Coveo Solutions Inc. (CVO) Earnings Call Transcript & Summary

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[Audio Gap] that certain statements made during this conference call are forward-looking information within the meaning of applicable securities laws, including those regarding our future plans, objectives, growth and expected performance, including our outlook for the fourth quarter and fiscal year 2022. These forward-looking statements represent our outlook only as of the date of this call. While we believe any forward-looking statements we make are reasonable, actual results could differ materially because the statements are based on current expectations and are subject to risks and uncertainties. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise. Further information on these and other factors that could affect the company's financial results is included in filings we make with the Canadian Securities Regulatory Authority, including the section titled Risk Factors in the company's final supplemented PREP prospectus dated November 17, 2021, which is available under our profile on SEDAR at www.sedar.com. Additionally, some of the financial measures discussed on this call are either non-IFRS measures or operating metrics used in our industry. A discussion on why we use non-IFRS financial measures and operating metrics and, where applicable, a reconciliation schedule showing IFRS versus non-IFRS results are currently available in our press release and our MD&A dated as of today, which may both be found on our Investor Relations website at ir.coveo.com or our SEDAR profile at www.sedar.com. Please note that unless otherwise stated, all references to any financial figures are in U.S. dollars. Now I will turn the call over to Louis to begin.

Thank you, Nick, and thank you all for joining us today. I want to start our first earnings call as a public company by thanking all of our employees, customers, partners and investors for their support in helping us get to where we are today. In our first quarter as a public company, we delivered strong results that demonstrate the demand for our software platform is resonating with our target market. Our purpose is to democratize the use of AI for every business so that they can deliver the personalized and relevant digital experiences that people expect. And our third quarter results are evidence of the importance of this to today's enterprises in commerce, websites, customer service and workplaces. In our third quarter ended December 31, Coveo saw year-over-year SaaS subscription revenue growth of 50% and total revenue growth of 39%. We also delivered the largest bookings quarter in the history of the company, even when excluding the contribution of Qubit, which we acquired in October 2021. We had strong performance across all 4 of our lines of business, particularly in commerce, which excluding the contribution of Qubit, more than doubled year-over-year. Including the contribution of Qubit, commerce represented our largest line of business in terms of bookings. We also meaningfully exceeded our bookings target for our solutions integrations with SAP, Adobe and Zendesk. Transactions with new customers represented approximately 50% of our total bookings. And our net expansion rate as of December 31, 2021, remained strong at 112%, demonstrating the traction we made with both new and existing customers. Today, enterprises around the world are discovering the critical importance of relevance in every digital interaction with their customers, partners and employees and the imperative of using AI to achieve this goal. As individuals, we expect our digital experiences to be highly relevant to us, personalized, coherent and even prescriptive. When businesses deliver this, we reward them with our time, our money and our loyalty. This level of deep personalization cannot be achieved at scale with only manually programmed rules. If you want to deliver 1 million different experiences to 1 million individuals, you need AI. This is the challenge Coveo saw. Coveo's AI platform is named the Coveo Relevance Cloud, which provides the intelligence layer that injects relevance and personalization into any digital experience that a business delivers across commerce, websites, customer service and their workplaces. Within milliseconds from the start of a digital interaction, Coveo begins to personalize the content or shopping experience tailored just for you. Coveo's AI does this by using interaction data to understand who you are, what you like, and what drives better outcomes. Coveo's data platform remembers your actions and preferences across different channels. It also understands what other people like you have experienced and knows what information, product, content or answers brought them satisfaction and drove better business outcomes. In its simplest form, Coveo delivers tailored search that works better with results centered around individual people, not just content. In its mature form, it means a personalized experience that goes beyond search as Coveo anticipates the user's needs and delivers the personalized recommendations, information or products that are most likely to lead to a positive outcome for both the person and the business. Customers using our platform have seen significant ROI across multiple solutions. In commerce, when a search experience is personalized with AI and product recommendations are rich and more relevant, purchase conversion rates and average order value or card size improved. Within customer service, Coveo helps customers help themselves using AI and deep learning to show them the content they need, reflecting support calls and streamlining operations while also improving agent proficiency to decrease escalations and increase customer satisfaction. For website, Coveo helps deliver improvements in site search, website visits and conversion rates, helping companies ensure their site visitors always have a relevant experience and engage more. And in workplaces, we use the same AI technology to make intranet intelligent and to personalize employee self-service across unified enterprise knowledge, helping employees to become more proficient so they can do more on their own. Today, we help businesses across a variety of industry verticals deliver relevance in their digital experiences. As we disclosed at the time of our IPO, these areas represent the combined $39 billion estimated total addressable market with commerce representing more than half of that. We continue to believe that our addressable market remains underserved today and see a tremendous opportunity to capture additional market share as we expand the use of our platform with existing customers. To tap into this addressable market, Coveo has 3 powerful compounding growth vectors. The first is growth within our existing customers. Whenever we land a Coveo customer with a single use case, that customer becomes a source of near-term expansion. If we start in commerce, for example, we can expand into customer service and their website and so on. Second, we will continue to penetrate our current markets to acquire new customers using both our established sales and go-to-market channels and also new distribution mechanisms such as our product-led growth strategy. And third, we intend to tackle new markets and opportunities as we bring on new partners, develop new verticals and expand geographically or via M&A. In the quarter, we added a number of exciting new customers, including Spectrum Brands, a home essentials company trusted by millions of consumers all over the world. We also had significant expand transactions with companies such as Informatica, an enterprise cloud data management leader, and Brother International, a premier provider of home office and business products and industrial solutions. I would also like to share how some of our customers are using Coveo's platform to deliver relevant digital experiences at scale. One of North America's leading retailers for outdoor recreation merchandise leverages Coveo's platform and commerce. With over 1 million items in their product catalog, Coveo is able to promote the most relevant products to customers using query suggest and product recommendation machine learning