Docebo Inc. (DCBO) Q2 2021 Earnings Report, Transcript and Summary

Good morning, everyone and welcome to the Docebo, Inc. Second Quarter 2021 Earnings Call. All participants are currently in a listen-only mode. Following the presentation, we will open the lines for Q&A session for analysts. [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 maybe 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 actual results to differ materially from those projected in the forward-looking statements. For more information on the risks, uncertainties and assumptions relating to forward-looking statements please refer to Docebo's public filings, which are available on SEDAR and EDGAR. During the call, we will reference certain non-IFRS financial measures. Although we believe that these measures provide useful supplemental information about our financial performance, they are not recognized measures and do not have standardized meanings under IFRS. Please see our MD&A for additional information regarding our non-IFRS financial measures, including 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 would like to turn the call over to Docebo's CEO, Claudio Erba.

Good morning everyone and thank you for joining us on our second quarter 2021 earnings call. With me today is Ian Kidson, our Chief Financial Officer and Alessio Artuffo, our President and Chief Revenue Officer. This strong momentum that we demonstrated in the first quarter continued through the second quarter, and in fact, began to accelerate, resulting in our second consecutive quarter of record revenue and ARR growth. For the last two years, we have consistently stated that enterprises are investing in Docebo platform for strategic reasons and not out of short-term requirements that will reverse once we recover from the pandemic. The truth in these statements has been clearly demonstrated in our performance over the past six months. Further, we continue to believe the long-term adoption trend for digital learning tools like ours is accelerating and we expect these will contribute to our future success. Unlike a traditional LMS, that is specifically designed for use in MHR environment for employees, soft skills training and compliance, our customers 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. These 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 organizations became aware that the platform like Docebo exists. In the second quarter, we added 152 net new customers, including some great new logos that exemplify the traction we're getting across many industry verticals. One great example is RE/MAX, the leading global real estate franchisor. RE/MAX selected Docebo as their learning solution to grow user adoption, address user management need and create a custom dashboard for the use cases. With Docebo, RE/MAX will be able to service rapidly growing user base and create impactful learner experiences. We're also seeing business pick-up in industry verticals that are recovering from the pandemic and adjusting to the new normal sector like retail, travel, and manufacturing. In the second quarter, Lululemon, the world's leading athletic apparel retailer, selected Docebo to provide a comprehensive learning solution to train and engage their employees around the globe. We also added three new logos in the travel industry, including the Red Roof Inn. Red Roof is an award winning leader in the lodging industry, with more than 650 properties in U.S., Brazil, and Japan. Red Roof selected Docebo as their learning suite to enhance the entire like customer experience. With a simple sign-on [ph] process, organization of content, mobile accessibility, automated reporting and more, Docebo allows Red Roof to allocate more of its resources to the development and delivery of content versus spending excessive hours managing the platform. We added JELD-WEN, a leading global manufacturer of high-performance interior and exterior building products. JELD-WEN employs approximately 21,000 people and has manufacture and distribution in showroom locations across the U.S. and 24 countries. They select Docebo to consolidate their learning systems to deliver worldwide learning, instruction-led training, and the combination of tools and microlearning for ongoing professional development. Most of you will recall that last quarter we talked about the launch of Docebo Learning Suite which was an important milestone for us. At the end of the first quarter, we started selling Docebo Learning Impact and we launched Docebo Shape, our AI powered content offering tool as a free trial. Shape is now transitioning out of the trial phase and we're selling it to customers. In addition, Docebo Analytics, our most recent product launch will also begin to sell by the end of the third quarter. We're still very early with the launch of the Learning Suite but I am happy to share that we have already threshold licenses to each of Docebo 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. One of those new customer was an upsell to SkinCeutical who has been Docebo customer since 2018. After finding great success launching their training platform to their internal team, clients, and global partner distribution network, SkinCeutical will be expanding their agreement with Docebo to include Learning Impact. Our new learning suite product are designed to be both integrated with our LMS or sold as a standalone product. In the second quarter, TotalEnergies, a leading French multinational integrated oil, gas and new energies company selected Docebo to help measure and improve the effectiveness of their learning programs, with Docebo Learning Impact. We are happy to have one of the largest companies in Europe select one of our new learning suite products in a use case working alongside another LMS. It also serves as a testament to our expanding French operations. With the development of those new products, we are also investing to advance the customer experience. In the second quarter, we were pleased to launch our new Docebo Community. Docebo Community enabled customer to connect with other customer partner and Docebo experts to share best practice, get answers, and find inspirations 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 requests based on customer feedback. And this is 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 partners come on board as the potential market is broader than just the HCM world. Since we last spoke in May, we have added four OEM partnerships that porter demonstrates the breadth of opportunity we have to expand our geographic reach and that there are different pockets of the enterprise market. We are working with a leading multinational IT consulting service firm to develop an agent service based under Docebo LMS. This -- that will be offered to their global customer base. We signed the partnership agreement with KOLABORI 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 America for corporate training. And KOLABORI local and strategy technology expertise makes them an equal partner to continue our global expansion in what is a new and then top of the 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 Docebo market-leading learning management