Good morning, everyone and welcome to Docebo Inc. Q4 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'd now like to turn the call over to Docebo's, Vice President of Investor Relations, 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 relating to forward-looking statements, please refer to Docebo's public filings which are available on SEDAR and EDGAR. During the call, we will reference certain non-IFRS financial measures.

Although we believe 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 U.S. dollars. Now, I'd like to turn the call over to Docebo's CEO, Claudio Erba..

first, great adjacent products and features, and second; innovative teams that fit the Docebo culture. In closing, I want to emphasize that we are very excited about the year ahead.

Our investments have built a strong foundation for Docebo and it is our disciplined execution that will enable us to remain a disrupter in the market for enterprise learning. Now, I would like to turn the call over to Alessio, who will give you an operational update..

Thank you, Claudio and good morning, everyone. Throughout 2022, Docebo executed effectively as we invested to support the future growth of our business in an environment shaped by economic headwinds and longer enterprise deal cycles. As Claudio noted, we saw the deal elongation trends carry into the fourth quarter, but it did not get worse.

In quarter four, our Company-wide Average Contract Value or ACV increased 10% to just over $46,000 from approximately $42,000 at the end of the fourth quarter of 2021. ACV for new customers in the quarter was approximately $53,400 compared to $41,700 in the previous quarter.

We signed 149 net new customers during the quarter, including a number of notable enterprise deals. In North America, enterprises continued to select Docebo for our ability to seamlessly support the multiple use cases. One of these customers was VMware, an enterprise cloud computing Company also well known for their performance and innovation.

They are using Docebo to support their customers and partner training. We also landed Haier U.S. Appliance Solutions; the company that acquired the appliances business from General Electric. They selected Docebo for multiple external and internal use cases, including customer and partner education sales enablement and onboarding.

In Canada, we won a major enterprise deal with a large entity within the Government of Quebec. This organization selected Docebo because of our ability to provide configurable learning solutions that are being tailored to multiple audiences that include external customer and internal employee training.

And finally Europe, we closed the deal with Agria, a pet healthcare insurance company. Agria chose Docebo to educate their 5 million plus customer base by integrating Docebo directly into their own insurance portal. This was a channel deal brought to us by our European partner, TicTac. This is a flagship deal for us in a number of ways.

It is the largest deal we have closed in the Nordic region, and is one of the largest Docebo flow deals being implemented in Europe today. Docebo Flow is a solution that brings online learning directly into any software, providing the learner the knowledge in their flow work.

What makes this implemention unique is that customer education is expected to increase insurance claims, a measurable economic benefit to Agria, while also resulting in more attractive premiums to the customers; a true win-win.

In terms of geographies, North America continues to be our largest and strongest market, with Europe and Asia continuing to scale into the investments, we have made in those regions. OEM partners delivered another solid quarter, led by Ceridian.

We continue to see good traction into the customer base, adding depth and quality to our pipeline, while expanding our reach into the enterprise space. As we move into the first half of 2023, we see a healthy level of demand and are focused on investing in areas that provides resiliency to grow our business in the current macroeconomic environment.

Let me frame out a couple of strategic initiatives that will enable this for 2023. First, we're focusing on the productivity and efficiency of our business development organization. And while doing this, we brought in leadership in senior operators with very valuable enterprise selling experience.

We expect these investments to pay off in 2023 and prepare us for a strong 2024. Second is the use of the channel partners, system integrators and partnerships to replicate the success we've had across the EMEA region.

Our channel partners have been effective in sourcing more deals at the local country level, where they have a better feel for the nuances of a country's culture and how to optimize the positioning of our solution. TicTac in Europe is a very good example of one such channel relationship.

Earlier this week, we announced our partnership with ELB learning, a company that focuses on bespoke learning development, and learning experiences for enterprises with strong presence in the Fortune 500. The combination of the two companies' core business is one of a impact for all customers aiming to implement the complex learning project.

The Decebo platform, combined with ELB learnings in innovative content development services, provides our customers with an end-to-end services and technology solution that is unique in the market. Although this partnership is still in its very early stages, we expect it to grow throughout the year.

In conclusion, I want to emphasize two reasons why we are excited about 2023. First, our market is large and ripe with greenfield opportunities, especially for external use cases, while we continue to build on our leadership position and product focus every day.

And second, we're making the strategic investments necessary in both innovation and systems, processes and people needed to continue to disrupt the enterprise learning market. With that, I would like to hand the call over to Sukaran..

