Good morning, everyone, and welcome to the Docebo Inc. 2nd Quarter 2021 Earnings Call. All participants are currently in a listen only mode. Following the presentation, we will open the lines for a Q and A session for analysts. Instructions will be provided at that time for research analysts to ask questions.
I'd now like to turn the call over to Docebo's Investor Relations, Dennis Fong. Please go ahead, Dennis.
Thank you, operator. Before we begin, Otjapo would like to remind listeners that certain information discussed today may be forward looking in nature. Such forward looking information reflects the company's views with respect to future events. Any such information is subject to risks, uncertainties and assumptions that could cause results to differ materially from those projected in the forward looking statements. For more information on the risks, uncertainties and assumptions related to the forward looking statements, Please refer to Dochevo's public filings, which are available on SEDAR 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're not recognized measures and do not have standardized leases under IFRS. Please see our MD and A for additional information regarding our non IFRS financial measures, including for 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 Deutsche Abloh's CEO, Claudia Ereba.
Good morning, everyone, and thank you for joining us on our Q2 2021 earnings call. With me today is Ian Kitson, our Chief Financial Officer and Anais Artufo, our President and Chief Revenue Officer. The strong momentum that we demonstrated in the Q1 continued through the Q2 and in fact began to accelerate, resulting in our 2nd consecutive quarter of record revenue and ARR growth. For the last 2 years, we have Consistently stated that enterprises are investing in Docebo platform for strategic reasons and not out of short term requirement That will reverse once we recover from the pandemic. The truth in these statements has been clearly demonstrated in our performance over the past 6 months.
Further, we continue to believe the long term adoption trend for digital learning tools Like ours is accelerating and we expect this will contribute to our future success. Unlike a traditional LMS that is specifically designed for use in an HR environment for employees, Soft skills training and compliance, our customer are using Docebo as a productivity enablement tool across a wide range of use cases From internal upskilling to sales enablement and importantly as a tool to strengthen relationship with customer and partners through online training. This has been a fundamental differentiator for us that also significantly expand our Total addressable market and potential ACV. The rate of our customer growth and size of our ACV Continue to increase as more and more organization became aware that the platform like Deutsche Bank ceased. In the Q2, we added 152 net new customers, including some great new logos That exemplifies the traction we are getting across many industry verticals.
One great example is REMAX, The leading global real estate franchisor. Raymax selected Ducebo as their learning solution to grow user adoption, Address user management need and create a custom dashboard for their use cases. With the Cebo, REMAX will be able to service a rapidly Growing user base and create impactful learner experiences. We are also seeing business pickup in 3 verticals that are recovering from the pandemic and adjusting to the new normal sector like retail, travel and manufacturing. In the Q2, Lulemon, the world leading athletic apparel, selected Docebo to provide a comprehensive learning solution Keep Train and Engage their employees around the globe.
We also added 3 new logos in the travel industry, included Red Roof Inn. Redroof is an award winning leader in the lodging industry with more than 650 properties in U. S, Brazil and Japan. Red Roof selected Ducebo as their learning suite to enhance the internal customer experience. With a simple process, organization of content, mobile accessibility, automated reporting and more, Ducebo allows Redroof to allocate more of its resources to the development and delivery of content versus spending excessive hours Managing the platform.
We added JELDVAN, a leading global manufacturer of high performance interior and Janssen employs approximately 21,000 people and has manufacturing distribution and showroom locations Across the U. S. And 24 countries, they selected Docebo to consolidate their learning system to deliver worldwide learning, Instructure led training and the combination of course and micro learning for ongoing professional development. Most of you will recall that last quarter we talked about the launch of Ducebo Learning Suite, which was an important milestone for us. At the end of the Q1, we started selling Ducebo Learning Impact and we launched Ducebo Shape, our AI powered Content authoring tool as a free trial.
Shape is now transitioning out of the trial phase and we are selling it to customers. In addition, Deutsche Bank Analytics, Our most recent product launch will also begin to sell by the end of the Q3. We are still very early with the launch of the Learning Suite, But I'm happy to share that we have already pre sold licenses to each of these new products, even ahead of some of the official releases. Although learning impact is not expected to be a material contributor for several quarters, we are pleased with the traction so far And we were able to sign several new customers. 1 of those new customers was an upsell to SkinCeltical, Who has been the Cebo customer since 2018?
