Docebo Inc. (DCBO) Earnings Call Transcript & Summary

All right. Welcome. Great to see you. Thanks for coming and attending our Global Tech Conference. Maybe just for folks who are new to the Docebo story, we can just kind of take it from the top. And maybe to start with a brief overview of the business.

Yes, sounds good. Thanks for having me. Sukaran, CFO at Docebo, been with the company since 2019. Just a bit about Docebo, Docebo is -- it's a learning management software company. It's the largest public company from a learning management perspective. We have over 4,000 customers. We're a $210 million plus in ARR and a profitable business. We are close to 16%, 17% in free cash flow today with 81% gross margins. And so just to take a step back and talk about what is Docebo and why we've been successful, especially in the learning management space. Historically, learning has been thought through from a perspective of employee training, which is typically your HR type of activity. When we thought about our platform, we think about learning applies in every facet of an organization, it applies to your employees from a HR perspective. Compliance, of course, sales enablement. But equally and more importantly, I would argue, it also applies to your customers, your partners, your members, so on and so forth. And when you think about learning, we think about building a platform that supports, all the organization. And just to take a step forward in terms of what we say non-employee training, which is customer experience learning in our world, that's a market that drives almost at a minimum, 65% of our business in terms of ARR today, where customers like AWS, which is 1 of our marquee customers, has over, let's call it, millions of users on our platform. And effectively, all things AWS certification are powered by Docebo in the back end in terms of the platform that supports that certification for millions of customers of AWS as well as the future prospect engineers that are coming into the workforce. And so if you think about Docebo from a perspective of a platform that enables an organization to take their intellectual property and utilize a learning management solution to distribute that at scale to the end user, whether it's your employee, your customer, your partner, your members. That is what we do. And effectively, what we have carved out is the market-leading position where we not only support large organizations in mid- to large organizations or any size in supporting their what we call employee experience learning, which is, let's say, directly tied to 35% of our business. But almost 65% of our business is actually tied at a minimum for those customers to actually utilize our platform to distribute -- to train their customers, their partners and members even as other examples outside of AWS will be -- think about large retail even, let's call it, homebuilders. We just -- we have a customer in form of a homebuilder that's a large public listed company here. They go through an insane amount of complexity when they manage the supply chain. So they have thousands and thousands of vendors that they utilize to actually implement all things home building. And because everything is outsourced and effectively, they need our platform to be able to actually distribute that to make sure that everything is happening at a standard and making sure that training is in force for them to actually do common practices. The same idea goes around -- and I'll show up after this is typically in the franchisee world, other than McDonald's, you can expect that we serve every other QSR chain in the world. And what they're trying to solve for is supply chain complexity and training, product training as well as employee training. So what we do as a learning management solution relative to the historical companies that have served it is that we serve an organization from a learning perspective, end-to-end in every department. And the reason we've been successful, and you could argue relative to other legacy HCM HRS players is because historically, the market has been served from an HCM HRS platform where you're just giving some small module of learning to kind of do the basic HR type of training. And that has been kind of the -- kind of the TAM historically that people have thought about is the number of enterprise companies were multiplied by a number of employees. But for us, 65% of our business, like I said, comes from actually -- nothing to do with employees. It actually comes from training the customer, the partners, the supply chain, so on and so forth. And that is what we call mostly greenfield market where 70% of the business is greenfield today. It's really a question of build versus Docebo.

This is super interesting. I mean this -- and when I was sort of getting familiar with the business, the first thing you hear, you hear learning, you think of employee learning you think of compliance training, you think of maybe like the best case, there's upskilling and reskilling things, but you don't -- your mind doesn't necessarily go to the customer experience, the partner experience. So the 2/3 of your business, is that external user, can you just talk a little bit about that TAM relative to employees? And also maybe who do you see doing the external use case well? It feels very differentiated relative to like we said, a lot of the HR tech providers, but would love to hear how you think about sort of the competitive set given where you play?