services, not only in Workspan, allowing enterprise organization to seamlessly allow new partner programs to the thousands of partners in the Workspan network. We also signed an OEM partnership agreement with OrchestrateHR, an HR technology and consulting company with over 5,000 customers and offices in 13 states. We now have more OEMs that are outside of the HR and space then OEM that are in it, proving that the opportunity to embed the 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 this third quarter of last year, we have increased our headcount by more than 50%. This growth has been critical to accommodate the increasing revenue we have experienced 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 16 years at Amazon, AWS, where he helped to establish and build their phase 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 in parallel in AWS ecosystem on cloud technologies and approaches. With Rudy appointment we will be able to move Martino Bagini into the newly appointment role of Chief Corporate Development Officer. Before joining Docebo, Martino had a background in Venture Capital. And this will allow us to put greater emphasis and focus on advancing but executing our M&A strategy as another grow factor of Docebo. 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 customers that we touch. We have a number of programs in place. For example, two of our six offices have transitional to 100% 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 discussion Docebo made June 19th 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 for tomorrow. We care about our external impact, but it is the health and well-being of our employees that is critical to our success. We have a family focused culture and want to make Docebo destination of choice for employees and career growth. Many of our HR policies extend well beyond this statutory requirement. For example, we provide supplemental benefits 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 with an experienced consultant to help advise and embed best ESG practices 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 in detailed breakdown of our financial results for the three and six months ended June 30, 2021, can be found in our press release MD&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 have 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 demonstrated in the first quarter carried over nicely into our second quarter with total revenue for the period growing to $25.6 million, an increase of 76% from the prior year. Subscription revenues also grew 76% from the prior year, and were $23.6 million, representing 92% of total revenue for the quarter. Professional Services revenue in the second quarter was $2 million, even an increase of 75% from the prior year period. As we noted in our press release, this quarter's results included $1.1 million 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 that we currently do not have with any other such agreements. Excluding this catch-up amount, our revenue growth were 69% over the prior year, and were 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 achieve $93.4 million in ARR at the end of the second quarter, an increase of 64% over the $57 million in ARR at the end of the second quarter of 2020. When compared to the first quarter of 2021, we added $10.0 million in revenue -- sorry in ARR in the most recent quarter, an increase from the $9.4 million in ARR that we added in the first quarter. Importantly, there were no large deals driving our ARR growth this quarter. And it supports our contention over the past year 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 their companywide average contract value or ACV increased to approximately $38,000, up 27% from $30,000 at the end of the second quarter 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 second quarter was at 80% of sales flat compared to the prior year period and a slight decline from 82% for the first quarter. The decline in gross profit margin was due to the significant investments that we have continued to make in staffing to support the increased volume and complexity for the implementation team as we adapt to become a multi-product vendor as well as costs related to new seller arrangements. I remain comfortable with our longer-term gross margin targets being within the 80% to 85% range, and we expect to get back to those levels over the next two to three quarters. On Slide 6, you can see a summary of our operating expense lines. Total operating expenses for the second quarter increased to $26.8 million as compared to $14.9 million for the prior year. Included in the $26.8 million of operating expenses is a foreign exchange loss of $3.2 million 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 $23.6 million, slightly higher than the $21.5 million that we reported on a comparable basis in the first quarter of this year. G&A expense was $6.9 million declined as a percentage of revenue from $34.2 million in the first quarter to 27% for the second quarter, as we resumed being able to realize benefits of increased scale on the revenue side. When compared to the first quarter sales and marketing expense declined as a percentage of revenue to 40.8% as compared to 41.9% for the first quarter. R&D expense increased slightly in the second quarter as a percentage of revenue to 20.4% as compared to 19.1% for the first quarter. Our medium-term expectations for sales and marketing expense as a percentage of total revenue remains unchanged at 35% to 40%. And our R&D expenditures continue to remain near our expectations of 20% of revenue. We reported an adjusted EBITDA loss of $2 million for the second quarter compared to a loss of $0.9 million in the prior year period. We also reported a net loss of $7.2 million for the second quarter, compared to a $3.5 million net loss for the prior year period. As already noted, please recall that the net loss for the second quarter does reflect the $3.2 million foreign exchange loss. Finally, free cash flow margin was negative $0.8 million in the second quarter. And our balance sheet remains healthy with net cash and cash equivalent of $216 million. 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 third quarter, as we start thinking about our hiring plans for next year and our hiring will resume later in the fourth quarter as we enter 2022. At the same time, I want to reiterate that I don't see anything in the near to medium-term, but would suggest the strong momentum we've been seeing on our sales pipeline and reflecting in our ARR performance has materially changed. We have multiple growth levers that 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 first quarter next, we expect to have more specific information to share on the progress of our new products and we will look forward to doing so. With that, I'll turn it over to the operator now to take some questions from the analysts.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. 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, Lululemon and RE/MAX. 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. It's Claudio Erba. Can you hear me Claudio speaking? Robert, can you hear me?

