Forty-fourth running of our annual growth conference here at Boston. My name is Rob Young. I'm one of the Canadian technology analysts with Canaccord Genuity, and today I'm gonna be your moderator.
Sorry, it's my wife. It's my wife. Wrong timing.
This session is a fireside chat with Docebo. Pronunciation, most common question I get: how do you pronounce Docebo?
Docebo.
Docebo.
Yeah.
A global cloud-based learning technology software company, with growing exposure to large enterprise, which is the current, strategic push. Beside me is, Sukaran Mehta, the CFO, and Mike McCarthy here in the front, who you can, chase out in the halls. He's very open to answering your questions. I'm gonna hand the floor over to Sukaran for some introductory comments on the business and the strong Q2 results he reported just recently, and we can get into some questions. I've got lots of questions prepared, but, hoping to get a few from the audience as well. So just jump in wherever you feel. Sukaran.
Yeah, I'll just give an overview, folks who don't know the business. I'll just speak to it for a couple of minutes. Docebo is in the learning management software business. We are the only and largest publicly listed learning management software company. We are in the business of not only supporting our customers from all things learning from an employee experience perspective, but also, more importantly, our market position is leading from what we call learning that applies to beyond employees, external audiences, whether it's your customers, your members, your partners, whether it's your QSR franchisees. To give you an example of what we do, we have close to 3,900 enterprise customers today.
The business is $200 million in ARR, generating, you know, we grew at +20%, this quarter, as well as generating 15% free cash flow, close to 17% in... Sorry, 15% EBITDA, close to 17% in free cash flow. And, the business, to give you some perspective, historically, when you think about learning management software, you think about it from a perspective of employee training. The moment you move into the world of what we call customer experience learning, that is where the biggest opportunity is and where the greenfield market is. Just to give an example, one of my marquee customers is AWS.
We serve close to 30 million users that go through AWS Skills Builder, which is the customer academy, where if you are a customer, or a partner, or a future engineer who needs to be certified as an AWS engineer, you go through their AWS Skill Builder academy, which is powered by Docebo on the back end. And when you take that example, it gives you some perspective. Whilst it's a key customer, it gives you perspective of the size of the audience, where you're, where learning applies from a perspective of customer education, partner education, franchisee training, or member education. That audience is much larger than just the size of the legacy market, which is employee training, which is number of enterprise companies multiplied by number of employees in that market. We have...
You know, 65% of our business comes from revenue that we generate at a minimum from supporting customers on the external use case, meaning customer, partner, member education. The reason I take that AWS example is it gives you a perspective of most of the learning that's happening from a customer education, a partner education perspective, is majority greenfield build versus Docebo question, and we've taken a market leadership position in that regards, and, you know, we've delivered a pretty healthy CAGR since we've been public in 2019. The company was $30 million in ARR, and today is $200 million plus in ARR. We've...
One area that I would highlight, including what you would have seen this quarter, you would have seen a number of wins, Axon, Databricks, and expansion, as well as a large cybersecurity company that we also signed, amongst others. All of them are primarily starting their business with us as part of what we call the external learner. For folks to understand our story, I think the moment you get out of your mindset that learning only applies to employees, and you think about how learning applies to customers, from whether it's software companies or product adoption or members, you realize how big the size of the opportunity is and where we've been able to show some good growth over the last few years.
You know, one perspective I will also give is that we certainly have a big domination in that external learner audience from a software vertical perspective, but my business is 20% software vertical outside of that, whereas as horizontal as it gets, if you even look at the large win this quarter, USA Hockey was one of my larger customers we onboarded this quarter, and we're serving close to 1 million users of USA Hockey on all things learning. As you understand, it's sports. Even that application is 5% of my vertical from a not from a sports or any other industries, manufacturing, banking, so on and so forth. Our goal is to be the leaders in learning wherever the customer needs it, whether it's their customers, their partners, their employees. All we do is learning.
In our world, historically, the competitors that we look at are folks such as Workday, Cornerstone, SAP SuccessFactors, and Oracle. The reality is that those businesses are part of a big HCM suite, where the employee experience, meaning they're, they're trying to do employee onboarding, is what they're trying to solve for. They're not, they're not necessarily building a platform that solves the learning needs of an AWS from a certification perspective or a Databricks from a certification perspective. For customer education, they're trying to solve the simple problem of employee onboarding, which is why, from a competitive landscape, we've been able to be even more successful because we're not necessarily competing with these folks. The moment the learning goes beyond the HR department, that's really where those organizations pretty quickly aren't able to support our customers.