model. The launch of Coveo in mid-November drove an immediate impact on this customer's commerce website, with Black Friday sales increasing by 11%. Since the start of 2022, they've reported that nearly 40% of all website traffic has been positively influenced by Coveo's automatic relevance tuning model, which fine-tunes an incoming search query to ensure items that are most relevant to that query appear in the result list and have an increased ranking score. Coveo works with a large multinational conglomerate where within 5 months, our AI was able to surface relevant content for their extensive set of websites which currently spans 87 countries with 14 more to deploy and 35 languages. Coveo delivers a relevant customer experience at every level of interaction within these websites from suggesting useful products from a catalog of over 20,000 products to service solutions that prioritize relevant, individualized content on every results page. As of January 2022, the vast majority of all products and service solutions that users access across this customer's websites were promoted by Coveo's machine learning capability. Further, the company is now expanding to implement our product recommendation solutions to provide useful and related products to their end customers at the point of purchase. Additionally, a leading APAC retailer in the household hardware industry is now using Coveo's platform to provide their online customers with relevant products and advice from their expansive product catalog of over 250,000 items. By implementing multiple of Coveo's product recommendations, machine learning models, this customer is able to seamlessly tailor the right products and solutions to their customers based on what's trending, appropriate to the customer's context or more importantly, what drives the most revenue. In an environment where the supply of certain products has been limited, Coveo's recommendations have enabled the website's hundreds of millions of searches per month to adapt to, display, recommend and track the purchase of the right products for end customers. Finally, a global financial software company with approximately $10 billion in revenue leverages our solutions to create relevant intranet search experiences for their employees. Coveo's search experience directly impacts employee satisfaction and productivity. As a company that is acquiring new business and operating with a seasonal influx of employees that can increase anywhere from 50% to 100%, depending on time of year, search effectiveness is essential. Their 2022 goals include expanding Coveo to other areas of their business. On the M&A front, in Q3, we acquired Qubit, a U.K.-based leader in AI-powered personalization for merchandising team. The acquisition expanded our presence in Europe and also added many prestige B2C customers in verticals like luxury, fashion, beauty and travel and hospitality. I am pleased to report that in Q3, Qubit's bookings exceeded our expectations and increased significantly year-over-year when compared to the third quarter of our fiscal 2021, with a number of marquee wins with both new and existing customers, including Third Love, River Island and Kate Spade U.K. We continue to invest in research and development. And I'm excited to announce the rollout of multiple new innovations in the quarter. The first is our deep learning case classification model that greatly improves the quality of support cases submitted by users through automatic prompting of relevant classification tags. These classification tags are learned using natural language processing techniques and a deep learning algorithm that processes and understands the text appearing in existing support cases. We started rolling out this feature with several customers and have seen strong results with click-through rate improvements in excess of 60% in some cases. We also launched our Smart Snippets feature, enabling users to give direct answers to their queries without having to navigate away from the results page. Answer snippets are automatically extracted from the content using rules based on document structure and tags. Smart Snippets scoring model leverages a combination of both linguistic and dense semantic features to match queries to answers. We are already seeing strong traction with customers going live and testing this future. Our partners are an important part of our business as we improve user experience and increase value through our deep integration. We work with about 150 systems integrated partners globally to allow our customers to implement Coveo successfully. We also have a number of strategic relationships with leading global technology platforms such as Adobe, SAP, Salesforce, ServiceNow, Zendesk and Sitecore to deliver an easy and secure experience that feels truly native within these third-party applications. This quarter, we announced a deeper integration with Adobe Experience Manager, including the release of Coveo for Adobe Experience Manager on the Adobe Exchange Marketplace. This makes it easier for digital leaders and developers to bring robust relevant search experiences to Adobe-powered websites, intranets, online stores and technical documentation. Our solution combines prepackaged machine learning models for query suggestion, automatic reranking, dynamic fastening, question answering and Smart Snippets and recommendations alongside a new native connector for indexing content. We also launched Coveo search and recommendations for SAP Commerce on the SAP store. Our offering uses relevant search and real-time intent detection to deliver the buying experience today's consumers expect, thereby helping to drive more revenue conversion for SAP clients. Coveo's enterprise class AI complements the SAP customer experience portfolio and helps retailers and manufacturers get even more out of SAP Commerce Cloud. This quarter also saw the continuation of our strong momentum in EMEA. EMEA bookings, excluding Qubit, were more than 2x what they were a year ago. And including Qubit, EMEA represented over 25% of our total bookings. We expect to continue to make additional investments in our go-to-market organization in EMEA to sustain this momentum and further grow our footprint. I'm also extremely excited to announce that Nicolas Darveau-Garneau joined our executive team on January 31 as our Chief Growth and Strategy Officer. Nicolas brings incomparable experience and knowledge to the company, specifically when it comes to digital innovation and disruption and particularly in AI. Nicolas will oversee our global go-to-market and corporate strategy and help us maximize our next stage of growth as a global leader in applied AI for digital experiences. Nicolas is a former Google executive, where he worked 11 years and most recently served as Chief Evangelist. In this role, Nicolas oversaw the entire global team responsible for advising and working with executives at large global corporation and Google's top advertisers, helping them improve their global digital strategy through the creation of many innovative digital marketing best practices that leverage data and AI technology. Before I turn the call over to Jean to discuss our financials in more detail, I want to reiterate my pride in Coveo's historic 1% pledge. We have pledged 1% of our employees' time, 1% of our product and 1% of our profits to make a difference in our community. Additionally, at the time of our IPO, we pledged 1% of our equity to support Coveo's ESG activity around democratizing knowledge and education. We are committed to making a real impact in our communities and are excited to update you as our ESG efforts expand. In closing, we believe that the Coveo Relevance Cloud is a platform that makes it possible for any business to participate and compete in the new digital experience economy we're in, powered by data and AI. We help by democratizing the use of AI for every one of those businesses, enabling them to participate and compete, and we all win when that happened. Our success to date is just the beginning of our efforts to redemocratize business, and I and the team look forward to Coveo's future with enormous excitement. I will now hand the call over to Jean to discuss our financial results in more detail. Jean?