Thank you, Alessio and good morning, everyone. For those interested, a detailed breakdown of our financial results for the three months and fiscal year ended December 31st, 2022 can be found in our press release, MD&A and financial statements, which are now available on our website and are also filed on SEDAR and EDGAR.

As reported, total revenue for the fourth quarter grew to $39.0 million, an increase of 31% from the prior year. Total revenue increased by 35% after adjusting for the impact of foreign exchange. Subscription revenues were $36.3 million, representing 93% of total revenue for the quarter.

Annual recurring revenue was $157.1 million, an increase of 36%, after adjusting for the foreign exchange impact from the strengthening of the U.S. dollar, which was about 2%. Customers using Docebo for external or hybrid training represented 65% of our total ARR, flat with Q3.

In 2022, we reported a net dollar retention rate of 109%, down from 113% in 2021. The decrease was primarily related to macroeconomic conditions that impacted expansion of the current customer base. However, gross retention actually improved year-over-year. We can attribute this improvement to a couple of key factors.

First, external use cases are tied to revenue-generating activities that are strategic in supporting core operations with key stakeholders such as customers, channel and supply chain partners. Second, we have an all-in-one solution that is designed to handle both internal and external use cases.

About 80% of our ARR is derived from customers using Docebo for two or more use cases where we become embedded in their tech stack as a core platform to their operations. Gross profit margin for the fourth quarter improved by approximately 100 basis points year-over-year to 81% of revenue.

This was in part driven by our ongoing work to optimize hosting architecture efficiency and higher subscription revenue. Total operating expenses for the fourth quarter increased to $31.5 million from $26.7 million for the prior year period. G&A as a percentage of revenue, declined to 19% for the fourth quarter compared to 21.2% for the third quarter.

Growth and scale are driving natural leverage in the G&A line, and I will speak to some of these 2023 initiatives later in my remarks. Sales and marketing expense decreased as a percentage of revenue to 39.8% from 42.0% for the fourth quarter.

The sequential reduction in expense reflects cost discipline and timing of certain marketing events in Q3 compared to Q4. R&D investments in the fourth quarter were $6.4 million or 16.4% of revenue and flat as a percentage of sales compared to the third quarter. As a reminder, our core R&D operations are based in Europe. During Q4, the strong U.S.

dollar resulted in a 1 percentage point benefit as a percentage of revenue to the R&D cost structure. Moving on from the expense line, we are extremely pleased to report a positive adjusted EBITDA of $2.3 million for the fourth quarter of 2022, compared to an adjusted EBITDA of $0.6 million for the third quarter.

This equates to an adjusted EBITDA margin of 6% for the fourth quarter. We are deeply committed to driving performance in the areas we can control and expect to exit Q4 2023 with a low double-digit adjusted EBITDA margin.

We reported net income of $1.6 million for the fourth quarter of 2022, compared to $10.3 million in net income for the third quarter. Adjusted net income for the fourth quarter of $3.4 million increased sequentially compared to $1.5 million for the third quarter.

We generated positive free cash flow for the third consecutive quarter of $2 million which equated to 5% of revenue. At the end of Q4, we held cash and cash equivalents of $216 million. Share-based compensation accounted for a modest 2.8% of Q4 revenue, flat to Q3 quarter.

Adjusting for the impact of share-based compensation, free cash flow would have been 2.2%. We are acutely aware of the impact of equity compensation on cash and dilution and we'll continue to be responsible stewards to ensure that equity grants are selectively given to high performers that align with our long-term objectives.

Starting with the reporting of our Q4 results, we're going to begin providing quarterly guidance. So, let's turn to our Q1 2023 outlook. We expect total revenues to range between $41.3 million to $41.6 million, representing 29% growth at the midpoint. Adjusting for foreign exchange impact, this represents 32% growth.

We expect gross margin to range between 80% and 81%. We expect adjusted EBITDA margin to range between 4% and 5%. Our guidance reflects two noteworthy points.

There are two fewer days in the first quarter compared to the prior quarter impacting subscription revenue by $800,000, and we are impacted by the timing of payroll taxes, which are higher in H1 of each fiscal year. Before opening the call to questions, I want to emphasize a few points.

Our top priority is still growth, and we have set up Docebo to achieve this while delivering a balanced rule of 40 performance over the long term. Operationally, our focus is on improving profitability by controlling what we can. This starts with aligning our workforce to scale with our profitable growth strategy.

We have created a high-performance environment with a relatively flat structure that reduces middle management to accelerate decision making and innovation. One of the key drivers of efficiency is our investments in technology. Docebo utilizes its own platform and leading partner vendors to automate its processes and systems.