After finding great success, launching their training platform to their internal team, Clients and Global Partner distribution network, SkinCeltical will be expanding their agreement with Ducebo to include Learning Impact. Our new Learning Suite products are designed to be both integrated with our LMS or sold as a standalone product. In the Q2, Total Energies, a leading French multinational integrated oil, gas and new energies company, Selected Ducebo to help measure and improve the effectiveness of their learning programs with Ducebo learning impact. We are happy to have one of the largest companies in Europe select 1 of our new learning suite product in a use case working along another LMS. It also serves as a testament to our expanding French operations.
With the development of these new products, we are also investing to advance the customer experience. In the Q2, We were pleased to launch our new Docebo community. Docebo community enable customer to connect with other customer partner And docebo expert to share best practice, get answer and find inspiration to get the most out of their docebo experience, all while leveling up their skill and opening career options. It allows our product team to prioritize the request based on customer feedback And this is a centralized place for our growing base of customers around the world to network, collaborate and grow. The growing our partner business is also beginning to accelerate as more partner come on board as the potential It's broader than just the HCM world.
Since we last spoke in May, we have added 4 OEM partnerships That quarter demonstrates the breadth of opportunity we have to expand our geographic reach and address different pockets of the enterprise market. We are working with a leading multinational IT consulting service firm to develop a managed service based on the DuChebola maps. This debt will be offered to their global customer base. We signed a partnership agreement with Colabori To develop and offer a unique software and service solution for learning technology in Brazil and South America. Brazil is by the far the largest market in South For corporate training, in Calabore, local and strategy technology expertise makes them an ideal partner to continue our global expansion In what is a new and untapped market for us, we signed an OEM agreement with Workspan, A business management platform that helps technology companies manage and maximize the value of their partner ecosystem.
These new partners embeds Ducebo market leading learning management services, notably in Workspan, allowing organization to seamlessly rollout new partner programs to the 1,000 of partner in the WorkSpan network. We also signed an OEM partnership agreement with Orchestrate HR, an HR technology and consulting company With over 5,000 customers and offices in 13 states, we now have more OEM that are outside of the HRM space Then OEM that are in it, proving that the opportunity to embed learning technology in enterprise environment is universal. Lastly, I want to speak about the investment we are making to position docebo for our next phase of growth. Today, we have over 630 people in our organization. And since the Q3 of last year, We have increased our headcount by more than 50%.
This growth has been critical to accommodate the increase in revenue We have experienced it over the past year and the growth we expect over the next 18 months. Managing such rapid organic change is not easy, But it is something we continue to get better at, and we think this is being reflected by the consistency of our results. Hiring great and talented people is paramount to our success, and we are adding transformational leader to help set the foundation for our next phase of growth. Last week, we were pleased to announce the appointment of Rudy Valdez as our new COO. Rudy spent the past Seniors at Amazon AWS, where he helped to establish and build their sales and business development function at AWS, Working closely with their largest cloud customer through the transformational growth years.
More recently, He led the development of the AWS training and certification programs, helping to educate millions of customer and partner in the AWS ecosystem on Clouder Technologies and Approaches. With Rudy appointment, we will be able to move Martino Baggini into the newly formed role Chief Corporate Development Officer. Before joining the table, Martino had a background in venture capital, and this will allow us to put greater emphasis and focus On advancing and executing our M and A strategy as another growth vector of the Cebo. Before I pass the call to Ian, I want to touch on a topic that is very important to me and to our Board, and that is ESG. We understand our responsibility as a global technology company to make a positive impact on our employees and customer that we touch.
We have a number of program in place. For example, 2 of our 6 offices Have transitioned to 100 percent renewable energy. We work and support a number of organizations that promote diversity and inclusion And to reduce the gender gap in technology. This year, before Congress announced its historic decision, docebo made June themed an official holiday And encourage our employees to take the day to learn more about this historic milestone and to reflect on the past, So we can build a better future tomorrow. We care about our external impact, but it is the health and well-being of our employees that is critical to our We have a family focused culture and want to make DuChebo a destination of choice for employees and career growth.