Thank you, Louis, and good evening, everyone. As this is our first earnings call as a public company, I'd like to spend a moment to go over our differentiated business model. Our SaaS subscription revenue is composed mostly of long-term contracts, typically 3 years or more in duration with no termination for convenience in which revenue can only go up during the committed term of the contract through upsells or cross-sells. This quarter, 91% of our total revenue was from SaaS subscription, and we continue to expect that number to grow particularly as we end support of our legacy on-premise software, which represented only 2% of our revenue in the third quarter, down from 4% last quarter. For internal-facing use cases like workplace or contact centers, Coveo is priced per number of users who access our platform. In e-commerce or websites where users are not authenticated, Coveo is priced per number of queries. And as I indicated, pricing per contract value is committed for the entire duration, making our business model highly predictable. As Louis highlighted, we delivered record bookings in the quarter, even excluding Qubit, as we saw strong performance across all 4 of our lines of business, especially in e-commerce, which more than doubled compared to the third quarter of fiscal year 2021. We also continued to see the acceleration of our year-over-year organic SaaS subscription revenue growth, which increased above the 31% year-over-year growth rate of our SaaS subscription revenue from the second quarter. Our success in retaining and expanding our relationships with customers, one of the primary growth vectors that we mentioned, is demonstrated through our net expansion rate of 112% as of December 31, 2021. Our goal remains to engage with our customers at one of our multiple price entry points and grow these relationships by adding capabilities and expanding usage, ultimately moving to the enterprise level where they can deploy Coveo across multiple lines of business and benefit from 360 degrees of relevance. Moving to our results. SaaS subscription revenue for the third quarter of fiscal year 2022 was $21.2 million, up 50% year-over-year. Total revenue came in at $23.2 million, growing 39% on a year-over-year basis. Self-managed licenses and maintenance revenue was $0.5 million and professional services came in at $1.6 million. Note that all of these figures include the contribution from our acquisition of Qubit, which was completed in October 14, 2021. Another metric we focus on is current SaaS subscription RPO, which grew 49% year-over-year this quarter to $72.2 million. The growth in our current SaaS subscription RPO further exemplifies our strong bookings performance for the quarter, and we expect its growth rate to generally track our growth in annualized recurring revenue. From a geographic standpoint, we are continuing to make tremendous progress expanding into EMEA with our second largest bookings deal in the quarter coming from the EMEA region. The acquisition of Qubit also increased our footprint in EMEA, with over 25% of our bookings this quarter coming from the region. While only 16% of our revenue this quarter came from outside North America, we do expect international markets to continue to be an important growth vector for us in the future as we added, in 2020, new cloud regions in Ireland and Australia to open these markets for our solutions. We plan to continue to pursue this sizable opportunity in these markets and make further investments to expand and deepen our international presence. Turning to our operating results. Our third quarter gross profit percentage came in at 74% compared to 73% for the same period last year. Our product gross profit margin was 79% in the quarter compared to 77% for the same period last year. Our professional services gross profit percentage was 2% for the quarter compared to 30% for the same period last year. This year-over-year decline was primarily driven by the addition of Qubit, which had a lower professional services gross profit margin. We expect to improve our professional services gross profit percentage as we further complete the integration of Qubit. Operating loss for the quarter was $23.4 million, and non-IFRS adjusted operating loss for the quarter was $8.1 million. We continue to make investments to drive additional bookings and revenue growth as well as product innovation and expect to do so going forward. Also, as Louis mentioned earlier, at the time of our IPO, we pledged 1% of our equity to support Coveo's ESG activity around democratizing knowledge and education. This resulted in a onetime expense of $10.4 million in G&A in the quarter that was included in our operating loss. Net income came in at $426.3 million or $7.65 per share compared to a loss of $101.7 million or negative $5.55 per share in the third quarter of fiscal year 2021. The weighted average share count used in calculating the third quarter loss per share was 55.7 million shares versus 18.3 million in Q3 of last year. Looking at our balance sheet. We ended the quarter with $233.7 million in cash including the $179.9 million in net proceeds from our IPO, the exercise of the over-allotment and concurrent private placement. Cash flow from operations was negative $7.9 million in the quarter. Finishing with guidance for the fourth quarter of fiscal year 2022, we expect SaaS subscription revenue to be between $21.5 million and $22 million, representing growth of 41% to 45% year-over-year; total revenue in the range of $23 million to $24 million, representing growth of 32% to 38% year-over-year; adjusted operating loss in the range of negative $9.5 million and $10.5 million; and between 103.4 million and 103.9 million weighted average shares outstanding. For fiscal year 2022, we expect SaaS subscription revenue to be between $76.3 million and $76.8 million, representing growth of 38% to 39% year-over-year; total revenue in the range of $84 million to $85 million, representing growth of 30% to 31% year-over-year; adjusted operating loss in the range of negative $29 million and $30 million; and between 50.8 and 51.3 weighted average shares outstanding. As I have previously mentioned, there are 3 factors that we believe are helping to drive Coveo's robust growth rate. First, expanding into new use cases or lines of business. After already establishing ourselves in workplace, websites and customer service, several years ago, we began moving aggressively to commerce supported by investments in R&D, sales and marketing. Second is geographic expansion into EMEA and Asia Pac, which we've begun to establish through the opening of new data centers in Europe and Australia, bookings growth in EMEA and the acquisition of Qubit. And third is by bringing on new key strategic partnerships. We've already mentioned our successful alliance with Salesforce. Now we've broadened our number of key partners, bringing on Adobe and SAP, for instance. By doing so, we invest in reducing friction in these marketplaces by making it easy for customers to use Coveo within those large ecosystems. To conclude, we are very pleased with the results we have shared with you today and believe Coveo represents a compelling opportunity in AI. As a global leader in AI solutions at scale, our technology is built for growth, and we look forward to capturing that sizable opportunity. And with that, operator, you may now open the line for questions.