One example is the major sales force CRM system upgrade implemented in Q1 2023 to automate a large portion of our quote-to-cash process and to provide greater visibility to our organization in one place.

This in-effect enables smart and faster decision-making and we have several similar initiatives planned for 2023 that will drive even greater operating leverage. In addition, we have optimized our real estate portfolio to better serve our hybrid employee strategy by consolidating leases and partnering with WeWork.

In conclusion, I would like to highlight the fact that as we approach the end of Q4 of this year, we are confident that we can deliver low double-digit EBITDA margin levels while maintaining investments to drive future profitable growth.

That concludes my prepared remarks, I'd like to turn it over to the operator now to take some questions from the analysts.

Operator?.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Robert Young, Canaccord Genuity. Please go ahead..

Great. Thanks, good morning. Thanks a lot for the Q1 guidance.

Can you just give us a sense into how you are constructing that guidance given it's new? Is that based on current deals or are you projecting what will close by the end of Q1? And then the EBITDA margins are down a little bit quarter-over-quarter, I don't know if that's FX, maybe just give us a sense of how that's constructed?.

Yes. I'll take that Rob. Good morning. Sukaran here.

In terms of how we construct the guidance, I'll speak to revenue first, when you just think about revenue, it's pretty straightforward in our world, take the ARR for the prior quarter, divide that by 365 -- months -- the number of days in the quarter, it gives you kind of your base for subscription revenue.

A good chunk, I would say, a good 70% of our deals closed in the latter part of the quarter, meaning the last month, which is typical for enterprise companies. And so we factor in a very minimal amount of revenue flowing in from deals in quarter into revenue.

And then from a professional services perspective, it really is a factor of onboarding on new deals as well as some custom SOWs that we do. So you would say that generally, you can look at it from a perspective of what the ARR in the prior quarter, which will flow into the following quarter from a PS perspective.

In terms of your question around expense, the EBITDA margin, it is really straightforward, you have two factors I called out in the guidance to.

One is, there is two less days in Q1 compared to the prior quarter, which almost is close to $1 million or $800,000 in revenue, that less compared to the prior quarter, just by the number of days, because of February.

And then secondly, Rob, if you know, that in North America specifically, the first half of the year, you have higher social payroll taxes. And so some of that gets to you at the front end of the year, but you kind of normalize it as you go through the year. So, apples-to-apples, it will be a slight improvement, if you didn't have these two factors..

Okay, great. Thanks for that color. My second question, Claudio, you gave a little bit of color on your efforts in Generative AI in the prepared remarks. That's a rapidly changing, exciting and evolving space clearly. For those investors who are tracking your AI road map, you already, I think you said that you had record attach on Shape.

I'm not sure if I heard that right. But if you could tell us or give us a sneak peek on where Docebo is heading on this Generative AI road map, that'd be really helpful. And I'll pass the line..

Yes, Rob. Thank you for the question, because this is a funny question for me, you know, I am a product guy. So, actually, we have invested initially in Docebo Shape at least, we started the R&D four years ago where generative AI was not a thing. And the first papers in generative AI were published in the probably 2020, 2019.

So, we have deployed many algorithms in Docebo. And I think that you can categorize the AI that will have an impact in the organization in two main categories. One is increase the automation, means AI does the work of the human, and give -- the algorithm we have in place are keyword tagging, skills tagging, transcripts, translations.

And this is an improvement on productivity which will benefit and provide direct ROI to the companies -- to our customers. There is another segment, which is very -- which is way more disruptive which is content generation where generative AI plays a role.

Content generation is not only you ask a question and ChatGPT or whatever other algorithm create training for you, but allows you to create like, modify like, other simulation into this slide. Like asking provide direct feedback to AI and the AI will provide a direct loop back feedback to you. And this is where the industry is going.

What we have discovered is that the ChatGPT is super powerful, especially in certain areas, like it provides very reliable outcomes when the text they are working on is very low quality. Our algorithm, for example, the keyword tagging now perform better than ChatGPT when the text is sophisticated and longer.

That said, we think that ingesting ChatGPT and others like we are working also having some fun with DALL E which is the Image generation of OpenAI will increase the potential of Docebo Shape, not all in Docebo Shape. We are already working on some other initiatives that are specific for some use case.

And I don't want a spoiler, but sales enablement in some area we are having fun making experiments and onboarding is another area. Yesterday we was joking with Alessio that if we build an AI, that recognize an accent, we will feel the problem of many people not pronouncing correctly, Docebo for example.