Yes.

Yes. Great to meet again. So this quarter -- in the quarter, which I like to define very healthy because there are not outliers, it's all logo, the logo, not in term of the size, it's our sweet spot. And it's proving that we are continuously growing organic and efforts consistently. These from a quarter framework perspective, I leave that to Ian to detail of the size of the logos and the deal section.

Sure. So Rob, when I think about an outlier, I think about a contract that is like a $1 million plus. And this quarter we didn't have a contract that was anything larger than $0.5 million. And we had -- correct me if I'm wrong Alessio, but I think it was like four, four or five that were hundreds of thousands of dollars, which as Claudio said, that that's right down in the middle of the fairway for us. So that's the kind of transactions that we love to do.

Okay. That's really helpful. And then --

Agree.

Thanks, Alessio. And then the -- do any large deals that you've talked about in the release fall into Q3 like RE/MAX 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 you -- when you say -- fall --

Like would anything have been -- 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. And maybe another --

Sorry. Sorry. Sorry. Q2, Q2.

Correct. And so do you expect larger deals in the back half of the year is Q2, just a slower quarter for large deal?

If -- well, I mean, look, we are always working on large transactions, but they can take six months to two or three 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 months or year it ends.

Yes. Sorry, one second -- one second. I want to push back a little bit Rob, this initial low quarter, Rob, it's finally what you define low quarter for me when 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 million. Then one contract that is $1 million. You cannot forecast your growth on outliers. You need that to grow and to forecast your performance on consistency. So I mean 60 something percent, I'm very happy that you are so using it to our grid performance to define as low quarter this quarter.

Okay. That's all great -- great figure.

Hey Rob, and just to seal 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, and a medium and large size customers and our large customers. We're not in the business, of necessarily of doing the big scale 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 a long-term relationship with customers and up-selling them. So we're totally happy starting with a few hundred thousand dollars and growing relationships later on in the millions, rather than starting with say the big bang and having to realize value immediately, which is harder then down 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 positive trend to highlight there around growth with existing customers and then I'll pass the line.

It is balanced and it is according to design and according to plan, the introduction of a new product is supporting our not our strategy, but really philosophy about creating long-lasting value for customers that we started selling Docebo Learning Impact and we're excited about the results we're getting out of it. It's very, very, very early days for shipping analytics, but the signals there are early stage pipeline are all good and positive for sure. There's a lot of work to do on structuring our sales machine and that was very focused on LMS only to now selling the learning suite. I will not deny to you. There is the change management to do and this takes time, but we're really excited about what's that had.

Your next question comes from Stephanie Price with CIBC. Please go ahead.

Hi, good morning. I want to dig into the OEM strategy a little bit more here. Just curious if you can give us an update on the MHR, OEM agreements and whether you're seeing a similar ramp up to what you saw with Ceridian once it was implemented.

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 results, for sure Ceridian a 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 expensed. And as a result of we're going to create incremental value at an accelerated pace. At this point, Ceridian and MHR constitute the larger 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, MHR and Orchestrate and we believe that that a mix of strategy in which we will add the good shape the productivity enablement technology to companies like Workspan and others we also have mentioned the silent lobe. I'm sure you guys have seen it all the relevant system integrator that is going to use the table 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 HR and space that you're kind of focused on. It sounds like the systems integrators and IT services are focused, how do you kind of see that strategy rolling out going forward?