[Operator Instructions] We'll take our first question from Thanos Moschopoulos.

Louis, if we were to summarize, I guess, the changes in progress to your business since the time of the IPO 3 months ago, I guess my takeaways were Qubit above expectations, the newer IP partnerships ramping more rapidly than expected. And together with those driving commerce now being a majority of bookings as well as international growth, I mean anything else you could call out in terms of how things have evolved over the last 3 months?

Well, Thanos, thank you for your question. I think that basically summarizes but I guess, net-net, all of our lines of business have been growing. So obviously, we're very pleased with our growth in commerce, and we've been pleased also with our growth in EMEA, but pretty much across the board. And the performance of Qubit, as we mentioned, was also above our expectations.

Can you just remind us in terms of the timing to fully integrate Qubit, what's the time frame for that?

Well, I think that's gradual. So as you know, Qubit adds another dimension to our offering, which is a more specialized AI-powered personalization for merchandising teams. So very complementary to our solution creates a much stronger position in retail. And in fact, we found customers of Qubit who right now are -- have a high degree of interest for what the traditional Coveo platform has to offer and vice versa. And so it brings new markets and so on. So right now, we do have -- we expect to complete a consolidated demo soon of the 2 solutions. And basically, we have about a year ahead of us for full integration of data platforms and the offering.

Okay. And in terms of the SI channel, any update there in terms of the progress you're seeing?

Well, we've invested quite a bit in Q4 as a continuation of our investments in channel enablement, and that takes multiple forms. But essentially, everything that democratizes the knowledge about our platform and reduces the friction for learning and education and enablement. And so that has enabled us to continue to enable more developers and more professionals within our partner channels and thereby continue to expand. And so we think that this ability to facilitate access to the Coveo platform and learning and opening up the platform is key to expanding the channels. Outside of that, we've continued. So the net of it is -- the net answer to your question is we've expanded with our channels within our current partners because of that, but we've also added -- continued to add a few others.

Okay. Great. And then maybe last one for me. I haven't seen the MD&A yet. But I gather you're not disclosing organic growth. Just to confirm a number I heard, I think the takeaway was organic SaaS revenue growth north of 31%. Did I hear that correctly?

Yes, that is correct, Thanos, and you did understand correctly the metric around organic growth rate. Yes, it is north of 31%, which was the growth rate that we had experienced last quarter. I can also -- maybe a quick comment, Thanos, on your question with regards to our partner ecosystem. Pleased to report as well that professional services as a percentage of revenue has remained constant, around 7%. So as you can tell, clearly, I think we're doing the right things and enabling clearly as we grow, enabling the SIs with our solutions.

Okay. Great. Congrats on your first quarter as a public company.

Thank you very much, Thanos.

[Operator Instructions] We'll take our next question from Koji Ikeda with Bank of America.

Congrats on a very nice first quarter as a public company. And also congrats on -- so you guys were the gold medalist, yes, gold medalist award for the enterprise search data quadrant. So congratulations there.

Thank you.

Two questions for me. First one, thanks for all the commentary on the bookings. You went in pretty deep there. I just wanted to kind of clarify here. You operate in 4 categories: commerce, service, websites and workplace. I guess what category right now is the largest mix of bookings right now? And where are you seeing the most robust demand out of those 4 categories?

Right. Look, there's no question. Again, we're seeing growth across all 4, which is good news. And then if you break it down, as you know, we market within -- with integrations with SAP, Salesforce, Adobe and so we're seeing growth across the board. There is no question that we're very pleased with our growth in commerce. We believe that there's really secular growth, especially in commerce, driven by the foundational change that's happening in commerce. And we're not tied to the commerce volume fluctuations or the short-term demand. It's really the foundational aspect of commerce and the imperative of AI and commerce. So that drives demand for us. We've seen it in the bookings, in particular, in that area. And we're pretty excited because we think every retailer ultimately needs this kind of technology and that we have the most scalable and mature offerings. So we're investing there, but this is clearly an answer to your question, Koji, the one area of focus. But we're pleased with our growth in service as well. And perhaps, Jean, you have some numbers to add and so on.

No, I think you're right. We're really pleased. As you know, service really has been our largest line of business to date. But certainly, since we launched e-commerce 3 years ago, of course, it's off of a smaller base, but we did report growth in bookings over 200% in commerce. And certainly, the reasons for that has been, to Louis' point, right, it is -- we are seeing from the market great reception, of course, with our technology part by AI. It is a highly differentiated in the market. Right now, it's producing great ROI with our customers.

Got it. Got it. And then just one follow-up. I did see the announcement and you mentioned the new Chief Growth and Strategy Officer. From a high level, as you're heading into planning for fiscal '23, should we be expecting any changes to the growth strategy or how you're thinking about adding sales capacity going forward?

Right. No, from a growth strategy standpoint, I think, again, we're sticking to our strength right now because we think the market is right at an inflection point. And so we don't expect any major change other than probably tuning our market -- our go-to-market strategy to continue to reduce some friction and gain more value from the value we create. And that's really our focus, Koji.

We'll take our next question from Paul Treiber with RBC Capital Markets.

I just want to add my congrats on the IPO. Just a question on Qubit, coming in stronger than your expectations. What is fundamentally driving that? I mean is it -- does it reflect the benefit of your ownership out of the gate and maybe some initial synergies there? Or is momentum building for them before the acquisition?

We do believe -- that's a very good question. We do believe that definitely the idea that Coveo, which was significantly larger player than Qubit did play a role in bringing quite a bit of confidence. I think we were very fast at communicating our joint road map to customers. And obviously, in the world of enterprise software, our customers, a key decision criteria as you probably know, is in fact, the long-term vision for the combined -- for the offering, in this case, the combined offering. So while it's hard to quantify, Paul, clearly, we believe that played a role. And so we've been pleased, obviously, with the confidence that these customers have. And that validates the idea that we have that the combination of Qubit and Coveo is a very unique and differentiated offering in the market, and we continue to strongly believe that and we're very pleased with the conversion rates also and the traction we're getting there.

Helpful. My second question is on just your introduction of new entry-level plans and self-service. Have you -- was that a material driver to bookings in the quarter? Is it still early there? How do you think about your pipeline on these new plans, the entry-level plans?

Right. So it's still early to discuss the conversion, and the impact of free trials is still small relative to the overall enterprise business. But I can definitely share that -- first of all, it has brought notable customers in the quarter. We had a win with one of the largest companies in the world, which went from 3 to a 5-figure deal during the quarter. So we're pretty happy to see these kinds of stories. But in addition to that, what that does is it puts our technology in the hands of more people, more developers, more partners. And fundamentally, that's the goal here. Again, it's all about continuing to reduce the friction and then at the same -- while at the same time capturing a great share of the value that we create. So answer -- direct answer to your question, it's still early to discuss the conversion but super happy with the progress there and what that's already bringing to us.

We'll take our next question from Taylor McGinnis with UBS.

Congrats on the first quarter since going public. Maybe a 2-parter and diving into the key variables of growth. So first on dollar-based net expansion rate, I think that downtick maybe just slightly from 113% last quarter. So can you talk about some of the drivers of that and expectations for this metric as we look ahead? And then the second part to that, you talked about an acceleration in subscription revs and you had a pretty big uptick in international. Maybe provide a little bit more color on how much of that strength came from Qubit versus new logo activity.

Yes. Taylor, thank you for the question. So to start with regards to the dollar-based net expansion rate, last year, the dollar base was 107%. So pleased with the progress at 112% this quarter. You're right that sequentially, we did go from 113% last quarter to -- actually it was 112.4%. So it's a very, very small change quarter-over-quarter. So we basically believe that it has stabilized. So certainly from our perspective, very, very pleased with the gross retention rate. We've seen great renewal rates during the quarter, actually a little bit better than we had seen the previous quarter. And with regards to expansion within the customer base, still certainly pleased with what we've seen from year-over-year. Certainly, right now, a lot of traction coming from new customers. So certainly, which can explain the stabilization of that metric. I think looking forward, I think you should expect us to stay in that range -- in that 112%, 113% range. I think that's just the right way to think about that metric right now. And maybe, Louis, I'll turn it over to you with regards to the acceleration of the growth rate, unless Taylor, there's -- you like to emphasize a little bit more.

No, that's perfect. Yes. Just secondly, when thinking about the acceleration in subscription revs and uptick in international, curious what that mix looks like between Qubit and new logo.

Absolutely. Right. So look, I think as it relates to the acceleration of the growth rate and so on, I'll just say right out of the gate, we're very pleased with our performance and our conversion rate in sales and our competitive position within target market across solutions. That being said, we think there are tailwinds. We believe the demand for AI and digital experiences is strong and right at an inflection point where companies are realizing the AI imperative, and so that drives some demand. Obviously, we don't want to spend all of our marketing dollars educating the world. But we'll definitely be there positioned with the best solution in the industry, in our view, to pick up the demand. So for now, we've guided to mid-high 20s organic plus the effect of M&A. And we've made it clear that the impact of both, but with some upside if we execute on opportunities.

And Taylor, certainly the way to think about our growth rate, certainly, it's great to see the acceleration, right? We're really pleased with the acceleration in our growth rate. As you know, 2 quarters ago 28%, last quarter 31%, this quarter confirming that we've seen further acceleration north of that 31%. So very pleased with that momentum into 2021 and getting into 2022.

We'll take our next question from DJ Hynes with Canaccord.

Congrats on nice start here. Louis, I want to ask some kind of 2 related questions on the e-commerce side. So first is, in your experience, at what scale does a customer typically need to be before they really start to get leverage out of Coveo and the type of personalization that you can deliver? And then the second part of that is, from a product perspective, to do this well, does it make sense to also own the CMS? Like how do you get around that? Or is that an area that would make sense for expansion?