That said, I mean when I say experiment, it's not that we are doing something that will go live in three years. These kind of technologies can go in an alpha or MVP stage in six months. We have a very clear idea where to implement additional AI system.

Another point Rob, it's important that to understand and understand that we are in a very early stage of adoption in the world of those technologies. That -- those technologies are not plug and play. I mean, they require -- I mean we have for example a great experience on deploying these on scale, serving million users.

I mean, these require a knowledge that you -- that companies that don't have deployed yet, AI inside their software require years to deploy. Because, I mean, the scalability means auto scaling means, you create an algorithm, and those algorithm need to parse billion or gazillion mega bytes of data. So, it's not a simple job.

And there are way other elements that we will be happy to discuss during our webinar next week..

Thanks. I look forward to the webinar..

Thank you. The next question comes from Josh Baer of Morgan Stanley. Please go ahead..

Great. Thank you for the question. You mentioned that the elongating deal trends continued in Q4, but did not get worse from Q3. Just wondering how those trends have gone into Q1, now that we're almost done the quarter sort of the same stabilization there or better or worse. Thanks..

Good morning. Alessio speaking. We haven't seen material changes in those trends.

The one thing that I'd note is, we've continued and frankly doubled on our efforts in the generation and strengthening our enterprise pipeline quantity and then quality of execution, where we are focused constantly in order to hedge against the macro that as you explained and shared, tends to drag cycles is getting really good at outlining value.

The one thing we're focused on is being really good industrially, methodically to explain that Docebo is not a nice to have. Docebo saves money and makes money to companies and we do have examples of how that happens across our internal adoption of use cases of our customers and external use cases.

So, the answer to your question is, no specific changes in that trend, a growth in enterprise pipeline and a focus on winning the business of enterprise customers in particular by getting really good at value engineering and outlining value..

That's really helpful. Follow-up is on a point that you brought up about nice to have versus must have, and I think that dynamic is reflected in the comment that you made that gross retention rates actually improved this year.

Just wondering if, like if that piece of the results for this year was a surprise to you or any other context for an actual improvement in gross retention in a really tough macro? Thank you..

Yes, I can jump in first and then -- sorry, Ale, go ahead..

Please go ahead, Sukaran. I may add something if you don't address it. But please carry on..

Yes. So Josh, you picked up nicely.

I think from a -- you know, the important factor as you think about gross retention improving year-over-year is reflecting items that we've talked about earlier, which is a lot of majority of our customers, 65% of our customer base we are supporting them on external and hybrid use cases, 80% of our customers use us for two or more use cases.

The more problems we solve for our customers, the more we are embedded in their core operations generating revenue, protecting revenue whether it's customer education, partner supplier education etc., or we are also enhancing the employee workforce from a compliance professional development perspective.

So, when you have an all-in-one solution like Docebo which is embedded in multiple departments, multiple stakeholders and in multiple tech stacks within that same enterprise company, this is a much, much stickier solution that is strategic to an organization.

And these companies take significant amount of time and thoughts on how they want to run those learning programs across the organization. So, that is a reflection of what you're seeing in terms of gross retention from our perspective..

Great. Thank you..

Sukaran, I was going to add two things, just to wrap on this. Number one, the concept of get advantage of being an horizontal player that edges against any particular one industry, and we are reaping the benefits of that positioning in the market.

The other thing that I was again mentioning in the topic of value and on the topic of not being a nice to have, and the follow-on on gross retention. You know, if you think about a couple of examples, they're all public on our website.

But I think it's important to kind of resurface them, companies in the 4,000, 5,000 employees stage like Det-Tronics, they reported that since they implemented us, they cut down employee churn by about 40%. Now if you run the math of that result, it's significant for a company of that size.

If you think about Zoom, who according to the public data, employs more than 200 CSM reports saving hundreds of hours per year per CSM, that -- those are real topline savings.

Decebo, where our data is very known to us, we have in excess of $1.5 million in savings in support costs alone, because we've implemented our software at the university, and we deflect our implementation efforts to reduce them by more than 15% and save 20% of CSM time by using our software on the academy and university side.

So, the area where we have to get really good at and we are in the journey of it, is being able to recognize that we factor the unit economics of all the companies that we work with, and we deliver true economic value and return.

And, we are in the journey of really creating an engine that not only is able to implement the product, but also can explain and market the advantages of it..

Thank you. The next question comes from Stephanie Price, CIBC. Please go ahead..

Hi, good morning. This is Scott Fletcher on for Stephanie Price. I wanted to ask a question over just the pace of margin improvements. You talked about ending the year at a double-digit margin.