Many of our HR policies expand well beyond the statutory requirement. For example, we provide supplemental benefit and pay for U. S. Employees on maternity leave At 100% of gross wages for up to 20 weeks and for paternity leave at 85% gross wages for up to 12 weeks. We understand that our stakeholders, including our investor, care about the impact we have on our employees, customers and the rest of the world.
This year, under the direction of the Board, we have engaged an experienced consultant to help advise and embed Best ESG practice into our business, and we look forward to more formally reporting to you on our ESG achievement in the future. With that, I will now pass the call to Ian to speak to the financials.
Thank you, Claudio, and good morning, everyone. For those interested, a detailed breakdown of our financial results for the 3 6 months ended June 30, 2021 can be found in our press release, MD and A and financial statements, which are now available on our website and are also filed on SEDAR and EDGAR. The slide deck accompanying this earnings call was made available on our Investor Relations website this morning. For those who want to follow along, I'm going to start my remarks on Slide 3. The strong momentum that we in the Q1 carried over nicely into our Q2 with total revenue for the period growing to 25.6 $1,000,000 an increase of 76% from the prior year.
Subscription revenues also grew 76% from the prior year and were $23,600,000 representing 92% of total revenue for the quarter. Professional services revenue in the 2nd quarter was $2,000,000 even an increase of 75% from the prior year period. As we noted in our press release, this quarter's results included $1,100,000 of revenue Resulting from a one time catch up related to a customer contract signed in 2020, IFRS accounting rules did not allow us to begin formally recognizing this revenue until this quarter. This contract was an unusual situation and we currently do not have any other such agreements. Excluding this catch up amount, Our revenue growth was 69% over the prior year and we're very pleased with this rate of increase.
Furthermore, as we look forward, all signs support our confidence and continued momentum over the foreseeable future. The acceleration in our business becomes apparent when you consider the net growth in our quarterly ARRs As shown on Slide 4, we achieved $93,400,000 in ARR at the end of the second quarter, an increase of 64% over the $57,000,000 in ARR at the end of the Q2 of 2020. When compared to the Q1 of 2021, we added $10,000,000 in revenue sorry, in ARR In the most recent quarter, an increase from the $9,400,000 in ARR that we added in the Q1. Importantly, there were no large deals driving our ARR growth this quarter, and it supports our contention over the past that there is a growing awareness of the applicability of the Docebo platform to both internal and external departmental learning objectives. We had 2,485 customers at the end of the second quarter and our company wide average contract value or ACV increased to approximately $38,000 up 27% from $30,000 At the end of the Q2 of 2020, the ACV from our new customers added this quarter was approximately $46,000 And nearly 78% of our new logo and upsell contracts are now multiyear deals.
Moving to Slide 5, you can see gross profit margin for the 2nd quarter was at 80% of sales, Flat compared to the prior year period and a slight decline from 82% for the Q1. The decline in gross profit margin was due to a significant investments that we have continued to make in staffing as well as costs related to new seller arrangements. I remain comfortable with our longer term gross margin targets Being within the 82% to 85% range and we expect to get back to those levels over the next 2 to 3 quarters. On Slide 6, you can see a summary of our operating expense lines. Total operating expenses for the 2nd quarter increased $26,800,000 as compared to $14,900,000 for the prior year.
Included in the $26,800,000 of operating This is a foreign exchange loss of $3,200,000 that relates primarily to the cash on our balance sheet and is therefore for the most part unrealized. Operating costs excluding this foreign exchange loss were $23,600,000 slightly higher than the 21.5 that we reported on a comparable basis in the Q1 of this year. G and A expense of $6,900,000 declined as a percentage of revenue from $34,200,000 in the 1st quarter to 27% For the Q2, as we resume being able to realize benefits of increased scale on the revenue side. When compared to the Q1, sales and marketing expense declined as a percentage of revenue to 40.8% as compared to 41.9% for the Q1. R and D expense increased slightly in the 2nd quarter as a percentage of revenue to 20 point for sales and marketing expense as a percentage of total revenue remains unchanged at 35% to 40% And our R and D expenditures continue to remain near our expectations of 20% of revenue.
