Docebo Inc.

Good morning, everyone, and welcome to the Dachevo Q2 2024 earnings call. All participants are currently in listen-only mode. We will open the line for a question and answer session momentarily. Analysts can ask questions by pressing star followed by the number one on their telephone keypad. To withdraw your question, please press star one a second time. We ask that analysts please limit themselves to two questions and return to the queue for any follow-ups. I'd now like to turn the call over to Dachevo's Vice President of Investor Relations, Mike McCarthy. Please go ahead, Mike.

Thank you, operator. Earlier this morning, Dachevo issued its Q2 2024 results. The press release, which included a link to management's prepared remarks and our quarterly investor slide deck, were all posted to our investor relations website. This morning's call will allow participants to ask questions about our results and the written commentary that management provided this morning. Before we begin this morning's Q&A, Dachevo would like to remind listeners that certain information discussed 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 Dachevo's public filings, which are available on CEDAR 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 MDNA 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 in US dollars. Now I'd like to turn the call over to Dachevo's interim CEO, Alessio Artufo, and our CFO, Sikharan Mehta. Operator, we're ready for the first call. Question.

Thank you. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are dialed in and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. We kindly ask that you limit yourself to two questions and return to the queue for any follow-ups. Our first question today comes from the line of Suthansu Kumar with Stiefel. Please go ahead.

Good morning, gents. And congrats on a strong quarter. For my first question, I wanted to touch on the Deloitte partnership. So this, you know, this is obviously a major name in the government space. So great to see that name called out as a key partner here. And just kind of going through your prepared remarks, it sounds like this might be more of a strategic relationship than expected, you know, one that covers both government and commercial and, and reseller opportunities. Can you share a little more color on the current scope and potential of this partnership?

Good morning, everyone. Good morning, Suthansu. Thanks for the question. Alessio speaking. In general, in terms of channel partnership, advance and our strategic partners relationship, we are very, very excited. You are correct in stating that Deloitte is a marquee partnership and, and, you know, an absolute leader in the space. Look, they, they have an incredible human capital practice in North America, both in government and in the commercial space. If you think about the fact that they staff just over 15,000 people in the GPS practice alone and government, the public sector, that's a very impressive number. We've been working with them on this partnership for many months. This, this has been in the works for quite a while, frankly. What this means for the Czebo, you know, the, let's just clarify, first of all, what CTS or certified to sell means in, in simple terms, it certifies the Czebo to become an asset of Deloitte, which Deloitte will wide label and market throughout their respective commercial channels across both the commercial space and the government practices. So of course, you know, we, we expect this to have a significant impact over time to our pipeline across both the government commercial space. And look, another perhaps a notion that, that we are very excited about because they're such a great firm that puts a lot of emphasis in the diligence of the processes that they run. You know, I think it's fair to say that when they work on an opportunity, they have a mechanic and a system of qualification baked in the organization that allows, allows us to dedicate our resources in deals that are already highly screened and highly qualified, which in turn makes us a lot more efficient. You know, finally, I want to underscore our working with the leaders at Deloitte as being delightful. These are just top notch HCM professional, and we're just really proud of working with them and building a years long relationship of success together.

Great, great. Thank you for that color. My second question, I wanted to touch on, on, on the guidance. It was good to see the higher guide this quarter. Can you help unpack, you know, some of the moving pieces there that underlies your strength? You know, kind of just curious if this is a more function of a sustaining customer and when activity ahead or, you know, larger size of customers, because I did notice an uptick there in ACV from large customers or, or are you seeing a lower impact from the SMB side?

Yeah, morning, Susan Sukaran here. Yeah, the guidance that we provide reflects really, you know, we, as we thought about the year, thought about our performance in the later part of this year, we are seeing a relative strength, strength relative to what we got at the start of the year, specifically around our enterprise segment and some of the government customers that may come through in the later part of this year. So I'm reflecting that in my guide to, to kind of speak to some of the strengths in that part of the segment that we work to. And this is consistent with what we said previously, right? So we've consistently focused on moving up our kit. We should see some strength as we exit this year in that, in that regards. And then to your point on the SMB side, it remains cautious. We talked about that. Those assumptions are pretty much in line with what we expected.

