Good morning, everyone, and welcome to the Docebo Inc. Third Quarter 2020 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Docebo's Investor Relations, Dennis Fong. Please go ahead, Dennis.

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 related to 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 US dollars. Now I'd like to turn the call over to Docebo's CEO, Claudio Erba.

Thank you, Dennis, and good morning, everyone. I hope you are all keeping safe and well. Joining me on today's call is Ian Kidson, our Chief Financial Officer; and Alessio Artuffo, our Chief Revenue Officer. In the third quarter, we continued to see strong momentum across our business, driven by the increases of digital training around the world and growing demand for Docebo's products and services. Our ARR at the end of the third quarter grew by 55% year-over-year to $65 million. And this was supported by subscription revenue growth of 54% and total revenue growth of 52%. The strong growth in revenue along with disciplined investing resulted in our first positive adjusted EBITDA quarter, a milestone that we have reached a year faster than expected. The health of our business, despite the unprecedented times for the global economy is allowing us to restart investing into growth as maximizing profitability is not our main target at this stage. I should point out a change we have made this quarter on how we report total customer count. Previously, we counted 2 different departments with the same organization that used 2 separate installations of Docebo as 2 customers. However, we think investors, like us, will see this an example of land and expand. We have adjusted our customer count in the MD&A to reflect this change in definition and the single logo is counted as a single customer, regardless of how many departments we sell into. This has only modest implication on our average contract value today, but it will provide metrics that better reflect the performance of our business going forward as we focus on expanding our product suite and increasing adoption of Docebo across multiple departments within a large organization. At the end of the third quarter, we had 2,025…

Thank you, Claudio, and hello, everyone. As always, you find a detailed breakdown of our financial results for the 3 months ended September 30, 2020, in our press release, MD&A and financial statements, which are now available on our website and on SEDAR. We also now have a 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, we saw growth on all fronts this quarter and are very pleased with our results overall. Total revenue grew to $16.1 million, an increase of 52% from the prior year period. Subscription revenues grew 54% from the prior year and were $15.1 million or nearly 94% of total revenue for the quarter. Professional services revenue in the third quarter was $1.0 million, an increase of 27% from the prior year period. Our new logo additions and upsell performance in the third quarter established a new record for us, and I was particularly pleased by the fact that we experienced lower churn in the quarter after seeing an increase in the second quarter from companies that were being most impacted by the pandemic. This resulted in net ARR growth of $7.6 million in the third quarter when compared to the second quarter of 2020. At the end of the third quarter, we had $64.6 million in ARR, an increase of 55% from the $41.7 million at the end of the third quarter in 2019. As we have noted in most previous calls, while ARR is not an accounting measure, it is the key metric that we use to evaluate our progress as it is an excellent predictor of future revenue. The growth in ARR was driven by an increase in…

[Operator Instructions] First question comes from Robert Young at Canaccord.

The positive EBITDA, you just said that not to expect it to continue, but should we still think of the rough guidance of hitting free cash flow positive exiting 2021? Or are you signaling that growth at this level is more important and you're willing to push that up?

Can you hear me? Claudio speaking.

Yes.

Perfect. So we think that the market is very fragmented, and there are a lot of opportunities to catch more quotas of these markets. That said, and we can do it in several ways, developing new products, investing in terms of marketing, be open to new geographies and stuff like that, which is part of our comprehensive strategy. That said, when we say we want to continue to invest on growth, I will add one word. We want to continue to invest on growth efficiently. That means that we are not to burn cash just for the sake of unsustainable growth. The metrics that we really love, and Ian Kidson mainly loves, is the cost of customer acquisition, which is the KPI we want to keep under control as strict as we can. I don't know if Ian wants to add something on that?

No, I think that's fair, Claudio. Rob, we've said a couple of times this year that our hiring was restricted during the second quarter. We would have continued to grow our cost base and would not be EBITDA positive if COVID hadn't been around. That's what I meant when I said the acceleration of becoming EBITDA positive was a function of circumstance. What -- all we're trying to say at this point is we are going to continue to aggressively grow this company's revenue base. But as Claudio has repeatedly said, it's always going to be in the context of making sure that the return on investment is appropriate.