Yes. No, 100%. I would say in terms of -- just to give more perspective on customer experience learnings, it is -- it is so wide and so horizontal in terms of the use case applicability. Of course, software, or I would say, IT services is 20% of our concentration from a vertical point of view. So even if you think about not just AWS, but the largest cybersecurity companies that we support today or other software companies, you have to drive a customer education academy. And what that effectively does is using Docebo and enforcing -- enforce is the wrong word, but ensuring that you have a platform that supports your customers to engage, learn about the product, actually be able to serve that in their audiences, drives 2 things. One, it drives higher retention and higher adoption of their product. But a lot of our customers are actually not only doing that, but they're actually monetizing that IP. So if you think about someone like a McKinsey, which sits on the incredible management consulting intellectual property, they're utilizing Docebo to take that knowledge that the intellectual property, which is all management consulting, put that as a product SKU on our platform and sell it to the end users from a customer perspective, which is a subscription service, but how do you enable that type of learning, which is a management consulting or AWS certification. By the way, AWS also charges -- if you go to AWS Skills Builder for a certain population, they also charge $29 per month per user. So what we're trying to help our customers is to actually monetize that IP also, not just distribute knowledge. And a lot of the businesses on our platform are directly tied to revenue generation activities of that business. So the more and more you engage, you're either trying to software higher product adoption, higher customer engagement or at a minimum, you're also generating some sort of revenue if your IP is really valuable. And that's where customer education comes into play. The next domain, I would say, which is pretty important for us is supply chain and member training. So if you think about large supermarkets in the U.S. chain, they effectively utilize us to be -- it's actually Target. We have to pull this so I can speak to it. So if you think about Target Supplier Academy, that is powered by Docebo. So any supplier of Target is able to ensure that they're in compliance with all things supply chain that are on the code of Target, and that effectively is us in the back end supporting that into a need. So what I'm trying to speak to is that this platform, anywhere you need to have product training, supply chain training, customer training, you are utilizing a platform like Docebo. And in terms of the competitive landscape, which was your other part of the question, typically, this market is a unique 1 for us. You're really in the mid- to large enterprise customers, which is 50% of our business. So we serve, let's call it, the 42,000 and above. So any company about 5,000 employees is enterprise for us. and that's 50% of our business. In that market, you really are competing with the legacy HRS HCM players because they just have a small module. There is no competitor at scale that has built an end-to-end learning platform.

That's doing internal and external?

That can do both customer experience learning and employee experience learning because typically, the large players are only doing a small portion of the employee experience learning, which is HR training. And so our ability to serve 6 or 7 departments, 6 to 7 buyer personas in 1 organization is why we've been successful because we just don't focus on 1 department, which is HR, and that's where the legacy players have kind of -- it's hard for them to compete with us because I would argue, someone like a Workday is in the business of a big HRS suite where they're trying to solve the employee experience, HR problem. For them to drive what we're trying to do means that they have to go to a very different market and a very different buyer persona and very different product road map for a small component of their overall big HRS suite. And that's where we certainly see that the legacy players are -- certainly don't support our customers in the complexities of their businesses. And for us, all we do is focus on learning.

Yes. This is super interesting. The -- thinking about the 2/3 of your business that's doing your customers and doing your supply chain, when you hear you're enabling revenue generation and you're helping your customers drive value for their own businesses in the market, that -- you think about the ROI and the decisioning around procuring software being much different than selling the HR, like the -- and the budget that can unlock. It's -- I was going to ask around who are you selling to in these cases and how is that different than selling direct to HR. But you covered some of that. But is that -- when you think about the sort of the adoption and then sort of like the white space, maybe talk a little bit about like who you're going to in the org and how you're sort of landing?

Yes, that's a great question. So yes, typically, if you think about the 6 or 7 type of use cases we solve. So you've got customer education where typically, my buyer will be anywhere from the CRO to the COO, to the CEO because it's very strategic. So if you think about McKinsey or AWS launching, there's millions of users, right. When AWS launched their academy with us in 2019, 2020, I'm forgetting which year it was, but it was 1 of those 2 years. Officially, it was announced at reinvent, right? So it had full focus from Andy Jassy at the time. And so not that he was a buyer, but what I'm trying to make sure people understand is these are very strategic investments that drive revenue. So typically, your ultimate decision maker will be in the form of a CRO. In smaller -- slightly smaller organization like not like AWS will be CEOs. And the COOs that we typically kind of work with because it's tied to the revenue engine. If you think about sales enablement, your buyer persona, which is very typical, will be RevOps and CROs again. Customer support is another use case for us, where typically the buyer will be a customer support, VPs and above. And then, of course, on the compliance and HR side, we'll have a compliance. We recently landed a large big 5 bank, and they have, of course, a total different division from a compliance perspective, separate from HR. So there's 2 different buyers within HR and compliance. So the benefit we have is, one, we are very strategic when we are doing customer experience learning. It is tied to an ROI. So you'll typically have that part of the business engaged with you. And if I can even win that part of the business, it gives me the ability to, over time, even if I don't do it on the onset, consolidate the tech stack because you don't need anyone else other than Docebo to solve end-to-end learning needs in all departments.