We reported an adjusted EBITDA loss of $2,000,000 for the 2nd quarter compared to a loss of $900,000 in the prior year period. We also reported a net loss of $7,200,000 for the 2nd quarter compared to a $3,500,000 net loss for the prior year period. As already noted, please recall that the net loss for the 2nd quarter does reflect the $3,200,000 foreign exchange loss. Finally, free cash flow margin was negative $800,000 in the 2nd quarter And our balance sheet remains healthy with net cash and cash equivalents of 216,000,000 Going forward, our primary focus will be to continue to drive our growth, but we're finally getting to the point where we expect to begin to realize Greater benefits from our scale. We will likely take a breather in our expansion in the Q3 as we start thinking about our hiring plans for next year And our hiring will resume later in the Q4 as we enter 2022.
At the same time, I want to reiterate that I don't see anything in the near to medium term that would suggest the strong momentum we've been seeing in our sales pipeline And reflecting in our ARR performance has materially changed. We have multiple growth levers But are all tracking well, including new logo sales, upsells and cross sells and OEM partnership revenue. In the coming quarters, likely Q4 this year or the Q1 next, we expect to have more
We do ask that you limit yourself to one question and one follow-up and return to the queue. Your first question comes from Robert Young with Canaccord. Please go ahead.
Hi, good morning. I wanted to dig into your statement that there's no large deals in the quarter. It's a singles and doubles quarter, but you announced a number of Impressive logos like Lululev and REMAX. And so I'm just trying to is there any way to sort of dig into that statement a little more? What does a large deal mean?
Because I think it's important to understand just on the pace of incremental ARR you're able to add each quarter, what the influence of these large deals is. So any other detail there would be helpful.
Yes. Ciao, Rob. Can you hear me Klavvi speaking? Yes. Great to meet again.
So this quarter is the quarter which I like to define very healthy Because there are not outliers. It's all logo. The logo, we love in terms of size. It's our sweet And it's proving that we are continuously growing organically and consistently. This is from a quarter framework Perspective, I'll leave to Ian to detail the size of the logos and the deals actually.
Sure. So Rob, when I think about an outlier, I think about a contract That is like $1,000,000 plus. And this quarter, we didn't have a contract that was anything Larger than $500,000 and we had correct me if I'm wrong, Glascia, but I think it was like 4, 4 or 5 that were 100 of 1,000 of dollars, which as Claudio said, That's right down the middle of the fairway for us and it's the kind of transaction that we love to do.
Okay. That's really helpful. Agreed. Thanks, Alessio. And then the Do any large deals that you've talked about in the release fall into Q3 like REMAX was after the end of the quarter with 80,000 users?
That seems like a larger deal to me. Does anything fall out of the quarter?
I'm not sure what When you say
all Like would anything be driving ARR in the Q3 rather than the Q2?
No, no. Any transactions that we've talked about have been signed in Q3. Okay. Sorry,
sorry, sorry, sorry, sorry,
sorry, Q2, Q2.
Correct. And so do you expect to get larger deals in the back half of the year? Is Q2 just a slower quarter?
For large deals? Well, I mean, look, We are always working on large transactions, but they can take 6 months to 2 or 3 years to close, right? And that's why when we look at the health of our business, We're focused on what I would characterize as the I hate this word, but I'll say smaller Transactions? Because obviously those are significant. But let me pass it to Alessio to try to give you
Sorry, one second. One second. I want to push back a little bit on Rob, definition of low quarter. Rob, it's funny what you define low quarter for me is a healthy quarter. I know that people like big checks.
But for me, it's more healthy in term of approving the performance of the sales Machine and Marketing Machine and then the organization itself to sign 10 contracts that together is 1,000,000 Then one contract that is $1,000,000 you cannot forecast your growth on outliers. You need to grow and to forecast Your performance on consistency. So I mean, 60 something percent, I'm very happy that you are so user to our great performance
Hey, Rob. And just to steal this for a second. We're actually really happy about the numbers At each and every segment level, we spoke about this multiple times. We are looking at the market for our smaller and medium sized customers Our medium and large sized customers and our large customers. We're not in the business of necessarily of Doing the big appeal upfront.
We're in the business of long term value. We're in the business of customer experience. We're in the business of building long term relationship with customers and Selling them. So we're totally happy starting with a few $100,000 and growing relationships later on in the millions Rather than starting with, say, the big shebang and having to realize value immediately, which is harder than done over time.