Is that -- should we expect sort of a consistent increase from the sort of 4% to 5% in Q1 over the course of the year?.

Yes, good morning, Sukaran here. I would say the way to think about, I mean, the way to think about how these trajectory has, so, if you look at the past year as well, the biggest improvement you would have seen is coming of course from G&A line. That's something that we should be delivering and we will continue to deliver.

If you look at a company like us, and as it scales, you should be dropping that closer to lower double-digits, where we are today at 19% or much lower maybe by 8% or 9%.

Now, I'm not saying that is going to happen this year in its own right, but on G&A, a company on my size or scale will be close to 10%, 12% G&A margin over our -- let's just say medium to long term. So there's going to be that. LM is going to be the biggest area from where, which you're going to get leverage coming in from.

As well as, as you've seen, small incremental improvements, both in our COGS line where we've done an incredible amount of work in our hosting architecture, so our gross profit, gross margin has improved.

Even that 0.51% you're seeing that there, as you look through sales and marketing and throughout this year, you will see some efficiencies come through in that element too. But, all of that whilst we are focused on growth.

And as growth continues to move forward, and we did -- continue to drive discipline in G&A, as well as some of the other elements, you can kind of drive the math pretty quickly to see that we'll get to low-double digits as we exit 2023..

Okay, thanks. And then I wanted to ask on the partner piece of the business, obviously had a nice one which you announced in the quarter.

Can you sort of speak to what is driving that sort of improvement in the partner experience? Is it more just them getting more comfortable selling your product or is there a different strategy or approach that you sort of work with them to take to help improve the performance?.

We are maturing -- Hello, it's Alessio, speaking. We are maturing our overall posture and vision of our partner business well beyond OEM that remains a critical area of focus for us in order to continue to win the businesses of the likes of Ceridian and MHR. And we're making very significant process in that area with the continuously growing pipeline.

With that said, OEM is not anymore, the sole area of focus. We believe that in an environment in which creating demand becomes more and more costly, there are different avenues to optimize demand creation in a more efficient way, and to create, if you will, pipeline in ways that are partner-friendly.

We have announced a partnership with a premier player in the content world called ELB, formerly known as eLearning Brothers, you may have noticed the PR about it.

And this is just an example of our efforts to partner with companies that are adjacent to our capabilities, adjacent means that they may complement our capability strategically or they may be a software technologies as there are in adjacent spaces.

This can be rewards products, coaching platforms, LXPs, talent mobility platforms, customer success platforms. We're extremely active on all fronts, because we believe that when companies share common audiences’ partner, the flywheel that we can generate together is becomes very interesting.

And finally, I would say partners are not only about demand generation, but they're also about implementation capabilities. In the enterprise segment, we understand that in hybrid model of implementation, adding through consultative capabilities is necessary.

And so we're strengthening our ability to not only be very good at implementing complex projects directly, but also really leverage some of the best companies in the world in value-added services..

And Ale, I will add something about this integration ecosystem because OEM partnership product integration, it's all part of a big network of ecosystem, and also adding training capabilities to other software like I have seen that our prototype of Docebo for Microsoft team, these attach the software to the enterprise software stack and enterprise ecosystem where people can add, train inside other software.

So, I mean the OEM is one angle. The ISV and partnership is another. The integration with the software it's also another part..

Great. That's really helpful color. Thank you..

Thank you. The next question comes from Daniel Chan of TD. Please go ahead..

Thanks. Good morning. So, ACV expanded nicely. Just wondered if you could provide any color on what drove that expansion. I think you mentioned that new customers came in much higher than the average ACV.

Did existing customer expansion go, and high ACVs is a lot of that coming from more seats or customers taking on more product?.

I'll start that, Sukaran here. Good morning, Dan. I would say from an ACV perspective, it's a mix of items you would think.

And in terms of the ACV number that were referred to the fact that new logos enterprise contributing to higher deals this quarter as expected drove some of that expansion in some number of the deals that we talked about also in the enterprise space, also drove some of that higher ACV.

Within the in-quarter ACV that I also gave in my prepared remarks, I think Alessio gave in his prepared remarks, that is more so driven by that's because that only includes new logos and cross-sells. So that is primarily driven by enterprises that are larger in size.

And in terms of color I'm sure Alessio would give some color, but I think that, that kind of speaks to the fact that we saw some strength on the back of Q4 in the enterprise segment that helps lift that number.

And as you know, the mix between sales and -- sorry, the mix between SMB or what we call commercial, major and enterprise can drive that number up or down, but the more enterprises you have in a quarter, the higher that AC will be. Ale, I don't know if you want to add to that..

