Docebo(DCBO)2023-08-10 21:42Financial Data and Key Metrics Changes - Total revenues for Q2 grew to $43.6 million, an increase of 25% from the prior year, exceeding the guided range of $42.9 million to $43.2 million [15] - Subscription revenues were $40.8 million, representing 94% of total revenue for the quarter and an increase of 28% from the prior year [15] - Annual recurring revenue was $172.9 million, an increase of 25% [15] - Adjusted EBITDA performance was $3.1 million for Q2, or 7% of revenue, above the guided range of 5.5% to 6.5% [17] - The company reported a net loss of $5.7 million for Q2, compared to a net loss of $2.1 million for Q2 2022 [17] - Gross profit margin improved by 70 basis points year-over-year to 81% of revenue [36] Business Line Data and Key Metrics Changes - The average contract value increased over 8% to $48,100 from around $44,500 at the end of Q2 2022 [27] - ACV for new customers in the quarter was about $61,000 compared to $50,000 in Q1 [27] - The commercial segment (SMB) experienced some churn due to cautious spending in the macro environment, but gross retention remained relatively flat [28][91] Market Data and Key Metrics Changes - Activities in the U.S. are beginning to pick up, while Europe remains flat [3] - The company is expanding its presence in the government vertical, with successful wins at municipal, provincial, and state levels [4] - The healthcare vertical saw notable wins, including a deal with the Royal College of Physicians and Surgeons of Canada [9] Company Strategy and Development Direction - The capital allocation strategy focuses on selective mergers and acquisitions and efficient return of capital to shareholders [5] - The company is working towards becoming FedRAMP compliant to expand its customer base to federal and state government customers [24] - The acquisition of Edugo aims to enhance capabilities in AI and learning automation [23] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing macroeconomic challenges but emphasized that learning solutions are a strategic necessity for customers [6] - The company expects subscription revenue to be 2 to 3 percentage points higher than overall company revenue in the next quarter [18] - Management expressed confidence in the enterprise segment's stabilization and the potential for growth in the government sector [22] Other Important Information - The company generated positive free cash flow of $7 million and earned $2.4 million in interest income [60] - The company completed two tuck-in acquisitions during the quarter [5] - R&D investments in Q2 were $8.8 million, or 20.2% of revenue, with expectations to increase to around 19% in the next quarter [37] Q&A Session Summary Question: What is the opportunity in the public sector? - Management highlighted the public sector as a resilient market with less competition and a significant opportunity for growth, especially as customers transition from legacy systems [46][49] Question: Are there any other one-time items affecting guidance? - Management confirmed that the large tech deal was a healthy 7-figure project and indicated that the pipeline includes other large deals, although timing remains uncertain [50][72] Question: How is the company addressing churn in the SMB space? - Management acknowledged some churn in the SMB market but noted that gross retention remained flat as the focus shifts to mid-market and enterprise customers [91] Question: What are the expectations for R&D as a percentage of revenue? - Management expects R&D to tick up in the short term due to investments in AI and compliance but anticipates stabilization at around 19% to 20% in the long term [106] Question: How is the company leveraging system integrators? - Management emphasized the importance of partnerships with system integrators to penetrate the enterprise market and enhance credibility in the public sector [124]