Okay. Thanks. That's all really good. Maybe second question would just be related to the expansion components. It sounds like that's more balanced.
Last quarter, The expansion of existing customers seem to be driven by one large deal with the QSR. And so is that getting more balanced? Is there a positive trend to highlight there around Growth with existing customers and then I'll pass it on.
It is balanced and it is according to design according to plan. The introduction of the new products is supporting our not only strategy, but really philosophy About creating long lasting value for customers, we started selling the Trebel Learning impact, and we're excited about the results we're getting out of it. It's very, very, very early days for Shape and Analytics, but the signals that are early stage pipeline Are all good and positive, for sure. There's a lot of work to do on structuring our self machine that was very focused on LMS only To now selling a learning suite, I will not deny to you. There's change management to do and this takes time, but we're really excited about what's ahead.
Okay. Thanks a lot. I'll pass on.
Your next question comes from Stephanie Price with CIBC. Please go ahead. Hi, good morning. I wanted
to dig into the OEM strategy a little bit more here. Just curious if you can give us an update on the MHR
Hi, Stephanie, and good morning back to you. The question about MHR and Ceridian. These partners are the ones that are also being for the longest time active with us. For sure, Ceridian way longer than MHR. Those two relationships continue to be very strong.
The results and the performance are according to the plan established with the firms. And we expect the following that our integration capabilities with their products continue to get better and And as a result, we're going to create incremental value at an accelerated pace. At this point, Ceridian and MHR constitute the large majority of our OEM revenue. But as you have seen in the press release, we are quite consistently adding new partners in different categories, Not only HR like Ceridian and MHR and Orchestrate, and we believe that a mix strategy in which we will Add, Deutsche Bo is a productivity enablement technology to companies like WorkSpan and others. We also have mentioned Silent logo, I'm sure you guys have seen it, of a relevant system integrator that is going to use Ocebo for a managed services practice.
We believe that The channel business of OEM is really powerful for us. I hope that answers Stephanie.
It does. Thank you. And maybe just a follow-up to that. Just curious around what areas outside of the HRM that you're kind of focused on. It sounds like the systems integrators and IT services are focused, but how do you kind of see that strategy rolling out going forward?
Yes, we're working on this actively. We actually have a vision where we view the OEM business Really in terms of territories and industries and verticals. And we can approach all these markets with a different value Position depending on what these vendors need to accomplish in their respective industry. With that in mind, we've seen increased interest in the SI space. We've seen a lot of interest in other markets that are not HR like risk, For example, we've signed Bartopia and WorkSpan that are in the business of helping companies leverage partners.
We really believe that the future is really bright there. And I think as we mature those And categories in the future will be able to be even more, if you will, clear as to What segments and industries are we're seeing more traction?
Great. Thanks so much.
Thank you, Stephanie.
Your next question comes from Richard Tay with National Bank. Please go ahead.
Yes. Thank you. So you had some really impressive wins here. Just wondering if you maybe give us a bit of color in terms of these wins. Are they competitive, Placements or something else here?
Alex, are
you going to take it?
Sure, sure. And thank you for the question on displacement, replacement. Look, We've said in the past that essentially when we win business from somebody, there are really 3 categories that we see are more prevalent. The first one It's replacement from Tier 1, I would say LitePoint LMS Oceans. These are those Vendors that perhaps are in the earlier stages of the experience of the customer with the learning suite or the learning platform.
They usually are outgrown within a certain amount of time. The second category, And we see this category more in the smaller and midsized companies as homegrown solutions. Oftentimes, we displace customization on top of open source software or SharePoint or other artifacts that use to deliver learning. This is true in certain industries and generally broadly speaking in the mid market. In the enterprise market, I mean, we're displacing enterprise competitors.
That's the reality. Customers that we speak to are looking for better customer experience. They're looking for better software for software that is more flexible And they're looking for focus on learning. And we're winning business from companies that perhaps have a Focus that is not just on learning, but on talent and these enterprises see value partnering with Achebo.
Okay. Super helpful. Thanks. And then in terms of the partnerships, like there's a notable increase in partnerships Across the board, your SIs and OEMs. So given that you've had the growth rate you've had up until now without sort of this meaningful scale up in Partnerships, is it fair to say that as we look out maybe 12 months from now, we're actually going to see a step function up in terms of an accelerating Growth profile because of those partnerships?