So I'll pause there for a second, but, but that's at a high level what we do as a business.
That's a very good summary. I think the biggest misunderstanding, I think, on Docebo as a stock will be just that. It's if we're heading into a recession, I think there's a lot of investors who would say, "I don't want to invest in LMS because you're not gonna see employee growth, you're not gonna see a lot of onboarding." But that ignores all of the opportunity, which I would argue is higher ROI and stickier, the opportunity related to training customers, partners, et cetera. I mean-
Yeah, and I think one important fact that may be worthwhile, even in the last two years, 70% of what we do on, on a growth basis has come from net new customers. Meaning that this is a wider opportunity across verticals, where we can support organizations not just in one vertical, but multiple verticals, and there's some themes that I think might be worth highlighting for folks. Of course, you know, adopt product adoption, customer education is the large use case. Software is the big vertical there. The other theme that is important that's playing out, you would have seen in the big home builder win this quarter, we had, a large public listed company that's a home builder in the U.S. You know, supply chain and onshoring is a big theme that's playing out in, in our world.
If you think about a home builder, they effectively have totally changed how their supply chain works from... Of course, they subcontract almost everything in their business, and that effectively means there's a huge amount of learning as you're moving supply chains across the board. We are certainly supporting a number of customers in that regard, and have, you know, historically announced GE and Caterpillar as other customers that do the same thing. As you move your supply chain, you're also going to need to ensure that whether it's your suppliers, your employees, or your partners, you are also bringing accordingly, and then LMS is an integral part of onshoring. That's a theme. The other area I'll call out, which I'm sure you'll ask me about, is we've not doubled down, but tripled down on our investments in government. That is a huge opportunity.
Today, 5% of my vertical comes from government, but you should expect that as we get closer and closer to FedRAMP certification, which we are getting closer and closer to, you should expect that government will be a meaningful growth driver for this business. Today, it is 5% of my business, mostly driven through the SLED market, not the federal market.
Okay. We definitely have to touch on that. The first spot I'd like to start, give you a bit of a hard time on the guidance. Docebo, you reduced the guidance significantly in Q1, you know, from 22%-23% growth down to 17%-18.5%, and then in Q2, you beat the expectations. It seems like the outlook is still a little bit under pressure, but certainly better the outlook than, you know, in May. And so I was just, what parts of the market are healthier? What's the thought process there? How are you thinking about the outlook going forward?
I'm just gonna correct, Gaurav, one specific point. I didn't reduce guidance. I just provided guidance for the first time.
Initial guidance, yes.
First time-
Initial guidance for the year
... Relative to consensus, it was, you know, at the high end of the range, it was down by 3% or so. But yes, we certainly, at the start of the year, as we entered the year, we wanted to be mindful of the just general, you know, certain pressure we saw in the SMB space. Close to 25% of my business comes from SMB.
Mm-hmm.
The remaining 75% of my business comes from mid-market to large enterprise customers, and as we you know, as you think about the growth profile of my segments, we were a bit cautious as we guided at the start of the year for the full year. And as we exceeded this quarter our results, we also saw some interesting dynamics, at least in my world, that are playing out. One is the large enterprise market as well as government, we are seeing strength, and also it means that we're also seeing strength in specifically the pipeline that's generating in that segment, which gives me the confidence not only later part of this year, but also moving into 2025.
Mm-hmm.
which was an interesting dynamic because SMB segment is more flat, versus my enterprise segment grew at 30% year-over-year. So there's a dynamic that's playing out, at least in our world, where mid to large enterprise customers are the sweet spot for us. We can serve multiple departments. They have a lot of adoption that we can participate in, and that's where we're seeing the strength. That's also where the stickiness of my customer base comes from. One of the stats I gave is, you know, 8 out of 10 customers this quarter signed us for 2 or more departments. So they signed us for customer education and HR training or sales enablement. Why that's important to call out is Docebo is a platform that can be utilized by multiple departments, multiple front ends, user experience. Every design of that use case can be specific.
So if I give you an example, a customer that will use me... I mean, Bridgestone is a good example. They use me for both customer ed, as well as, as well as customer education, as well as HR training. Those two installations, whilst it's one Docebo in the background, can be designed for touch, feel, user experience, for whatever they like it to be. The more I do that, the more stickier it becomes, because those departments don't have anything to do with each other, but it's one Docebo in the background. And especially if I serve the external audience, where you're revenue generating or supporting revenue retention or product adoption, you are much more strategic to those businesses relative to just employee training.
