Good morning, everyone, and welcome to the Docebo Inc. Second Quarter 2020 Earnings Call. [Operator Instructions] I would now like to turn the call over to do Docebo's Investor Relations, Dennis Fong. Please go ahead, Dennis. Dennis Fong;Investor Relations: Thank you, operator. Before we begin, Docebo would like to remind listeners that certain information discussed today may be forward-looking in nature. Such forward-looking information reflects the company's current views with respect to future events. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in these forward-looking statements. For more information on the risks, uncertainties and assumptions relating to the forward-looking statements, please refer to Docebo's public filings, which are available on SEDAR. 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 meanings under IFRS. Please see our MD&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 Docebo's CEO, Claudio Erba.

Thank you, Dennis, and good morning. I hope everyone is keeping safe and well. Thank you for taking the time to listen to our second quarter earnings call. Joining me today's call is Ian Kidson, our Chief Financial Officer; and Alessio Artuffo, our Chief Revenue Officer. Before we begin discussing the quarter, I want to take a moment to acknowledge the challenging times we are facing as a society and to voice to our dedication and support for social justice and racial equality. As an organization founded and built on the principle of learning and personal growing development, we believe collaboration and innovation should never be stifled by inequality and hatred. We are committed to strengthening an anti-racist plan and to encourage awareness and action to be taken to full to our office. This past quarter, we [ [Audio Gap] information program to the ACLU with a mention program at the corporate level. We will also observe June 10 as a corporate holiday and are reviewing our list of holidays to create a more balanced and cultural context. These are some of the initiatives we have taken today, and we will endeavor as an organization to constantly improve and create a safe and inclusive environment. This was our first full quarter under a COVID-impacted economy. And I'm pleased to report a continuation in the strong growth momentum we have seen since becoming a public company last fall. This demonstrates the resilience of our business even in these new normal environment. Our ARR grew to $57 million at the end of the quarter or 54% as compared to the second quarter of 2019. This was supported by our year-over-year subscription revenue growth of 55% and the total revenue growth of 46%. We now have over 2,040 customers, and our average contract…

Thank you, Claudio, and hello, everyone. Before I start, I'd like to remind folks that you can find a detailed breakdown of our financial results for the 3 and 6 months ended June 30, 2020, in our press release, MD&A and financial statements, which are now available on our website and on SEDAR. This quarter, we've also introduced the slide deck to accompany our earnings call discussion that is available on our Investor Relations website. For those who want to follow along, I'm starting my remarks on Slide 4. As Claudio indicated, the second quarter presented certain challenges for us, no different than it did for most other companies. Overall, though, we are very pleased with our results. Total revenue grew $14.5 million, an increase of 46% from the prior year period. Subscription revenues grew 55% from the prior year and were $13.4 million or nearly 92% of total revenue for the quarter. Professional services revenue in the second quarter was $1.1 million, actually down 12% from both the prior year as well as the first quarter in 2020. Professional services revenue are generally associated with new local signings and, more specifically, the new logos signed in the preceding quarter. That is why we often have higher than trend line professional services revenues in the first quarter of the year related to the busy fourth quarter of the preceding year. In addition, the amount of professional services associated with [Audio Gap] contract can fluctuate significantly. So this variation is not unexpected and will happen from time to time in the future. Our ARR at the end of the second quarter was $57 million, an increase of 54% from the $36.9 million at the end of the second quarter of 2019. Although ARR is not an accounting measure, it is the…

[Operator Instructions] Your first question comes from Robert Young at Canaccord Genuity.

Maybe just continuing that line you ended with, Ian, the -- what are the changes in your stance getting more aggressive on spending and the savings expected in G&A? What does that imply on your free cash flow breakeven point? I think you'd said by the end of 2021, should we think of that still?

Rob, Claudio speaking. I hope you are good and safe. So I'll let this to Ian, but I want to answer that the fact that we see the demand and the pipeline and all the positive signal from the market make us optimistic on invest [ in ] our growth. That said, for the financial part, I'll let this to Ian.

Thanks, Claudio. Rob, the reason I thought it was important to point that out was what I wouldn't be comfortable with if folks simply took our Q2 cost base and rolled it forward and then look -- made a revenue increased assumption and said, " Oh, my goodness. This is great. You guys are going to be generating lots of cash in the immediate future." So I just wanted to raise awareness that because of -- as I said, because of what we're seeing on the revenue growth side, our expense base is going to start to increase for 2 reasons: one, to support where we are today, but we're also starting to think about our budgets for 2021 and how we position the company going forward. And so we're going to see increasing creep in our cost base to support that view.

Okay. Second question would be around, you said that AWS fees are higher, which suggests higher activity, even though the gross margin bounced up. So are you still seeing that high level from earlier on this year continuing?

In terms of usage, we are. Part -- in part, our margin increase was mathematical this quarter. If you look at the relative proportions of professional services and subscription revenue, as you know, the margins that we earn on professional services are nowhere near the margins that we earn on subscription revenue. And as a consequence, that helps our margins. Claudio, did you have something to add?