I was going to ask about land and expand. So now you're in, you've gotten in through and a pretty unique approach on the external use case, but then there's other opportunities that...

And I'll give you an example, which is very typical for us. We signed Fannie Mae, which is a great customer of ours. I'm actually the exec sponsor. So I'm very proud -- we're proud to have them as customers for a long time now. And they started with us where their use case today is all things training from a home buying perspective and they, of course, do a lot of work around the U.S. citizens and there's mandates from the U.S. government around how they need to educate the U.S. buyer from an affordability, home buying perspective. They -- that is a big use case for them. It's -- of course, it's not -- it's the audience is the customers of Fannie Mae or customers that are in a wrong word, but the U.S. consumers. But we won that business. We did really well for the first year, 1.5 years, and then we took over the HR side of the business in that because we -- they saw the value of the platform. And typically, that leads to us displacing an employee experience platform on the HR side. So that is a playbook that's happened quite a bit. I will say since 2022, it's been a good playbook for us or just generally a lot of CIOs who are our best friends or CFOs also are trying to also look at, hey, if I'm going to procure a learning management solution that drives revenue engine from my organization in the form of customer experience learning. Why do I need -- these are the small or legacy platforms to solve it. Why don't we consolidate the tech stack with Docebo at the onset? So a lot of the -- if you've looked at our numbers, our ACV has meaningfully moved up and our move into the upmarket has allowed us to consolidate the tech stack when we enter the deal on day 1. And that is like playing out in a number of scenarios as we land those deals.

And consolidating the tech stack is pretty interesting because we talked about Workday, but I would imagine most of who -- even in the enterprise, most of you, you're running into -- you're not able to consolidate the tech stack and the learning in the same way because they're -- either they're purely focused on the employee or they will have the same depth in terms of the other use cases. I'm curious about to the -- when you talk about learning in terms of content, your approach is to enable your clients to produce on content using the tools in your platform. The -- I'm just curious to think about the stickiness. So they've built the content on your platform. It resides there. If they think about switching, you have to rip that out, right?

That's correct. So the way content is like -- I simplify content in 2 ways, right? So you've got -- if you think about customer experience learning or even sales enablement, if you think about even -- I'm sure Barclays, I'll take an example. If you're doing sales training or broker training for bankers and so on and so forth, your content is going to continuously change because your business strategy is continuously going to change, right? Even in my sales enablement in my organization, every week, there's a new price book. There's something, a new product. Something's going on with how we're going to go about competitor to take out like there's different things that are happening and you want to enable a very large organization. How do I solve the problem of content creation there? There, we give our customers, which is our leading product module called AI authoring, which has been in the market, by the way, guys, for the last 3 years. It's not something we just created in the last 12 months to create the hype. It is one of our star products. What it effectively does is take any form of content and within seconds, creates a micro learning pill in any language with all the voice overs, with all the context, automated, 90-plus percent of the work is already done for you. We, of course, give our customers the ability to do all the fun stuff they want to do from an editing point of view. But the AI for us, which has been in the market again for 3 years, has actually given our customers the ability to create that content at scale, but more importantly, at a fraction of the cost relative to paying outside agencies to produce the content. That is the competitor, by the way, from an automation point of view, which is software is lowering the cost of producing content from a large customer -- any customers, for that matter. Because historically, that type of work was done through agencies out house. Now that is where you control their own content, you need to continuously actually build it. Now there's also -- in terms of employee experience, there's also courses needed or content needed, I should say, where effectively, you need to buy sexual harassment courses, anti-money laundering courses and so on and so forth, which are mandatory from a compliance point of view. In that regard, how we control the content business is we are effectively simplifying it, the app store. Where we let the aggregators of content, whether it's OpenSesame, GO1, which have a library of 100,000 courses with Udemy, Coursera, Edflex. You get the whole libraries of thousands of publishers. We let them come through the door, and I take a beautiful rev share, which is higher than what Apple charges, for them to actually sell into my customer base of 4,000 enterprise customers.

And you're not producing a single element of content yourself [indiscernible] all that?

Correct. We will never get into the business of producing content. We'll let -- enable them and collect a beautiful rev share in the middle, which is all margin. Or we will provide our customers with capabilities in form of AI authoring where they need to create content continuously, and they utilize that module, which is AI authoring to build content at scale, distributed at scale to the organization.

Yes. Amazing. And the -- how should we think about sort of -- you've been -- you've had this AI product for 3 years. You've got the core element software. How do you think about like pricing and packaging and either opportunities there or opportunities to continue to sort of innovate and drive ACV growth. There's ACV growth from moving a market, but there's also an element of price and bundled offering.

That's right. And so first, Docebo, I would say from a pricing point of view, we don't really compete on price per se as much. We are -- we try to give our customers the best product and try to drive value in terms of -- and that ties into our pricing strategy, which is we -- our pricing is tied to a core bundle, which is what we solve for our customer based on what segment they are. So we have the -- what we call the commercial mid-market segment versus enterprise segment and of course, there's a price book for the government customers. And as you think about that price book, it's tied to core functionality bundle. And then as you solve the problem for the customer, so if you're doing customer education, very typical that you need e-commerce capabilities. Why? You need to charge your end user and you need to have a full on end-to-end integration to be able to take that dollar for the course you're giving them. So those e-commerce capabilities are what we call add-on capabilities, where the customers incrementally paying more than the bundle to the extent that they are doing customer education with us. So the idea here is that you have a core bundle which the customer utilizes to build the LMS. And depending on the use cases or content, for example, if they needed a library, we have add-ons where we will derive incremental value based on what the needs of the customers are and what outcomes they're trying to solve for in their organization. And so that's been pretty healthy for us. We've actually made a change at the start of this year in terms of our pricing structure. It's been very well received by our customers. It simplifies also the talk track in terms of driving value conversations rather than a la carte menu of items. And now the conversation is how do we solve your customer education use case versus trying to sell them in a la carte problem.

Yes, yes. Maybe we're in -- sort of 7 minutes left. I'd love your view on -- you're moving up market. You're pushing to get ready to enter the government market. You have the system integrator strategy of partnering and going to market through some of the big channel partners there. Would love to hear sort of like where do you see growth? What are the biggest kind of levers you're pulling? And a little bit about the opportunities there.

Yes, absolutely. I'd like to just put it in 4 or 5 pillars of growth. The beauty in terms of -- and I actually just forget -- forgot to answer your initial question, which I'll respond here is the beauty of our business, if you think about customer experience learning. The total addressable market is mostly greenfield there. Like just in the U.S., if you think about AWS doing the customer academy with us, that is a brand-new category that has been created in the last 5 years. Of course, it's 1 of my top 5 customers. But that is an addressable market where the question was build versus Docebo. It's a greenfield opportunity. There's no legacy incumbent that you're really competing with. We signed Google also in the last year or so, similar idea. We're helping organizations to do things they couldn't do in-house themselves at scale.

You're helping them sell their cloud products into the market?

GCP and Sales Mastery.

Yes.

That's right.

Okay. Okay.