Yes.

Agreed on the general sense that it's a mix of a few factors alongside the fact that quarter four usually lands with more enterprise impact, and I'd say also that given the comments made before as our enterprise pipeline continues to grow, we certainly look forward to continue to perform well in terms of ACV averages, as we land more and more enterprise deals in the future..

Yes. And Ale, there is another point, I mean, we now have a lot of large enterprise deals in the pipeline, the tariff leaping from one quarter to another.

So, maybe in the future, we will land more enterprise deal together that will create a spike in the ACV and then we will see these ACV going back because you know these macroeconomic downturn is not killing deals, it's just delaying deals. But the pipeline inflow continues.

So there is a sedimentation of large enterprise deals that are still healthy in the pipeline, but did not happen, yes..

That's very helpful. Thank you so much for that. And then maybe just any more color on the pipeline, you talked about it growing any metrics you can provide around that? You also talked about 65%, using it for external 80% coming in with two or more use cases.

When you look at the pipeline, would you say that the customers in there are actually using it -- using your -- seeing in your current customer base?.

I'd say the following, that we continue to see a very healthy mix of companies that are looking to solve a mix between what we refer to as internal training and learning issues, as opposed to external and external impact issues, right? So there's a healthy mix in terms of the use cases in the pipeline.

One thing that I'd like to point out is our efforts of focusing on solutions and marketing on solutions, meaning the use cases have begun not too long ago, we are extremely now focused on a joint product management and product marketing function that allows us to tell better stories of how we solve against various problems.

We're not necessarily focused on trying and winning the business of every function in the company, where we -- when we land them. We have said this over and over. We'd rather solve the one problem in time and then create fidelity in the account and grow them over time. So, that's our approach right now..

Thank you..

Thank you. The next question comes from Martin Toner of ATB Capital Markets. Please go ahead..

Thanks, everyone, and congrats on a good quarter. Most of my questions have been answered, but I think it might be useful to give you guys a chance to reiterate conservative nature of how you build the Q1 guide.

Can you repeat the -- what is in the guide for sort of like the rest of the quarter from here? You mentioned minimal deals flowing into revenue in the remaining part of the quarter..

Yes. Martin I'll kind of reiterate that. So when you think about forecasting revenue for a quarter, your starting point is always the prior quarter's ending ARR.

And so, from a subscription perspective -- subscription revenue perspective, you're not at a minimal as saying, what's my ARR at start of the quarter divided by the number of days in the quarter multiplied by the days -- divided by 365, sorry, and multiplied by the number of days in the quarter.

That's -- it gives you a baseline for your subscription revenue. In terms of in-quarter deals, as you know, a large part of our deals are enterprise and they close towards the latter part of the quarter, because our enterprise buyers are also smart in terms of when they procure it and align their budgets, etc.

So you should expect a good portion of our ARR closes within the quarter towards the end, with enterprise being the heavy lift there.

And so, therefore, give or take, close to 70% of our deals will -- if they are signed within the last month of the quarter, you don't necessarily see a benefit to the revenue until the following quarter, because you take that ratably over the course of the contract.

And then you add PS revenue, which I talked about earlier when Rob asked the question, which is a by factor of similar to the last quarter, if that ARR is let's just call it extra $10 million, if you generate X dollars of PS revenue, that's what we take into the quarter, because the PS revenue is split, give or take between three to six months.

Based on the onboarding packages we sell to our customer, certain customers have slightly higher implementation period, if it's a major enterprise deal. So, just adding those two will give you your revenue for the quarter.

But in a simple nutshell, subscription revenue is just pretty much what you have in the prior quarter with some small incremental flowing in the quarter and then PS revenue is a flat three-to-six-month projection that we do..

Perfect. Thanks so much.

Any thoughts on capital allocation, going forward?.

Yes, I'll start with this. I'm sure Claudio will have some thoughts on it. I think as you think about our cash, we've got $260 million in the balance sheet right now. We are -- we talked about the fact that on an M&A front, we continue to look at opportunities.

This year will be an interesting year for us, as we look at great products modules and teams that can support our organic engine. And so you should expect that we are at least eyes much more wide opened than we were before, as we look into 2023.

And there is certainly some interesting technologies that I'm sure Claudio, if you want to jump in and give a perspective on?.

Yes. We do have, and it's not only AI-related, a good thesis on how to improve our product in order to provide better value to our customers. Mainly, actually we are focusing on three main use cases. I mean we're prioritizing three main use cases.