Yes. I'll start with the second question. We don't need to own the CMS more than we need to own the CRM or the portal technology or any of that. Coveo is really designed to be the intelligence behind. So there are multiple applications that deliver digital experiences and they continue to do their role. We're not intrusive to that. We're the intelligence behind that makes the decision about what to essentially show on the screen, how to dynamically adjust the navigation and how to create a prescriptive experience that is highly personalized with recommendations and so on. So we'll fit into any CMS, although the leading CMS that we see are companies like Adobe, which we work with quite a bit, as you know, and Sitecore and others. On your first question, our target market clearly right now is high end, mid enterprise and global enterprises. And your question is very good because this is right now the market where AI is not a choice. And some companies are starting to realize that, many companies already understand that. Essentially, if I paint an image for you, DJ, if you have 1 million SKUs and 1 million consumers a day, and we do have such customers, you cannot manually program rules to personalized recommendations and personalize the digital experience. And as a result of the inability to do that, your conversion rates and your sales and your revenue will suffer or your customer service will suffer if you're dealing with 100,000 customers a day and 100,000 documents, let's say, and 100,000 customers a day. So there is obviously, to your question, a scale, where not only the value growth -- the value of Coveo growth exponentially, and we're frankly pretty much, in our view, the only player that can play there but the value is large and it's kind of binary. It becomes kind of an imperative. So depending on the market, depending on the verticals, if you think about a software company, you would think that a software company with $100 million of revenue or up would actually benefit from Coveo. Obviously, we wouldn't sell this to a $100,000 -- $100 million a year, sorry, distributor. We'd probably go to $1 billion and something. So by verticals, we have sort of thresholds for our go-to-market where these criteria are met. So pardon me for the long answer, but I thought that question was very solid.

Yes, yes, that's super helpful. And Jean, I want to follow up with you and press you a little bit on the organic growth comments. Look, I think part of the reason investors want to own this is for that accelerating subscription growth story. And I can appreciate the comments that, yes, it's playing out, but they're going to want to quantify and track that. Is there any way that you can share with us how much Qubit contributed to subscription revenue in the period?

Jean, I think you're on mute.

Yes. Thank you, Louis. So the way we're thinking about Qubit certainly, as you know, is that Qubit will not stand on its own with a separate P&L, as you know, right? Qubit, at the end of the day, is adjacent to our commerce offering and it will be Coveo and Qubit together moving forward, right? So while we do want to be as transparent as possible, I think providing comments that organic growth was higher than the previous quarter, higher than the 31% that we experienced. You did notice, of course, that we did experience 50% growth. So between, I think those 2, I'm sure you can have a really good appreciation that our organic growth rate is accelerating right now and has been for the last 3, 4 quarters. And it will be complemented with adjacent technologies such as Qubit. But at the end of the day, it is our goal in the very short -- within the next 3 or 4 quarters to bring those 2 products together. And therefore, it will be challenging for us to provide exactly what it will be one versus the other.

Again, I can bring a bit of -- a complement on that very briefly. It goes back to what I mentioned earlier, customers look at the total solution. And so they want search, they want recommendations, they want personalization. And ultimately, we believe that they'll want that between commerce and customer service and web experiences, et cetera, across all channels. And so that's what the Coveo value proposition is and we're very much on that path.

We'll take our next question from Ittai Kidron with Oppenheimer.

And again, also congrats on a good quarter. And I will echo DJ's comments, it would be nice to get Qubit's revenue number, but I'll leave it at that. Had a couple of questions. First, on the partnerships with Salesforce, Adobe and SAP. Can you give us a little bit more color as to in what way are they similar in the way you operate with them versus different from each other? It will be interesting to learn more about that.

Well, they operate in different spaces, although there can be some overlaps. As an example, SAP as in -- we work with SAP and commerce. We work with Salesforce predominantly in customer service, but also in commerce. And we work with Adobe predominantly in web content management with Adobe Experience Manager, which most large -- or a majority certainly of large global corporations use but also Adobe is in commerce. So typically, what happens is that, Ittai, is that customers will -- a lot of our customers will have one of each, actually. You will start your experience on a website that is powered by Adobe most likely, if it's a large corporation. You might move to a transactional part of the website, which then is powered by SAP Hybris or the newer version SAP Commerce. And then once the customer buys something, they'll end up on a Salesforce-powered customer service page. And if you hit the contact center, you'll talk to an agent that runs -- that is working within the service cloud, which is Salesforce. And so for us, each of those use cases is a spokes to a wheel. And that creates some expansion opportunities, obviously, down the road. And so we're successful within these lines of businesses with each of them, with a particular focus with Adobe on websites, Salesforce and commerce and service and SAP and commerce.

That's great. And maybe as a follow-up, I want to follow up on Koji's question earlier in the conversation about the different products. You talked about commerce and its performance in the quarter. Can you be a little bit more granular perhaps on the performance of website service and workplace, I'm sorry, how much they grew individually on a year-over-year basis in the quarter?

Yes. Thank you for the question. So as you know, service -- the service line of business is our largest line of business. And certainly, we've reported how commerce really, which we started 3 years ago off of a smaller base, but grew over 200%, right, year-over-year. So that's the one that certainly is growing the fastest of the 4. We don't report by line of business. However, we confirm that all 4 lines of businesses are growing by double digit, right, when we look year-over-year, their ARR. However, given that it is one platform that our customers are buying and leveraging, so at the end of the day, we don't want to kind of separate those and provide the exact numbers. But I can certainly confirm that very pleased with the progress of all 4 of them over the last quarter and certainly in 2021 overall.