So, Claudio speaking. I think I mean, it's a correct statement saying that the more partner we onboard, The more partners will bring value in the future. I don't know When this will happen? We have some benchmark with NHR with Ceridian. This can happen in 9 months or in, I don't know, 15 months.
And another point is that we hope that every partner We'll be extremely successful, but based on the market size of different sector and on the Efficiency of the partnership, some partner will perform better than other partners. So that said, what makes me happy is the absolute number of the partner. If you remember, In 2019 2020, in our first earning call, we had one partner only. And now we have like More than 5, 6, 7. And we are continually feeding the pipeline of new partners.
And we are also Evolving the technology to support new partners because not every partner implement the solution For the same use case or in the same way. And sorry, when I start speaking about the product, I go To nerd, so sorry and I hope that this makes you happy despite the balance.
That's great. Thank you. Appreciate it.
Your next question comes from Daniel Chan with TD. Please go ahead.
Hi, good morning. Congrats on the strong quarter. Thank you. I want to dig into the channel partner channel as well. And you've got a number of partners now to help you address Different global opportunities and Ceridian just closed their acquisition of Ascender in March, which really builds out their Asia Pac presence.
So can you give us an update on what your global expansion strategy is and whether you're going to be leaning on some of these partners to help you get some of these geographies you're not currently in. And then maybe in addition to that, is your product ready for these new markets? Or is there still work to be done?
So there are, Ciao, good to meet you. There are low hanging fruit In terms of geography, there is we are opening an office in Germany, Which will be a direct office. And as you know, Germany is in my backyard or Germans would say that Italy is in their backyard. There are Nordics and there is Australia and New Zealand. Those markets Our markets that are friendly to our marketing and communication style, they can digest the way Western company communicates.
So if we have to prioritize through partners or directly Some geography, Australia, New Zealand, Germany and Nordics are our top priorities. And probably as a consequence, when you are in Australia and New Zealand, probably it's easy to expand in some other area of Asia Pacific. What I will avoid is with COVID, trying to penetrate the markets that require A lot of visits to set up the office, a lot of local networking in order This is what we call a value added reseller strategy works very well for us. For sure, if there are partners like Ceridian that are in a specific country, We think we can support also countries that are regions that are different from the one that I mentioned, Especially because do not forget that the Chebo since probably 10 years support 32 languages, Support the right to left pagination, support non Western Characters like juice and Arabic, Chinese, you name it. And also With our cloud capability based on AWS, we can act like a local vendor.
I mean, we do have And all the other region that we have opened to support Brexit when a British company had a data center in Ireland. We have the 1 data center in Canada. So basically, thanks to the partnership with AWS And with the technology we have at the kind, we can also be friendly from a data perspective, which is usually an underestimated point. But I mean, If you don't have the data center in the U. K, you are not compliant with the U.
K. Privacy data. So I think we are ready. We but we are also pragmatic and we want to prioritize what are the countries that from our filling and data and Capacity to communicate will add more chance to be successful.
That's very helpful. Thank you. I also want to dig in on the ACV growth. I mean that was a really good metric too. Is that mostly being driven by new modules, more seats or a combination of the 2?
Thank you.
It's sorry, Alessio, do you want me
to take that? Sure.
It's not being driven by more seats And it's a combination really of larger use cases driving larger Annual ARR is embedded in the contracts. And in the future and today, I would say that's like 90% of it. Going forward, we obviously hope that upsells are going to contribute a larger portion of that and what we saw this quarter would certainly support that queue.
Your next question comes from Philip Lettis with Berenberg Capital. Please go ahead.
Hey guys, thanks for taking my questions. Just based on your prepared remarks, it sounds like you hinted That M and A would become a bigger part of your strategy for the company going forward. Can you give us some color on maybe what kind of M and A targets or assets would be of interest?
Yes. It's Claudio speaking. If you know my mantra, my mantra is I don't want to make mistakes. So the fact that my real body, Martino, which worked with me as COO is now in corporate M and A. The fact that we know each other since 10 years and the fact that we have a venture capital background Makes me optimistic that now that we can focus 100% on opportunities, We will we have a more capability to assess every opportunity That land on our desk or we want to pursue proactively.