Space enablement, customer and partner education that means external training and we are having a good feedback from the market in term of onboarding which sounds like a paradox, because people are laying off employees and stuff like that, but there is a good, good interest on employee onboarding.

So, our idea is to explore the opportunity to do tuck-in M&A, to add functionalities, features, new training opportunities, new value to our customers in those three particular use cases.

That said, there are many other use cases, which are very interesting, well performing in Decebo, paradoxically compliant training that is very -- you know, there is the first -- the first use case that we were working on in 2005, when I founded the Company is still hot.

So, I mean we are exploring different opportunities, but all those opportunities will be tied to offer additional new modern learning experiences to our customer. We don't want to become a dinosaur. So we need to invest and continue to innovate..

That's great. Thanks so much, Claudio. Last one from me.

How confident are you that Europe will be a strong contributor to revenue growth for 2023?.

We -- I'm so sorry, we couldn't hear the -- we couldn't hear the question on the side..

I'll try one more time.

How confident are you that Europe will be a strong contributor to revenue growth in 2023?.

Thank you for the question. Yes, sure. On Europe, we actually have a pretty high degree of confidence on the basis of the fact that our teams have been staffing up. We have been ramping leadership, and we've seen very good results coming from the growing regions.

As you may recall, our newest team is the one in the DAC region, and we're seeing very encouraging signs on the demand and execution side, both. The France and Benelux region had a very, a very positive uptick in our demand, and in our pipeline.

And we've signed some significant large deals in Europe, which historically large deals were in the majority in North America, so now the sign that we continue to see a large enterprise deals happening in Europe also allow us and give us the position in the region to continue to bear the fruits of that segment or the enterprise segment.

Finally, I would say that in Europe, we have a very strong channel play that we've invested in for the past two years. We do have partners that we mentioned in the script like TicTac and others that continue to give us the benefit of getting deep in the dynamics of each and every country. And so, we're leveraging that a lot.

And they are part of the success we're having, even with these large enterprise deals. So the level of confidence is high. The trend of performance is very good, and we continue to invest and manage performance very tightly..

Also U.K. is holding up well..

Yes, yes..

Thank you. [Operator Instructions] The next question comes from Suthan Sukumar of Stifel. Please, go ahead..

Good morning, gents. And congrats on the strong Q4. It's good to see strong customer win activity despite what's going on in the macro.

I was wondering if you could talk a little bit about what you're hearing from customers today with respect to the new wins, that you've secured and the expansion opportunities with existing customers, especially in the latter, it was a little softer this past year.

You touched on vendor consolidation and the theme in the past, just curious if there's been any changes there?.

Yes, sure.

There is -- the trends we're seeing are consistent on one side with some macro aspects, the aspect of consolidation that you just mentioned, is a frequent one, meaning companies that are trying to reduce the complexity of their learning, their economy and trying to centralize their learning operations with less platforms in a more cost-efficient, but also more productive environment.

And this is why we more and more frequently engage with CIOs and CFOs, as opposed to what perhaps was happening years ago.

On the other end, and other trend we're seeing that continues to be material is Decebo is more and more recognized as a leader in training that supports not only internal LMV teams, we have a very significant, I would call them a go-to-market projects with very large companies, whose goal is to maximize the return from the marketing in a way or another of their knowledge and training capability, whether it's B2B2C scenarios or B2B2B scenarios, there is a lot of variety there.

And finally, even those institutions that have an internal only problem, where historically Decebo I would say gave a lot of credit to the more institutional players in our industry, we are seeing a trend very strong in financial services and automotive, where these mega companies are frankly bothered by using for many years out of date systems and are looking for new, fresher interfaces, they want to increase employee engagement.

And to do so, they opt for modern learning platforms. And so we're having conversations with, again the very large fortunes in banking, in insurance, in automotive and just for internal projects, so it's a mix of these trends in particular that we're seeing in the demand..

And Suthan, I'll just add….

That's pretty color..

And Suthan, I'll just quickly add that if you just take a step back, what's important to remember, even when you -- when Alessio talked in his prepared remarks about that deal from Agria, it's a good reminder of the external use case when we talk about the fact that anything that touches beyond the employee, which is what we call external use case, customer education being one example, Agria, as you noted, is trying to train all of that pet insurance customers in Europe, over 8 million using our platform.

That's a much bigger total addressable market compared to just the employee base that Agria would have. So when you think about the market opportunity when we spoke about the time, even just in the U.S. was $8.6 billion, two-thirds of that was external learner.

This is really where it shows you why that greenfield opportunity out of that two-thirds of time, where we can target certain external use cases that drive higher -- clear ROI and value for the customer, but a much higher total addressable market than just the internal employee too..