We'll take our next question from Richard Tse with National Bank Financial.

Yes. I'm wondering if you can maybe talk a little bit about the mix between direct and sort of partner-influenced deals that come through.

So the way to think about it at a high level is we get about 30% of our revenue that is referred by systems integrators and sort of surfaced and referred by systems integrators and the balance from our marketing and then obviously inbound. So that's kind of the way to think about it.

And that's all across all verticals for all business?

I don't have the breakdown by vertical, but pretty much we expected. It varies from one vertical to another from quarter-to-quarter because sometimes these are -- these can be larger transactions. But overall, that's pretty much what we expect. Now in turn, maybe as a complement, Richard, we work with partners. So we'll take an Accenture or Perficient or a Wipro or Smith and commerce and so on. We will also turn to them and bring them some service business to deploy the customers afterwards, which kind of creates more momentum working with them.

Okay. And then my second question is I'm sort of reading your MD&A right now and you have a section on COVID-19. Do you think that's really sort of tamp down or restrain your ability to kind of get any higher growth rate? And is it reasonable to assume that as we kind of get through this, that you'll just get an acceleration in bookings by that sort of clearance alone?

Well, I don't think I couldn't at least create a direct correlation. And so I'd be cautious with making any kind of statement positive or negative as it relates to the effect of the end of COVID on acceleration of growth. I'd look at it a different way. I think COVID has been a catalyst for digital, in general, and more people moved online, more people move to e-commerce. And the expectation, I think, in general, of the online consumer has become much more sophisticated. And that fundamentally is the driver for our business, Richard. And so that -- now you can make the declination of that. In the workplace area, there are more people who work from home. So suddenly, you have more people who need to do more on their own. And so technology and the ability to figure out the exact information that people need is -- becomes more critical. I don't think I need to lecture on commerce. It's pretty obvious that people are buying online more than ever and experiencing some vendors that are -- some companies, retailers, that are better than others. And as we always said, the difference between digital is that you're only a browser window away from taking your business elsewhere. And so there's a sense of urgency that has been accelerated by COVID that, frankly, we saw that we knew was going to unfold a couple of years back. Nobody planned for COVID, and we certainly didn't. But COVID for us, if anything, has been an accelerator for that kind of digital transformation and the adoption of AI is more and more understood as an imperative.

We'll take our last question from Paul Steep with Scotiabank -- excuse me, Scotia Capital.

Great. Louis, I think I know the answer, but we'll ask it anyway, just with obviously a significant pullback in valuations, any change in thought around maybe do you want this to be more aggressive around M&A. Obviously, Qubit seems like it's heading to plan so far. But if I could, we'd start there and then one quick follow-up.

We're not changing anything, Paul. I mean the variability, especially without having announced anything or et cetera, the variability of our stock price is something that we just looked at, and we have no -- has, frankly, no connection with reality, precisely because we had not announced anything since the IPO. So no change here. We're just pursuing -- I don't think there's an inch of our business plan here that has changed as a result of the fluctuation of the stock price and the current downturn in the tech sector. Look, this is not our first public company. Tide raises all boats and lowers all boats, and that's kind of how we see it for now. So -- but from an M&A perspective, we're definitely very active at looking out there what's available. We think that maybe the expectations will -- from the sell side might be tempered a little bit. But frankly, we haven't verified that yet. So we'll see.

Fair enough. Just...

And as a reminder -- and Paul, maybe as a reminder, right, so as we previously communicated, right? So do not expect a kind of transformational type of M&A with Coveo, right? So we love the 2 shows and the Qubit, right, that add to a certain offering to commerce for in these 2 instances, right? So this is how we're thinking about M&A from our prospective right now. Thank you, Paul. You had another question, Paul, sorry.

Yes. Understood. It will be very fast. Qubit, Louis, just in terms of, I missed it, you might have given it to Thanos, but I didn't quite catch it. How should we think about the timing to a full release where you've got Qubit basically fully integrated into the core of the solution such that it's one go-to-market solution on that front? I'll leave it there. Congrats...

It's one -- right. Thank you very much. It's going to be one platform. Think about 12 months to complete that and basically merge the data platforms at the data level. So we expect -- right now, we're working on a consolidated demo, which we'll be able to deliver within weeks. And then full -- we expect the full integration of data platforms and so on and one single platform within a year.

Ladies and gentlemen, this concludes today's question-and-answer session. For closing remarks, I'd like to turn the conference back to Louis Tetu. Please go ahead.

Well, thank you all for your time today and joining us. This was our first earnings call as a public company. We believe Coveo is poised for growth and ongoing success and that the opportunity in front of us is quite substantial, is massive. And with that, operator, you can please end the call. Thank you all.

Thank you. Ladies and gentlemen, this does conclude today's conference. We appreciate your participation. You may now disconnect.