Yes, 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 their products. And we can approach all these markets with a different value proposition 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 Vartopia, and Workspan there 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 industries and categories in the future, we'll be able to be even more, if you will, clear as to what segments and industries are -- we're seeing more traction.

Your next question comes from with Richard Tse with National Bank Financial. Please go ahead.

Yes. Thank you. So you had some really impressive wins here, just wondering maybe get us a bit of color in terms of these wins. Are they competitive displacements or something else here?

Alessio, 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 three categories that we see are more prevalent. The first one is replacement from Tier 1; I would say light point LMS solutions. These are those vendors that perhaps are in the earlier stages of experience of the customer with the learning suite or 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 mid-size companies. It's homegrown solutions. Oftentimes we displace customization on top of OpenSource software or SharePoint or other artifacts that used to believe at learning. This is true in certain industries and generally broadly speaking in the mid-market. In the enterprise market, I mean, we're displacing the enterprise competitors. That's the reality. Customers that 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 learning more on talent and these enterprises see value probably with Docebo.

Okay. Super helpful. Thanks. And then in terms of the partnerships, like there's a notable increase in partnerships across the Board SI and OEMs. So given that you've the growth rate -- you've had up until now without sort of this meaningful scale up and 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 the 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 own at Docebo, the more partners will bring value in the future. I don't know when this will happen. We have some benchmark with an HR with Ceridian it can up in nine-months or I don't know 15 months. And another point is that we hope that every partner will be extremely successful, but based on the market size of different sector, and on the efficiency of the partnership, some partners 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 earnings call, we had one partner only. And now we have like, more than five, six, seven and the -- we are continuously feeding the pipeline of new partners. And we are also evolving the technology to support new partner, because not every partner implement the solution for the same use case or in the same way. And so when I start speaking about the product, I go to nerve, so sorry, and I hope that will make you happier for despite about the answer.

Your next question comes from Daniel Chan with TD. Please go ahead.

Hi, good morning. Congrats on the strong quarter. I want to dig into the --

Thanks, Chan.

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 into 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 real challenges with it. 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 are markets that are friendly to our marketing and communication style. They can digest the way western company communicate. So if we have to prioritize through partners or directly from 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 is in the world is with COVID try to penetrate the market, they require a lot of deals to setup the office, a lot of local networking, in order to know these guys -- and this is where what we call a value-added reseller strategy works very well for us. For sure, it's been our partners, like Ceridian that are is 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 Docebo since probably 10 years support the 32 languages, support the right to left pagination, support non-western characters like recent Arabic, Chinese unit. And also, we now work cloud capability basically AWS, we can act a lot like a local vendor. And we do have in all the region that we have opened to support Brexit when British company has a data center in Ireland. And we have one data center in Canada. So basically, thanks to the partnership with AWS and with the technology we have the kind we can also be friendly from a data perspective, which is an usually an underestimated point. But I mean, if you compare the data center in UK, you are not compliant with the UK privacy data. So I think we are ready, we -- but we are also pragmatic, we want to prioritize. What are the countries that from our feeling and data and capacity to communicate? We'll have more chance to be successful.

That's very helpful. Thank you. I also want to dig in on the ACV growth. I mean, that that was a really good metric to, is that mostly being driven by new modules, more seats or a combination of the two. Thank you.

It's. Sorry, Alessio do you want 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 that upsells are going to contribute a larger proportion of that. And what we saw this quarter would certainly support that view.

Your next question comes from Phillip Leytes 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&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&A targets or assets would be of interest?

Yes. Claudio speaking. If you know my mantra, my mantra is I don't want to make mistakes. So that that the fact that Bagini Martino, who worked with me as COO, is now Corporate Development. The fact that we know each other for at least 10 years and the fact the he has a venture capital in the ground, makes me optimistic that now that he can focus 100% on opportunities. We will -- we will -- we have a more customized capability to assess every opportunity that lands on our desk or we want to pursue proactively. Let's see. There are different opportunities out there from acquired to adjacent market to local vendors to expand into specific geography and we will evaluate everything without the need or the hurry to deploy the capital in an inefficient way. We will deploy our capital only if we are sure that there will be a tremendous upside and a great return of investment for our shareholders. That said what makes me optimistic is that we've executed above our expectation before matrix integration in the table. When I have seen all 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, working together to integrate another company at the first integration level as was our first recognition inside our ecosystem of people of culture of products. This makes me optimistic that the next acquisition will be I hope successful as the first one. That said we are not in a hurry. We don't want to make mistakes.