Okay, great. Thanks. That's helpful. And it's, if I could squeeze in one last question on A-Force, it sounds like you've, you know, you guys have come to a positive resolution here. Can you, can you, can you speak to the, the current state of the relationship here and potential going forward?

Yeah. Yeah. So, you know, in regards to A-Force, as you can understand in Q2, you know, we have settled the terms, which are confidentiality bound, but the, the legal action was resolved, the A-Force, you know, was initiated by Docebo when they first acquired Illumi, a small competitor in Europe and really, you know, the dispute allows us to resolve and then move forward and achieve three primary goals, you know, one, protecting the IP of the table, number two, you know, supporting our revenue base and continuity of our revenue base, and number three, preserving a good partnership and a working relationship going forward. And so, you know, as you, as you think about our channel partners, as well as, you know, including A-Force and others, it's not only, you know, MHR and EY and Carbonbox, you know, what Alessio just alluded to in response to the Deloitte partnership, we are now creating multiple channel partners, you know, that will, that will provide us, you know, provide us a diversification and opportunities to, to grow these revenue streams. And so you can expect that our goal is to continue to grow these channel partner partners. And with the addition also of our new leader, Travis Burke, who is, you know, joined the company as EVP of Carb Dev and partnerships, you know, we are certainly focusing our investments to drive more and more channel partners in the future.

Great. Thank you. I'll pass the line.

Our next question comes from the line of Ryan McDonald with Needham. Please go ahead.

Hi, thanks for taking my questions and congrats on a great quarter. Maybe just to start with the topic of AI and generative AI. It was great to see in the, in the prepared remarks, sort of all of the new solutions that are available or becoming available in the short term here. But I was intrigued by the comments around AI monetization. You just talk about what your, your conversations with customers and sort of their appetite to pay for generative AI solutions with Gocebo and then, you know, how you might start thinking about pricing some of these new solutions like the AI authoring solution.

Thanks.

Good morning, Ryan. Alessio speaking. We're very active and we have been for years on the AI front as we have discussed many times, shape was our, let's call it first mover attempt at entering in the content creation market. And we did that well before the gen AI buzz of the past several months. In that timeframe, since 2021, we, we sold shape to hundreds of customers. And with that alone, that that's an advantage for us. We have learned a lot. So we've taken a lot of those lessons and brought them back into a maturity model of our product on the AI side towards what we will be releasing shortly on the AI authoring side. We can think about that in the context of taking shape in evolving it. And, you know, really it making shape even stronger thanks to the feedback that our customers gave us. We have a lot of expectations for AI authoring in terms of success and those expectations, we think of them in two ways. One, increasing our right to win and two, increasing our retention as well as customers more and more request a more advanced and sophisticated offer solution. But it doesn't stop at AI authoring in terms of monetization. That's just our upcoming first step. The next steps are going to be several and we're at work on many fronts. One that we've spoken to and we're excited about is a solution that allows for virtual role play and virtual coaching. The solution is very much gen AI focused. We're already at work on it. We have said that this will be an early new year development and we have also about this a lot of expectation and it will be highly monetizable. Now. You can expect an acceleration of additional AI capabilities and features in the chevo and in general, look, we think about AI features also strengthening our core platform. There are several things that the chevo does already that are AI based and we'll even more about things like semantic search, recommending content, auto tagging content and the big topic, the topic of skills ontology management, meaning the ability to translate skills taxonomies across varying systems. It's a very complex capability that we are going to not only offer, but we are going to invest on even further because the skills economy is here and it's a very, very pervasive need that large organizations have. But even further, generating quizzes with AI and AI generated the voiceovers and translation. There's a lot that's coming up. I would wrap the topic of AI by saying that what we're noticing from a trend perspective is that customers are becoming more and more educated on this front. There was a lot more, I would say the curve of the curve is now becoming one where customers are educated and are looking for business benefits as opposed to flashy features. And this makes me very happy because the chevo team is really focused at the solving of business problems. And so we will excite our customers with the products that we are building currently.

I appreciate the color and content and looking forward to more updates on AI at Inspire later this year. Maybe as a follow up, I wanted to ask about sort of as you continue to roll out the new pricing methodology and strategy to sort of net new customers and existing upon renewal. Just curious to hear sort of what sort of feedback you've been hearing from customers on the methodology thus far, any pushback? And I think there's sort of a goal here to simplify the buying process and shorten the sales cycle. So to any to the extent possible, you know, any use cases you've seen so far where you're actually sort of seeing those benefits of a shorter sales cycle.

Thanks. Yeah, I Ryan morning. So current here, I'll take that. You know, the pricing. So just as a just as a summary, the pricing changes that we made went live at the start of Q2. And really what it's been important to highlight is that, you know, historically, the company has priced as we look at the pricing models on a card basis and we've moved to what we call based on the value we provide the customer on the core use case. So think about it as a core bundle that we sell to our customers based on their actual use case and enhance and any enhancements they require are part of an add on. And so what has what this has done is effectively moved from what we would think as an a la carte model to driving value to the customer. And what that in effect has meant is that we are now discussing the problems that we can solve with the customer and the value that you bring to them. The new pricing methodology is actually been quite successful, I would say, at the onset. It's only the first quarter, so we'll provide more insights as we get through the later part of this year. You know, what we're what I'm certainly seeing is two things. One, as we are positioning our capabilities to the customer, we're not only speaking to value, but we're actually providing incremental capabilities as part of the whole package that is making the discussions much more meaningful. Number two, if you think about objection handling and overall deal discussions, this accelerates deal cycles. And so on the next new business that where this was initially rolled out to, we have certainly seen that that positive impact in terms of how we approach our customers from a go to market perspective. And then the second thing I would say that it's early days, but we also, you know, like I said, on the renewal book of business, this is much a much longer exercise because there's a lot of terms and conditions and all the nuances that we have to be mindful of that the previous customer signed or the current customer signed up to. But we are actually also seeing, you know, with the new capabilities that are coming out and have come out this year, we see that an opportunity to also move a reasonably good book of our business to pricing with with the capabilities are coming on board as well.

Excellent. Appreciate it, T'Kara. I'll hop back in the queue. Congrats again. Thank you. Thank you.

Our next question comes from the line of George Sutton with Craig Hallam. Please go ahead.

Thank you. And nice results. So I'm curious if we could talk about the FedRAMP timing. You mentioned it's on track. I'm curious if we could talk about best guess in terms of when that would go live and then just remind us what the potential opportunities that would expand would be from that.

Good morning. Alessio speaking. Sure.

So FedRAMP and government in general are a very, very hot topic these days in the table. They are a big area of excitement. And to answer your question, our efforts in terms of expectations and timing are very consistent with our planning. Now, in terms of an exact date, nobody really can put an exact date to this because there are a lot of external factors that we can absolutely influence, but not ultimately control. Our goal, to be clear, is to secure a sponsor and to swiftly move to be granted an authority to operate, which effectively opens up the gates of accessing the FedRAMP opportunities in the market. Now, what we've done over the past few months and we have completed is our systems and processes and controls readiness. So we are ready for a sponsor to take us and to pick us, to select us and go through the process together. The great news is that we feel that we have we're having the right conversations with agencies and that these conversations will heal the outcome that we want. In terms of impact. You know, in the past three years alone, from a new budget allocation to new initiatives in LMS that we were able to find, more than 200 million dollars were spent on new initiatives. This again does not include the reoccurring data. And you know, that alone gives us a very good perspective as to the massive opportunity, particularly because the competition that operates within the space currently is one that when we think about the same competition in the commercial space, we outperform, outbeat,

functionally speaking, every day. Yeah, during the quarter,

in terms of we just spoke to the Deloitte success, I think in context, once we get FedRAMP approved, that accelerates even further our opportunities with Deloitte, thanks to the CTS program and further evolution of that partnership. But even directly, Docebo, irrespective of Deloitte, just to be clear, has built a government engine and a government team that is fighting on all cylinders, not just in federal, but also on the other massive opportunity, which is state, local and education, where we're growing our pipeline and winning business and a percentage of revenue relative to our total revenue continues to grow. And so, yes, FedRAMP is a big priority. We are on it. But I also want to remind of the big opportunity that is led, which is here, it's now and we're executing on it.