That said, There are different opportunities out there from acqui hire to adjacent market to local vendors to expand in specific geographies. And we will evaluate everything without the need or the hurry To deploy the capital in an efficient way, we will deploy our capital only if we are sure That will there will be a tremendous upside and a great return of investment for our shareholders. That said, What makes me optimistic is that we have executed above our expectation Before Matrix integration in the Cebo, when I have seen how my HR team not my, The HR team, it's not mine. The HR team, the finance team, the sales team, the professional services, the IT operation Worked together to integrate another company and the first integration in our lives was our first acquisition Inside our ecosystem of people, of culture, of products, this makes me optimistic that the next acquisition We'll be, I hope, successful as the first one. That's it.
We are not in a hurry. We don't want to make mistakes.
Got it. Thank you. That's helpful.
Your next question comes from Nick Agostino with Laurentian Bank. Please go ahead.
Yes, good morning and good afternoon, Claudio. This is Salman on behalf of Nikka Agostino. So Few questions from my end. First of all, it's about the competitive landscape. Have you seen any changes lately?
Because Some competitors seem to be returning to the public markets, again, citing high growth in the learning space, e learning space. Does that signify the strong prospects and thereby strong competition ahead?
So the market is still fragmented and is not tied only to the learning management system Space. I mean, training can happen everywhere now. Most of the training that is coming is related to Formals to enablement to experience and it's coming from other sources. For the standard competitor, because every company at the end of the day need an And earning ecosystem inside their IT ecosystem, it's named by the Same competitor that we usually disclose every quarter. The big news was cornerstone that Allstate and Private.
And I do like a couple of companies out there, but those are All the competitors that we see.
Okay. That's very helpful. And my second question is about your scaling comments. So earlier you mentioned that the company continues to scale up and increase headcount. So are you facing any headwinds or issues with finding talent, especially tech talent where there has been a tech crunch Lekki, do you see this as a 30 year growth?
So Talent competition in technology is incredible. I mean, everyone needs a software engineer, everyone needs As Director of Sales and literally every role is In the scarcity mode, if we're thinking about the actual employees, if we see Any churn from the employees, this is not at the level of red flags. The churn happens in typical Departments where usually are high churn, that's it. I think that No, inflection is rising. The talent competition is rising, especially when there are no Any more geographical barriers?
I mean, you can hire engineers on in Iceland or India or wherever you want or in Switzerland, because now the remote Is a key selling point when you want to hire people. So yes, As any other company out there, we see a talent competition.
Okay. That's very helpful. Thanks again and congrats on the results.
Thank you.
Your next question comes from Paul Steve with Scotia Capital, please go ahead.
Great. Good morning. I'll just toss them both in one here. The first one would be just could you talk a little bit about the go to market For upsell or how you've organized the sales force? More importantly, how we think about that timing of and the ramp in revenues, Which obviously Ian preferred to in the Q4, Q1 update, but just how meaningful would you think that is in terms of contribution and coming on?
2nd quick follow-up would be on extranet type deals for Ian. Can you just remind us on the scaling of those versus typical, but how we should think about revenue recognition And also the rollout of those. Thanks guys.
Hello. We are speaking about how to scale a sales machine. Maybe it's better listen from the guru.
Sorry, I was muted. I'm sorry, guys. I was trying I was talking and nobody was paying attention to me. Now I realize why. All right.
So can you guys hear me okay? Yes. So Good question on the organization of the account management team and land and expand strategy. So first, I'd say our goal is To create demand with similar approaches, both in the base and in the greenfield. When we think of the base, we think of the base in a couple of different ways.
For 1, we think of a customer In an organization having multiple buyers within the same organization. Practically, what that means is that whenever we sign a company, say, Lululemon, which we announced this quarter. We understand that in that same company, there are multiple stakeholders That are receptive of conversations for the Chivo products and services. We can categorize that as a upsell activity, which is tough And assigned and owned by the account manager and part of the account planning exercise that we do. Further to that, there is an additional layer.