Our strategy has been to move upmarket, mid- to large enterprise customers, because, one, it's stickier, two, it gives me the opportunity to expand, and from an LTV to CAC perspective, it's 3x of what you would get in an SMB business.
Right. Okay. Let's move in that direction towards the shift in the business towards enterprise. You'd said, I think on the call, that the SMB was still under pressure, but that larger enterprise had stabilized, and then 30% growth among enterprise. What would that be? 100,000 in ACV or higher? What was-
Yeah, or simplify, just to simplify, companies over 5,000 and above employees is what we typically say is an enterprise segment.
Okay.
Yeah.
And so that's obviously very healthy still. What's the driver there? Is it the external enterprise?
Yeah, it's, listen, we're in a bit of a fortunate position because the industry we serve is quite wide in terms of the application horizontally.
Mm-hmm.
I serve multiple departments, so I have a lot of entry points. Typically, for me, a buyer persona can be anywhere from, you know, if you think about the sales organization, to the customer organization, to the HR organization, to specifically, we looked at some of the cybersecurity, large cybersecurity win this quarter, the CTOs of those organizations. We can target multiple departments, and because learning is a theme that's playing out across the board based on the examples I gave you, whether it's software, supply chain, government, manufacturing, so on and so forth, net new business that we generate in a given quarter is close to 70% still.
So we are fortunate enough that in the last two years, we've still been able to grow net new customers, almost 70%, adding to my ARR in a given quarter. And so, yeah, we certainly are in a fortunate position that not only we're market leading, but we continue to serve so many verticals that I can generate, you know, continuously generate a reasonably good net new business. At the same time, our job is to ensure, I mean, after churning down there, I say the second-best CAC in the world is expansion of my current customers. And having 3,900 customers, we also can certainly do a better job as we move forward in expanding in my base. Which effectively, I will just say that is one area we want to certainly show strength in going forward.
70%. So when you say seventy, that 70% of the-
Net new ARR added is net new business.
Net new logos?
Yeah. Yeah.
Not expansion. Okay. Very good.
Net ARR, not net new ARR, sorry. Yeah.
Okay.
Yeah.
Okay. So the shift to enterprise, like you said, cybersecurity, for some reason, seems to be driving a number of deals recently. What's going on there? Is this cybersecurity firms teaching people how to avoid events? It just seems like it's a driver recently.
Yeah, listen, I mean, we've signed two large, two of the largest cybersecurity companies in the past month and a half. You know, I will not, you know, I'll leave what happened in the recent incident separately, but I will say it does highlight one thing, that if the recent incidents that we've seen on the cybersecurity side highlight two things: One, customers need to be really deep educated on how they're utilizing the products and platforms. And number two, the employees that are building those products and capabilities are equally educated and trained in being best in what they do, because at the end of the day, this was a human error that led to this overall issue, and I think it highlights the focus in that vertical specifically.
Both those companies are gonna use the table for large installations of customer education for all of their customer audiences. And we certainly, you know, it certainly highlights the importance of why customer education is critical, not only from a product adoption perspective, risk management perspective, but also to ensure your customer community is engaged in, you know, in adopting a product, but also giving feedback to our customers. And so we do an incredible job working with our partners to launch their customer academies. And I think one of the other thing that's underestimated, perhaps in our world, is most of our customer education audiences are either generating revenue or retaining revenue, meaning that they're driving a SKU out of it.
In a number of customers, like, you know, AWS is a paid academy outside of their customer cohorts. And so, we are also quite integral for their overall strategic business because not only it's about educating the customer, but it is also higher adoption leads to higher expansion at the end of the day, and lower customer tickets. So you also reduce your cost structure when you launch a customer academy because you have a highly engaged customers that's not calling you on your helpdesk every two seconds. I'll give you an example, the customer academy, we, we reduced the customer tickets by 30%. That's a $5 million annual P&L savings, just because I'm have a much better, robust customer academy.
Very good. Now, if you've got a very strong position on some of these external training functions, how successful have you been in consolidating deep into employee training and employee onboarding? 'Cause my sense is if a company is using Docebo for external, then why not displace an existing vendor of internal training? Like, are you benefiting from consolidation-
Yeah.
in a tougher market?