Appreciate the color, guys. The platform for me is -- the that's an interesting win with the Government of Quebec.

Can you talk a little bit about the public sector as an end market just kind of curious, how much does that account for in terms of business mix today? And what is the opportunity we see with the public sector longer term?.

Yes. Very good question. And let me share a couple of thoughts on that. So, as of right now, Docebo, as I would say, any material sub 5%, total business across government for state, local education what -- we could refer to government type that doesn't include the necessarily those big federal agencies.

We believe this is a market that is very interesting. And winning the deals like the one of the Government of Quebec is just proof that our solution meets the needs of these organizations.

We have, and are actively doing a lot of research in the overall government space that spans from flat through federal, and are in the discovery phase of the opportunity and the cost, and our initial findings are that, this is very interesting for us. But we remain extremely focused on what we do.

And when and if the time is right, we will be sharing updates as to further investments in that area. But at this point, we remain extremely opportunistic. We catch and bid all those RFPs that we have the requirements to win. In terms of the future, mid-term future, yes, we believe this is a market that can yield a lot of success for us.

But today, we're not prepared to say more than that..

Great. Thank you for taking my questions. I'll pass the line..

Thank you. The next question comes from Christian Sgro of Eight Capital. Please go ahead..

Hi, good morning. I wanted to ask a question about winning new enterprise business and the use cases that are sold at the time of deal signing.

On average, is it common to win a new enterprise customer with one, two or three use cases in place? What trends are you seeing with the number of use cases that they're taking on at the onset?.

Sure. It is common to see an enterprise come in with a very large amount of users for a single use case. It is -- that is not uncommon.

What we see though is that as we further conversations and as we get more intimate and grow frankly, our -- the level of trust and respect in that account, the people that we work with, that are humans, as they -- as they get to understand us, our Company, our product better and they get deeper, they immediately connect our capabilities to what they do in other functions.

And it's very common that our process, that our methodology leads them to introducing us to other functions in that organization. Again this is a mega large company that may have in short order initiatives of looking at additional vendors.

So, I would say the entry point is usually one unit, but it's very common that once we do already at the say time zero net new logo, that doesn't show in the conversation. Now that in itself, of course is a really good dynamic.

Where we are cautious is ensuring that this is not a calls for deal elongation because as you may infer, that causes various buyers who want to add more depths and analysis of requirements. And it is not uncommon to go through a deal be done, almost ready to sign and now a new group with additional a 100 requirements comes to the table.

And so we navigate that by trying to be methodical and again have a methodology to close the deal and then continue to grow it. But, at the root of elongation of deal cycles in Enterprise, this multi-audience dynamic is also a factor. Again, it's a positive factor, because we see the deal value, the deal ARR grow.

But at the same time, it can be a cause of push. So, I don't know if that answers your question. But that's kind of what we see..

Ale, let me make a joke. I mean, we have such a great products that when we are in a negotiation stage, department goes and ask other department to join the deal, which is because they say it was great, but on the other side these elongate the sales cycle. So, we don't like when the customer gets too excited about us at the day one..

Yes. Mixed feelings about it..

Yes..

That's a good problem to have. And for my follow-on, on the same vein, maybe you can give an example or if there is a trend you could speak to it, but what's the most common first use case to see winning new business and then what becomes the most natural up-sell of the next conversation that you had.

I'm curious to see where it starts and where it goes quickly, what makes sense for your team?.

We started analyzing this. And currently, I don't have a definitive one or the other. We see a mix of entry points in the external use cases with folks implementing customer related or partner related projects.

But then, eventually open up on the flip side into internal initiatives of sales mastery or onboarding and learning and development professional education, and the flip side is also very true. Now, I don't want to get in the weeds too much. This dynamic is multifactorial. And changes can change depending on the industry and the sector.

So we see certain dynamics and patterns in say technology and services and different patterns in manufacturing and pharmaceutical and others. So, it's again pretty complex to the whole spectrum of entry point and how it evolves over time. Depends on the business and the industry of the Company itself.

But again, we like the fact that it varies because it gives us a very good hedging against a one specific industry behavior..

Thank you very much, Alessio, that's all very helpful. Thanks for taking my questions this morning..

Thank you so much..

Thank you. There are no further questions at this time, I will turn the call over to Claudio Erba for closing remarks..

Thanks again for listening to our Q4 call. We look forward to having you join us on the generative AI and ChatGPT webinar on March 14, registration information is available on our IR website docebo.inc. Thank you so much..

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines..