Good morning, everyone, and welcome to the Docebo Inc. Q3 2022 Earnings Call. All participants are currently in a listen-only mode. We will open the line for a question-and-answer session for analysts following the presentation. Instructions will be provided at that time for research analysts to ask questions. We ask that analysts please limit themselves to two questions and return to the queue for any follow-ups. I would now like to turn the conference call over to Docebo's, Vice President of Investor Relations Mr. Mike McCarthy. Please go ahead, Mike.

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 the 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 and EDGAR. During the call we will reference certain non-IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, they 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 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 and Founder, Claudio Erba.

Hello everybody and thank you for joining us for our third quarter earnings call. With me today is Alessio Artuffo, our President and COO; and Sukaran Mehta, our CFO. Docebo continues to execute well in an environment that is increasingly impacted by macroeconomic headwind. Even in the face of those challenges, we delivered strong revenue growth and free cash flow. We are especially pleased to report a positive adjusted EBITDA that was ahead of schedule and surpasses consensus estimates. Adjusted for foreign exchange, we delivered a year over year growth in ARR of 44% consistent with what we saw last quarter, this cycle elongated in certain segments as global macroeconomic issues weighted on decision making. The only main top priority for Docebo, what is also important for us is to continue to demonstrate operating leverage and drive profitability as a mean of unlocking value for our shareholders. This is consistent with Docebo long term journey, which is best characterized as one of balanced growth, complemented by our strong balance sheet, world class capital efficiency and the large underpenetrated total addressable market. While our competitors continue to offer legacy solution within [indiscernible] businesses that are now in consolidation mode, we have a first mover advantage that is driving organic grow and redefining how customers choose to implement Docebo modern architecture. We see this as the time to push our strong competitive position in a disciplined fashion. And we are concentrating on a few key areas as follows. One, lead by innovation and showcase all our solution address the need of the customer specific use case to achieve this business outcome. We are doing these quite effectively in areas such as customer education, franchisee, and quick service restaurant. Two, double down on our enterprise segment where we continue to see large greenfield…

Thank you, Claudia, and good morning, everyone. Before I begin, I want to thank my colleagues and board members for entrusting me with the role and responsibilities of President and Chief Operating Officer. Sales and marketing will continue to report to me through the strong leaders we've put in place. Going forward, I'm working more directly to align Docebo’s day to day operations with Claudio strategic vision. Now, on to the discussion about our third quarter results. Quarter three was another strong quarter for Docebo, reflecting our continued focus on innovation and execution. This is especially true with our larger customers that are tapping into our external and hybrid capabilities and then leveraging our internal UK solutions. This enables them to reduce complexity in their tech stacks and drive better returns on investments during this period of uncertainty. Q3 is generally a seasonally slower quarter and much as we experienced in quarter two, we saw deal cycles elongate. We are calibrating our execution to the ever evolving macro environment. And as we look forward, we take confidence in the quality of our growing pipeline and our win rates which remain very, very strong. As we grow, we continue to strengthen our view on how to succeed in the longer term. Today, approximately 50% of our customer base is using us for three or more use cases. What we also see is that, these customers drive best in class growth retention and net retention in excess of 120%. Many of these use cases position Docebo in strategically critical areas that customers are focusing on to enhance existing revenue stream, while opening up new ones. What these data points also highlight is that, we have a vast land and expand cross sell opportunity that we have now structured the organization to go…

Thank you, Alessio, and good morning, everyone. For those interested, a detailed breakdown of our financial results for the three and nine months ended September 30, 2022 can be found in a 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 was made available on our Investor Relations website this morning. As reported, total revenue for the third quarter grew to $37 million, an increase of 37% from the prior year. Total revenue increased by 42% after adjusting the impact of foreign exchange. Subscription revenues were $34.3 million, representing 93% of total revenue for the quarter. Annual recurring revenue was $144.6 million, an increase of 44% after adjusting for foreign exchange impact from the strengthening of the US dollar, which was about 4%. Our company wide average contract value, or ACV, increased 17% after adjusting for the impact from foreign exchange. As reported, company-wide ACV was up 13% to approximately $45,000 from $39,000 at the end of the third quarter of 2021. New and cross sell logos with ARR greater than $100,000 represented approximately 30% of the net new ARR in Q3 as the elongation of the enterprise sales cycle previously discussed extended through the quarter. Customers using Docebo for external or hybrid training increased to 65% of our total ARR. And what is important to note here is that, these multi-use case customers drive best in class gross and net retention rates. Gross profit margin for the third quarter improved sequentially to 81% of revenue. This was in part driven by continued focus on optimizing hosting architecture and higher subscription revenue. Total operating expenses for the third quarter increased to $20.8 million from $19.9 million for the prior period. Included…

Thank you. [Operator Instructions] Your first question comes from Rob Young with Canaccord. Please go ahead.

Hi, good morning. You already noted the elongation sales cycles [indiscernible] impact. What I thought you is talk a little bit about pipeline. Are you still seeing the same emphasis on external unless sales enablement to higher use cases? And do you see opportunities to close larger deals in the pipeline?

Hey, Rob, This is Mike, can you repeat that question for us, please?

Louder?

Sure. Sure. Okay. So you already noted the change in customer behavior around deal closing times and slower signings. And so I'm just curious about what that means relative to the pipeline. Are you still seeing the same strength of pipeline? Is it still emphasis on external LMS use cases higher ROI use cases and are you seeing opportunity for those deals in the pipeline still?

Hey, Rob. Alessio here. Thank you for repeating. We had audio issue that we've resolved since. Rob, our pipeline remains very good. It is a pipeline that as we explained in the past, we have a good grasp on over the next one to two quarters ahead of us. The mix across segments remains very healthy. And the combination of use cases across the pipeline is consistent with what we're seeing all along. In terms of is there an opportunity to continue to win large deals? There is and historically, I think this is fair to say it's a trend. Quarter three is less of an enterprise quarter than quarter, four and quarter one tend to be. We're truly looking forward to delivering great news about incredible outcomes in the near future. But that said, we remain very optimistic and satisfied with both the quality and the quantity of our pipeline.

Alessio, on top of that, is it fair to say that we love multi department deals, especially when they blend internal and external. But a dynamic that we are seeing is also that on top of -- on the top of the pyramid, I mean, they are very big, big deals. We are seeing a shift from other vendors to us due to the consolidation that is happening between legacy players that are now creating a single entity. And there are customers that are not happy about that and they are shifting, and we are seeing an inflow of those kinds of records of migration.

100%.

Okay, great. Next question for me would just be around the cost of acquisition in the quarter. The sales and marketing relative to the incremental ARR that you brought in in the quarter, it's very high level of spend for each incremental dollar of ARR. So I'm curious as you look into Q4, I mean, you noted that the seasonality is intact. How do we think about this cost of acquisition going forward?

Rob, morning. Sukaran here. I'll start this and I will let Alessio come in. Firstly, I think when you look at CAC I would say, CAC is relative, you want to probably focus it on rather than quarterly more of an annual basis because you have seasonality in between quarters. As you kind of think about we moving forward you've seen this in the results, we will continue to show discipline. We've made some investments at the start of the year in sales and marketing. And we -- as we've kind of gone through the latter part of this year, we've shown the discipline across other areas. But you should see some of that fruits of those investments come through as we move into next year. Alessio if you want to comment anything else.

Not a lot to add, other than we're extremely focused and spending a lot of time in tuning both our sales and marketing machine to reap the benefits of the investments we've already made. And to truly focus our investments on the areas that matter. I personally am spending a lot of time with our new CMO, Ryan Brock on this optimization and calibration of the machine. And again, consistent with a pipeline comment, we believe we are setting up the engine for long term growth.

Okay. Thanks for the questions.

Thanks, Rob.

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

Hi, good morning. Your prepared remarks mentioned the MHR relationship and that they've added some Docebo solutions. Hope that you could maybe expand on that and talk a little bit about that relationship here.

Sure. Hi, Stephanie. We are absolutely thankful for the partnership with MHR and like we said in the past that what we like about partners like MHR is that they operate in an environment and with a type of buyer persona, that does not if you will raise any so called the channel conflict. MHR is a leader in their market, in their space in the region. And we very naturally complement their offering with something that was a native to their technology. With that said that additional color MHR per se is we maintain a great connection with the leadership team. And we continue to nurture the relationship like we do with every strategic partner and with every strategic customer. Yeah, that's as much as I can share about MHR.

Yeah, it’s Alessio. On top of the relationship with MHR, MHR is operating a segment, which for us is not familiar, which is government. They sell a lot to government and they are sending signal that government spending in learning is very interesting as a segment as an industry. And we are looking at studying these segments to invest in the future in these areas, which are almost nothing Greenfield but --

Quite untouched.

Yeah, untouched or managed or served by very legacy player, unexpected legacy player, by the way.

That's good color. Thank you. And then you mentioned several customer wins, where they are using Docebo for both internal and external use cases. Hope you can touch a bit more on this opportunity. Is it vendor consolidation you're seeing from clients and what's the cross sell opportunity there for internal use cases?

Sure. The trend of consolidation -- sorry the trend of multi-use cases not only continues but becomes an element of strength in an environment, Stephanie, in which companies, particularly enterprises, are looking to extract more value and rationalize. What that means is CIOs, but also CFOs, are looking for economies of scale. And when they look at learning tech stack, they try and understand expenditures they have is manageable to where they can extract more value from single vendor that may be doing more and remove duplicates. It is in that context then our ability to solve more than one problem, whether its internal, or external combined, we solve for eight, nine key use cases across the entire learning delivery lifecycle, that quality that is embedded in our DNA becomes our best or one of the best hedging strategies in a recessive environment because once again, we are a vendor that can solve the problem, it solves only that problem and its challenges solving other problems that they have not built for. We can flex around the various problems to solve and that is winning our business.

And Stephanie, just to add to that, that is why one of the numbers that I think Alessio already spoke about was we went from 61% to 65%. In terms of our total book of business, which is external and hybrid use case. What also we were trying to make sure it's understood is that as the more you do that multi departments external internal use case, that is what drives best in class gross retention and net retention.

Great. Thanks for the color.

Thank you, Stephanie.

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

Yes, Thank you. With respect to the strategy to kind of move up market and larger enterprises, you've obviously had quite a bit of progress there. How does that sort of change your go to market model? I recognize that you are spending a bit more but like, tactically, it seems like it's a little bit different from what you were doing years ago. But if you maybe sort of elaborate a little bit on that, that'd be helpful.

Richard, thank you. Tactically, we are implementing -- in the script, I mentioned that we're calibrating our approach and execution to conform also to the ever-evolving changes in the market recently. And I would characterize some of the changes that I'm about to list more related to the current environment than a shift in our strategy from the past. We have continued to execute up market for the past several years. And our move into enterprise is only very natural and it's a reflection of our brand affirmation and strengthening in the market. It is not the forceful push in any direction. With that said, there are some things we're doing to get them more efficient, smarter and more productive. Number one, we are spending more time and be more intentional in how we get to the C suite, and very senior leadership sooner and better. This is something that maybe because of our mid-market SMB past, we were not as used to do on a methodical basis. Number two, we are training our people to get into code differentiation sooner, meaning being able to speak to why we are different in the current environment, and what the benefits that we provide sooner than later in the cycle, and separating us from, if you will, the pack or the legacy lenders. Number three, we mentioned this with value engineering. We are working already very hard and will get better and better over the next few months and outlining quantifiable value return savings and optimization opportunities with numbers on the table so that at the time that the CIO and CFO asks why there is a very clear numbers driven answer, as opposed to a qualitative learning answer. And we believe we can do a lot in this area. And finally,…

That's well said, Claudio, yes. Nina Simosko our CSO. She is bringing that expertise from the likes of the SATs and other great company she's operated at and we're really relying on our expertise to execute a lot of what I just said.

Okay, that's great, super helpful. Thanks for all that color. My second questions a little bit tied to that one. When it comes to the new wins, I'm guessing most of them are competitive displacements. I'm wondering sort of give us a sense of who you may be displacing the most. That might be sort of difficult question to answer, but just kind of --

No, it's a very good and not difficult question, because there are two -- there are three things that we need in this environment. We beat complacency and non-decision which for sure in the environment in which once again CFOs are the new CLOs. And I say this with a smile. Non decision can be a factor entropy. And so how do you do that? You do that with the likes of showing value and showing optimization as I mentioned previously. We beat and defeated single point solutions, who may have very good debts in solving a one specific problem. But when looking at that solution on a two, three, four-year horizon, it appears clearly that their benefits may fall short as opposed to the strategy of the company. And we're really focused on that. And finally, we beat legacy vendors on the basis of the fact that, look, I don't personally love to talk about legacy vendors because everybody run their business in the way they deem appropriate. We're not financially focused in terms of building a company that's financially engineered. We're focused on building great products that are incredibly well integrated, that flow very well in the market that are not in overlap. We focus on product management efforts on one technology. And we feel very good about that. And we sell that concept very hard and our customers hear it.

That's great. Super helpful. Thank you very much.

Your next question comes from Suthan Sukumar with Stifel. Please go ahead.

Good morning, gents. Wanted to touch on the strong expansion activity you guys described in the opening remarks. Can you touch on what use cases are seeing more traction now with the new broader product suite? And how is net new customer behavior evolving? I mean, ACV growth was fairly healthy on a constant currency basis. Just wondering is there more interest in some of these additional use cases, right out of the gate with an initial sale.

So Suthan, we are excited to get logos from every opportunity. There are areas that strategically in the future will be more important than others. And they want to reiterate what we have highlighted in the past earning call about the total addressable market, I mean, multi departments and external training is where the real value is, because the training people from department or from external is providing a direct ROI to the business, I mean, training your customer, training your sales organization is giving a director return on the training environment. And that's what we love, because it's measurable. On top of that total other -- external total addressable market is bigger. Training your customer and your partner is a thing of the future. And the Greenfield there, it's great, as they know that they already cover the part of the market, which use or in building house technologies, or a very basic solution. And expansion in the downtown moment, but not only training your customer and keep your partner close is way more important. So strategically speaking, external training is an area of interest we love but external training blended with other departments, the other measure of internal external is the real final goal. Because the more department we train inside the organization, the more our business KPI goes up.

Claudio, in addition one element that without the question from Suthan is also that learning monetization, you were looking for specific use cases, learning monetization becomes within the external real, we're seeing more of a more of a pattern. Companies are learning how to monetize from learning. They may do that with Docebo alone or integrate with external monetization solution and e-commerce solutions. We're seeing that trend continue. And that trend continuing that has a response in our plans and roadmaps to strengthen our position in that capability.

Yeah, and then it's optically I was speaking with someone that has a job does monetization. And they say that the monetization is not the first step. When you start training your customer externally. You start training them for free, you have your experience and you understand that you can get value from customer or partners. And it's an interesting -- it's an interesting segment.

Great. Thank you for the color, guys. Want to touch on the partner channel next. Could you just provide an update on the partner ecosystem, particularly the OEM channel in terms of what was the impact contribution this past quarter and how is that channel been progressing and how is the pipeline of new potential partners been evolving over time?

Yeah. Suthan, first of all, I take the opportunity to say that this is also an area in which our CSO, Nina, myself, as well as our leadership in partnership, Karen and Aaron are very, very focused on. We look at the partner world, really in a few different buckets and not one is more important than another. In fact, one that taps into one another, and we see it very holistically. Historically, in the earnings call, we see the more questions and more focus on the OEM business. That is now owned entirely in strategy and execution by our leader Aaron Pratt. What I'm seeing in that world is a renewed interest and a strengthening of our pipeline with the companies across the sectors like HCM and rewards and others that are in need of finding ways to add the top line with minimum cost and CAC metrics and other edging strategy for Docebo. So we're really loving the pipeline in that regard and working very actively on what I think, I don't want to use the word material, but I will say opportunities that we are very proud of about that.

Alessio it's TicTac, not TikTok. It's funny because we are in the building where TikTok's offices are. So I think I missed that. Our dear friends and partners at TicTac, not TikTok.

A great clarification. Appreciate you guys. Thanks for taking my questions. I'll pass the line.

Your next question comes from Josh Baer with Morgan Stanley. Please go ahead.

Great. Thanks for the question. I see that you you're continuing to add an impressive number of customers quarter over quarter. I was hoping you could provide a little context there. What are you seeing as far as churn versus gross adds? And where are these new customers coming from just from a geographical or use case perspective? Any color would be appreciated. Thanks.

Good morning, Josh. Sukaran here. I'll take on the part about retaining and retention and then Alessio can give you colors on net new adds. We talked about the fact that the company -- will we solve for from a customer perspective is multiple use cases. I mean as you think about it the more you are solving for mission critical operations, and you are in multiple departments of an organization plugged into their various ecosystems that drives their productivity in terms of retaining customers, increasing customer revenue, etc. You can imagine that that has a direct correlation on driving best in class gross retention, which is what we're seeing. And that is driving net retention, which is consistent with what we would see last year as an example. So if you think about that, hopefully it gives you a sense that we are integral to our customer base in this environment. And that has a direct impact on maintaining those growth retention and retention numbers. Alessio, I'm sure you want to touch on that new logo.

We believe in the concept of net dollar retention and so our ability to continue to grow our base in a healthy way, Josh that we are always very critical of ourselves and in the sense that we believe we want to always do more and better. We should acknowledge that our retention and the NDRR metrics remain very, very strong. We're very happy with it. From a strategic standpoint, Josh, you're right, we are getting an impressive amount of logos. And to be clear, as you very well know, we cannot even share most of the times that some of the names that we're partnering with. And some of these names that we're not even in a position to share are very large companies, companies that we can grow into. So then the question becomes, how are we going to address that. What we're going to do a little bit differently in the future is just an evolution. We're going to be focusing our teams to really methodically account plan and expand these companies and spend their energies more on the farming side in terms of growth with a supporting element behind them of customer success. We have, for the past quarters, focused more on a blended approach, where account managers undertook also a lot of customer success management efforts. We believe that by focusing account management in what they do best, which is develop relationship, mark the account 360 view and really get deep across departments, subsidiaries, parent and the various companies as we will accelerate and NDRR in the quarters and years to come. And that is an objective, and we're very focused on that outcome.

Great, great. Thanks for the color. Thanks.

Thanks, Josh.

Thanks, Josh.

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

Hi. Good morning. Related to the NDRR, ACV continue to grow nicely, year-over-year but was steady quarter-over-quarter after many quarters of sequential expansion. So how do we reconcile the quarter-over-quarter ACV coming in flat against comments with upsell doing well, as long as your focus on NDRR?

So Dan, I guess the question, just to understand the question, you're saying is that the add on ACV quarter-over-quarter was flat and what does that have -- how does that work into net retention.

No, how does that work talking about upsell doing well? Usually, we see that get represented in the in the ACV value. And if we look back, since you've been public, ACV has been growing sequentially pretty much every quarter. So just wanted [indiscernible] read through into that.

Yeah. And I think, Dan the way you want to think about ACV is, if you look at the enterprise segment, the more that contributes to a quarter that will also drive that higher. In Q3, there was I'd say that segment was the one that was slightly weaker and slower. And so as you move into the cycle, it can fluctuate the ACV, because of what contribution you have from a certain segment. In terms of what you don't see in the ACV number, what you'll see net retention is the upsell part. And of course that includes downturn in it. So there's -- that kind of number can be -- you'll see that number has been printed in Q4. And the ACV also has an impact from a currency headwind perspective, which you may not be factoring in as well.

And sorry, from an execution standpoint in the field, Dan, when we think upsell deals, we think of deals that we -- for lack of better word, we go into companies where we're already in and we're growing and expanding that business. The ACV of that transaction doesn't necessarily mean that we are selling a massive deal. Again, we're continuing to add modules, or capabilities. And so the impact of that sales motion of upsell wouldn't necessarily correlate to a high increase in ACV. Whereas it would contribute to an improvement in our NDRR metrics.

Okay, that's helpful. I was just wondering if there was anything to read into that as it relates to whether your customers or your sales team is descoping some deals to get them over the line, whether it's macro related and budgets are coming down. Anything like that?

No, no, none of that, as we kind of think about -- think about Dan moving forward, the simple way to think about this is as you move into Q3 into Q4, you should see that as long as the enterprise segment will contribute you should see that pickup. That's it, nothing else.

Great. Thank you.

Next question comes from Christian Sgro with Eight Capital. Please go ahead.

Hi, good morning. I'll continue on the topic of seasonality for my first question. Maybe a two-parter. First, I'm wondering the Q3 quarter can be late in the summer. I'm wondering if any deals slipped, or if there's anything to call it either way. And I think earlier, you mentioned that Q4 and Q1 can both be strong on the enterprise side. And I thought that was the case for Q4, when it's on the Q1 as well, only those two questions to start.

Christian, I appreciate the attention that you have in listening to prior responses? And jokes aside, the answer is yes. To everything you just said. For sure. When we say that deal cycles elongate. We're also implying that in some instances, deals leaped onto other quarters. Now, in our experience in our data tracking, this is not uncommon in quarter three because the seasonality of holidays, the post-COVID era, people seem to have gotten a little bit more time off than in the prior years and they finally got out of the house. I would say, yeah, we have had some slips. And with regards to your reference to quarter four and quarter one, while we certainly don't disclose numbers, we work very hard to deliver good numbers. And we like the type of deals that we have in the pipeline for those. I don't know Sukaran wants to add any color there.

Yeah, Chris, I think -- as we said, generally, we've said in the past, we have a couple of quarter view on where the pipe is. Q4 is seasonally strong quarter. Some of the comments Alessio is making is in light of what we see for the next two quarters ahead of us. And I think as you said, Q3 just a quick point, yes, it's slower. But from a win rate and pipe perspective, we still strengthen our win rates, and our pipe is still strong as far as we can see in the next couple of quarters.

Great. And one follow on. Alessio made reference earlier to investment in the Company's brand and marketing strategy. I know it sounds like it's evolving. But wondering if there's any early thoughts you can share on how you might think about positioning Docebo and maybe part of that is rebranding to focus more on enterprise. That's part of the focus. Any call you could share that will be awesome.

Sure thing. A couple thoughts on this, also a project that will proceed in phases. But two things that are that we're very sure about is we want to evolve, the way we show up from a branding standpoint, in two ways, primarily one. Today, if you look at the way we show publicly, the messaging is very much lead with products, features, and capabilities. This is very evident even in our website. And I would say generally comes we believe our natural evolution is to move and transition to focus more on solving real business problems for customers, and the eloquent in the way we do that, thanks to technical capabilities. And it's a little bit you know, branding is not a black and white science. There are varying colors. And the way we're going to execute that is to strike a good balance between innovation that the company has in its DNA, but maintaining a focus on the buyers and what problems we solve for them and how. We believe there's a lot of work to do there. And we're already on it now as we speak and we have been for months. Number two, a more overhaul of how our posture towards the enterprises. We should be showing up more. And in places where the CIOs of the Fortune 500 meet and debate. We have a lot of opportunity to strengthen our brand in the decision-making tables of the best companies in the world because we do business with them. They look at us and we are just having a missing link of showing up according to the category, we are effectively already in. It's only a matter of execution and were executed.

Perfect. Thank you for the color, Alessio. Thanks for taking my question this morning.

Thank you.

Your next question comes from Kevin [Krishna] (ph) with Scotiabank. Please go ahead.

Hey, there. Good morning. I'm not sure if this was disclosed. But could you remind us what the ACV from new customers was in the quarter?

I'm going to double check that, Kevin. I think not on top on of mind. Let me come back to you on that.

Okay. I guess where I'm going with this as we think about going forward, we should -- should we expect to see that go up quarter over quarter given you know, that the mix of ads will likely skew better to enterprise in Q4? You know, number one and the number two, the 1.39 that you added in Q3 seasonally late quarter, you know, reasonable assume that that goes up? I'm just trying to, you know, understand for modeling purposes, we get kind of the double positive there as we think about Q4.

Yep. So it's -- Kevin, sorry, it took me a second to just double check it. The number this quarter [indiscernible] and you're right. So when you think about the mix there, generally, can shift. If you if you think about large enterprise deals can move that up or down. And as you as you move into Q4, and you see a larger subset coming from enterprise segment, you will see that number move up. And so as we think about moving into the next quarter or two, you should expect that to go up.

You are right. Just -- the 42 is one of the weaker net new ACV Numbers. I think prayer disclosures you were in the 50 range 45 range last quarter. And that was mainly due to the skewing down to test and be in mid-market and the related ARPU there, right.

Yeah, so the strength on the commercial mid-market segment is basically what you're seeing that number, driving that in Q3. But as you move into Q4, and enterprise chips in more as a product proportion of your ADRR. That number will pick up.

Got it. And I'm wondering just on the commentary, just to be very clear here on the sales cycle being elongated. Is it relative to Q2 and Q3? Did you see it getting even longer? And how do you think about that going into Q4. And is that popping up in both the net ads being pushed out or -- and/or perhaps the starting point of ACV at a new end being a little bit slower, with expansion opportunities to come down the road?

Hi, Kevin. Alessio speaking, it's primarily where a new more material spend for the company to be made, there is more scrutiny than our new processes. Buyers themselves don't even know most times what processes in place. And with the approver we go and chase down various individuals because processes are in flux at companies. And the resulting effect in many companies is slippage because the buyer themselves have a difficult time pinning down within their organization when they can compete. That is what we're seeing.

Okay, understood. Thank you. Appreciate the color.

Thanks, Kevin.

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

Yes, sir. Good morning, everybody. So just you talked earlier about increasing spend on the sales and marketing side earlier this year. And I think on prior calls you put a greater emphasis on outbound sales. Can you just talk about where you are today as far as the size of the team, and maybe the contributions that you saw in the quarter from your outbound activity? And maybe what you need to do further on the outbound side to improve that side of the business to where you want it to be?

Sure. Hi, Nick. Thank you for the question. With regard to outbound it is part of my commentary on our sales and marketing expenditures in focus. Outbound continues to perform on average about depending on segments and so the math becomes the segments based anywhere between 20% to 30% of our water pipeline contribution. We believe that by getting outbound closer the sales machine we can reap even more benefits in the future. We believe that by strengthening our position in brand we are going to have an even stronger story to tell. And so the comments that I've made before around our positioning, around our demand generation efforts are hard, all the holistic picture in which outbound is one piece of a much bigger demand gen puzzle, remains an area of focus remains an area of investment and we like it because frankly it allows us to yield larger size deals. Sukaran?

Nick also just to give you a general context when you think about our contribution you got inbound outbound sales force and partners and you think about outbound you also have to layer on how a lot of our enterprise and work similar to other great companies is self-sourcing deals as well as working with great partners, some that Alessio mentioned in his remarks earlier that will also bring us deals on the enterprise segment.

Okay, great. And just one follow-up with regards to the MHR expansion partnership, can you just remind us where is that OEMs in context like how far along are you with that OEM when you compare that against Ceridian at the same point in time? In other words are you guys getting more-and-more traction with MHR at the same point in time on par with where you would have been with the Ceridian same point? Just a relative -- just to understand how quickly you're bringing up all of these other OEMs for future growth. Thank you.

Yeah, look, I think the way to think about it Nick is that we obviously [indiscernible] was our first and as we've learned through this journey MHR has grown at a faster rate. They are still -- in terms of relative size they are still smaller, long way to go with them and an opportunity to penetrate more. The other interesting thing is that the integrations that we build as we move forward also is enabling us to layer on more products that we have built into our ecosystem with MHR and with Ceridian in the future. And so that also helps expand that not only to new customer base within MHR but within the current customer base of MHR. As well as there is certainly Claudio alluded to earlier, there is certainly -- as you know MHR has almost 40% market share in the UK and serves a lot of the public sector. It also is seeing some increased demand from a public sector perspective.

Okay. Great thank you.

Yeah. Thanks for attending this earning call. Let's meet in one quarter. Thanks everyone and thanks team.

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.