Your next question comes from Nick Agostino with Laurentian Bank. Please go ahead.

Yes. Good morning, and good afternoon and good afternoon, Claudio. This is Salman on behalf of Nick Agostino. So a 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 signifies strong prospects and thereby strong competition ahead.

So the markets are still fragmented and these are not tied only to the learning management system space. And in training, it can happen everywhere now. Most of the training that is becoming easier related to performance 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 a learning ecosystem inside their IT ecosystem. It's made by the same competitors that we usually disclose every quarter the big news was Cornerstone that was taking private. And I do like a couple of companies out there, but these are the old competitors that we say.

Okay, that's very helpful. And my second question is about your scaling comments, already 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 lately? Do you see this as a 30-year growth?

So foreign competition in technology is incredible. I mean, everyone needs a software engineer, everyone needs the director of sales, and literally every role is in the scarcity mode. You start thinking about the actual employees and so we see any churn from the employees this is not at the level of red flag. The churn happens in typical departments, were usually are high churn. Let's say -- I think that inflection is rising; the talent competition is rising, especially when there are no anymore geographical buyers. I mean, you can hire engineers on in Iceland or in India, or wherever you want or in Switzerland. Because now the remote is a key selling point where you want to hire people, so, yes, and then the other companies out there will see a talent competition.

Your next question comes from Paul Steep with Scotiabank. Please go ahead.

Great. Good morning. I'm just toss them both in one here. The first one would be just can 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 the ramp in revenues, which obviously end up preferred to in the Q4/Q1 update, but just how meaningful which think that is in terms of contribution coming on. Second, 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 think about revenue recognition and also the rollout of those? Thanks, guys.

Hello, we are speaking about how to scale your sales machine. Maybe it's better listen from the guru.

Sorry, guys. 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 the question on the organization of account management team and lead and expense 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 one, we think of a customer and 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 Docebo products and services. We can categorize that as a upsell activity, which is task and assigned and owned by the account manager and properly account planning exercise that we do. Further to that, there is an additional layer. We look at every organization in a 360 way, we mapped 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 our account developing team. That would not be possible or better stated we would not have positive results if we didn't have 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 is 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. So when you do that, and you have good account planning strategies, and good business development strategies, and good demand generation strategies in debase our addressable market in debase becomes huge. And look, we're 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 quarters to come. Paul, does that answer the first part of the question?

Yes, that's great. Thank you.

And, Paul, the second part, if you could restate it, because I just wasn't positive what you're 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? Thus you don't have to go and win 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 up front for an absolute dollar amount. So it's not on us to go win the franchise. It's the franchise or deals with their franchisees.

Yes. We implement the framework agreement, which then enables holdings to do deals with the franchisees separately. We don't control that.

Right. There -- but there is an element to your question, Paul, 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 zero. Because they are using us to go create a business how that business unfolds will 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 pre-determined bucket like it is with a typical customer. We partner with Ceridian and ARR grows overtime.

[Operator Instructions]. Your next question comes from Christian Sgro with Eight Capital. Please go ahead.

Hi, good morning. Thanks for taking my questions. I just wanted to ask one this morning. When you guys think about the direct sales pipeline, where have you seen interest these days either geographically or by vertical? What's been strong anyway?

Hello Christian, Alessio speaking. We manage pipeline by looking at it. Our pipeline for instance, tell us that our position of horizontal players that addresses the learning needs across the 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 deal. What that means is we have companies at each and every commercial segment are in a range and value that is within the expectation for that business segment. Now we like that linearity because we don't like peaks and valleys that then eventually result in peaks and valleys also on the booking side. Verticals wise, I said, or horizontal and that's true. But strong momentum remains on technology, stronger momentum is continues to exist in manufacturing. It seems interesting growth and return of demand from hospitality, we believe, we announced Red Roof, you think about that. And retail as well. Lulu is another good example of that; it 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 table, as it go-to-market technology are the ones that make up for the largest amount of ARR or volume. And what's interesting is that we're seeing that ability to turn learning into a leverage or an enablement for activity 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 your customers. But now we see the same logic applied across thousands of verticals. And that's fascinating. That's why we think our addressable market in a ways huge.

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

Can you hear me guys?

Perfect.

So I just want to thank you, everyone. Today, I think we repeat both record quarter and record of question from analysts. 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 and ask that you please disconnect your lines. Have a great day.