Yes. Rob, a couple of points here. First of all, you know that with the coronavirus, we -- our actual customer base increased the adoption of the platform. That means that on AWS, they are also consuming more resources. It's not material, but it's -- I mean, it impacts on costs, but it's a great sign on the fact that they are way -- adopting way more the platform, which makes me happy. On the other side, we are also releasing new features that are slightly increasing the consume of the AWS. Imagine, every time we are allowed a new AI algorithm or a new -- we have released our new reporting system, which increased the performance incredibly, that require a new technology based on data lake. That means we are investing on technology. And the fact that it's slightly increasing our cost base does not scare me because means we are innovating, which makes me more happy.

Great. And then maybe just last quick one just because Alessio is on the phone call. The investments in sales to existing customers that seems like it's really benefiting, particularly at the larger customer end. If you can talk about the investments and how those are working out? And I'll pass the line.

Thanks, Rob. Very pleased in the entire supply chain of the sales organization. We're very pleased with the pipeline and sales execution, overall ramp of the resources that we brought on board. You mentioned the large customers. I want to remind everybody that our goal is to -- we love large customers, but we have a tremendous focus on departmental adoption. We love entering in these large organizations, affirming ourselves on a single use case, creating successful momentum and growing from there. And that is really what we're mastering and operationalizing.

[Operator Instructions] Next question comes from Suthan Sukumar from Eight Capital.

It's actually Adhir on for Suthan here. So one of the questions I wanted to ask was, the customer wins in the quarter, are they coming from legacy platforms or are they generally net new customers to e-learning? And generally, how is that mix kind of evolving?

Yes. I'll let Alessio handle this answer.

Fantastic question. So there is a very good mix across our customer acquisition. And I would say there are prevalently 2 scenarios and 2 types of customers. One is from the net new logo side. So a company that is using the Docebo for the first time, somebody that replaces their existing legacy system. We certainly see certain large vendors losing momentum, particularly in the mid-market and enterprise segments. With regards to important customer acquisition, the other stream that's relevant is to say that our customers in our base that we are cross selling. So the second stream that is really important to us is not only the net new logo that comes from acquisition or their choice of substituting their existing platform, but it's a referral from an entity, like Walmart, for example, to another entity in the holding or a sister company. Those are the 2 mainstream examples of our new customer acquisitions.

Okay. Appreciate it. My second question was just around the OEM opportunity. Obviously, 2 or 3 good -- 2 new wins, do you see just the back of those, do you see any potential acceleration in that channel? And have you seen any new level of interest or higher level of interest from partners approaching you?

So selling to OEM, it's tough, not because our product is not mature, but the opposite. I mean, our product [ use ] soft feeling and modular that prototyping and OEM integration takes time. And also running out the customer, enabling the customer takes time. But on the other side, what we are seeing is that we are finding new ways to OEM our product, and we are releasing in beta early 2021, what we call pervasive learning. That means not an LMS embedded inside, let's say, an HCM platform, but don't forget that we can be embedded inside the talent management and ERP, you name it. But modular piece of LMS or training content inside the software itself, means that the training is hunting your learners when he's inside another software. Expanding these features will allow to [Audio Gap] our OEM potential partner more opportunity to train their customer base or to distribute Docebo in different ways. That said, yes, we are talking with other vendors. And yes, this is a strategy to sell globally. Because, I mean, selling in OEM in Asia is way more easy than opening an office in Asia. That said, it's a long-phased sales. So it's a long sales process. And I don't know if Alessio want to add some flavor or color on this answer.

Yes. Look, we love these long-term strategic partnerships. But Claudio, you're absolutely right. These are not a 3- to 6-month sales processes. They involve a go-to-market decision on the company that we're partnering with, and the conversation is very deep at a very executive level. With that in mind, I think some flavor that would be appreciated is we're seeing a trend in demand and request from sectors like HRIS, HCM, talent experience and talent management, sales enablement and performance management. These vendors and as well as -- customer success, I should say, these vendors are succeeding in their markets, but they're realizing day after day that learning is a critical component in offering a solution to their customers. And they're wondering should we build it? Or should we buy it? Or should we OEM it? And the fact that we have a solution that is so technologically plug-and-play, it makes that decision for some of them a no-brainer. And so we're very well positioned to capture those opportunities globally, but we need to be cautious about selecting the right ones and partnering with the right people.

The next question is a follow-up from Robert Young at Canaccord Genuity.

Sorry, can you hear me now?

Yes. We got you, Rob.

Okay. Great. Sorry. Last couple of quarters, you said that you were putting more thought into how you qualify the funnel to try and drive better conversion just because of the high level of new interest. And I was wondering, can you talk a little bit about that? Have those steps yielded any benefits? Are they helping you focus on larger customers? Maybe just a little bit there would be helpful.

Yes. I'll let Alessio answer because we will be very proud on answering on this.