Yes, and Rob, I want to add one other point. I mean, there is this false signal, which is a trap, where COVID created extreme efficiencies on companies because companies were able to save on costs. Some part of these costs were investments for the future. I mean not doing exhibitions, not having the possibility to travel and stay in touch with the team, for all the companies adds a cost. So another element we want to focus, we want to stress is that we are aware of that, and we are investing hard to mitigate this investment which has not been done, but need to find an alternative to continue to build the pipeline. So the efficiency on cost is also a trap is not correctly addressed.

I'm also curious about some of the timing of the wins and the ARR growth, which is ahead of top line growth. I guess that would suggest that some of these deals came in late in the quarter. And the second piece is, some of the wins you announced, including this quick-serve win, I think in the press release you suggested it would ramp in 2021. And so should we think of ARR benefiting from that deal in the current quarter, Q3/Q4 or even Q1? Maybe if you could talk a little bit about the large wins and how they impact ARR over the next couple of quarters.

Sure. So the quick-serve win will hit our numbers, both ARR and revenue, in the first quarter, Rob. Everything else is being [ received this quarter ].

And timing in the quarter was -- were some of these large deals later in the quarter?

Yes, I think that's fair. Yes. The last month in the quarter is always, always tends to be a strong month, so -- I think the best thing, if you're looking at the numbers and thinking of where they were weighted, if you assume it basically came over evenly over the quarter, all of the ARR, you'll probably be reasonably accurate.

Okay. Last one -- sorry, go ahead.

Ales, do you want to give some more color or operational details on the ARR and distribution?

Sure. Look, on top of what Ian said -- and Robert, it is generally true that, as you know, particularly larger deals tend to have a higher concentration at the tail end of quarter. That is generally true. I'd say that certain large deals, for example AWS, are so programmatic and are so managed over time, that we try to manage them without having to necessarily push them towards the end of the quarter. And so in that case, that did not happen. But it's true that this rule of end of quarter for larger deals remains solid. So your inference is correct for the most part.

Okay. And then you said that the churn was a little bit better than you had expected, Ian, Q4. Is there any seasonality in Q4 from some of the smaller customers that -- or would you expect that to kick up just seasonally? Or as some of the companies or customers impacted by COVID might be coming to the end of their existing contract? Then I'll pass the line.

Sure. It's interesting. When I look historically, and this is not what I would typically expect, and honestly, I don't know if it's just an artifact of circumstance or whatever, but Q4 churn is not historically our worst quarter. And I would have instinctively said it would be, but it's not. So when we look at Q4, and Alessio has done a great job at putting a team together and managing our churn better than what we have in the past, so we're beginning to get a little bit more visibility into what we think is going to happen. I'm reasonably comfortable that there aren't going to be any shocks in Q4 like we had in the second quarter.

But let's not forget that we are happy about the vaccine, but the COVID is not gone. So if the COVID will stay longer, there will be companies that are fragile but still operating that will suffer. So there are some variables that cannot be evaluated with the standard historical model. So COVID is still a factor here.

The next question comes from Daniel Chan at TD Securities.

Congrats on a great quarter. Your deployments seem to be getting larger and larger. You've been targeting departments of large enterprises, but should we expect you to start doing more of these global deployments like you're doing with this quick-service operator?

So first of all, let's refer to AWS. AWS is a large deal, but it's a department deal because it's made to train a specific vertical in the company, which are partners and so on and so on. And the same, if you go into a big restaurant chain, these projects are projects made to train the restaurant owners and operators. So it's a large deal, but it's still a departmental deal. It's not an ultra-global project with a lot of consulting activities that covers all the departments because we think that this kind of project, I mean, one size cannot fit all in eLearning. So if you were to imagine a large check assigned to Docebo, probably will be a large departmental deal like the AWS one and not a global comprehensive project that covers multi departments.

As your scale -- as you continue to gain wallet share with these customers though and your deployments grow within their companies, do you have customers that want to adopt your solution across the entire enterprise, across multiple departments? And are you at a scale yet that you might be able to do that soon?