We look at every organization in a 360 way. We map out not only the internal individuals that may have need for learning, but we look at the 360 structure of the company in terms of sister companies affiliated parent and we create a wider net, which we approach with digital marketing, account based marketing and targeted strategic marketing with an account development team. That would not be possible or Better stated, we would not add positive results if we didn't add strong focus on the customer experience. So we have a CX team That is in charge of the adoption side and making sure that the actual customer is using the software, It's being helped to go live and not just configured, but we go from Soft launch to go live and from go live to real adoption. And so when you do that And you have good account planning strategies and good business development strategies and good demand generation strategies in the base, our addressable market in the base It becomes huge.
And look, we're relatively, relatively new to this engine. It's not hyper mature. We're working very hard to make it better and better. And I think all the efforts that we're making will pay dividends in the quarter Paul, does that answer the first part of the question?
Yes, that's great. Thank you.
And Paul, the second part, if you could read State it because I just wasn't positive what you meant about the extra net revenue.
I guess I'm just referring to organizations, while they might be employees, a number of them are Franchise type models like a large QSR or real estate type organization where you presumably have to get the franchise owner On board or is this should we think of those wins as embedded in the core franchise fees, so thus you don't have to go and Got it. We're in hand to hand combat each deal. Thank you.
Right. So, specifically with respect To that type of transaction, correct me if I'm wrong, Alessio, but I'm All of the ones that we have signed along that line Have been fixed upfront for an absolute dollar amount. So it's not on us to go win the franchise. It's the franchisor deals with their franchisees.
Yes. We implement the framework agreement, which Then enables the holding to do deals with the franchisees separately, we don't control that.
Right. But there is an element to your question, That I think is really good and really important. And when we think about the OEM side, We have announced some significant OEM partnerships this quarter. Our ARR associated with those relationships today is 0, Because they are using us to go create a business. How that business unfolds We'll be yet to be determined and We will work with them to support the development of that business.
So something like a Ceridian, our ARR with Ceridian isn't a predetermined bucket like it is with a typical customer. We partner with Ceridian and the ARR grows over time.
That's helpful. Thanks Ian. Thanks
Your next question comes from Christian Scrogg with 8 Capital. Please go ahead.
Hi, good morning. Thanks for taking my question. I just wanted to ask one this morning. When you guys think about the direct sales pipeline, where are you seeing interest these days either geographically or by vertical? What's been strong lately?
Hello, Christian. Alekse speaking. We manage pipeline by looking at it our pipeline forensics Tell us that our positioning of a horizontal player that addresses the learning needs across many multiple industries remains unchanged. Now What we look at is also the constitution of the pipeline in terms of Average deal size per segment. And what we're seeing is that we have a fairly linear constitution Of deals.
What that means is we have companies that for each and every commercial segment Are in a range and value that is within the expectation for that very segment. Now We like that linearity because we don't like peaks and valleys that then eventually result In Peeks and Valleys also on the booking side. Verticals wise, I said we're horizontal, and that's true. But strong momentum remains on technology. Strong momentum is continues to exist In manufacturing, it seems interesting growth And return of demand from hospitality, we announced red roof, example of that.
And retail as well, Lulu is another good example of that, is Continues to perform very strong. Now if you look at our pipeline and you take The top 10 verticals, technology companies, consulting companies and companies that really leverage the Cebo As a go to market, technology are the ones that make up for the largest amount of Or Bali. And what's interesting is that we're seeing that ability to Turn learning into a leverage or an enablement, a productivity technology is something that makes money, Whether it's to retain it or make it across many verticals. And it used to not be the case. It used to be that SaaS companies used to have academies to retain customers Or sign new customers.
But now we see the same logic applied across dozens of verticals. And that's fascinating. That's why we think our Addressable market in a way is huge.
That's great, Alessio. Appreciate
my question.
All the answers. That's terrific.
Thank you, Christian.
There are no further questions at this time. Please proceed.
Can you hear me guys?
Yes, we
can. So I just want to thank you, Everyone, today, I think we hit both. Record quarter and record of question from Analista. So we performed well in both of them. Thank you so much.
It was a pleasure having you here as usual. And let's speak in November, where we hope to do it in person from Toronto.
Thank you, everyone. Thank you, all.
Thank you, ladies and gentlemen. This concludes your conference call for today. We thank you for participating, I ask that you please disconnect your lines. Have a great day.