Rob, it is great to hear from you and the question. Thanks for that. Well, look, the inbound traffic and the pipeline overall, they both remain strong, and we're very happy with it. And you're right. The reality is March and April, particularly presented an all-time high in volume because the world was just adjusting to working from home. And this reality is normalizing gradually, yes, and we're seeing more back to normal in a way from a volume standpoint. But more importantly, for us, the inflow of companies that are looking to change their existing solution has remained very solid. So look, our job here remains to work extremely diligently on that process of qualification and working. And when we do that, Rob, here's what happens. When we do that with a strong presales organization, when we couple that with a stronger customer experience organization, 2 things that typically happen: one, our win rates increase because we're working better leads; two, our sales cycle decrease because we're working the right leads. So when you really focus on the right leads, you put on the right leads, the right people at the right segment at the right time with the right training, you create that engine that we aspire to have that's kind of unbeatable, right, and that continues to grow. And we've been really focusing on operationalizing this to an extreme level of detail. And I hope that answers your question, Rob.

Yes. No, that's great. Maybe I'll ask a little more about sales process. You had a lot of front-ended -- front-loaded hiring of salespeople, I think, in January and February. And I think you've said that 6 to 9 months is how long it takes to get to a level of efficiency. Is that what you're seeing? And should we expect that, that big influx will pay dividends as we trend towards the end of the year?

Sure. Yes. On balance, 6 to 9 months is a fair average when it comes to ramping in -- and we discussed this in the past earnings call. When you look at the ramp, you always need to keep into account the markets that these salespeople operate in. You guys understand really well the difference between a commercial segment sub 500 employees and then mid-market enterprise segment. You understand how deals at sub certain amount of money are 3 months versus 6 months, and the larger ones are 6 to 12 months. So our ability to observe the ramp and the time to first deal and time to second deal is one thing that we're extremely focused on to measure the productivity of new sellers. With that said, a couple of things and again, flavor that you'll appreciate. In order to continue to not only ramp the new sellers and make them successful, but also continue to train and certify the existing ones, we're investing in the right way, although cautiously, but investing in enablement. We don't want to have that behavior where we hire a lot of sales people, but we don't have the brains to train them. And so we're really creating that culture and the engine of -- sure, having the right people but also having the infrastructure to train them and make them successfully when they are first hired and a year in the company. That's a tremendous focus for us. Hey, we're a learning company, right?

Yes. And maybe on the churn, you'd said that you're seeing a little bit of churn from smaller customers. I think that's intentional. And then maybe some of the more harder-hit end markets. How should we think about churn going forward? Are you -- do you think you're through the worst of that? Or should we think of that continuing through the year?

Rob, I'll pass it to Ian.

Yes, Claudio speaking. Rob, before passing this to Ian, I just want to remind that we are still -- we, as the word of the global economy, we are still in the worst global crisis ever. And the business situation for the Docebo is both headwind and tailwind. And this churn, I mean, can be considered our headwind. That said, the future is not predictable overall, but Ian can give you some more context on the way we are trying to forecast the future of customer stability, customer adoption and so and so on.

Thanks, Claudio. So Rob, as you know, our contracts renew over the course of the year and our customers pay upfront. So the churn that we experienced logically in one quarter should continue over the next 2 or 3 quarters if we remain in the midst of the pandemic. It is our sense that are improving. There is no question that certainly, Europe has undergone a fairly dramatic improvement in the last 3 months. The U.S. is still having a bit of a tough time and whether they revert back or not is -- has yet to be seen. But, but I would expect that when you look at our historical churn levels, we're going to continue to be higher than our historical levels over the next the next 2 quarters, for example.

Okay. Maybe last question, just on the Shape product that you're talking about. Impressive that you've been able to maintain the R&D roadmap and the activity there. Has there been any impact at all to the timing of R&D rollout from COVID, be the first thing? And then on Shape specifically, its artificial intelligence, as you highlighted. But -- in talking to a couple of customers, it seems as though they really liked the administrative benefits from putting some of the content creation onto an automated platform just for different languages, different geos. I was wondering if you could just talk about the administrative benefit and maybe some of the feedback that you've gotten from the customers you're testing with. And then I'll pass the line.

So yes, Rob. First of all, productivity of the roadmap overall surprised me because we really hit every release that we have planned for all the products, not only for the Shape or the other new product, but also for the legacy. We just had 2 weeks delay, only one small module over the past 6 months, which for me is impressive. And I'm always unhappy on how we develop the product because I'm very picky. On the other side, about Shape. We are ending in the next week, the data program with the customers. That means we are already in the phase where we are gathering all the request of the customers on how they use it, what are the best use case, what are the use cases that are not covered by Shape and stuff like that. Overall, a lot, an incredible potential. Let's say you know that AI algorithm performed way better in English and in Chinese, just because of volume. You can train -- the more you have data, the more you can train algorithm that, for example, capitalization, identify subtitles and create subtitles dynamically and so on and so on. In the first version, Shape was working in English only. Now that the algorithms are maturing also because of big giants like Facebook make public papers on how to manage the multi-language, we are already rolling out multi-language capitalization and so on and so on. That means that this AI self-video creation system, which is Shape, can support more than English and few other languages, but extending the language capabilities.

There are no further questions at this time. I will now turn the call back over to Claudio Erba for closing remarks.

Thank you, guys, for everything, and let's meet in the next quarter.

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