Usually what happens is that departments negotiate their deal on their own. There is not a centralized orchestrator, let's imagine the HR that buys the platform for the sales academy or buys the platform to empower the [indiscernible] team. What happens is that they can leverage the Docebo extended enterprise technology, buying one only Docebo instance, but with extended enterprise model that have an independent segmentation of the platform itself. Which is different technologically. I mean, methodologically speaking, of the approach to have one department that orchestrates all the learning, I mean, we never have imagined an LMS managed by the HR department that will deliver sales training to the sales academy. In this case, there will be a unique LMS with multi-layout, multi-entry point, multi-domains where the different administrators are the owner of their business units that will train their own audience.

Okay. That's helpful. And then with regards to your growth strategy, you did mention that you're expecting to hire 50 people, but what role do acquisitions play here? Should we expect you to do more acquisitions like forMetris that give you a beachhead in some key markets?

So the Docebo growth strategy is mainly based for the future on 2 main pillars. The pillar number one is to become a learning suite. The fact that now Docebo has 2 products, Docebo Impact and Docebo LMS, with all the [indiscernible] and models, is the first step to extend our offering to cover all the training cycles. That means from learning culture to content production whatever it is, LMS content deliver, learning Impact and learning Analytics. So the first step is having more product to sell to our customer base and to new customers. The second is geography expansion. Geographic expansion means, for example, that forMetris, which was performing incredibly well in France, was not that present in US where we are very strong with our sales machine. And so using forMetris to have an office in France, which is a very local market which needed to be -- the negotiation of the contract needed to be in French and there needed to be cultural alignment, is the footprint that we needed to add more success in France, where we have already a lot of customers. And you can expect that in the future, we will cover some other meaningful countries. Meaningful means with a lot of internal demand with new officing. The acquisition is part of our multiproduct strategy, but it's not the only strategy we are pursuing to become a multiproduct company. Because, as you know, we have a lot of new products that after 1.5 years of R&D are now ready or are already in beta testing in our customers on -- with some of our customers that are helping us to validate the products. That said, acquisition is part of the multiproduct strategy. And if the target of the acquisition is a specific country we need to cover, it is a good thing because we don't have to open an office on our own.

Okay. And then final question for me, because you mentioned that the customers -- forMetris is strong in France but not so big in America. How big is that cross-sell opportunity for both selling to [ cross talk ]?

You know what we did. When we started talking with forMetris, and this happened, I mean, we are in touch in terms of partnership since a couple of years. And we thought that the product was great. But they shared with us that they were struggling on selling in US. So we bring forMetris to our customer events, I don't remember if in Boston or in Toronto, and they opened up a booth. When our customers went to the booth and tried the product, they say, I want this integrated in Docebo. And then we started figuring out that there was a need in the United States on having a tool that assesses the return of learning, which is the efficiency of the training that you do, that was not covered by almost anyone. Because the survey system is another tool, it's a simplified system to run surveys. forMetris itself has half a million bank industry benchmarking [indiscernible]. So when we run a learning impact analysis, we can tell to our customers how they are positioned within the industry to the specific training that they have delivered in terms of satisfaction and return on learning. So the fact that we run this big test, opening a booth in our customer events, and our North American customers were excited, started triggering in my mind that maybe we don't have to partner with a company like this, but we have to buy because there is an incredible upsell and cross-sell opportunity.

Your next question comes from Stephanie Price of CIBC.

Congratulations on achieving revenue on the OEM agreement so quickly. I'm just wondering what the pipeline of other OEM agreements looks like here.

Well, I can say it looks bright, but bright means that OEM can shift by 6 months easily. That said, we are starting learning. I mean, we have started learning on how to pitch the OEM integration. We start learning how to better engage our OEM partners. We start learning how to deploy past the OEM. And there is another opportunity, which is not completely related to the HR platform, but now talent management platforms are becoming an interesting OEM vendor because the shift, the talent, the old school talent management platform we had, which identified skill, internal mobility, upselling, upskilling, sorry, cross skilling, reskilling are all actions that trigger one only thing, training. Because you can only upskill your workforce through the training, you can upskill your workforce through the training. So alliances like talent management and similar software, performance support, enablement and stuff like that, are all good targets for us. The pipeline is good. We are speaking with interesting companies that we think can bring value in terms of potential, in terms of geography, in terms of use cases. But as you know, an OEM deal can shift easily from one quarter to another because it's a complex deal that is not paying back immediately.