Perfect. One other thing that I found interesting, the communities module seems like a very practical way to expand more aggressively into the external market, which is so important. Can you just give us a sense of what this is replacing or what significance this is in terms of a new capability?

Perfect. So, communities

was, first of all, from a thesis standpoint, the feature, the customer experience capabilities and supporting its success and penetration in the market. If I look back at this quarter's new logos, as well as this quarter's significant upsells on my whiteboard, there's a lot of CX on it. And so that is just reflective of the fact that our strategy has always been to become the platform that addresses the needs of organizations on both the CX and EX side, displaying in the direction that we want it. How does communities fit in this? An LMS allows primarily for learning, delivery and dissemination. What it doesn't cater to necessarily is a deep form of collaboration of audiences involved in the learning processes. There are various scenarios and use cases that we've learned of our customers where a community technology is necessary in the context of a learning experience. We have a top tier system integrators that implement these use cases. Jochebo itself has its own community as a software company for its own customers. It was very clear that this capability is a pervasive need. And so we bought Peerboard that was a small company and built on top of it. So market readiness and ability to market communities will start on August 15th. We feel very, very excited about it. We are going to really focus on its success at launch, but also the continued iteration to build features after features after features at a great pace for our customers. And I want to say that the programs have been running for these new modules and products and the community early days results of those methods have been very encouraging with many endraisers or companies saying we want to buy you in beta. So, of course, it's early days and it's early to say exact figures for this module. But I'm hoping you can appreciate our eight ties to our long term strategy further differentiates us and creates an opportunity to increase the right to win

and

our average ATV.

Perfect. Good stuff. Thank you.

Our next question comes from the line of Josh Baer with Morgan Stanley. Please go ahead.

Thanks for the question and congrats on a great quarter. Looking at the growth pillars, you got external and enterprise government, broader distribution partnerships and channels. Wondering where wall to wall LMS deployments fits in. Is that a focus area or are you seeing traction in ripping and replacing legacy vendors for wall to wall LMS or is the focus more land and expand adding use cases, departments and products over time?

Hi, Josh. Our

focus is really to position ourselves as the platform that, you know, suits the needs of large organizations across multiple use cases. One interesting data point is. For every 10 customers we have signed in the past quarter, eight of them have chosen the EBO for two or more use cases. I think that the other data point that I'd like to underscore in the context of your question, and I want to address the wall to wall or end to end concept is if I think back of the investments we put in place in order to grow. Our average customer profile, ideal customer profile and make the table more suitable for companies that want to implement multiple use cases. Just think about the fact that in the past 24 months, in the past two years, our new logo ACV grew about 70 percent to what was this quarter $71,000. And that's not that's not. Inconsistent with our decision to grow our business by embracing more EF employee experience based use cases and CS use cases. I were investing, putting money at work in the product to strengthen capabilities. There are across both the EF side, employee experience and CS side. There is no doubt in my mind that. This is the number one differentiating factor today of the table, this ability to really cover the majority of the use cases and to be a feature rich platform. The thing that I obsess about a lot is maintaining this competitive advantage and in order to maintain it and to grow it, our job and our focus is to continue to grow the capabilities of our platform in both areas, making effectively that bar that we've set very high, always harder and harder and harder to reach for those competitors that try to reach us in terms of

competitiveness. I think. OK. Yeah, that wraps it up for me.

Yeah, that's really helpful. Thank you. And then was just hoping that you could comment. I know enterprise and government very strong. I was just hoping you could give an update on what you're seeing in the SMB just as far as the seed optimizations, any like stable market. That's a great point. is still a little bit more focused on the optimization there. Same, better, worse. Thanks.

Hey, Josh, morning. So current here, I'll take that one. Yeah, I would say it's pretty much consistent. What we saw, what we call a last order remains cautious. It's a cautious buyer as you think about the renewal cycles, the macro is probably more in our world, more sensitive to that type of customer. So it remains consistent from our perspective. But I think what's important also from what we're speaking to is that the focus from a company perspective is being, you know, we've talked about moving a market mid to large enterprise customers and government and our investments, whether you think about inbound, outbound system integrators, channel partners are driving the pipeline in the right place, meaning where we have the right to win and multiple use cases that we can serve in these organizations. And so we'll continue to execute in that regard. But I think what you're also seeing, one thing that's important in this cycle is that, of course, every company is trying to make sure that they have enough of a pipeline coverage so you have to drive a slightly higher pipeline. But we're also doing it in a way that is efficient because you think about system integrators and others that drive my pipeline outside of the lower end of the market, more in the mid-market large enterprise and government, they also bring an advanced stage of pipeline too. So I think those are important factors, as you think through these cycles, how we generate that pipeline, where we're moving, you know, the numbers that Alessia spoke about are important as we move forward in the next few quarters, you'll see that our focus is not necessarily on customer count per se, it's more on the quality of the AARP, quality of the revenue that we bring in and sustain over an extended period of time from an LTV to CAC perspective. And that's where the SMB market, you know, we've pulled out in the past, we'll continue to develop that market from a competitive landscape perspective. And but, you know, our more primary focus remains mid-market large enterprise and government.

Great, thank you.

Our next question comes from the line of Robert Young with Canaccord Genuity. Please go ahead.

Hi, good morning. I just wanted to get a little more context from you on the steady decline in the customer ads per quarter. And I know you've addressed that around the shift towards mid-market and larger. But I mean, for someone who's looking at these numbers and perhaps taking away a more negative takeaway here, given that ACV really hasn't inflected up over the last couple of quarters, I'm curious about how you look at that on a quarter over quarter basis, that continued drop in new customer ads. Just maybe a summary of what's going on there.

Yeah, Rob, I think this is a good question, important one. You know, for us as a business, and as I just spoke to the response to Josh's question earlier before you, is that we are focused in driving our business where we see the best in class unit economics and where the growth is from an ACV perspective. The one quick point is ACV has gone up since last quarter from 59 to 71K. So if you look at Q4 being the strongest quarter, we actually are at the same levels as Q4 this quarter too from an ACV perspective. But the reality is that as we move forward in the business, the customers that we add is not necessarily a good indicator relative to the growth we are showing overall from a revenue perspective. If you just look at the enterprise customer cohort, so the customers that I speak about, the mid to large enterprise customers, we grew that business 30% year over year. And I can potentially have one large enterprise customer wipe out 10 to 20 SMB customers in one win. So if you try and do the math around customer ads and ACV, I don't think that's necessarily going to be a good indicator of looking at the business going forward. And so that's really where I would kind of highlight the view because historically, I understand over the last four years when we started giving this disclosure, it was important. But as we move forward and add large enterprise mid-market customers, I think you can expect that the customer ad becomes less relevant rather than the revenue we add overall.

Okay, and then you had some large deals in the quarter in the press release, looked like larger deals. As you look at the pipeline, would you say that there are very large deals, like mega deals sort of on long lines of Amazon, Google, etc., that are still in the pipeline? And are there any in the current quarter that would have been close to that size? Maybe you just sort of break out the different cohorts of size of customers in the pipeline if you can in any way and I'll pass the line.

Yeah, Rob, just generally, you should think about the customer deals that are in the pipeline. I'll speak to in a second, but the ones that are in the quarter, these are large customers, large six-figure deals. You know, and also be mindful, one of the things that's important with the customers we serve is that, you know, if you look at example like Databricks this quarter, we continue to expand. It's not just about what we get in the onset, we continue to expand, especially if you think about the CX learning, whether it's customer ad, partner ad, you will see that the customers, as they see their products and capabilities being delivered from a learning perspective to their end users, that adoption also increases. So, you know, the Databricks team is important to be mindful of as you think about the names that, for example, Axon this quarter or companies, the cybersecurity company that we also won this quarter. These are customer education platforms that will expand over time, but to answer your question, this quarter, these are healthy six-figure deals closer to seven-figure. And also, the pipeline, I've said this before, you know, as we look at the pipeline, there are certainly large opportunities in the pipeline. We call them strategic, meaning seven figures and above. And I think for those type of opportunities, as we get closer and absolute certain in the timing of the closure of those deals, until that moment, you know, I certainly don't forecast them, but you are right, there are certainly a number of opportunities that are large in our pipeline that we are excited about, both in government and enterprise customers. Thanks.

Our next question comes from the line of Erin Kyle with CIBC. Please go ahead.

Hi, good morning. It's Erin Kyle on for Stephanie Price. Maybe if I could just ask a question on your capital allocation priorities when it comes to M&A versus shared buybacks, and how are you thinking about check-ins at this point? And then maybe just related, if you could talk about your appetite for M&A versus making organic growth investments as well.

Sure. Hi, Erin. Look,

in the past, for sure, we have not approached M&A with very sizable acquisitions. That's a fact. We have focused our efforts on continuing to build our platform from within and have brought on board smaller entities like PeerBoard and Edgego to accelerate our advance in strategic aspects like communities, as we discussed just now, and on the Edgego front, very strategic, very important for AI acceleration. But what we see today, we have both our capital structure and free cash flow generation. They provide us with a great deal of opportunity and flexibility both. One of the things that we said recently that we have brought on board a gentleman by the name of Travis Burke, who is a very senior corporate app professional to really help us in the definition and execution of our corporate plans.

So at this

point, look, we are really thinking very deeply about quality investments. They have to fit our long-term vision for the business. The priority here, Erin, is creating value, value for the customers and value for the prospects and enriching our solutions. And growing it horizontally and winning more market share. What we are not keen to do is to double, triple, overlap capabilities because we have seen what that does on the receiving end by talking to customers that are working with companies that are doing that. And we ourselves are reaping the benefits of that strategy.

Okay, thank you.

Thank you. That's helpful color there. Maybe I can just switch gears. Question for you, Sikhar, on cost optimization. So it's like your GNA expense declined as a percentage of revenue by about 50 basis points this quarter. Is that sort of the pace you should be modeling for GNA optimization sort of quarter over quarter? Or how should we think about that? And is there a longer term target that you can point to here?

Yeah, that's a good question. Maybe you're asking me a good question prior to Inspire without giving some update there at the investment session. But I think the simple way to think about GNA in this business is, you know, you've seen for the last six to seven quarters, GNA has been either held flat or actually down on an absolute dollar basis. And I think you can just, this is the gift that should keep giving from an operating leverage perspective. And, you know, will be an important lever as we kind of continue to show an operating leverage. So I think that's really the simple way to think about it is, you know, generally, the absolute dollar should be relatively flat. And we've executed that by and the reason for that, most importantly, is also because we've made significant investments in systems and capabilities that from an automation perspective, whether it's finance, HR, and even in sales and marketing, the efficiencies that you're seeing is because of the major rollout we had last year from a Salesforce 2.0 rollout perspective. And so that is where GNA is going to continue to deliver from an execution operating leverage perspective. And so, you know, hopefully that gives you enough color for now. I'll provide more color as we speak at Inspire, but GNA, you can expect will be held relatively flat and will just be the, you know, grow the business from a revenue perspective. It's just the operating leverage that comes to the system.

Yeah, that's helpful for sure. Thanks for taking my questions off the line.

Our next question comes from the line of Daniel Chan with TD Cowan. Please go ahead.

Hi, good morning. You're doing better than what we've seen from some HCM peers. Why do you think that is and do you anticipate potentially higher unemployment to be ahead into your momentum?

Hi, Daniel. Thanks for that comment.

And it goes back for me to the strategy that I was referring to before. The reason why we are is that we are focused strategically on what somebody, you know, what's referred to before as the -to-wall logic or -to-end logic. We reap the benefits of going in organizations and addressing the needs of both employees and then a world that is made of customers, partners, and various other entities that surround our customer ecosystem. You know, if I think about the Axon win which we have communicated, that is an example of a combined customer education and employees use case. If I think about USA Oki that we've communicated, that's a partner driven play. And if I think of Databricks, that there is again a massive customer experience play in it. And so think about this. 65% alone of our ARR is attached to the CX slash hybrid use cases. That means, you know, in simple terms, well more than 50% of our business is supported by this capability of playing as a integral function of the -to-market mission critical of the companies we work with. I believe that is one of the key ingredients, if not the key ingredient, for us to have an advantage over those HCM players that are by any means focused on the end

user persona being an employee only.

Yeah, thank you. That makes a lot of sense. Maybe another question on the government timing. Do you anticipate any impact from the coming U.S. elections on the timing of your government opportunities? Is there any risk things pause from here, both from a FedRAMP certification or even RFP perspective? Thank you.

We don't believe so.

We, like we said, from a timing standpoint of things, and nobody knows exactly, it's very hard to predict an exact date, but we believe that the that we are running are quite independent from the outcome of that and therefore don't expect major impact.

That's good to hear. Thank you.

Our next question comes from a line of Richard Say with National Bank Financial. Please go ahead.

Yes, as you kind of continue to shift towards larger enterprise, can you help us understand the timing, how your existing base of smaller customers will tail off? Like, I'm sure it's not going to be immediate, but like just trying to figure that out from a modeling perspective.

Yeah, yeah, Richard, I'll take that one. So, current here, I think it's important to underscore we will continue to play in the lower end of the market from a couple of reasons. One is that is a market where we will certainly learn about how the competitive landscape, who is the next capabilities or docebo that is up and coming and that and second with the capital and the investments we make from an R&D perspective, it keeps us on our toes. And so, that strategy remains consistent. What we will see is that the customer that even from a pricing perspective, this quarter, what I didn't articulate earlier was that even from a pricing and capabilities point of view, we have simplified our go to market motions for the SMB customer and ensured that our investments are aligned to drive the right LTV to CAC in that lower end of the market. So, you will still see us play in that market, but if you ask us where the incremental growth is going to come from and that's how we and how we think about the business from a growth perspective, the incremental growth and the investments are to drive the superior unit economics in the mid-market large enterprise and government business. So, what I want to make sure everyone understands is we will still play in that space. We will continue to build features around that supporting the lower end of the market, but we are being very thoughtful about LTV to CAC and how we want to ensure that the business is run to drive the best in class unit economics and revenue growth. That's how you think about it. It's certainly not going to be the case that we're going to go away from that side of the business because that's really what gives us the competitive edge as well.

Okay. With respect to the net new wins, can you help us understand what channels they're coming from or perhaps the next channels, partner versus direct or other?

Sure.

So, in terms of net new wins, we continue to source the majority of our business directly, no doubt. We continue to grow our pipeline with a focus on the mid enterprise to large enterprise. We are very excited about the trend in that regard for the quarters to come in terms of pipeline growth percentage. Relative to the enterprise space, very critical has been the contribution of our SIs. We named the Lloyd, but we also continue to work with different SIs across the multiple fronts and geos. I would say our enterprise posture is strengthened by the fact that working with these integrators, not only on the generation side, but also giving them opportunities for services gives us an advantage because some companies have high complex needs, not just of implementing the elements, but it's part of a much bigger digital transformation. So, working with these SIs is a critical component of our strategy.

Okay. Thank you.

Our next question comes from the line of Kevin Kumar with Goldman Sachs. Please go ahead.

Thank you for taking the question. I wanted to ask another one on day fours. Just trying to better understand the impact to the model here. Anything you can share in terms of how large the partnership is today and how you're thinking about the short and medium term impacts to the revenue contribution moving forward?

Thanks. Yeah. Yeah. Hi, Kevin. Morning. So, current here. Like I said, I think just I'll start with the point that we resolved the legal action with day fours as you can understand the terms of the settlement are confidentiality bound. What I would say is that whilst we've resolved the action with day fours, we initiated it as part of the acquisition of Illumi. The main goal for us was to protect the IP, continue the revenue base, and preserve a good working relationship and partnership going forward. I think the answer is at this point, any of the discussions that we've had as part of the settlement terms, in 2024, you've seen that embedded in my guidance. And as we work through some of these settlement terms and have that information in the next few months, we'll provide some of the out here guidance at that point. But you can imagine that that part of this relationship is to continue to, you know, our focus is to continue to build more and more channel partners. You know, we've obviously spoken about the fact that EY, Darwin Box, and MHR are the ones that we continue around. But now with the announcement of Deloitte as another channel partner, we are driving a much larger partner channel as well as diversification of the revenue stream. So that's how we think about the business. I would say that as we think through the settlement terms, we'll provide some more updates on the out here as we provide guidance for next year.

Got it. Thank you.

Our next question comes from the line of Martin Toner with ATB. Please go ahead.

Hey, thanks for taking the call. Can you talk to yet a nice, you had a nice incremental ARR number in the quarter. Can you talk to, you can talk to, you know, what the pipelines look like? Has it improved in the quarter and what your thoughts are going forward?

Sure. Hi, Martin.

Alexis speaking. So as I mentioned before, pipeline trends continue to grow very positively. Late last year, we made further efficiency improvements to our event and business development engine. And unsurprisingly, these improvements, according to our expectation, started manifesting in enterprise, qualitative enterprise pipeline that is, you know, coming up in this age two. I would say, you know, I would outline some themes from that pipeline that I believe are very interesting. The number one theme that we see is that we've always been very focused. We've always had a lot of success in the software and IT verticals. Cybersecurity even recently being an incredibly strong vertical, we have signed in that to worldwide leaders recently back to back. I would say the other trend that has been very interesting that we're seeing clearly in our pipeline constitution is that post COVID, there's been a resurgence in all shorting activities. And this has given us great opportunities to support supply chains that require the need for reskilling and upskilling. Another aspect that is becoming very clear as a win opportunity for the table is the pervasiveness of how many times customers want to implement a go to market revenue play in their use case. And when they do, our e-commerce capabilities play a critical role. Hundreds of millions of dollars have been transacted on the table. This is a data point that we reflect on a lot and that represents very clearly our customers are using the table not just as a training platform, but also as a monetization platform itself. And finally, I want to underscore a couple things related to verticals. The table has been praised, in my opinion, over the years as we have been growing as a platform. That means we've sold and been successful in various industries. As we grow our footprint, we recognize that in order to maintain high efficiency and high quality of revenue, we need to become better and better and better at our posture in certain strategic segments. And we've taken steps towards that. We are doing really well in the financial services vertical. For example, we've been investing in it with some level of specialization in the past year. And look, we've seen banks, asset managers, insurance companies very, very eager to modernize their tech stack. Their approach to skilling and re-skilling that historically was based on, if you will, more legacy technologies. Then finally, I'll wrap it with one topic, actually two. I would say one that we're really excited about is that our customers and prospects talk to us a lot about skilling and re-skilling. We're paying a lot of attention to this. We see essentially, we see ourselves as an enablement technology that allows mapping of our skilling journey about customers and employees. And so, really think about the brokering platform for upskilling. And to close on this point of pipeline and trends, I would say government. Government is a very, very significant contributor to our pipeline. It's accelerating according to our plans. No particular surprises, but we're very pleased to see the growth of our pipeline in government. For now, limited to the slag market, which is where we have the current right to win. And as we further our feather and posture, there is going to be even more to come. So, we're very thrilled. Thank you.

Thanks for that, Alessio. That's all for me.

We have no further questions at this time. I will now turn the call back to Decebo's CEO, Alessio Artufo, for any closing remarks.

Well, we thank you for having me with us today again in yet another earnings call. We always love to share our story and to keep you posted with our success in building the best learning company in the world. I want to remind you that we have our customer conference set for September 9th through 11th in Dallas, US. We warmly await the community to join us there and to learn more about what we're up to. We will be unveiling some really interesting initiatives that Decebo is taking for the futures and really look forward to seeing you there. Thank you for being with us today.

This concludes today's conference call. Thank you for your participation. You may now disconnect.