And so if you take the first pillar of growth, that's if we maintain our market leadership position and customer experience, which just in the U.S. is close to $5.6 billion of spend that's coming in the next 4, 5 years and if I just keep my market leadership position in our space, I think there's enough for us to grow. That's pillar #1. And we clearly are the leaders in that space. Number two, we -- you talked about government, which is an important vertical for us today, 5% of our business comes from FED AND SLED customers, mostly in North America and the U.S. specifically. We have reinvested almost 3% -- 3% to 4% of our EBITDA last year to drive FedRAMP certification. So today, we are limited in participating in government segments where customers do not require FedRAMP certification. Once we unlock that FedRAMP certification, which -- where we've done a lot of work this year and hopefully, as we enter into 2025, we'll be able to get to that stage. That unlocks our ability to actually participate in large federal RFPs. And remember, there's only 1 or 2 players in that market. I'll go quick in the interest of time. But in that market, there's going to be a lot of interesting things that are happening from our perspective. Number one, legacy players that are on-prem solutions that are not sustainable and cost a incredible amount of money to the government. And with the dose that's going on, I would say, personally, that is an important avenue I'm sure that folks would look at where spend is not sustainable and it doesn't drive productivity gains because these are on-prem solutions that were built 20 years ago. Number two, there's only 200 companies, all SaaS roughly in all verticals that are in FedRAMP, works in this space. In our space, there's only 1 or 2 companies that have FedRAMP certification. And there are legacy players from our perspective. So we see an opportunity to disrupt that space once we get to FedRAMP sponsorship hopefully in the next year. Number three, in terms of our pillar, I would say we have 4,000 incredible customers. We launched a number of products and modules in the last quarter or 2. Our ability to expand those 4,000 customers is going to be a very important pillar going forward. And #4, I'll just simplify. This 1 is without getting too complicated is if you think about our SI strategy, it's also tied to going upmarket to the large enterprise. So folks like Deloitte and Accenture are an incredibly important system integrators for us. And roughly, the SIs drive close to 30% of our pipeline. Why they're important is as you move upmarket, not only we're using their support to influence deals, but where we need the manpower, the human capital to actually manage those over time, and that's where Deloitte and Accenture and other partners play an important role for us. And the move to upmarket also means is that when you have large SIs participate, they also bring you healthier deals, which take a slightly less time to close versus where you didn't have an influence in that. So the SI network also influences the pipeline, which directs how good that health of that pipeline is. And we certainly like that part of the business as we move upmarket. And so net-net, 1 point I'll make is -- what's interesting about Docebo is that still in the last 2 years, 70% of our business, net new ARR -- sorry, 70% of our net ARR is actually from net new customers which tells you that there's a pervasive demand for our solution across various horizontals. And it has been happening still in this macro environment in the last 3 years. That's an important data point because it tells you how pervasive the demand is. There's not only software companies that's onshoring that is happening that's creating a significant amount of challenges for organizations in terms of how do I move a workforce. Of course, in the past 2 years, it was eyes to EV. Now it's onshoring from a perspective of supply chain. We're certainly seeing those teams play out. The government sector will certainly have to invest. If they want to cut cost, I think software will be the enabler of that. And newer players like us which do it at scale and do it at the right price arguably in the government segment also will be important. So a lot of good avenues for us, it's a matter of execution.

Yes, it's super interesting and a lot of momentum in the market. You're right, in the last 24-month period where a lot of folks are slowing down. Maybe last question. We only have a minute left here. As you're driving growth and scaling the profitability is starting to come through -- or coming through more and faster and the cash flow is very real now. How do you think about sort of the margin expansion and allocation of capital over time?

Yes. Like I mean I would say this in the past, our 80% gross margin business, you -- it's not rocket science to get above 20% free cash flow. I prefer free cash flow as a measure than EBITDA because I think it's a more pure measure. But I think if you -- I think most of the folks that follow the company understand that 20% is just in our realm, it's just we're at 17% today. You can expect that will just drive the same execution operational excellence of managing some of the costs on the G&A side, flat as we've done in the last 8 quarters and you just get to 20-plus percent free cash flow just like that. But what 1 point I would make, just -- I know we're slightly over time -- is the next 2 years, at least for us, and I certainly talking to some of my peers, but for us, are going to have -- you're going to see margin expansion from companies like us and others as you think about AI automation that's actually permeating internally within the organization, not just in terms of products and modules that you're selling to customers. Of course, think about Tier 1, Tier 2 customer support. Think about product coding, R&D, QA. Think about how you build proposals. There is an incredible amount of automation that we certainly think we can achieve from an internal processes perspective, which effectively means that you're going to start seeing the next layer of margin expansion from efficiencies within our organization. What I'm trying to point to is that 20%, there's more -- there's quite a bit of more room from us -- for us to actually drive even more expansion from a margin point of view, just by being -- leaning into technology advancements in the next few months and quarters.

Amazing. Congrats on the continued success and a great conversation. Thank you.

Thanks for having me.