Yeah. So for folks that, that may not know the space, I'll just give some historical background. There's, you know, there's a one company that used to be public called Cornerstone in the past, and then, of course, I named some of the large customer, competitors between Workday and SAP, and Oracle. The reality is, those organizations, the core need is to serve an employee experience platform. The moment you are trying to do anything beyond onboarding, if you want to launch a customer academy, there is no HR department is able to do that or a platform that supports that. So that, from a competitive landscape, has given us an opportunity, including, and I'll just give some examples.
The home builder that we, that I noted, not only we won their business on the supply chain, but we also displaced Workday on their employee experience use case. Why? Because I can consolidate the tech stack, I am more strategic from a revenue or engineering or supply chain perspective to their core strategy.
Mm-hmm.
My ability to consolidate the tech stack gives you efficiencies at scale. So we never lose hope. If HR is the only buyer in town, I never lose hope, because we know that customer eventually will come back and outgrow their needs beyond HR type of training. So even if I can't compete in a single use case of HR training, I will continue to nurture that opportunity because we do. We call it win back effectively. So that as much as I can serve audiences that are more external learners, which is more strategic to the businesses that we serve, I get an opportunity to displace the non-core LMSs because they're only doing onboarding. Another example would be, you know, which we've publicly named, is Fannie Mae. Fannie Mae uses our platform for...
If you look at the U.S. mortgage lending practices, you have to go through the certification to be able to get the low-income mortgages, and that's a requirement under the federal regulations that Fannie Mae enforces. We won that use case at a much larger audience, and after a few months or a year, we displaced a legacy player on the employee and onboarding use case, too. It's a very typical land and expand strategy because I'm more strategic relative to an employee onboarding platform.
Another thing that's been moving forward aggressively over the last few quarters is the channel. You named Deloitte as a key partner, but also as a reseller, and that seemed as though that relationship, well, first of all, public for the first time, but also much larger than I think people thought. Maybe we could talk about the evolution of that relationship and how you're using SIs and channel partners to sort of fuel your growth. Yeah.
Yeah, it's a good point. So it's pretty obvious, right? As you move up mid-market to large enterprise, system integrators are critical part of the engine to drive pipeline and to win business. They effectively are the front door for us in a number of areas. Deloitte is a marquee partnership for us. This is, you know, what we call a certified to sell. So they are not only a system integrator, but they also are going to be able to resell us and embed us in their contracts, so that's different.
There's two things that are different with Deloitte relative to what we've done previously, is not only they serve, they help us from a system integrator perspective, now they have the ability to certify to resell us, as well as not only they are our partners in the government practice, which is their largest practice in the U.S., out of D.C., we also are now partnering with them on the commercial deals for the... Since since after this, sorry, since last quarter, I should say, 'cause there is one deal that we closed, one large deal that we closed in partnership with Deloitte. You should expect going forward that as we move into the government practice, Deloitte will be a very important partner. It is the largest market.
It is the market we will—we have reinvested last year a substantial amount of my EBITDA, close to 3%, to get FedRAMP certified, and we will triple down in that market. Working with our friends at Deloitte, Carahsoft, and other partners, you should expect that that is an area we will certainly verticalize and drive our strategy as a pillar of growth. Just perspective on the government market, it is a large audience. Last 3 years, net new budget allocated for LMS spend in the federal space was $230 million of net new budget allocated, and that's just at the federal space, not at the state level.
If you look at the platforms that the federal organizations are using, these are Moodle built on top of legacy, you know, companies I shouldn't name, but these are 20-year-old platforms that are unsustainable, and it's a large modernization opportunity. We have won an incredible amount of business already in the SLED space, and we certainly... Listen, the federal space is going to be large, we just have to execute.
Now, you said already at 5% of new AR this year, is that what you said?
as total percentage of my total AR.
Is government.
Yeah.
The FedRAMP opportunity you're chasing right now, that's U.S. federal?
It will be U.S.-focused, correct.
But that opens up a bunch of other adjacencies like SLED and maybe some large, enterprise. Maybe talk about, just the overall opportunity. I think you've given a figure for annual spend, that you've identified, U.S. federal. Maybe revisit that, and then, maybe talk about the broader opportunity.
Yeah. So just on the—I mean, the SLED market is multitudes bigger than that, but it's harder just to quantify relative to federal, because federal is in one place. But if you think about U.S. federal government spend across agencies, I spoke about $230 million, you should expect the SLED market is 5-6x of that.
Yeah.
But it's spread across all states, and that's why, you know, we as a software company need a partner like Deloitte, which has 15,000 GPS practice practitioners between services and sales that drive my pipeline to all the managed services. We're not gonna be in the business of doing services; we're in the business of our software being embedded into those ecosystems. And in general, one of the data point to your question on just the market sizing, if you look at the external learner audience, just outside of government in the U.S., most of it is greenfield, meaning the AWS example I gave you. There's close to $5.6 billion up for grabs in the next five years. 70% of that is build versus buy table. It's in-house or no solutions.
Yeah.
I don't have to be a genius, and I just have to maintain my market leadership position to drive healthy growth, healthy CAGR over the next few years. So, you know, if I was to simplify what continues to drive a healthy growth in this business, when you think about on a rule of 40 basis, it's simply four use case, participating in mid- to large enterprise customers, serving the large government audience, and focusing on specifically expanding the 3,900 customer we serve today. If we just looked at these four pillars, and executed on that, there's enough runway for us to maintain a healthy CAGR, and the operating leverage is the gift that keeps giving. So. Okay, we're almost out of time. I'd like to get, if there's a question in the audience, there's a little bit of time here. Okay.
You're generating a lot of cash. What are you gonna do with it all? Making 5.6% today. I'll wait. Before Jerome Powell . Anyways. Okay, of course, we make sure we get the highest interest rate from our friends at Canaccord and others, but ultimately, our strategy is simple. We're not going to distract the organic engine from a growth perspective. Look at us from the point of view that look at great technologies that do not disrupt the organic engine, can run in silos, and we can integrate them seamlessly. What we will never do is to try and never is the wrong word. We will not try and do is disrupt the organic engine by becoming a story like one of my competitors. That is not a recipe for success.
We'll be thoughtful, acquire great companies that are accretive from a wallet expansion of my customer base and from, you know, accretive to how I can show growth. We're not looking to do any large acquisitions that disrupt the organic engine. And I can fund my own free cash if I can. Who are the competitors? So in the large, in the market, like I spoke, if you think about employee experience, so employee learning, onboarding, compliance type of it, that's typically on the large and the mid to large enterprise that has been our competitors, but that's mostly in the HR side of things. Because if you think about a Workday or Cornerstone or a SumTotal ...
Yeah, SumTotal, sorry, Oracle, SAP, SuccessFactors, they're a big HCM suite where an LMS is a subcomponent, and they serve a very typical use case, which is onboarding. The moment you have to take that platform and try and do the 30 million users of AWS that are doing customer education, that's not gonna happen. And the reason I, and I don't, their business model is driving a big HCM, HRIS suite, where HR is the buyer persona, and they're building their product and capabilities to serve that market, and that's where we have. You know, we don't really worry about that competition, 'cause the moment HR is not in the, is not the only game in town, we certainly do quite well outside of that.
And the employee market is smaller relative to the external audience that we serve on customer education to start with. So our strategy is to continue to win the business on the external learning audience and consolidate the tech stack as we win that business from the legacy players that serve the HCM, LMS, you know, use case. Are you seeing any customer inertia toward just, like, retaining the legacy solution, the time like Salesforce spending this kind of strength? Not really. I think actually what you will find is if you're... Because, again, remember, the external use case is not an inertia, it's mostly, A, I got to drive product adoption, I got to generate revenue, or I got to have my customers more engaged in my platform.
Like, all the things that I spoke about, whether it's the Axons or the cybersecurity or Databricks, even the homebuilder, you're effectively driving a strategy based on what your business problem is. I wanna have, I wanna have my supply chain trained. That's what I'm gonna do with the homebuilder as an example. That is not a question of legacy investment. That's a question of I need to drive my strategy, and I have, I have the whole organization behind it. The legacy inertia comes from those players that are, that are still stuck with the platforms.
There, we certainly see, you know, we've continued to win business because I can not only consolidate the tech stack, but I give the best in breed platform to my customer, make it super easy for that practitioner who is an internal use case from an admin reporting, creating content perspective. So we're in a good position in that sense. We certainly see an opportunity there, especially if you look at one competitor that has consolidated the whole tech stack or consolidated three LMSs into their portfolio. The challenge you're gonna have is, which platform survives on a three to five-year basis? And where are you investing your R&D dollars from, to work? And so we will be professionally aggressive into going after that market too.
Okay, we're over time. I think the next presenter is here.
Thanks a lot, everyone, for joining us at the Growth Conference. Sukaran is available in the halls. Thank you ... for-