Docebo Inc.

Good morning, everyone, and welcome to the DeCevo Q2 2024 earnings call. All participants are currently in listen-only mode. We will open the line for our 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-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. Earlier this morning, Docebo 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, Docebo 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 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 in U.S. dollars. Now I'd like to turn the call over to Docebo's interim CEO, Alessio Artupo, and our CFO, Sukarn Mehta. Operator, we're ready for the first call. Questions?

Thank you. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 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 Suthan Sukumar with Stifel. Please go ahead.

Good morning, gents, and on a strong quarter. for my first question, I wanted to touch on the Deloitte partnership. So 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, one that covers both government and commercial and reseller opportunities. Can you share a little more color on the current scope and potential of this partnership?

Good morning, everyone. Good morning, Sutan. 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, you know, an absolute leader in the space. 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 has been in the works for quite a while, frankly. What this means for the CEBO, let's just clarify first of all what CTS or Certified to Sell means in simple terms. It certifies the CEBO to become an asset of Deloitte, which Deloitte will white label and market throughout their respective commercial channels across both the commercial space and the government practices. So, of course, you know, we expect this to have a significant impact over time to our pipeline across both the government commercial space. And look, another perhaps notion that we are very excited about, because they're such a great firm that puts a lot of emphasis the diligence of the processes that they run uh you know it's 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 professionals, 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 guidance. It was good to see the Hired 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 wind activity ahead, or, you know, larger size of customers, because I did notice an uptick there in ACV from large customers, or are you seeing a lower impact from the SMB side?

Yeah, morning, Sutan 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 kind of speak to some of the strength in that part of the segment that we work to. and this is consistent with what we said previously right so we've uh consistently focused uh moving up market uh we should see some strength as we exit this year in that in that regards and and then and then to your point on the smb side it remains cautious we we talked about that uh those assumptions are pretty much in line with what we expected okay great thanks that's that's helpful and it's like a squeeze in one last question um 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 current state of the relationship here and potential going forward?

Yeah, yeah. So, you know, in regards to the force, as you can Understand in Q2, you know, we have settled the terms which are confidentiality bound, but the legal action was resolved at Dayforce. You know, it was initiated by Docebo when Dayforce acquired Illumi, a small competitor in Europe. And really, you know, the dispute allows us to resolve and move forward and achieve three primary goals. You know, one, protecting the IP of Docebo. Number two, you know, supporting our revenue base and continuity of our revenue base. um and number three preserving a good partnership and a working relationship uh going forward and so uh you know as you as you think about our channel partners as well as you know including dayforce and others uh it's it's not only you know mhr and ey and darvin box you know what unless you just uh alluded to in in response to the deloitte partnership we are now creating multiple channel partners that will provide us a diversification and opportunities to grow these revenue streams. And so you can expect that our goal is to continue to grow these channel partners. And with the addition also of our new leader, Travis Burke, who's joined the company as EVP of CorpDev and Partnerships, we are certainly focusing our investments to drive more and more channel partners in the future.

Thank you. I'll pass the line.

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

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 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. Can you just talk about what your conversations with customers and sort of their appetite to pay for generative AI solutions with Docebo 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 Gen AI content creation market, and we did that well before the Gen AI buzz of the past several months. In that timeframe, since 2021, we sold Shape to hundreds of customers. And with that alone, 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 and evolving it and 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 offering solution. But it doesn't stop at AI offering 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 Cebo. And in general, look, we think about AI features also strengthening our core platform. There are several things that Decebo does already that are AI-based, and we'll do 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 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 Decebo team is really focused at building products to solve real 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 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. Hi, Ryan. Morning. Sukaran here. I'll take that. You know, the pricing, so just as a summary, the pricing changes that we made went live at the start of Q2. And really what has been important to highlight is that, you know, historically the company has priced, as we look at the pricing models on a la carte basis, and we've moved to what we call, you know, based on the value we provide the customer on the core use case. So think about it as a core bundle where 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 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 a customer and the value that Chibwa brings to them. The new pricing methodology has actually been quite successful, I would say, at the onset. This is only the first quarter, so we'll provide more insights as we get through the later part of this year. 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, as you think about objection handling and overall deal discussions, this accelerates deal cycles. And so on the net new business where this was initially rolled out to, we have certainly seen that positive impact in terms of how we approach our customers from a go-to-market perspective. And then the second thing I will say that it's early days, but we also, like I said, on the renewal book of business, this is 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 up 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 the capabilities that are coming on board as well.

Excellent. Appreciate the call. 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. FedRAMP and government in general are a very, very hot topic these days in the CEVO. 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. 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're having the right conversations with agencies, and that these conversations will yield 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 were spent on new initiatives. This, again, does not include 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 this 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. um 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 our 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 set of capabilities of communities was very very intended to support our cx or 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 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 that has always been to become the platform that addresses the needs of organizations on both the CX and EX side is playing 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. Docebo 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. market readiness and and ability to market communities will start on august 15th we we feel very very excited about it we are uh are going to really uh um focus on its success at launch but also the continued iteration to build the features of the feature of the features at a great pace for our customers and i want to say beta programs have been running for these new modules and products and the community early days results of those vectors have been very encouraging with many end raisers or companies saying we want to buy during beta so of course it's early days and it's early to say um exact figures for this module but i'm hoping you can appreciate how a ties to our long-term strategy further differentiates us and creates an opportunity to increase the right to win in 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, we 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 Decebo for two or more use cases. um 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% to what was this quarter, $71,000. And that's not inconsistent with our decision to grow our business. by embracing more ES, employee experience-based use cases, and CS use cases, i.e., we're investing, putting money at work in the product to strengthen capabilities that are across both the ES side, employee experience, and CS side. There is no doubt in my mind that This is the number one differentiating factor today of Docebo. 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... Okay. Yeah, that wraps it for me.

Yeah, that's really helpful. Thank you. Um, and then was just hoping that, um, you could comment, uh, I know enterprise and government very strong. I was just hoping you could give an update on, on what you're seeing in the SMB, just as far as the, the seat optimizations, um, any like stabilization there, same, better, worse. Thanks.

Hey, Josh. Morning. So, Karen here. I'll take that one. Yeah, I would say it's pretty much consistent. What we saw, what we call our last quarter 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 regards. I think what you're also seeing 1 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, we're also doing it in a way that is. that is efficient because you think about system integrators and others that drive my pipeline outside of the low 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 It's not necessarily on customer count per se. It's more on the 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 called out in the past. We'll continue to serve that market from a competitive landscape perspective. 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. Just wanted to get a little more context from you on the steady decline in the customer ads per quarter. And I know you 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. 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. Actually, 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 uh overall from a revenue perspective you know if you just look at the enterprise customer cohort so the customers i speak about the mid to large enterprise customers we grew that business 30 uh year over year and i can you know we can 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 and 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 along the lines of Amazon, Google, et cetera, 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 deals 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 were in the quarter, these are large customers, large six-figure deals. And also, one of the things that's important with the customers we serve is that if you look at an 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 as you think about the CX learning, whether it's customer ed, partner ed, 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 an absolute certain in the timing of the closure of those deals until that moment. 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 share 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 EduGo to accelerate our advance in strategic aspects like communities, as we discussed just now, and as you go from the very strategic, very important for AI acceleration. But what we see today, you know, 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 brought on board a gentleman by the name of Travis Burke, who is a very senior corporate ad professional, to really help us in the definition and execution of our corporate ad plans.

So at this point, look, we

We are really thinking very deeply about quality investments. They have to fit our long-term vision for the business. The priority here, Aaron, is creating value, value for the customers and value for the prospects and enriching our solution 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. Yeah. I'm sorry. You got it. Thank you. That's helpful color there. And then maybe I can just switch gears. Question for you, Sikar, and on cost optimization. So it's like your G&A 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 G&A 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, it's a good question. I mean, maybe you're asking me a good question prior to Inspire without giving some update there at the investor session. But I think the simple way to think about G&A in this business is, you know, you've seen for the last six to seven quarters, G&A 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. You know, will be an important lever as we kind of continue to show him operating leverage. So I think that's really the simple way to think about it is generally the absolute dollars 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 G&A 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 G&A, you can expect, will be held relatively flat and will just be the, you know, as you grow the business from a revenue perspective, it's just the operating leverage that comes through the system.

Yeah, that's helpful for sure. Thanks for taking my questions. I'll pass 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 a headwind to 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 focus strategically on what somebody was referred to before as a wall-to-wall logic or end-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 ExxonWin, which we have communicated. That is an example of a combined customer education and employees use case. If I think about USA Hockey 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 in simple terms, well more than 50% of our business is supported by this capability of playing as a integral function of the go-to-market mission critical of the companies we work with. I believe that is one of the key ingredients if not the key ingredients for us to have a advantage over those htm 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 and 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, nobody knows exactly. It's very hard to predict an exact date, but we believe that the processes that we are running are quite independent from the outcome of that.

and therefore don't expect a major impact that's good to hear thank you our next question comes from the 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? I'm sure it's not going to be immediate, but just trying to figure that out from a modeling perspective.

Yeah, Richard, I'll take that one. I think it's important to underscore we will continue to play in the lower end of the market for a couple of reasons. One is that is a market where we will certainly learn about how the competitive landscape, who's the next capabilities or Decebo that is up and coming. 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 how we think about the business from a growth perspective, the incremental growth and the investments are to drive the superior, uh, unit economics in the mid market, large enterprise and government business. So, uh, what I want to make sure everyone understands is we will still play in that space. We will continue to build features around that, uh, supporting the lower end of the market, but we are being very thoughtful about LTV to CAC and how, uh, how we want to ensure that the businesses run to drive the best in class unit economics and revenue growth. Uh, and that's kind of how, um, you know, you think about it, it's certainly not going to be the case that we were going to, um, 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. And then with respect to the net new wins, can you help us understand what channels they're coming from or perhaps the next channel's partner versus direct or other?

Sure. So in terms of net new wins, we

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 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 name Deloitte, but we also continue to work with different SIs across multiple fronts and geos. I would say our enterprise posture is strengthened. by the fact that working with this enterprise, 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 LMS, 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.

Thanks for taking the question. I wanted to ask another one on day four. 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. Sukaran here. Like I said, I think just I'll start with the point that, you know, we resolved the legal action with Daveforce, as you can understand, the terms of the settlement are confidentiality bound. What I would say is that, you know, whilst we, you know, we've resolved the action with Daveforce, we initiated it as part of the acquisition of Illumi. You know, 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-year 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 our inbox and are the ones that we continue to ramp. But now, with the announcement of Deloitte as another channel partner. we are driving a much larger partner channel as well as a 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 IoT 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.

thanks for taking the call can you talk to yet a nice um you had a nice uh um incremental arr number in the quarter can you talk to um you can talk to uh you know what the pipelines look like has it improved in the quarter and what your thoughts are going forward sure uh i'm martin alexis speaking so

As I mentioned before, pipeline trends continue to grow very positively. Later last year, we made further efficiency improvements to our demand and business development engine. And unsurprisingly, these improvements, according to our expectation, started manifesting in enterprise, qualitative enterprise pipeline that is coming up in this H2. I would say, 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 sector two 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 the supply chains that require the need for reskilling and upskilling. Another aspect that is becoming very clear as a win opportunity for Docebo 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 Docebo. This is a data point that we reflect on a lot and that represents very clearly how our customers are using the Cebo, not just as a training platform, but also as a monetization platform itself. And finally, I want to underscore a couple of things relative to verticals. The Cebo has been praised, in my opinion, over the years as we have been growing as an horizontal 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 FinServ 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 insurance companies very very eager to modernize their tech stack their approach to skilling and skilling that historically was based on if you will more legacy technologies then finally i'll wrap it with the one 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 reskilling. We're paying a lot of attention to this. We see ourselves as an enablement technology that allows mapping of upskilling journey of our customers and employees. And so really think of us as a 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 federal 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 analyst community to join us there and to learn more about what we're up to. We will be unveiling some really interesting initiatives that the CHEB is taking for the future 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.