layer of complexity. Ale, I don't know if you want to add something

Yeah, Claude, just in addition to that, the question from Richard was about sales and marketing and R&D. I would add to that, Richard, also our general posture with regards to support and implementation, which are just part of the overall supply chain. There's certainly an adjustment in methodology of selling. There's specific investments and techniques in marketing, say ABM as a reference, and But then when it comes to implementing the customer, you have to have methodologies that adapt to implementing a large org, which may have a different phased approach than you would do on a more turnkey and, if you will, accelerated small customer. We understand that, and we have to develop playbooks to satisfy that. In addition, an enterprise organization, you know, a Fortune 1000 level of support expectation is just different. from a smaller size one. We all understand that. What we're doing there to support this trend is also creating best-in-class support services as incremental value to our professional services that will allow us to also improve our unit economics for these customers. Similar to the best-in-class companies like Salesforce, we're designing dedicated elite support services which not only provide 24-7, but go to a deeper level of support to customers. We certainly expect this service to be a paid service in the future, and we're working hard to staff for that, and the work is well in progress.

Okay, great. And so my second question, maybe it's a bit related, is that you guys are obviously offering or adding a lot of new logos here. Can you maybe talk about the source of these new wins? Traditionally, you've been extremely effective with your web campaigns, but as you get bigger enterprise customers, how are these logos finding you in terms of generating these wins?

It is a mix. Our strategy, we look really quarterly at the balance of our channels of sourcing And those vary, frankly, across the various segments. And the strategy of demand and lead generation varies depending on the markets, on the geos, on the commercial segments. However, we can oversimplify it by saying that a significant portion of our traffic remains inbound, which is what you're referring to. But we're boosting significantly. are outbound efforts. That means we're growing our outbound capabilities and integrating those capabilities with more account-based marketing logics. Those are more fruitful and calibrated to target accounts specifically in the enterprise segment. Shanno is another great contributor of Shanno. of pipeline of sourcing as we continue to work with organizations to to grow our oem book of business we also have a rather large referral and bar program and that allows us to become very granular geographically even where our brand may not be as strong in regions where we're not physically present to gain market advantage and position our brand. And finally, there are certain alliances. We announced Pavilion for quarter four that are extremely strategic in certain markets. I mean, Pavilion is a phenomenal organization that has established itself as the point of reference for every revenue growth professional in North America and possibly really worldwide. So it is no secret that we were very interested in that partnership because the large majority of the thousands of members are buyer personas for us. And so you can see how the mix of sourcing is very varied. Our marketing strategy is pretty complex and articulate, and it ranges across all market sizes.

Alain, I will add another point here. Ducebo, during these last two years, has been recognized more and more as best of breed in the industry. So, I'm not saying that being recognized as the leader is something that makes Alessio's life easy. I can imagine his face now when I say this, but large enterprises are usually buying the best of breed, I mean, the most recognized vendor. And actually, we are competing with what were, you know, recognized in the past as best of breed. And paradoxically, in the past six months, we have been reached by big vendors in other spaces asking for integrations with us based on the fact that many of our customers, they say, are your customers as well, and we need deep integration. This has happened more and more over the past six months, and this is a good signal. It is also proven by the fact that our enterprise segment is growing faster than others.

That's great. Thank you very much, guys.

Thank you. Your next question comes from Christian Escrow with iCapital. Please go ahead.

Hi, good morning, everyone. My first question today, I wanted to ask, when you think about, let's say, a typical or ideal enterprise win, $100K or larger in ACV, what's the best type of win that you guys like that sets you up for land and expand? Is that just one department at the beginning, or is that just the core department? learn LMS. What's the best way to get in out the gates to set you guys up for expanding?

Christian, thank you for the question.

There are a couple of answers to your question. When we enter an enterprise customer, where we believe we have a unique proposition and where our product wins, has at a very high win rate is when the organization wants to implement what we call an hybrid use case or blended use case strategy, where the goal is to consolidate efforts or platforms and technologies that may already exist or don't exist yet to satisfy both internal and external use cases. The capability of giving both capabilities in one platform, the data shows that we are incredibly strong at that. So when we enter a customer, our goal is to understand what the state of their technology is from a learning delivery standpoint and understand if there is a possibility to at time zero approach both use cases, or to approach one by positioning already from day one our capabilities of satisfying two. And that gives a great level of comfort to buyers, knowing that they can grow with us. The second answer is an organization, and this is more recent, and that's what we're working on, the ability to position our products, new products, from the get-go. They may not be ready to adopt more sophisticated views of the learning programs that, for example, impact and analytics offer. But knowing that we can grow with them in that direction, it just gives them the comfort that, We are the provider of choice for the long run. Finally, I will add, we're seeing recently that two add-on products like Docebo Connect and Docebo Content give us the opportunity to tell a story of integration that other competitors don't tell in the same way. The Cebo content gives you the opportunity to not have to establish another contract with another content vendor and have a single relationship with the Cebo. The Cebo Connect gives you the opportunity to know that when you buy the Cebo, you can grow with it and integrate it with multiple systems without the hassle of custom integrations, expensive and mechanic SOWs.

I hope that answers. This is very helpful. I'll ask just one more question this morning. When we think of the OEM partner program, maybe I'll ask about that channel. Just any update from your end? It's something that I think you've tempered us all on. It's going to grow over time with a lot of, say, new partners this past year. But is there an update you'd give us on how some of the newer partners are trending? And thanks for taking my question.

OEM remains a growth vector for us. We've said this multiple times. We've doubled down our investments in building OEM and strategic alliances, and we're extremely confident that there will be a steady pipeline of partnership business in the future. One thing that we've learned in the past 12 months in particular is not very surprising. is that very small organizations can be very excited at first to integrate a new capability, a new skill. It becomes harder for these smaller organizations to bring it to market because they have to juggle many priorities at once. So our strategy with our bigger OEM team is to focus on more mature organizations that have either already OEMed before or have the resources to get going and execute on a joint market plan with us. With that said, Ceridian and MHR not only continue to deliver incredible performance, but we are confident that we're going to be able to grow that performance in the future by giving them access to capabilities that in the meantime we have developed. That's one. Two, and final, we have a lot of exciting leads in the OEM sectors. They are more aligned with our ideal OEM profile, and I believe that we will be able to report to you once material and results come to the table, more information OEM in the future.

Perfect.

That's all very helpful, Alessio.

Thanks for your time.

Thank you. Thank you. Your next question comes from Paul Steve with Scotia Capital. Please go ahead.

Yeah, morning. I'll be quick here. Just on staff growth, Sukran, you talked about growing staff. Can you maybe just give us a little bit of thoughts around the balance between wage inflation as well as maybe the pace of hiring? We've seen strong hiring performed by the company over the last couple of years. And then I've got one quick follow up.

Yes. Morning, Paul. I would say, you know, that there's no secret out there. Wage inflation and this is probably one of the most competitive labor markets out there. And as every other tech company, we're facing the same here. I would say that in terms of adding folks into the organization, we'll continue to invest, as we spoke about earlier, in the sales and marketing engine to support the enterprise account management space. As we expand into the enterprise segment, we have doubled down, as Alessio talked about, in the OEM sides of business. But then if you think through you know, the support segment of the organization, whether it's professional services, customer support, we need to continue to stop that as we grow the business. So, you know, we'll continue to add, you know, maintaining, I would say, maintaining the ratios that I've kind of spoken to in my prepared remarks. And, you know, all that said, As much as this is, you know, a competitive landscape from a talent perspective, it also gives a tailwind from a customer perspective where, you know, it is the LMS being one of the best tools to, you know, engage your employees, retain your employees, and continue to use our platform to make sure that they can manage attrition in this market. So, you know, challenges from a labor perspective that we manage, but also, you know, we have some momentum as a result of what's going on in the labor market right now.

Sorry, I'll try it a different way and I'll skip the other follow-up. Should we think ARR, you know, growth in employees was below in sort of 2020 ARR year-on-year growth. If we look to 21, we saw you slightly over-index on employee growth versus ARR growth. Should we just think of 21 more as a catch-up year in terms of big investment? You're going to sustain that growth, but it's not going to maybe match the

ARR growth going forward that that was a better way to maybe phrase it yeah that's a good point so I would say you're right so in 2020 we did pause as you know as COVID started and then there was a catch-up perhaps was probably the word you use is is is what we started in terms of hiring in late 2020 early 2021 um As we think about 2022, it shouldn't be at the same levels, but I would say there is certainly a maturity level hiring that we're doing in terms of staffing at the right levels, whether it's VPs and SVPs at the sales, marketing, R&D organization, where we'll need to make sure that the company is structured in the right fashion to move forward and continue to grow. for the next leg of our journey. So to answer your question specifically, yes. I mean, 2020, 2021 was much higher growth hiring compared to what we'll see in the future.

Push my luck with one last clarification. Just on the older cohorts, Sukaran, you now actually had the data to be able to capitalize the contract costs for sales over five years, which we didn't have in the past. Can you just, and I know we've got net expansion, but can you maybe just speak to the experience that you've seen in those early cohorts and how you're thinking about the long-term uptake and renewal? And I'll leave it there. Thank you.

Paul, the question is about renewal, right? Sorry, I just wanted to clarify that.

Yeah, it's just the renewal on those early cohorts. early cohorts because obviously you've now got the data before you weren't able to you just did it over the initial term of a contract for the sales sales capitalized sales contracts and now you're saying it's at least five years i'm just going back to what have you seen in those cohorts in terms of renewals and how that sort of plays out as we you know look at the waterfall going forward

Yeah, I mean, I think we don't specifically break out renewals, but I'll give you some color on it. We've talked about net dollar retention ratio, but then it also gives you a flavor on renewals. Net dollar retention ratio is a number that obviously includes expansion with churn and downgrade embedded in it. And so as that has improved, which includes the cohort of customers historically, as well as the ones we had come on board in 2021, you are seeing that book of business continue to expand, which effectively is telling you that the renewal or the churn rate in the business is below, you know, is continuously improving, is below industry standards. I mean, that probably gives you enough color, but we don't specifically break out renewal rates.

No problem. Thank you.

Thank you. Your next question comes from Sutan Sukumar with Stifo. Please go ahead.

Good morning, gents.

A couple questions for me. First, I just want to kind of touch on the pipeline and some of the momentum that you're seeing in the enterprise segment. Has there been any change in the type or profile of the prospects that you are seeing now and what they're looking for? You know, I think you guys in the opening remarks, I think you talked about seeing more complex requirements come in. So I'm just kind of curious on what you're seeing with respect to how demand is evolving here for you guys.

um hello okay thank you thank you thank you hello with regards to pipeline of course we don't we don't provide a financial guidance at this time but i'm happy to share a few thoughts with regards to forward-looking pipeline at a high level in terms of momentum and demand we remain extremely confident in our ability to deliver in the future We continue to see demand being strong and meeting our expectations. In terms of complexity, or if you will, type of customers that we're dealing with, in your reference to our messaging of more complex use cases, it is very consistent with what I was sharing before in my explanation of multi-use cases. What we're seeing, particularly in the enterprise segment, is that organizations are in need of consolidating their learning strategy and, in some instances, reducing the amount of vendors they work with towards a more holistic solution that is capable of addressing both internal and external needs. When this happens, we're uniquely positioned because our product is so modular and so designed to meet this multi-use case capability, and we find that our win rate that scenario are incredibly positive well above any industry standard with regards to complexity and changes in the makeup or constitution of the pipeline nothing really specific to signal other than and this is a result and it's a managed consequence of our focus on enterprise segments Our commercial segment remains strong. Our mid-market segment faces pressure from the commoditized point solutions that are in the market. Our enterprise segment grows wonderfully, and we are well positioned to win the business there. And I believe we're leading right now and probably seen as the strongest vendor in that very market segment. for the needs of external and internal training combined.

Yeah, and Ale, this is a kind of self-fulfilling prophecy. I mean, it's not that our customers, the more we go up market, the more the use case is complex, but the customers are choosing us because we are capable to support very complex use cases. It's a little bit of the opposite.

Okay, great. Thanks, guys. That's helpful. Last question for me quickly is just kind of curious how really on the expansion opportunity with the new product suite, can you talk about, I mean, it's clear that this is helping influence demand and you're seeing, I guess, good uptake from your new customers, but And I know there will be days, but can you speak about what the traction has been like with the expansion opportunity within your existing base from the new product suite? Just curious what the attach rates have looked like with your existing customers.

Sure. So, Tan, as you know, we don't disclose attach rates. However, I can give you a general sense of where we are, you know, satisfied, where we are ecstatic. and where we feel like we have more work to do. And those really reflect then, you know, have an impact on the attach rate itself that you were asking about. We're satisfied with most of the products that we have released. And by satisfied, I mean we have an hypothesis, and that hypothesis is old and true. We're ecstatic with regards to capabilities and add-on products, established ones like the extended enterprise suite of use case coverage that's doing wonders for our company. And you should expect our intent to bolster that even further. Additionally, we believe that the maturity of our product called Ocebo Content is giving us incredibly good metrics from an attach rate standpoint. Along with early days and early signals, Docebo Connect, as I mentioned before, were extremely satisfied for what we're seeing. But gosh, we only have one quarter of data in our history data, and you understand how little that is. We have more work to do on our learning analytics product. That doesn't mean that things are not going well. But this is a more complex solution. It has been in the market for circa only six months, but we're very focused on the product market set and on evolving the roadmap and learning what we hear from the customers and adapting it. We believe that once we do that, our attachment rates, even on that product, will continue to grow exponentially.

And guys, anecdotally, you have to remember that Docebo Coach & Share, old name of the Discover Coach & Share, took two years to ramp after we launched it in 2016. So launching new products is a journey. It's a learning journey, fine-tuning the offering, fine-tuning the positioning. It's an art, and it's not something you can get in like two quarters.

Gotcha. Great. Guys, thank you for the call here, and congrats again on another solid quarter. Thank you.

Thank you. Your next question comes from Gavin Fairweather with Cormac. Please go ahead.

Oh, hey, good morning. I just wanted to chat for a second on net dollar retention rate. We saw a nice five-point acceleration in 2021 to 113%. Given your, you know, enhanced focus on customer success and enterprise customers, curious if you see some nice, you know, headroom to accelerate that further in the years ahead.

Yeah, I'll start.

One second, one second on it. Guys, you are never happy. I mean, we have grown these for three years in a row, and thanks, Gavin, to push us over the limit. I'm kidding.

Gavin, just on the net dollar, I'll come in first. So, you know, I think if you think about 2021, net dollar retention rate, you know, we talked about in the past, it's primarily being driven through the land and expand, learn LMS, being the engine that continues to grow the business, and we expand our book of business, whether it's increasing monthly active users, whether it's landing sub-divisions of other companies, etc. Today, the new products and modules that we launched in 2021 that were more towards the latter part of the year are not meaningfully contributing to that number. To your point, as we move into this posture of helping our customers through Docebo Learning Suite and helping their learning needs with the new products and modules over time, including 2022, we would expect NDRR to, our expectation is NDRR should move up as we do both, not only land and expand and help sell to other subsidiaries of the companies, as well as the new products and modules adding to that expansion story.

Thank you. And just to clarify, I am very happy, Claudio. Thank you. Maybe just secondly, it seems to be more buzz about software user training and embedding training for users inside software. Can you just maybe speak specifically around Docebo Flow and how you view your competitive positioning as this trend starts to take off? And that's it for me. Thank you.

So, philosophically speaking, I see learning technologies as building blocks that can be, I'm using old school words, installed, implemented, deployed inside every single software. I mean, training is everywhere. Training happens in your partner portals. training happens in your customer academy, training happens because companies want to train students to nurture the future employees' pipeline, and so on and so on. And there are many ways to do this. We are now implementing in three main ways. One is the LMS, a centric platform where people can log in and learn. Second is OEM, where portions, pages, of LMS is embedded inside another software, but it's still an independent page, an independent function, an independent feature. The third part is the table flow, which is a building block that can be installed inside other functions or pages or apps. That said, our comfort zone is the LMS plus OEM, where technology has been proven to be successful and scalable. Docebo Flow is a new product, and we are learning how to implement, how to deploy it, and so on and so on. Docebo Flow is not a substitution of an LMS, but is another option for on how to consume and digest content, which is an alternative of entering inside LMS or learning inside the web page.

Thank you. Due to time constraints, we are taking the last question from Martin Tyner with ATB Capital. Please go ahead.

Thanks very much, gentlemen, and congrats on another good quarter. Is the comments around free cash flow, EBITDA positive by end of year, does that indicate a philosophical change?

Martin, good morning. I'll take that first. Claudio, I think there's no philosophical change. The way you want to think about it is that the business is naturally changing. And as we positioned previously, that's naturally transitioning through the revenue growth that we have and the operating leverage we're seeing within G&A and other areas specifically that I talked about, will just get us to a point where as we exit 2022, we will just transition into free cash leave with depositors. So no change in philosophy, more just business driving it to that point.

Excellent. Thank you very much. And I was hoping Claudio might be willing to expand on the comment that new product launches is an art. Just wondering what you mean by that.

I mean that when you have an idea and you build one product, you can do all the market validation you want, but the product you will launch and the organization that supports these products will not be, over the two years, the same that you have thought in the day you have launched the product. I mean, launching product requires fine-tuning from a product perspective, from a pricing perspective, from a sales model perspective, until you don't find something that is way better than the idea you have had in day one. And this is what we have done with the Chabot Discover Coaching Share. We have launched the price in a way, then we changed it a little bit. Then at the end of the day, we have bundled it completely inside the Chabot almost, inside the Chabot Linux.

Thanks so much, Claudio. Thank you.

There are enough for the questions at this time. Mr. Erba, you may proceed.

Yeah, thank you, everyone, for staying with us again in this quarter. This is our probably ninth or eighth earning call. Thank you for staying with us. Stay safe.

Speak in May. Bye-bye.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.