That makes sense. You've mentioned geographies…

Sorry, Stephanie, sorry. Ales wants to add one point here.

Hey, Stephanie, the -- in addition to what Claudio shared, when we started approaching the OEM market, it was clear that the HCM players were particularly interested. What we've observed over time, Claudio alluded to this, is that there are other sources of addressable markets from an OEM perspective. One that we are observing and doing some good work in pipeline development is also very reputable system integrators that want to not only do system integration per se, so professional services, but bring to market products combined with technology that allows them to serve certain customers they are already serving or new markets. And we think that opportunity is also very interesting because these firms are strategic. They have resources, and they have a deep penetration in the market already. And so that's a new pocket, I would say, of players that have shown a great degree of interest for our OEM technology. I thought you would appreciate that color.

Yes, that's great. The other question I had was around geographies. Claudio, you mentioned several times on the call trying to expand into new geographies. Just curious what areas you're looking to focus on?

Yes. So Stephanie, first of all, sorry if answer to the questions so long, but we really love this kind of conversation, and we would like to talk about our business for like 5 hours.

Exactly. That's great.

So if you want to bring the coffee, bring the coffee, we have 5 hours with you. So the question here is there are markets that have proven to be more resilient to COVID and have a strong internal demand. Let me shoot one name. Germany. Germany is the biggest European market. Big in terms of population, size of the company, and need of training and leadership that the country itself has in Europe. And it's very close in terms of border. In terms of, sorry, not borders, in terms of language, culture and so on and so on. So if there are opportunities to explore these kinds of countries, I'm saying Germany, but it's only an example, with a strong internal market, we will be happy to explore the opportunity to work in this country and to cover in person. I mean what I mean in person, we want to have a footprint there. Now with COVID, everything is remote. But we think that in certain countries, it takes time to penetrate the market and to stay in the market and you can reduce this time of penetration or we can increase the conversion rate just because you are local and you have local people that speak the same cultural pattern and language, that can be a benefit. So with the product plus geographic expansion is our strategy to dominate the world.

Your next question is from Suthan Sukumar from Eight Capital.

The first question for me, obviously it was really good to see such strong expansion activity this quarter. Could you guys speak a little bit more about the kind of profile of these expansion deals? And I'm curious if these are just a function of expanded seats or do they include some level of module adoption as well?

Sure. So Suthan, in the context of the expansion business, the way that we manage that business, the upsell and cross-sell business when we expand customers, we focus on 2 things. One, we focus on the health and happiness as well as the success of the customer that we're serving at that very moment within that one or more installations that they have with other instances, for better words. Yes. And so the goal there is to maximize adoption to grow that project, to expand the project to new horizons by adding modules and capabilities. The second area of expansion is looking beyond that very business and understanding whether the organization has either a parent or sister companies or subs that would benefit from our services. And those activities are coordinated by leveraging the customer experience group that we put together that not only cares about the health of the customer, but also analyzes and signals whether there is opportunity for expansion, which is then addressed via our account management team. So in the context of this engine, this doesn't just necessarily look at the one instance. We have had success doing a couple of things. For the big expansion in QSR, we have moved from a brand to a multi-brand within a large organization, which has expanded us and added the additional 24,000 restaurants which we mentioned in the press release. That you can see as an expansion of the cross-sell within the same organization, which results in additional seats. The products, in that instance, remain the same. With regards to Syngenta, which we also announced publicly, in that instance, we had a project, departmental, which was very successful. And over time, the organization needed a broader solution and that corresponded to a true up-sell. So I want to make sure that those are seen in the context of our upsell cross-sell engine, which really targets the broad spectrum of the organization beyond the single instance they may be working with at one time.

Got it. That's helpful. And this time talking about the customer success program you guys have, how are you investing in that as part of your ongoing growth investments? And how has kind of progress looked like on the land and expand opportunity with respect to driving more adoption of capabilities and modules?

Yes. Suthan, you know that now that Alessio has aggregated under possibilities and not only the sales part, but also the customer success. And we just -- we have recently a great leader coming from the industry. So I let to Alessio to articulate this, but the fact that we now customer success and say those words together, like marketing, which 1 year ago was another independent department and one of Docebo's challenges during the past year was not work as a silo. So now that these 3 elements work together, we are more confident on that all the benefit, the downturn benefits can happen from upsell to retention, to catching opportunities. But Alessio can articulate better in tactically what is executing. I don't want to be too much complementary. Otherwise, the guy will relax a lot, referring to Alessio, but I will let Alessio explain this.

Well, Suthan, the answer is pretty straightforward. Look, the way we view customer success is beyond the customer success or in this case, our customer experience department. It's about -- it starts very early. Market to the right people in the right way, sell in the right way according to capability, implement at excellence, continue the account management and customer experience according to segmented best practices by putting the best people, working with the right segment, with the right organization, which in turn is segmented within 4 segments that are strategic segments for us. And finally, support the customers in excellence. So there is no success unless it starts from the very beginning because you can do an incredible job at the tail end of the process, but if you sold the wrong customers, it's never going to work. And so where we are learning and where we are really investing is ensuring that all these functions are in high synchronization so that by the time the customer is ended after go live, the customer is already set up for success. And that's a big job, but that's what we're pursuing. And I hope that answers.

Certainly, that's helpful, guys. Next question for me, I just wanted to get an update on your Shape offering. I know you guys wrapped up your beta program recently. Just want to get an update on what some of the feedback has been of users and how you're thinking about kind of incorporating some of that feedback and what the go-to-market plan is for that offering going forward?

You are referring to the Docebo Shape, the AI content creator. Is it correct?

Correct, yes.

Yes. So you know what's happening, and I want to be blunt. I know that my team doesn't want me to blunt and they want me to be polite, but I am not. So what's happening now is that -- sorry, someone say shut-up? I'm kidding.

I don't know what's coming, but I'm nervous.

So you know what's happening, that our R&D department, the R&D that is creating new products, accelerated so fast and became so efficient that now not only Docebo Shape is closer to be tested, beta tested by the customer, but also learning analytics, but also the other new products that we are building. So what is the main challenge now is not the product readiness. And some customers are already using it, and they like it. But we cannot release all the products together because we needed to learn how to sell multi-product in the company. Alessio is specializing in training multiple marketing teams for multiple products. So the situation is bright, but the challenge is incredibly high because we now need to sell more product and we have to learn how to market different products, and it's 15 years that we are selling only one product, the LMS itself.

Right. No, I think that's fair. That's growing pains I think most companies go through anyway, so good to hear. And maybe one last one for me, guys. And maybe this is one for Ian as well. Just kind of thinking about the profile of newer customers coming in, they're obviously larger and you seeing higher contract values here. Do you guys see any opportunity to maybe change or tweak your pricing model?

Pricing doesn't sit with finance, I'll let Alessio talk about that.

Thank you, Ian, that's very kind of you. I will say, Suthan, no consideration is a bad consideration. However, when we look at the strategy to continue winning and to continue maximizing results, we think there's a lot more work that we can do rather than changing pricing models to actually provide customers with what they need to succeed. And what I mean by that, Suthan, is we are not only investing every day to make products better, but also, we are investing in growing our professional services organization with more capabilities like value-added services to unlock the potential they have in their organization. Some of this potential sometimes is unexplored, untapped and results in not the maximum adoption they could have in the system. So rather than sort of using a stick, which is changing pricing, the way we would approach it is offering those services with a lot of potential that would allow customers to make the best of our software, to use more of our software and to have a better experience. That's our position at the moment.

Your next question is from Gavin Fairweather of Cormark Securities.

I was hoping you guys could just comment on kind of the early stage of the funnel and how kind of inbound interest and conversion rates have trended kind of throughout summer and into fall?

Gavin, thank you for that question. We continue to see strong momentum on the inbound front. There is no doubt that at the very beginning and for the couple of months subsequent to pandemic, the outbound business generally in the industry had a setback, which was called apparent simply by the fact that people were not at work anymore. And as you know, the outbound business is based on, relies heavily also on phone connections. And those were harder to make when people were working from home. With that in mind, we've been following certain best practices and adjusted and calibrated our efforts to focus on our business development within the base. So we've invested and quickly pivoted certain decisions to empower more of our people towards account development rather than net new log on developments. We have, however, seen a strong recovery of outbound momentum where it should have been all along in the past quarter. We're very happy with the results we're seeing. And outbound success is a hard job, but we have great teams. We're not only investing in those in North America, but we're scaling them also in Europe to empower a language-based outbound across different regions because that's necessary. So in short terms, a strong momentum of inbound, stronger recovery of outbound post COVID first wave. We'll see if the second wave will cause a slowdown and very, very happy to report that our ADR business is doing fantastic.

Okay. That's very helpful. And then maybe for Ian, you commented that you're beginning to get line of sight on gross margin kind of trending towards the mid-80s level. Do you have a level of scale in mind when you think about that, where you start to get some greater leverage on your hosting costs in particular?

Yes. When I try to talk about future levels like that, I'm usually thinking 3 to 5 years out. So if I take the company where it is today and if I had to guess where it will be in 3 years, I'll say somewhere $150 million to $200 million. That's sort of generically 3 to 5 years' timeframe in my head.

Your next question comes from Richard Tse of National Bank Financial.

Yes. In regards to acquisitions, is it fair to say that your focus is going to be picking up the niche new technologies? Or is there potentially a larger opportunity with some of your bigger competitors? Because if you sort of look at across the board, some of them actually had pretty not so great quarters. And so it seems kind of obvious that you guys are taking advantage of that. So I'm curious to kind of get your feedback on that.

On a scale -- sorry, Richard. On a scale of 1 to 100, my excitement is 1. I mean, we never wanted to buy competitors because we always say that there are risks, implicit risks that are way above the risk we want to take. And the path that we need to buy competitor, merge technologies, merge company cultures, and so on and so on, it's really something that makes us not excited. And also, it's another kind of business. I mean, there are in this industry, now we are seeing 2, 3 big players playing previously. There is one player which is buying other LMSs so they are buying revenue and transferring everything in their main technology, which is one strategy I expect, but the view is not mine. The second one is try to play the content in the HR side and the LMS side all together. Ours is stick to training and cover all the life cycle of training from understanding the learning culture to understanding the content to delivery, to assess through learning impact and analyze the data. That's where we want to play. The only -- but really only, only way I see Docebo buying an LMS is an LMS which is so small, but in a such interesting country, we want to step in. That is more easy to buy these 10 employees, small LMS company than opening an office on his own. But it's something that is very not realistic. So coming back to your question, I don't see Docebo making a big acquisition of an LMS vendor. This is not the statement I would say if I had to think to some other technology. But as of today, LMS, no big LMS in our sights.

Okay. That's fair. With respect to the AWS new agreement, I'm guessing that was a competitor displacement?

Ales, was it competitor displacement?

I'm sorry. Could you repeat that question, please?

Yes. So the new agreement with the Amazon Web Services, was that a competitive displacement?

So the team at AWS has used comparable technologies in the past, but never to the extent and depth of the project and the scale that they plan to achieve with us. So the short answer is no. Although they have used comparable technology, but the scope and the project was so much more ambitious, that I would say where we beat competition was in the selection process, not any displacement of it.

Okay. Fair enough. And the last one for me. In terms of the 50 people being hired, can you give us maybe a sense of the breakdown of what functions those positions are going to be in?

Yes. Sure. I think if you had had to guess where we're going to end up by the end of December, I would put half of them on the sales and marketing side and the other half into the product. G&A as a function is relatively static at this point.

Thank you. There are no further questions at this time. Please proceed.

Thank you, everyone, for staying with us. We always enjoy speaking and talking about our business. And thank you all. Thank you, Ales. Thank you, Ian. And thank you, everyone. Have a nice day and safe and wear the mask.

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